Journal entries show the effects of transactions on the elements of the accounting
equation, as well as the account balances.
The reporting of financing activities is identical under the indirect and direct methods
for the statement of cash flows on the statement of cash flows.
Accumulated Depreciation is classified as an expense.
If the total of debits equals the total of credits on the trial balance, it means that the
accounting records do not contain any errors.
A highly effective internal control should not be implemented if the cost is greater than
the benefit.
The periodic inventory system uses the Purchases account to keep track of the amount
of inventory that is purchased.
The unadjusted trial balance of Sketch Star Makers Inc., prepared as of December 31,
2015, includes the following account balances. All of the accounts listed have normal
balances.
The following information is also available:
A) A count of supplies revealed $400 worth on hand at December 31, 2015.
B) An insurance policy, purchased on January 1, 2014, covers four years.
C) The equipment depreciates at a rate of $1,000 per year; no depreciation has been
recorded for 2015.
D) Three-fifths (or 60%) of the amount recorded as Unearned Revenue remains
unearned as of December 31, 2015
E) The accrued amount of salaries and wages at December 31, 2015 are $2,000.
Required:
Prepare the required adjustments for the company as of December 31, 2015.
Which of the following items appearing on a bank reconciliation require a journal entry
to bring the Cash account up-to-date?
A) Deposit in transit
B) Check from customers returned as NSF
C) Outstanding check
D) An error made by the bank in recording a deposit
Which of the following would be classified as a noncurrent liability on the balance
sheet at December 31, Year 1?
A) An accounts payable due on January 30, Year 2
B) A notes payable due November 30, Year 2
C) A note receivable that matures on April 30, Year 3
D) A notes payable due January 15, Year 3
Which of the following statements about organizational forms of a business is not
correct?
A) In a sole proprietorship form of business or in a partnership form, the owner(s) are
personally responsible for the debts of the business.
B) The partnership agreement states how profits are to be shared between partners and
what happens when a new partner is to be admitted or an existing partner is retiring.
C) A corporation is a separate entity from both a legal and accounting perspective.
D) The owners of a corporation are legally responsible for the corporation’s debts and
taxes.
Contingent liabilities must be recorded if the:
A) future event is reasonably possible.
B) amount owed cannot be reasonably estimated.
C) future event is probable and the amount owed can be reasonably estimated.
D) future event is remote.
The Whackem-Smackem Software Company sold $11 million of computer games in its
first year of operations. The company received payments of $7.5 million for these
computer games. The company’s income statement would report:
A) Accounts Receivable of $3.5 million.
B) expenses of $3.5 million.
C) Sales Revenue of $7.5 million.
D) Sales Revenue of $11 million.
During 2016, a company provided services for cash of $21,000 and services on credit of
$15,000. The company collected accounts receivable of $8,000 and incurred operating
expenses of $22,700, $14,000 of which were paid during the year. The amount of net
income (loss) for the year is:
A) $13,300
B) ($1,700)
C) $22,700
D) $6,300
One major difference between deferral and accrual adjustments is that:
A) accrual adjustments affect income statement accounts and deferral adjustments
affect balance sheet accounts.
B) deferral adjustments increase net income and accrual adjustments decrease net
income.
C) deferral adjustments are made under the cash basis of accounting and accrual
adjustments are made under the accrual basis of accounting..
D) accounts affected by an accrual adjustment always go in the same direction (i.e.,
both accounts are increased or both accounts are decreased) and accounts affected by a
deferral adjustment always go in opposite directions (one account is increased and one
account is decreased).
B. Darin Company issued common stock to investors and received $50,000. Which of
the following statements about this transaction is correct?
A) This is an example of a cash inflow from an investing activity.
B) The journal entry to record this transaction will include a credit to Cash.
C) This is an example of a cash outflow from a financing activity.
D) The journal entry to record this transaction will include a credit to Common Stock.
Your company issues $50,000 of one-year, 10% bonds at face value. The journal entry
to record this transaction will include a debit to:
A) Cash and a credit to Bonds Payable for $50,000.
B) Cash and a credit to Bonds Payable for $55,000.
C) Cash for $55,000, a credit to Bonds Payable for $50,000, and a credit to Interest
Payable for $5,000.
D) Cash for $50,000, a debit to Interest Expense for $5,000, and a credit to Bonds
Payable for $55,000.
Generally, freight costs incurred when a long-lived asset is purchased should be:
A) expensed in the period incurred.
B) deducted from the Accumulated Depreciation account.
C) added to the cost of the asset.
D) not recorded in the accounts.
Match the term and the definition. There are more definitions than terms.
TERM
1> _____ Unearned Revenue
2> _____ Revenue Recognition Principle
3> _____ Accrual Basis
4> _____ Time Period Assumption
5> _____ Expense
6> _____ Net Income
DEFINITION
A. To reduce the recorded value of an asset to better reflect its true market value.
B. Any outlay of money by a company for any purpose.
C. The practice of dividing the life of the business into months and years.
D. The concept that revenue and expenses should be recorded at the time received or
paid.
E. The concept that revenue should be recorded when earned, not necessarily when
payment is received.
F. Revenues should be recorded when they are earned and expenses when they are
incurred.
G. Total revenue minus total expenses.
H. Any use or sacrifice of a company’s resources to generate revenue.
I. The increase in value of financial assets held by a company.
J. Payments received for goods that have not yet been delivered or services that have
not yet been performed.
K. The concept that a company should record revenue during the same period as
expenses.
The receipt of cash is one of the operating activities of:
A) companies that sell goods but not companies that sell services.
B) companies that sell to consumers but do not sell to other companies.
C) merchandising, manufacturing, and service companies.
D) companies that sell goods they bought from others but not of companies that make
the goods they sell.
Flynn Corporation had the following cash flows for the current year. The company uses
the direct method in preparing the statement of cash flows.
Use the information above to answer the following question. What is the net cash
provided by (used in) operating activities?
A) $15,000
B) $6,000
C) ($4,000)
D) ($75,000)
Which of the following statements about this statement of retained earnings is not
correct?
A) Retained earnings of $350,500 will appear on the balance sheet as of December 31,
Year 3.
B) The net income in the above statement came from the income statement for the year
ending December 31, Year 3.
C) Dividends are shown in parentheses because they are distributions of earnings to the
stockholders.
D) The ending retained earnings amount represents the amount of cash at the end of
Year 3.
An understatement of the ending inventory balance will cause:
A) Cost of goods sold to be overstated and net income to be understated.
B) Cost of goods sold to be overstated and net income to be overstated.
C) Cost of goods sold to be understated and net income to be overstated.
D) Cost of goods sold to be overstated and net income to be correct.
The standard formatting for a journal entry lists the dollar amounts for:
A) credits underneath and to the right of the dollar amounts for debits.
B) debits and credits aligned equally to the right.
C) debits underneath and to the right of the dollar amounts for credits.
D) debits and credits aligned equally to the left.
Use the information above to answer the following question. Which line items would be
classified as noncurrent on a classified balance sheet?
A) Cash; Supplies; Accounts Payable
B) Equipment; Other Assets; Notes Payable
C) Supplies; Equipment; Notes Payable
D) Accounts Receivable; Equipment; Other Assets
Countryside Corporation provides $6,000 worth of lawn care on account during the
month. Experience suggests that about 2% of net credit sales will not be collected. To
record the potential bad debts, Countryside Corporation would debit:
A) Accounts Receivable and credit Allowance for Doubtful Accounts for $120.
B) Allowance for Doubtful Accounts and credit Bad Debt Expense for $120.
C) Bad Debt Expense and credit Allowance for Doubtful Accounts for $120.
D) Bad Debt Expense and credit Accounts Receivable for $120.
The adjusting entry used to record the estimated bad debts in the period credit sales
occur decreases:
A) both net income and net accounts receivable.
B) net income and increases liabilities.
C) assets and increases liabilities.
D) both selling expenses and net income.