 |
1 | |
Which of the following statements is incorrect? (LO 1, 6) |
| | A) | The double-entry accounting system requires that total debits always equal total credits. |
| | B) | The difference between the total debit and credit amounts for an account is called the account balance. |
| | C) | The right side of a T-account is the debit side and the left side of a T-account is the credit side. |
| | D) | The primary purpose of the trial balance is to verify the equality of debits and credits. |
|
|
2 | |
The recording rules of double-entry accounting related to assets, liabilities, and stockholders’ equity accounts can be summarized as: (LO 1, 2) |
| | A) | Debits decrease asset accounts; credits decrease liability and stockholders’ equity accounts |
| | B) | Debits decrease asset accounts; credits increase liability and stockholders’ equity accounts |
| | C) | Debits increase asset accounts; credits decrease liability and stockholders’ equity accounts |
| | D) | Debits increase asset accounts; credits increase liability and stockholders’ equity accounts |
|
|
3 | |
The recording rules of double-entry accounting related to revenue and expenses can be summarized as: (LO 1, 2) |
| | A) | Debits increase expense accounts; credits increase revenue accounts |
| | B) | Debits increase expense accounts; credits decrease revenue accounts |
| | C) | Debits decrease expense accounts; credits increase revenue accounts |
| | D) | Debits decrease expense accounts; credits decrease revenue accounts |
|
|
4 | |
Which of the following is a claims exchange transaction? (LO 4) |
| | A) | Purchasing equipment for cash |
| | B) | Providing services on account |
| | C) | Recording the adjusting entry to accrue salaries |
| | D) | Recording the adjusting entry to accrue interest income |
|
|
5 | |
Marshall Corporation was established on January 1, 2005, when it acquired $50,000 cash from issuing common stock. A result of this transaction would be to: (LO 3) |
| | A) | Debit Common Stock |
| | B) | Credit Common Stock |
| | C) | Credit Cash |
| | D) | Credit Retained Earnings |
|
|
6 | |
Mason Company received a bill for $1,000 for advertisements that it placed in a trade magazine. Mason plans to pay the bill at a later date. A result of this transaction would be to: (LO 3) |
| | A) | Credit Cash |
| | B) | Debit Accounts Receivable |
| | C) | Credit Accounts Payable |
| | D) | Credit Advertising Expense |
|
|
7 | |
Use the following information to answer questions 7 and 8:
On September 1, 2005, Morgan Company issued a 1-year, 9%, $25,000 note payable to the First State Bank to borrow cash.
A result of this borrowing transaction in Morgan Company’s accounting records would be to: (LO 3) |
| | A) | Debit Notes Payable |
| | B) | Debit Cash |
| | C) | Credit Note Revenue |
| | D) | Debit Note Receivable |
|
|
8 | |
Which of the following is the correct adjusting journal entry to record Morgan Company’s accrual of interest expense on the note at December 31, 2005? |
| | A) | | | Debit | Credit | | Retained Earnings | 750 | | |
Note Payable | | 750 |
|
| | B) | | Retained Earnings | 750 | | | Interest Payable | | 750 |
|
| | C) | | Interest Expense | 750 | | |
Note Payable | | 750 |
|
| | D) | | Interest Expense | 750 | | |
Interest Payable | | 750 |
|
|
|
9 | |
Mayfield Consulting provided $30,000 of consulting services on account. Which of the following is the correct journal entry to record this transaction? (LO 3, 7) |
| | A) | | | Debit | Credit | | Consulting Revenue | 30,000 | | | Accounts Receivable | | 30,000 |
|
| | B) | | Accounts Receivable | 30,000 | | | Consulting Revenue | | 30,000 |
|
| | C) | | Unearned Revenue | 30,000 | | | Consulting Revenue | | 30,000 |
|
| | D) | | Consulting Revenue | 30,000 | | | Unearned Revenue | | 30,000 |
|
|
|
10 | |
Mayfield Consulting collected $20,000 cash from customer account receivables. Which of the following is the correct journal entry to record this transaction? (LO 3, 7) |
| | A) | | | Debit | Credit | | Cash | 20,000 | | | Consulting Revenue | | 20,000 |
|
| | B) | | Consulting Revenue | 20,000 | | | Cash | | 20,000 |
|
| | C) | | Cash | 20,000 | | | Accounts Receivable | | 20,000 |
|
| | D) | | Accounts Receivable | 20,000 | | | Cash | | 20,000 |
|
|
|
11 | |
On December 1, 2005, Mayfield Consulting collected $10,000 cash in advance from a customer for services to be provided from January 1, 2006 through April 30, 2006. Which of the following is the correct journal entry to record this transaction? |
| | A) | | | Debit | Credit | | Cash | 10,000 | | | Consulting Revenue | | 10,000 |
|
| | B) | | Accounts Receivable | 10,000 | | | Cash | | 10,000 |
|
| | C) | | Unearned
Receivable | 10,000 | | | Cash | | 10,000 |
|
| | D) | | Cash | 10,000 | | | Unearned
Receivable | | 10,000 |
|
|
|
12 | |
McCarty Company purchased equipment for $34,000 cash on January 1, 2005. The equipment has an estimated $4,000 salvage value and a 5-year useful life. Which of the following is the correct adjusting journal entry to record the annual depreciation expense on December 31, 2005? (LO 3, 7) |
| | A) | | | Debit | Credit | | Equipment | 6,000 | | | Depreciation Expense | | 6,000 |
|
| | B) | | Depreciation Expense | 6,000 | | | Equipment | | 6,000 |
|
| | C) | | Accumulated Depreciation | 6,000 | | | Depreciation Expense | | 6,000 |
|
| | D) | | Depreciation Expense | 6,000 | | | Accumulated Depreciation | | 6,000 |
|
|
|
13 | |
Is the normal balance of the following accounts a debit or a credit? (LO 2, 7) |
| | A) | Cash | Accounts Payable | Retained Earnings | Service Revenue | Debit | Debit | Credit | Credit |
|
| | B) | |
| | C) | Debit | Credit | Credit | Credit |
|
| | D) | Credit | Credit | Debit | Debit |
|
|
|
14 | |
Is the normal balance of the following accounts a debit or a credit? (LO 2, 7) |
| | A) | Salary Expense | Prepaid Insurance | Interest Payable | Common Stock | Debit | Debit | Credit | Credit |
|
| | B) | |
| | C) | Debit | Credit | Credit | Credit |
|
| | D) | Credit | Credit | Debit | Debit |
|
|
|
15 | |
Gentry Consulting Company is preparing the closing entries at the end of the accounting period. Gentry has normal balances in the following accounts:
| Consulting Revenue | 60,000
| | Interest Revenue | 2,800 | | Unearned Revenue | 10,100
|
Which of the following represents the closing journal entry for its revenue accounts? (LO 5) |
| | A) | | | Debit | Credit | | Consulting Revenue | 60,000 | | |
Interest Revenue
| 2,800 | | | Unearned Revenue | 10,100 | | |
Retained Earnings
| | 72,900 |
|
| | B) | | Consulting Revenue | 60,000 | | | Interest Revenue | 2,800 | | | Retained Earnings | | 62,800 |
|
| | C) | | Retained Earnings | 72,900 | | | Consulting Revenue | | 60,000 | | Interest Revenue | | 2,800
| | Unearned Revenue | | 10,100
|
|
| | D) | | Retained Earnings | 62,800 | | | Consulting Revenue | | 60,000 | | Interest Revenue | | 2,800
|
|
|
|
16 | |
Anderson Company paid $4,800 cash in advance for a six-month lease to rent office space beginning on November 1, 2005. Which of the following is the correct adjusting journal entry to record the portion of rent used up through December 31, 2005? (LO 3) |
| | A) | | | Debit | Credit | | Prepaid Rent | 1,600 | | |
Rent Expense
| | 1,600 |
|
| | B) | | Rent Expense | 1,600 | | | Prepaid Rent | | 1,600
|
|
| | C) | | Prepaid Rent | 1,600 | | | Retained Earnings | | 1,600
|
|
| | D) | | Retained Earnings | 1,600 | | | Prepaid Rent | | 1,600
|
|
|
|
17 | |
Clark Company is preparing the closing entries at the end of the accounting period. Clark has normal balances in the following accounts:
| Consulting Revenue | 60,000 | | Salaries Expense | 12,000 | | Dividends | 5,000 | | Retained Earnings | 25,000 |
What is the balance in Retained Earnings after the closing journal entry is made? (Hint: Use T-accounts to arrive at your answer) (LO 5) |
| | A) | $ 68,000 |
| | B) | $ 73,000 |
| | C) | $ 85,000 |
| | D) | $102,000 |
|
|
18 | |
Which of the following is an incorrect statement? (LO 5, 7) |
| | A) | Accountants record data from source documents (e.g., invoices, timecards) into a journal. |
| | B) | The collection of all accounts used by a particular business is a ledger. |
| | C) | The process of copying information from journals to ledgers is called posting. |
| | D) | Adjusting and closing entries are prepared before the preparation of the financial statements. |
|
|
19 | |
A CPA that is auditing Martin Company is least concerned with information contained in the: (LO 7) |
| | A) | Financial statements |
| | B) | Management’s discussion and analysis |
| | C) | Footnotes to the financial statements |
| | D) | Auditor's report |
|
|
20 | |
The Securities and Exchange Commission’s (SEC) primary responsibility is to: (LO 9) |
| | A) | Develop accounting rules followed by all companies |
| | B) | Evaluate accounting rules followed by all companies |
| | C) | Create the accounting rules followed by all companies that provide financial information on the Internet |
| | D) | Monitor the accounting rules followed by all companies whose stock trades on the public stock exchange |
|
|
21 | |
A provision of the Sarbanes-Oxley Act established the: (LO 9) |
| | A) | Securities and Exchange Commission (SEC) |
| | B) | Financial Accounting Standards Board (FASB) |
| | C) | Public Company Accounting Oversight Board (PCAOB) |
| | D) | American Institute of Certified Public Accountants (AICPA) |
|
|
22 | |
Perry Company experienced an accounting event that was recorded in the company’s general journal as indicated below:
| Cash | 12,000
| | | Accounts Receivable | | 12,000
|
Which of the following choices accurately reflects how this event would affect the company’s financial statements? (LO 3, 7) |
| | A) | | Assets | = | Liab. | + | Equity | | Rev. | – | Exp. | = | Net Inc. | Cash Flow | a. | + | | + | | n/a | | + | | n/a | | + | n/a |
|
| | B) | b. | + – | | n/a | | n/a | | + | | n/a | | + | + OA |
|
| | C) | c. | + – | | n/a | | n/a | | n/a | | n/a | | n/a | + OA |
|
| | D) | |
|
|
23 | |
Patton Company experienced an accounting event that is recorded in the following T-accounts:
| Cash | Interest Payable | | | 3,000 | 3,000 | |
Which of the following choices accurately reflects how this event would affect the company’s financial statements? (LO 3) |
| | A) | | Assets | = | Liab. | + | Equity | | Rev. | – | Exp. | = | Net Inc. | Cash Flow | a. | - | | - | | n/a | | n/a | | + | | - | – FA |
|
| | B) | |
| | C) | c. | - | | n/a | | - | | n/a | | n/a | | n/a | – FA |
|
| | D) | d. | - | | - | | n/a | | n/a | | n/a | | n/a | – OA |
|
|