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| 1 | |
A proprietorship employs one full-time accountant. This person is considered an employee. On the desk in front of her are five different business documents. Which one of the following would not be considered an original source document from the proprietorship's point of view? |
| | A) | A bank receipt for $10,000 evidencing yesterday's cash receipts deposited in the bank. |
| | B) | The original copy of the insurance policy taken out by the proprietorship to insure the vehicle it purchased during its first month of operations. The annual insurance premium of $500 was printed within the contract. |
| | C) | The invoice received by the proprietorship from Samsung Electronics when the proprietorship purchased its first lot of inventory to be sold to its customers. |
| | D) | A cancelled check for $500 representing payment in full for the annual insurance premium mentioned in item B above. |
| | E) | A copy of the Balance Sheet at the end of the company's first year of existence. |
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| 2 | |
Oftentimes, the specific name of an account can give you a clue as to whether an account is an asset, liability, or owner's equity account. Other times, the name of the account seems to be vague or is only rendered clear after some further explanation. A proprietorship's Chart of Accounts has 125 accounts in it. The names of three of these accounts are Prepaid Rent, Unearned Service Revenue, and Interest Income Earned. In order, these accounts would be classified as which types of accounts? |
| | A) | liability, asset, and revenue accounts in that order |
| | B) | revenue, asset, and liability accounts in that order |
| | C) | liability, revenue, and asset accounts in that order |
| | D) | asset, revenue, and liability accounts in that order |
| | E) | asset, liability, and revenue accounts in that order |
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| 3 | |
What is the difference between the following two sets of accounts: (1) Accounts Receivable versus Notes Receivable, and (2) Accounts Payable versus Notes Payable? |
| | A) | The first item in each set is an asset while the second item in each set is a liability. |
| | B) | Accounts and notes receivable arise when the entity purchases something on credit whereas accounts and notes payable arise when the entity sells something on credit. |
| | C) | In general, accounts receivable and accounts payable are more formal than are accounts payable and notes payable. |
| | D) | In general, accounts receivable and accounts payable are less formal than are notes receivable and notes payable. |
| | E) | None of the above is correct. |
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| 4 | |
At any given point in time, it is possible to describe general ledger accounts as having an expected or "normal" balance: either a debit balance or a credit balance. This normal balance is on the side of the account, i.e., debit side or credit side, that represents the "increase" side of the account. In order, what is the normal balance for the Equipment account, the Owner's Equity account, and the Sales Revenue account? |
| | A) | debit, credit, credit |
| | B) | debit, debit, debit |
| | C) | credit, debit, credit |
| | D) | credit, credit, debit |
| | E) | debit, debit, credit |
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| 5 | |
Listed here are five steps in the accounting cycle: (1) ruling and balancing the general ledger, (2) preparing an unadjusted trial balance, (3) analyzing transactions and source documents, (4) recording original transactions in the general journal, and (5) posting the general journal entries to the general ledger. Using the numbers shown above, place these steps in the correct accounting cycle order. |
| | A) | 1, 2, 3, 4, 5 |
| | B) | 3, 4, 5, 1, 2 |
| | C) | 4, 5, 1, 2, 3 |
| | D) | 5, 1, 3, 4, 2 |
| | E) | 2, 4, 1, 5, 3 |
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| 6 | |
The Baker sole proprietorship started operations on January 1, 2006 and uses a calendar-year accounting period. On February 7, 2006, the company purchases an automobile with an invoice cost of $10,000. To settle this transaction, the company immediately pays $3,000 cash to the automobile dealership and signs a three-month note payable for the $7,000 purchase price balance. A partial general journal entry is given below. Which item accurately describes the partial entry from Baker's viewpoint? |
| | A) | Cash is debited for $3,000 and Notes Payable is credited for $7,000 |
| | B) | Cash is credited for $3,000 and the asset account Vehicles is debited for $7,000 |
| | C) | The asset account Vehicles is credited for $10,000 and Cash is credited for $3,000 |
| | D) | Cash is credited for $3,000 and Notes Payable is credited for $7,000 |
| | E) | Notes Payable is credited for $7,000 and the asset Vehicles is credited for $3,000 |
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| 7 | |
Which of the following statements concerning the trial balance is correct? |
| | A) | The trial balance is a listing of every account in the general ledger at a given point in time and its balance even if that balance is zero. |
| | B) | The trial balance is a listing of every account in the general ledger at a given point in time and its balance, except for accounts that have a zero balance. |
| | C) | To be listed on the trial balance a general ledger account must be an account that has a balance other than zero and it must be solely an account that would appear on the company's balance sheet. |
| | D) | To be listed on the trial balance a general ledger account must be an account that has a balance other than zero and it must be solely an account that would appear on the company's income statement. |
| | E) | None of the above are correct. |
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| 8 | |
A company buys a one-year insurance policy on February 1, 2006, and immediately pays in cash the $720 insurance premium. The company's bookkeeper records the transaction by crediting the Cash account for $720 but debits Insurance Expense for $720, instead of debiting Prepaid Insurance, which would be the correct entry. Based on this information, which statement concerning the trial balance is correct if the company leaves this situation as it is? |
| | A) | The trial balance is correct as it is. |
| | B) | The total debits of the trial balance do not equal the total credits of the trial balance. |
| | C) | The total debits on the trial balance are higher than the total credits. |
| | D) | The total credits on the trial balance are lower than the total debits. |
| | E) | The total trial balance debits equal the trial balance credits but one or more account balances are incorrect. |
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| 9 | |
A company buys a new car on February 15, 2006, and immediately pays in cash the $25,000 purchase price. The company's bookkeeper fails to record the transaction at all. Based on this information, which statement concerning the trial balance is correct if the company leaves this situation as it is? |
| | A) | The trial balance is correct as it is. |
| | B) | The total debits of the trial balance do not equal the total credits of the trial balance. |
| | C) | The total debits on the trial balance are higher than the total credits. |
| | D) | The total debits on the trial balance are equal to the total credits on the trial balance but one or more accounts have incorrect balances. |
| | E) | The total trial balance debits equal the trial balance credits but only one account balance is incorrect. |
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| 10 | |
Amelia Company received its telephone bill on February 15, 2006 in the amount of $325. This bill covered the period from January 1, 2006 through January 31, 2006. Amelia paid this bill immediately. The company uses a calendar year accounting period prepares financial statements only once a year at the end of the year. The general journal entry to record this transaction includes: |
| | A) | A debit to the Cash account for $325. |
| | B) | A credit to the Telephone Expense account for $325. |
| | C) | A debit to the Telephone Expense account for $325. |
| | D) | A credit to Accounts Payable for $325. |
| | E) | A debit to Accounts Payable for $325. |
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| 11 | |
A proprietorship has total assets of $1,000,000, total liabilities of $300,000, and total owner's equity of $700,000. What is the debt ratio (rounded to the nearest percent)? |
| | A) | 33% |
| | B) | 40% |
| | C) | 70% |
| | D) | 30% |
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| 12 | |
On March 1, 2006, a company collects a $500 deposit from a customer for the installation of a home-theater system. The installation is scheduled for May 5, 2006. How should the company record this entry on March 1, 2006? |
| | A) | The Cash account is credited for $500. |
| | B) | The Sales Revenue account is credited for $500. |
| | C) | The Unearned Sales Revenue account is credited for $500. |
| | D) | The Unearned Sales Revenue account is debited for $500. |
| | E) | None of the above are correct. |
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| 13 | |
A company which sells and services medical insurance policies received one payment of $14,000 cash from a customer for insurance coverage for the next two years. Recording the receipt of this cash when it is received will require which of the following? |
| | A) | Withdrawals to be debited, an asset to be credited |
| | B) | A liability to be debited, an asset to be credited |
| | C) | An asset to be debited, capital to be credited |
| | D) | An asset to be debited, a liability to be credited |
| | E) | One asset to be debited, another asset to be credited |
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| 14 | |
Solar Mow manufactures and sells solar-powered lawn mowers. Just before a lawn mower is sold, the company charges the mower's battery with a rented battery charger. Instead of owning this battery charger, the company rents it from another company at a $50 per month fee. This payment is made at the end of each month and covers the month just ended. Recording the transaction requires which of the following? |
| | A) | An asset to be debited, a liability to be credited |
| | B) | A liability to be debited, an asset to be credited |
| | C) | An expense to be debited, an asset to be credited |
| | D) | An asset to be debited, a revenue account to be credited |
| | E) | An option other than those provided |
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| 15 | |
Phillip Atwood received $5,000 cash immediately after he completed excavation work for a local home builder. This excavation solely benefits one specific building lot owned by the local home builder. How would this transaction be recorded by the home builder? |
| | A) | An asset to be debited, a liability to be credited |
| | B) | A liability to be debited, an asset to be credited |
| | C) | Withdrawal to be debited, an asset to be credited |
| | D) | An asset to be debited, revenue to be credited |
| | E) | One asset is debited while another asset is credited. |
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| 16 | |
Which of the following is not correct with regard to how each item is increased or decreased, and its normal balance?
| Item | Increases | Decreases | Normal Balance | | A. | Assets | debit | credit | credit | | B. | Liabilities | credit | debit | credit | | C. | Expenses | debit | credit | debit | | D. | Revenue | credit | debit | credit | | E. | Capital | credit | debit | credit |
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| | A) | Option A |
| | B) | Option B |
| | C) | Option C |
| | D) | Option D |
| | E) | Option E |
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| 17 | |
Which of the following is correct with regard to the trial balance when a $450 credit to Wages Payable was posted in error to Unearned Revenue?
| Amount out of balance | Column having larger total | | A. | $450 | Credit | | B. | $450 | Debit | | C. | $ 0 | Neither | | D. | $900 | Debit | | E. | $900 | Credit |
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| | A) | Option A |
| | B) | Option B |
| | C) | Option C |
| | D) | Option D |
| | E) | Option E |
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| 18 | |
Olivia, the proprietor, deposited $40,000 in the company's bank account. She received the money as the result of a settlement of a class action lawsuit and decided to invest it in her business to help with expansion. Recording the transaction on the company books will require which of the following? |
| | A) | An asset to be debited, a liability to be credited |
| | B) | A liability to be debited, an asset to be credited |
| | C) | An asset to be debited, capital to be credited |
| | D) | Withdrawals to be debited, an asset to be credited |
| | E) | One asset to be debited, another asset to be credited |
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| 19 | |
A landlord receives a $440 cash payment from one of his tenants for the current month's rent. The landlord records the entry correctly into the general journal but only posts the debit to the general ledger. Which of the following is correct with regard to the trial balance as a result of this error?
| Amount out of balance | Column having larger total | | A. | $440 | Credit | | B. | $880 | Debit | | C. | $ 0 | Neither | | D. | $440 | Debit | | E. | $880 | Credit |
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| | A) | Option A |
| | B) | Option B |
| | C) | Option C |
| | D) | Option D |
| | E) | Option E |
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| 20 | |
Which of the following statements is true? |
| | A) | Revenue accounts are increased by debit entries |
| | B) | Journalizing entries occurs after posting entries |
| | C) | Debit entries are entries involving the right-hand side on an account |
| | D) | An account shows increases and decreases and an account balance |
| | E) | Journalizing errors should be erased and a correct entry made |
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| 21 | |
Assets total $100,000 and Liabilities total $40,000. What is the debt ratio? |
| | A) | .10 |
| | B) | .25 |
| | C) | .40 |
| | D) | .60 |
| | E) | 1.00 |
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| 22 | |
The personal residence of Samuel Leonard was landscaped with all new trees, shrubs and flowers. This improvement was paid for with a check written against Samuel's business checking account. The landscaping provides no benefit to Samuel's business. What account must be debited for this transaction? |
| | A) | Samuel Leonard, Capital |
| | B) | Samuel Leonard, Withdrawals |
| | C) | Landscaping Improvements |
| | D) | Landscaping Expense |
| | E) | None of the above |
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| 23 | |
One of your company's business checks clears the bank at its correct amount of $500. The transaction that underlies this check was the cash purchase of office supplies. The entry was recorded as a debit to Insurance Expense for $50 and a credit to Cash for $50. The correcting entry should include which of the following? |
| | A) | A debit to Accounts Receivable for $450 |
| | B) | A credit to Supplies Expense for $500 |
| | C) | A credit to Cash for $50 |
| | D) | A credit to Cash for $450 |
| | E) | A credit to Cash for $540 |
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| 24 | |
The debt ratios of the company at the end of each of the past five years are listed below. Which year was the best year for this ratio? |
| | A) | 1998 .253 |
| | B) | 1999 .292 |
| | C) | 2000 .284 |
| | D) | 2001 .281 |
| | E) | 2002 .268 |
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| 25 | |
Below are steps of the transaction analysis process:
- Prepare and analyze the trial balance.
- Analyze each transaction and event from source documents.
- Post journal information to ledger accounts.
- Record relevant transactions and events in a journal.
What is the correct order to these steps? |
| | A) | 1,2,3,4 |
| | B) | 3,1,2,4 |
| | C) | 1,3,4,2 |
| | D) | 2,4,1,3 |
| | E) | 2,4,3,1 |
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