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| 1 | |
A company may choose a natural business year end, rather than December 31, as the end of its annual reporting period. |
| | A) | True |
| | B) | False |
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| 2 | |
Accrual basis accounting uses the adjusting process to recognize revenues when earned and expenses when incurred (matched with revenues) rather than when cash is paid or received. |
| | A) | True |
| | B) | False |
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| 3 | |
An accountant will prepare three types of trial balances during the accounting cycle. |
| | A) | True |
| | B) | False |
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| 4 | |
A classified balance sheet is one whose items are broadly grouped into assets, liabilities, and equity. |
| | A) | True |
| | B) | False |
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| 5 | |
Each adjusting entry affects one or more income statement accounts and one or more balance sheet accounts. |
| | A) | True |
| | B) | False |
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| 6 | |
If a company's net income increased while its sales remained constant, the result would be an increased profit margin. |
| | A) | True |
| | B) | False |
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| 7 | |
The current ratio is used to evaluate a company's ability to pay its long-term obligations. |
| | A) | True |
| | B) | False |
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| 8 | |
A journal entry at the end of an accounting period to bring asset and liability account balances to their proper amount while also updating the related expense or revenue accounts is called an adjusting entry. |
| | A) | True |
| | B) | False |
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| 9 | |
A company pays $2,400 for a six-month insurance policy on October 1. No adjusting entries are recorded on October 31 or November 20. The amount of the adjustment necessary on 12/31 would be $400. |
| | A) | True |
| | B) | False |
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| 10 | |
The Cash account, a balance sheet account, is often affected by the adjusting process. |
| | A) | True |
| | B) | False |
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| 11 | |
If a company signed a 3-month, $10,000 note from a bank at 12% annual interest on March 1, the amount of interest owed that should be included in an adjusting entry, dated March 31, is $300. |
| | A) | True |
| | B) | False |
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| 12 | |
An adjusted trial balance is prepared after adjusting entries are recorded and posted to the ledger. |
| | A) | True |
| | B) | False |
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| 13 | |
The financial statements are prepared from the unadjusted trial balance. |
| | A) | True |
| | B) | False |
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| 14 | |
After all closing entries have been journalized and posted, the balance of the Income Summary account should equal net income of the period. |
| | A) | True |
| | B) | False |
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| 15 | |
Preparing the closing entries is the last step in the accounting process. |
| | A) | True |
| | B) | False |
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| 16 | |
Which of the following statements are important when choosing the appropriate time period for financial reporting purposes? |
| | A) | The value of information is often linked to its timeliness. |
| | B) | Useful information must reach decision makers frequently and promptly. |
| | C) | Timely information requires that reports be prepared at regular intervals. |
| | D) | All of the above. |
| | E) | None of the above. |
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| 17 | |
Which of the following statements is correct concerning the accrual basis of accounting? |
| | A) | The accrual basis does not consider the revenue recognition principle. |
| | B) | The accrual basis must follow the revenue recognition principle but not the matching principle. |
| | C) | The accrual basis uses the adjusting process to recognize revenues when earned and to match expenses with revenues. |
| | D) | The accrual basis recognizes revenues when earned and records expenses when cash is paid. |
| | E) | The accrual basis is the same as the cash basis of accounting. |
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| 18 | |
Which of the following statements are correct with respect to the cash basis of accounting? |
| | A) | The cash basis of accounting recognizes revenues when the cash is received. |
| | B) | The cash basis of accounting recognizes expenses when the cash is paid. |
| | C) | The cash basis of accounting is not acceptable for GAAP purposes. |
| | D) | All of the above statements are correct. |
| | E) | None of the above statements is correct. |
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| 19 | |
The steps in the accounting cycle includes the following: adjusting the accounts; preparing a post-closing trial balance; preparing an unadjusted trial balance; analyzing the transactions; journalizing; posting; closing temporary accounts; and preparing the financial statements. What is the proper order of the first five steps? |
| | A) | Analyzing transactions; journalizing; posting; preparing a post-closing trial balance; and adjusting the accounts. |
| | B) | Analyzing transactions; journalizing; posting; preparing an unadjusted trial balance; and adjusting the accounts. |
| | C) | Adjusting the accounts; analyzing the transactions; journalizing; posting; and preparing the financial statements. |
| | D) | Analyzing transactions; journalizing; posting; preparing a post-closing trial balance; and preparing the financial statements. |
| | E) | None of the above. |
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| 20 | |
Which of the following accounts represent a current asset on a classified balance sheet? |
| | A) | Short-term investments |
| | B) | Merchandise inventory |
| | C) | Prepaid expenses |
| | D) | Cash |
| | E) | All of the above are current assets on a classified balance sheet |
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| 21 | |
Which is true about an adjusting entry? |
| | A) | Only a permanent account is adjusted |
| | B) | Only a temporary account is adjusted |
| | C) | A permanent account and a temporary account are affected |
| | D) | It is required to satisfy the revenue recognition principle only |
| | E) | None of the above |
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| 22 | |
What is the formula for profit margin? |
| | A) | Net income divided by total assets |
| | B) | Net income divided by net sales |
| | C) | Net sales divided by net income |
| | D) | Net income divided by total equity |
| | E) | Net sales divided by total equity |
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| 23 | |
Current assets total $30,000, plant and equipment assets, net, total $40,000, current liabilities total $10,000, and long-term liabilities total $20,000. What is the current ratio? |
| | A) | 1.0:1 |
| | B) | 1.5:1 |
| | C) | 2.5:1 |
| | D) | 3.0:1 |
| | E) | None of the above |
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| 24 | |
What happens or is accomplished when the adjusting entry for depreciation is recorded? |
| | A) | The cost of the asset is allocated over its useful life. |
| | B) | Expenses decrease. |
| | C) | The carrying (or book) value the related asset increases on the balance sheet. |
| | D) | All of the above. |
| | E) | None of the above. |
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| 25 | |
Which if the following is correct regarding the Accumulated Depreciation account? |
| | A) | It is reported on the income statement. |
| | B) | It has a normal debit balance. |
| | C) | It is a contra asset account, and has a credit balance. |
| | D) | It is a temporary account that must be closed out at year end. |
| | E) | All of the above. |
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| 26 | |
Which of the following is correct with respect to unearned revenues? |
| | A) | They are also called deferred revenues. |
| | B) | Unearned revenues arise when cash is received from customers in advance of providing the product or service. |
| | C) | Unearned revenues are liability accounts. |
| | D) | Unearned revenues are reported on the balance sheet. |
| | E) | All of the above. |
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| 27 | |
On November 1, a magazine publisher receives $12 million from its customers for annual subscriptions to a monthly magazine. The November issued is immediately sent to those customers to start their subscriptions. Assuming that an adjusting entry was not journalized on November 30, what adjusting entry should be recorded on December 31? |
| | A) | Debit the Unearned Subscriptions account and credit the Subscription Revenue account for $2 million. |
| | B) | Debit the Unearned Subscriptions account and credit the Subscription Revenue account for $1 million. |
| | C) | Debit the Prepaid Subscriptions account and credit the Unearned Subscriptions account for $2 million. |
| | D) | Debit the Prepaid Subscriptions account and credit the Unearned Subscriptions account for $1 million. |
| | E) | None of the above. |
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| 28 | |
The ABC Company's employees earn $15,000 for each five-day workweek ending every Friday. If the fiscal year ends on a Tuesday, what adjusting entry should be recorded? |
| | A) | Debit Salary Expense $15,000 and Credit Salaries Payable $15,000 |
| | B) | Debit Salary Expense $6,000 and Credit Salaries Payable $6,000 |
| | C) | Debit Salary Expense $9,000 and Credit Salaries Payable $9,000 |
| | D) | Debit Salaries Payable $10,000 and Credit Salary Expense $10,000 |
| | E) | None of the above |
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| 29 | |
Which of the following is not a temporary account? |
| | A) | Income Summary |
| | B) | Rental Revenue |
| | C) | Common Stock |
| | D) | Dividends |
| | E) | Depreciation Expense-Office Equipment |
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| 30 | |
After the closing procedure is complete, which of the following proves the equality of debits and credits? |
| | A) | Income Statement |
| | B) | Account form balance sheet |
| | C) | Post-Closing Trial Balance |
| | D) | Work Sheet |
| | E) | All of the documents listed prove the equality of debits and credits |
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