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| 1 | |
Although it is possible to find an exception to the following statement, the vast majority of adjusting entries follow which pattern described below? |
| | A) | One of the accounts debited or credited is an income statement account while the second account debited or credited is a balance sheet account. |
| | B) | Both of the accounts debited or credited are income statement accounts. |
| | C) | Both of the accounts debited or credited are balance sheet accounts. |
| | D) | Both of the accounts debited or credited are part of the statement of owner's equity. |
| | E) | None of the above is correct. |
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| 2 | |
A company purchased a two-year fire insurance policy on May 1, 2011. It paid the $2,400 premium in cash on the same date and recorded the entry with a debit to Prepaid Insurance for $2,400. The company has adopted a 12-month accounting period ending on January 31 of each year. If the company uses the accrual basis of accounting, how much insurance expense will be recorded for the periods ended January 31, 2012, and January 31, 2013, respectively? |
| | A) | $1,800 and $2,400. |
| | B) | $900 and $1,200. |
| | C) | $2,400 and $0. |
| | D) | $0 and $2,400. |
| | E) | None of the above. |
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| 3 | |
The theoretical reason for recording periodic depreciation expense rather than immediately expensing the cost of a plant asset in the period it is acquired is to adhere to the: |
| | A) | Cost principle. |
| | B) | Monetary unit principle. |
| | C) | Going-concern principle. |
| | D) | Materiality principle. |
| | E) | Matching principle. |
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| 4 | |
A company adopts the accounting practice whereby all external transactions involving prepaid expenses, such as prepaid insurance, prepaid rent, and office supplies are initially debited to the asset account when acquired. If the company fails to adjust any one of these accounts for the current year, what will be the effect on (1) the current year's total expenses, (2) total revenues, (3) net income, and (4) ending owner's equity? |
| | A) | Understated, understated, understated, and understated. |
| | B) | Understated, overstated, overstated, and overstated. |
| | C) | Understated, no effect, overstated, and overstated. |
| | D) | Overstated, overstated, no effect, and no effect. |
| | E) | Understated, no effect, overstated, and understated. |
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| 5 | |
Boron Company is a sole proprietorship. Its bookkeeper has prepared the adjusted trial balance as of December 31, 2011. Even though this adjusted trial balance is correct in every respect, there is still one account whose balance does not represent the correct end-of-the-period balance. Which account is it? |
| | A) | Accounts Receivable. |
| | B) | Cash. |
| | C) | Accumulated Depreciation. |
| | D) | Owner's equity. |
| | E) | None of these. |
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| 6 | |
At the end of the accounting period, the business had $5,000 of office supplies on hand. At the beginning of the period, the amount of supplies on hand was $2,000. If the business purchased $12,000 of office supplies during the year, what amount of office supplies were used during the year? |
| | A) | $ 7,000. |
| | B) | $14,000. |
| | C) | $10,500. |
| | D) | $ 9,000. |
| | E) | None of the above. |
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| 7 | |
You own a CPA firm. You have agreed to provide accounting services on behalf of a client for a fee of $650 per month. Your services will be rendered uniformly during the year, and you begin your work on April 16. You use the accrual basis of accounting for your own company and prepare monthly financial statements for your firm. Your client makes his first payment of $650 to you on May 16. Which of the following entries will you record on May 16 when you receive the $650 cash payment? |
| | A) | Cash, debit, $325; Accounts Receivable, credit, $325. |
| | B) | Cash, debit, $650; Accounts Receivable, credit, $325; Fees Earned, credit, $325. |
| | C) | Cash, debit, $650; Fees Earned, credit, $650. |
| | D) | Accounts Receivable, debit, $650; Cash, credit, $325; Fees Earned, credit, $325. |
| | E) | None of the above. |
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| 8 | |
A tenant rented space in your company's office building on October 1 at $1,800 per month, paying seven months' rent in advance. The bookkeeper recognized a current liability of $12,600. How much of this amount remains unearned as of December 31? |
| | A) | $12,600. |
| | B) | $5,400. |
| | C) | $7,200. |
| | D) | $0. |
| | E) | None of the above. |
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| 9 | |
An NBA basketball team sells season tickets worth $48 million before the basketball season starts late in the year. Assume this $48 million is debited to Cash and credited to Unearned Ticket Revenue. By the end of the calendar year, which also happens to be the end of the team's accounting period, 25% of the games have been played. What adjusting journal entry should be made at the end of the year? |
| | A) | Unearned Ticket Revenue, debit, $12 million; Cash, credit, $12 million. |
| | B) | Ticket Revenue, debit, 12 million; Unearned Ticket Revenue, credit, $12 million. |
| | C) | Unearned Ticket Revenue, debit, $12 million; Ticket Revenue, credit, $12 million. |
| | D) | Ticket Revenue, debit, $12 million; Cash, credit, $12 million. |
| | E) | None of the above. |
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| 10 | |
The notion that the life of a business is divisible into time periods of equal length is known as which of the following? |
| | A) | Continuing-concern principle. |
| | B) | Monetary unit principle. |
| | C) | Revenue recognition principle. |
| | D) | Time-period principle. |
| | E) | Business entity principle. |
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| 11 | |
A business rented space in an office building on October 1, at $600 per month, paying 9 months of rent in advance. The bookkeeper recognized a prepaid asset of $5,400 when the payment was made. No year-end adjustment was recorded. As a consequence of not recording the required adjustment, which of following occurred? |
| | A) | Expenses were overstated and assets were understated. |
| | B) | Expenses were understated and assets were overstated. |
| | C) | Expenses were overstated and assets were overstated. |
| | D) | Expenses were understated and assets were understated. |
| | E) | None of the above. |
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| 12 | |
Dee Hellings, Inc. performed $3,000 worth of services for a client during December but did not get paid until the first week of February of the next year. No year-end adjusting entry was recorded on December 31. As a consequence of this oversight, which of the following occurred? |
| | A) | Assets were understated and revenue was understated. |
| | B) | Assets were overstated and revenue was understated. |
| | C) | Assets were understated and revenue was overstated. |
| | D) | Assets were overstated and revenue was overstated. |
| | E) | Liabilities were understated and revenue was understated. |
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| 13 | |
For the current period, a company's revenues and expenses are $480,000 and $420,000, respectively. What is the company's profit margin percentage for the current period? |
| | A) | 25.0%. |
| | B) | 87.5%. |
| | C) | 12.5%. |
| | D) | $60,000. |
| | E) | None of the above. |
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| 14 | |
At the end of the fiscal year, an adjusting entry was made for accrued salaries of $2,000. The salaries for one week, $4,250, were paid on the first Friday of the new fiscal period. When the weekly salaries are paid on the first Friday of the new accounting period, what will be the general journal entry? |
| | A) | Salaries Expense, debit, $4,250; Cash, credit, $4,250. |
| | B) | Salary Expense, debit, $2,000; Cash, credit, $2,000. |
| | C) | Salaries Expense, debit, $4,250; Salaries Payable, credit, $4,250. |
| | D) | Salary Expense, debit, $2,250; Salaries Payable, debit, $2,000; Cash, credit, $4,250. |
| | E) | None of the journal entries shown above. |
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| 15 | |
The basic difference between the cash basis of accounting and the accrual basis of accounting is that each basis interprets differently which two accounting principles? |
| | A) | The going-concern principle and the cost principle. |
| | B) | The monetary unit principle and the time-period principle. |
| | C) | The matching principle and the revenue recognition principle. |
| | D) | The cost principle and the revenue recognition principle. |
| | E) | The conservatism principle and the cost principle. |
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