 |
1 | |
Bender Company uses accrual accounting. Which of the following statements best describes the application of accrual accounting to the recognition of revenues and expenses for 2005? (LO 1) |
| | A) | Net income for 2005 represents the cash received from services provided in 2005 less the cash paid for expenses incurred during 2005. |
| | B) | Net income for 2005 represents the cash received from services provided in 2005 less the expenses incurred during 2005. |
| | C) | Net income for 2005 represents the revenue from services provided in 2005 less the expenses incurred during 2005. |
| | D) | Net income for 2005 represents the revenue from services provided in 2005 less the cash paid for expenses incurred during 2005. |
|
|
2 | |
Trace Company was started on January 1, 2005. During its first year Trace Company provided $100,000 in consulting services to its clients on account and collected $85,000 of this amount. Use the horizontal financial statements model to record these transactions and determine the FALSE statement. (LO 1, 2) |
| | A) | Retained earnings increased by $100,000. |
| | B) | Net income increased by $100,000. |
| | C) | Total assets increased by $85,000. |
| | D) | A cash inflow of $85,000 is shown on the statement of cash flows. |
|
|
3 | |
Johnson Company collected $25,000 from customers in partial settlement of its accounts receivable. Which of the following best describes this transaction type? (LO 1, 8) |
| | A) | Asset use transaction |
| | B) | Asset source transaction |
| | C) | Asset exchange transaction |
| | D) | Claims exchange transaction |
|
|
4 | |
Clancy Company was started on January 1, 2005. During its first year Clancy Company incurred $52,000 for salary expense and paid $51,000 of this amount. Use the horizontal financial statements model to determine the FALSE statement. (LO 1, 2) |
| | A) | Net income decreased by $52,000. |
| | B) | Total assets decreased by $52,000. |
| | C) | Retained earnings decreased by $52,000. |
| | D) | A cash outflow of $51,000 is shown on the statement of cash flows. |
|
|
5 | |
Stanley Company’s employees are paid each Friday for hours worked the previous week. At the end of the accounting period, Stanley Company accrues $20,000 for salaries incurred that have not yet been paid. Which of the following best describes this accrual transaction type? (LO 1, 8) |
| | A) | Asset source transaction |
| | B) | Asset use transaction |
| | C) | Asset exchange transaction |
| | D) | Claims exchange transaction |
|
|
6 | |
Which of the following accounts is a temporary account? (LO 4) |
| | A) | Cash |
| | B) | Dividends |
| | C) | Common Stock |
| | D) | Retained Earnings |
|
|
7 | |
Use the following information to answer questions 7, 8, and 9: On December 31, 2005, Jamison Corporation had the following account balances: Cash | $15,000 | Revenue | 75,000 | Advertising Expense | 12,000 | Accounts Receivable | 20,000 | Salaries Payable | 2,000 | Land | 11,000 | Retained Earnings | 39,000 | Salary Expense | 27,000 | Common Stock | 5,000 |
What is Jamison Corporation’s net income for 2005? (LO 3) |
| | A) | $34,000 |
| | B) | $36,000 |
| | C) | $63,000 |
| | D) | $75,000 |
|
|
8 | |
What are Jamison Corporation’s total assets at December 31, 2005? (LO 3) |
| | A) | $15,000 |
| | B) | $35,000 |
| | C) | $46,000 |
| | D) | $51,000 |
|
|
9 | |
The $2,000 balance in the Jamison Company’s Salaries Payable account was paid on January 4, 2006. Which of the following best describes this transaction type? (LO 1, 8) |
| | A) | Asset use transaction |
| | B) | Asset source transaction |
| | C) | Asset exchange transaction |
| | D) | Claims exchange transaction |
|
|
10 | |
Which of the following accounts is a permanent account? (LO 4) |
| | A) | Cash |
| | B) | Dividends |
| | C) | Revenue |
| | D) | Expense |
|
|
11 | |
Which of the following statements is FALSE? (LO 3, 4) |
| | A) | Expenses can be defined as decreases in assets or increases in liabilities resulting from consuming assets and services to generate revenue. |
| | B) | Stockholders’ equity includes common stock, retained earnings, and salaries payable. |
| | C) | Expenses that are matched with the period in which they are incurred are called period costs. |
| | D) | The balance sheet discloses an entity’s assets, liabilities, and stockholders’ equity at a particular point in time. |
|
|
12 | |
Webster Company began the period with a $10,000 balance in Cash, a $25,000 balance in Accounts Receivable, and a $35,000 balance in Retained Earnings. During the period Webster provided $75,000 of consulting services on account, collected $70,000 of the accounts receivable, and paid $25,000 cash for salary expense. Which of the following statements is FALSE? (Hint: Use a horizontal financial statements model to record the transactions.) (LO 1, 2) |
| | A) | The ending Cash balance is $55,000. |
| | B) | The ending Retained Earnings balance is $50,000. |
| | C) | The net income for the period is $50,000. |
| | D) | The ending Accounts Receivable balance is $30,000. |
|
|
13 | |
A multi-cycle vertical financial statements model can be used to observe important interrelationships among the financial statements. Which of the following statements is FALSE when using this model to compare 2005 and 2006 accrual accounting data? (LO 5, 6) |
| | A) | The beginning cash balance for 2006 is the same as the ending cash balance for 2005. |
| | B) | The cash amount reported on the 2005 balance sheet is the same as the ending cash balance on the 2005 statement of cash flows. |
| | C) | The net income for 2005 increases the 2005 retained earnings on the statement of changes in stockholders’ equity. |
| | D) | The net cash flow from operating activities is always equal to the net income for the same period. |
|
|
14 | |
What is the correct order of the steps in an accounting cycle? (LO 4) |
| | A) | Prepare financial statements; adjust accounts; close temporary accounts; record transactions |
| | B) | Record transactions; adjust accounts; close temporary accounts; prepare financial statements |
| | C) | Record transactions; adjust accounts; prepare financial statements; close temporary accounts |
| | D) | Record transactions; prepare financial statements; adjust accounts; close temporary accounts |
|
|
15 | |
Allen Corporation experienced an accounting event that affected its financial statements as indicated below: | Assets | = | Liab. | + | Equity | | Rev. | – | Exp. | = | Net Inc. | | Cash Flow | | | + | | n/a | | + | | + | | n/a | | + | | n/a | |
Which of the following accounting events could have caused these effects on Allen Corporation's financial statements? (LO 1) |
| | A) | Purchased equipment on account |
| | B) | Provided services on account |
| | C) | Collected accounts receivable |
| | D) | Paid accounts payable |
|
|
16 | |
Which of the following defines a deferral transaction? (LO 1) |
| | A) | A revenue or expense is recognized before cash is collected or paid. |
| | B) | A revenue or expense is recognized after cash is collected or paid. |
| | C) | A revenue or expense is recognized at the time the cash is collected or paid. |
| | D) | A revenue is recognized when the cash is collected and an expense is recognized after the cash is paid. |
|
|
17 | |
Use the following information to answer questions 17, 18, and 19: Sunset Company received $48,000 cash in advance for services to be performed from October 1, 2005 through September 30, 2006. Use the horizontal financial statements model to determine which of the following statements does NOT correctly reflect the effect of this transaction on the day Sunset Company collects the cash? (LO 1, 2) |
| | A) | Cash flow from operating activities is increased |
| | B) | Assets are increased |
| | C) | Revenue is increased |
| | D) | Liabilities are increased |
|
|
18 | |
What amount of revenue will Sunset Company report on its 2005 and 2006 income statements assuming the work is performed evenly throughout the one-year contract period? (LO 1) | | 2005 | 2006 | | a. | $ 48,000 | $ -0- | | b. | $ -0- | $48,000 | | c. | $ 12,000 | $36,000 | | d. | $ 24,000 | $24,000 |
|
| | A) | A |
| | B) | B |
| | C) | C |
| | D) | D |
|
|
19 | |
Which of the following transaction types describes the adjusting entry to decrease the account Unearned Revenue and increase Service Revenue? (LO 1, 8) |
| | A) | Asset use transaction |
| | B) | Asset source transaction |
| | C) | Asset exchange transaction |
| | D) | Claims exchange transaction |
|
|
20 | |
Use the following information to answer questions 20, 21, and 22: Bentley Corporation paid $6,600 cash for an insurance policy that provides coverage for the six-month period beginning on August 1, 2005. Use the horizontal financial statements model to determine which of the following statements correctly reflects the effect of this transaction on Bentley Corporation's 2005 financial statements? (LO 1, 2) |
| | A) | Cash flow from operating activities decreased. |
| | B) | Total assets increased. |
| | C) | Expenses increased. |
| | D) | Retained earnings decreased. |
|
|
21 | |
What amount of expense will Bentley Corporation report on its 2005 and 2006 income statements assuming the insurance is used evenly throughout the six-month policy period? (LO 1) | | 2005 | 2006 | | a. | $ -0- | $ 6,600 | | b. | $ 3,300 | $ 3,300 | | c. | $ 5,500 | $ 1,100 | | d. | $ 6,600 | $ -0- |
|
| | A) | A |
| | B) | B |
| | C) | C |
| | D) | D |
|
|
22 | |
Which of the following transaction types describes the adjusting entry to decrease the account Prepaid Insurance and increase the account Insurance Expense? (LO 1, 8) |
| | A) | Asset use transaction |
| | B) | Asset source transaction |
| | C) | Asset exchange transaction |
| | D) | Claims exchange transaction |
|
|
23 | |
Use the following information to answer questions 23 and 24: At the beginning of 2005, Southern Company had a $900 balance in the Supplies account. During the year the company paid $3,000 cash for additional supplies. The physical count of supplies on hand at the end of 2005 was $600. What amount will Southern Company record as Supplies Expense for 2005? (LO 1) |
| | A) | $3,000 |
| | B) | $3,300 |
| | C) | $3,900 |
| | D) | $4,500 |
|
|
24 | |
Which of the following statements related to Southern Company’s 2005 transactions is FALSE? (LO 1) |
| | A) | Cash flows from operating activities decreased by $3,000. |
| | B) | The account Supplies is sometimes called a deferred expense. |
| | C) | The account Supplies represents a liability on the balance sheet. |
| | D) | None of the above (i.e., all of the statements are true). |
|
|
25 | |
On June 1, 2005, Flint Company paid $12,000 cash for an insurance policy that provided coverage for one year. On December 31, 2005, Flint recognized $7,000 of the cost of the insurance used during the accounting period. Which of the following answers accurately reflects how the December 31 adjusting entry would affect the company's financial statements? (LO 1) | | Assets | = | Liab. | + | Equity | | Rev. | – | Exp. | = | Net Inc. | | Cash Flow | | a. | | – | | n/a | | – | | n/a | | – | | – | | – O/A | | b. | | – | | n/a | | – | | n/a | | – | | – | | n/a | | c. | | – | | n/a | | – | | n/a | | n/a | | n/a | | n/a | | d. | | n/a | | – | | – | | n/a | | – | | – | | n/a | | | | | | | | | | | | | | | | | |
|
| | A) | A |
| | B) | B |
| | C) | C |
| | D) | D |
|
|
26 | |
What does the matching concept indicate? (LO 4) |
| | A) | Assets should be matched with liabilities and equity. |
| | B) | The income statement should be matched with the balance sheet for the same period. |
| | C) | Financial statements should be presented for more than one year so that net income for the current year can be matched (or compared) with net income from the prior year. |
| | D) | Expenses should be recognized on the income statement with the related revenues that they produce. |
|
|
27 | |
A multi-cycle vertical financial statements model can be used to observe important interrelationships among the financial statements. Which of the following statements is TRUE when using this model to compare 2005 and 2006 accrual accounting data? (LO 5, 6) |
| | A) | The beginning cash balance for 2005 is the same as the ending cash balance for 2006. |
| | B) | The change in cash between the 2005 and 2006 balance sheets is the same as the net change in cash reported on the 2006 statement of cash flows. |
| | C) | Ending retained earnings for 2005 becomes beginning common stock for 2006 on the statement of changes in stockholders’ equity. |
| | D) | The sum of net cash flow from operating activities for 2005 and 2006 is always equal to the sum of net income for both periods. |
|
|
28 | |
Northern Company has a price-earnings ratio (P/E ratio) of 15 and Southern Company has a P/E ratio of 10. Based upon these ratios, which of the following statements do you believe to be TRUE? (LO 7) |
| | A) | Investors expect Northern Company to grow faster than Southern Company. |
| | B) | Northern Company has a higher market price per share of stock than Southern Company. |
| | C) | Northern Company has a higher earnings per share than Southern Company. |
| | D) | Northern Company has more net income than Southern Company. |
|
|
29 | |
What is the percentage growth rate in net earnings for Johnson Company based upon the company's 2005 and 2006 income statements? (LO 7) | | 2005 | | 2006 | | Revenues | | $100,000 | | $200,000 | | Salary Expense | | ( 35,000 | ) | ( 80,000 | ) | Other Operating Expenses | | ( 45,000 | ) | ( 90,000 | ) | Net income | | $ 20,000 | | $ 30,000 | |
|
| | A) | 30% |
| | B) | 50% |
| | C) | 85% |
| | D) | 100% |
|
|
30 | |
On December 1, 2004 Grady Corporation signed contracts for $30,000 of consulting services to be performed in 2005. What was the result of this event? (LO 1) |
| | A) | Revenue increased by $30,000. |
| | B) | Assets increased by $30,000. |
| | C) | Retained earnings increased by $30,000. |
| | D) | This event did not affect any of the financial statements. |
|