1. Which of the following is the primary purpose of accounting?
A. To establish a business.
B. To identify, record, and communicate business transactions.
C. To earn a large profit.
D. To reduce taxes owed for the business.
E. To establish credit for a company.
2. Why are ethics crucial to accounting?
A. Ethical behavior creates the most profit for the business.
B. Ethics are a tool which help the accountants balance the accounting equation.
C. For accounting information to be useful, it must be trusted and therefore the result of ethical decisions.
D. Ethics are important to consider when applying GAAP but do not apply to international accounting issues.
E. Ethics are a way to compute revenues and expenses, but they do not apply to assets, liabilities, and owners' equity.
3. The difference between a company's assets and its liabilities is:
A. Net income
B. Expense
C. Equity
D. Revenue
E. Net loss
4. Photometer Company paid off $30,000 of its accounts payable in cash. What would be the effects of this transaction on the accounting equation?
A. Assets, $30,000 increase; liabilities, no effect; equity, $30,000 increase.
B. Assets, $30,000 decrease; liabilities, $30,000 decrease; equity, no effect.
C. Assets, $30,000 decrease; liabilities, $30,000 increase; equity, no effect.
D. Assets, no effect; liabilities, $30,000 decrease; equity, $30,000 increase.
E. Assets, $30,000 decrease; liabilities, no effect; equity $30,000 decrease.
5. If net income for the period was $134,250, dividends distributed were $76,530 and ending retained earnings was $862,520, what was the beginning retained earnings for the period?
A. $1,073,300
B. $651,740
C. $804,800
D. $920,240
E. $728,270
6. Which of the following list of events properly reflects the early steps taken in the accounting process?
A. Record relevant transactions, post journal information to ledger accounts, analyze each transaction, and prepare and analyze the trial balance.
B. Post journal information to ledger accounts, analyze each transaction, post journal information to ledger accounts, and prepare and analyze the trial balance.
C. Prepare and analyze the trial balance, analyze each transaction, post journal information to ledger accounts, record relevant transactions.
D. Analyze each transaction, post journal information to ledger accounts, record relevant transactions, and prepare and analyze the trial balance.
E. Analyze each transaction, record relevant transactions, post journal information to ledger accounts, and prepare and analyze the trial balance.
7. A sales invoice:
A. Is a source document.
B. Is not needed by buyers.
C. Gives rise to an entry in the accounting process.
D. Is not necessary in accounting.
8. Rocky Industries received its telephone bill in the amount of $300 and immediately paid it. Rocky's journal entry to record this transaction will include a:
A. Debit to Telephone Expense for $300.
B. Credit to Accounts Payable for $300.
C. Debit to Cash for $300.
D. Credit to Telephone Expense for $300.
E. Debit to Accounts Payable for $300.
9. On April 30, Holden Company had an Accounts Receivable balance of $18,000. During the month of May, total credits to Accounts Receivable were $52,000 from customer payments. The May 31 Accounts Receivable balance was $13,000. What was the amount of credit sales during May?
A. $5,000
B. $47,000
C. $52,000
D. $57,000
E. $32,000
10. Which of the following is the appropriate journal entry if a company purchases equipment costing $100,000 by paying cash of $10,000 and the rest on a note.
A. Debit to Cash, debit to Equipment, credit to Notes Payable.
B. No entry should be made.
C. Debit to Equipment, credit to Notes Payable, credit to Cash.
D. Debit to Cash, debit to Notes Payable, credit to Equipment.
E. Debit to Equipment, debit to Notes Payable, credit to Cash.
11. Western Company has an annual reporting period that runs from July 1 through June 30. Based on this information, which of the following is a true statement?
A. Western probably has little seasonal variation in their sales.
B. Western has violated the time period principle.
C. Western must prepare financial statements as of December 31 each year.
D. Western has adopted a fiscal year.
E. Western does not have an accountant.
12. The accounting principle that requires revenue to be reported when earned is the:
A. Matching principle
B. Revenue recognition principle
C. Time period principle
D. Accrual reporting principle
E. Going-concern principle
13. On June 30, 2014, Apricot Co. paid $5,000 cash for management services to be performed over a two-year period. Apricot follows a policy of recording all prepaid expenses in asset accounts at the time of cash payment. On June 30, 2014 Apricot should record:
A. A credit to an expense for $5,000.
B. A debit to an expense for $5,000.
C. A credit to a prepaid expense for $5,000.
D. A debit to a prepaid expense for $5,000.
E. A debit to Cash for $5,000.
14. Prior to recording adjusting entries, the Office Supplies account had a $359 debit balance. A physical count of the supplies showed $105 of unused supplies available. The required adjusting entry is:
A. Debit Office Supplies $105 and credit Office Supplies Expense $105.
B. Debit Office Supplies Expense $105 and credit Office Supplies $105.
C. Debit Office Supplies Expense $254 and credit Office Supplies $254.
D. Debit Office Supplies $254 and credit Office Supplies Expense $254.
E. Debit Office Supplies $105 and credit Supplies Expense $254.
15. On January 1 a company purchased a five-year insurance policy for $1,800 with coverage starting immediately. If the purchase was recorded in the Prepaid Insurance account and the company records adjustments only at year-end, the adjusting entry at the end of the first year is:
A. Debit Prepaid Insurance, $1,800; credit Cash, $1,800.
B. Debit Prepaid Insurance, $1,440; credit Insurance Expense, $1,440.
C. Debit Prepaid Insurance, $360; credit Insurance Expense, $360.
D. Debit Insurance Expense, $360; credit Prepaid Insurance, $360.
E. Debit Insurance Expense, $360; credit Prepaid Insurance, $1,440
16. From the information given, prepare a November income statement. On November 1 of the current year, Lois Bell began Lois Bell, Interior Design as a corporation with an initial investment of $50,000 cash. On November 30 her records showed the following (alphabetically arranged) selected accounts and amounts:
|
Accounts payable
|
$12,000
|
Office furnishings
|
$40,000
|
|
Accounts receivable
|
23,000
|
Dividends
|
6,000
|
|
Cash
|
17,200
|
Rent expense
|
3,600
|
|
Fees earned
|
30,000
|
Salaries expense
|
6,200
|
|
Notes payable
|
4,250
|
Telephone expense
|
250
|
17. Based on the following trial balance for Sal's Beauty Shop, prepare an income statement, statement of retained earnings and a balance sheet. Sal made no additional investments in the company during the year.
|
SAL'S BEAUTY SHOP Trial Balance December 31
|
|
Cash
|
$ 6,500
|
|
|
Accounts receivable
|
475
|
|
|
Beauty supplies
|
2,500
|
|
|
Beauty shop equipment
|
17.000
|
|
|
Accounts payable
|
|
$ 745
|
|
Common stock
|
|
10,000
|
|
Retained earnings
|
|
11,155
|
|
Dividends
|
36.000
|
|
|
Revenue earned
|
|
72.000
|
|
Beauty supplies expense
|
3,425
|
|
|
Rent expense
|
6,000
|
|
|
Wages expense
|
22000
|
|
|
Totals
|
$93.900 |
$93.900
|
18. July 31, 2013, the end of the month is on a Wednesday. Employees get paid each Friday for the week worked. Abel Co. has five employees who earn $100 per day each. Make the necessary adjusting journal entry for July 31.