Achievement Test 1: Chapters 1 and 2 Name _________________________
Financial Accounting, 9e Instructor ______________________
Section # _______ Date _________
Part
I
II
III
IV
Total
Points
54
26
10
10
100
Score
PART I — MULTIPLE CHOICE (54 points)
Instructions: Designate the best answer for each of the following questions.
____ 1. “GAAP” refers to
a. General Accounting and Auditing Principles.
b. Guidelines for American Accounting Procedures.
c. General Association of Accounting Practitioners.
d. None of these answer choices are correct.
____ 2. The requirement that only transaction data capable of being expressed in terms of
money be included in the accounting records relates to the
a. historical cost principle.
b. monetary unit assumption.
c. economic entity assumption.
d. both the historical cost principle and the monetary unit assumption.
____ 3. The initials “CPA” stand for
a. Certified Practical Auditor.
b. Chartered Public Auditor.
c. Certified Public Accountant.
d. Can’t Pass Accounting.
____ 4. Which of the following is not an external user of accounting data?
a. Company officers
b. Regulatory agency
c. Labor union
d. Taxing authority
____ 5. Which of the following is not generally understood to be a major service of a public
accounting firm?
a. Auditing
b. Taxation
c. Budgeting
d. Management consulting
Test Bank for Financial Accounting, Ninth Edition
AT1- 2
____ 6. Which of the following presents key aspects of the process of accounting in the correct
chronological order?
a. Totaling, auditing, and budgeting
b. Budgeting, recording, and communicating
c. Recording, totaling, and auditing
d. Identifying, recording, and communicating
____ 7. The process of transferring transaction effects into the appropriate accounts is referred
to as
a. closing.
b. journalizing.
c. recording.
d. posting.
____ 8. The following describes the process of identifying the economic events of an
organization
a. Keeping a chronological diary of particular events in an orderly and systematic
manner.
b. Selecting the economic activities relevant to a particular organization.
c. Preparing accounting reports, including financial statements.
d. Quantifying events in dollars and cents.
____ 9. The current source of “GAAP” in the private sector is the
a. Accounting Principles Board.
b. Internal Revenue Service.
c. Financial Accounting Standards Board.
d. Securities Exchange Commission.
____10. Transactions are initially recorded in the
a. general ledger.
b. trial balance.
c. general journal.
d. balance sheet.
____11. The retained earnings account had a beginning balance of $40,000 and an ending
balance of $50,000. If $10,000 of dividends were paid during the period, net income
must have been
a. $20,000.
b. $40,000.
c. $10,000.
d. $30,000.
____12. Which of the following is false with regard to a general journal?
a. It tracks the increases and decreases in an individual account.
b. It provides a chronological record of transactions.
c. It discloses in one place the complete effects of a transaction.
d. It helps to prevent errors since the debit and credit amounts in an individual entry
can be readily compared.
Achievement Test 1
____13. Financial statements combining the operations of Sears and J.C. Penney would violate
the
a. monetary unit assumption.
b. economic entity assumption.
c. historical cost principle.
d. both the monetary unit assumption and the historical cost principle.
____14. At January 1, 2015, Orion Enterprises reported accounts receivable totaling $14,000.
During the month, the company had credit sales of $28,000 and collected cash on
accounts of $24,000. At the end of January, the balance in accounts receivable is
a. $14,000 credit.
b. $38,000 debit.
c. $10,000 credit.
d. $18,000 debit.
____ 15. The accounting equation for Ally Elton, Inc. is:
Assets $120,000 = Liabilities $50,000 + Stockholders’ Equity $70,000.
If the company purchases supplies on account for $5,000, the new accounting
equation will be:
a. Assets $115,000 = Liabilities $50,000 + Stockholders’ Equity $70,000.
b. Assets $125,000 = Liabilities $55,000 + Stockholders’ Equity $70,000.
c. Assets $125,000 = Liabilities $50,000 + Stockholders’ Equity $75,000.
d. Assets $120,000 = Liabilities $55,000 + Stockholders’ Equity $65,000.
____16. Although a separate legal entity, the transactions of the following still must be kept
separate from the personal activities of the owners for accounting purposes:
a. Proprietorship.
b. Partnership.
c. Corporation.
d. Both a proprietorship and a partnership.
____17. Limited liability is not enjoyed by the owner(s) of a
a. corporation.
b. partnership.
c. proprietorship.
d. both partnership and proprietorship.
____18. At June 1, 2015, Larry Levine Company reported Accounts Payable of $15,000. During
the month, the company made purchases on account of $51,000 and payments on
account of $30,000. At June 30, 2015, the balance in Accounts Payable is
a. $15,000 debit.
b. $36,000 credit.
c. $66,000 credit.
d. $30,000 debit.
Test Bank for Financial Accounting, Ninth Edition
AT1- 4
PART II — JOURNAL ENTRIES (26 points)
The ledger accounts given below, with an identification number for each, are used by Flynn
Company.
Instructions: Indicate the appropriate entries for the month of June by placing the appropriate
identification number(s) in the debit and credit columns provided. Item 0 is given as an example.
Write “none” if no entry is appropriate.
1. Cash 7. Salaries and Wages Payable 13. Service Revenue
2. Accounts Receivable 8. Accounts Payable 14. Equipment Expense
3. Supplies 9. Unearned Service Revenue 15. Advertising Expense
4. Prepaid Insurance 10. Notes Payable 16. Supplies Expense
5. Prepaid Advertising 11. Common Stock 17. Rent Expense
6. Equipment 12. Dividends 18. Salaries and Wages
Expense
———————————————————————————————————————————
Entry Account(s) Account(s)
No. Entry Information Debited Credited
0. June 1 H. Flynn invested $25,000 in the business. 1 11
———————————————————————————————————————————
1. June 4 Purchased supplies costing $2,000 on account.
———————————————————————————————————————————
2. June 5 Equipment was purchased at a cost of $5,000; a three–
month, 12% note payable was signed for this amount.
———————————————————————————————————————————
3. June 8 Received $7,000 from customers for services rendered
during the week.
———————————————————————————————————————————
4. June 10 Flynn agreed to hire B. Kiner as an assistant. She will
be paid at the rate of $4,000 monthly, receiving $2,000
on the 15th and 30th of each month. She will begin
work June 16.
———————————————————————————————————————————
5. June 14 Paid $400 cash to the Daily News for advertisements
run this past week.
———————————————————————————————————————————
6. June 16 B. Kiner began work.
———————————————————————————————————————————
7. June 19 Paid $2,000 in cash to Santo Company for June rent.
———————————————————————————————————————————
8. June 25 Paid supplier for supplies purchased on June 4.
———————————————————————————————————————————
9. June 26 Paid the Daily News $400 for an advertisement that will
run the first week in July.
———————————————————————————————————————————
10. June 27 Received $9,000 from customers for services to be
rendered early in July.
———————————————————————————————————————————
11. June 28 Billed customers $6,000 for services rendered but not
collected during June.
———————————————————————————————————————————
12. June 30 Flynn paid $900 of dividends.
———————————————————————————————————————————
13. June 30 B. Kiner was paid $2,000 cash for her salary.
———————————————————————————————————————————
Achievement Test 1
PART III — SHORT PROBLEMS (10 points)
Instructions: Present the solutions, with appropriate supporting calculations, for each of the
following independent problems.
A. Given the following information, compute 2015 net income for Orson Company.
Stockholders’ equity—January 1, 2015 $120,000
Stockholders’ equity—December 31, 2015 150,000
Stockholder investments during 2015 25,000
Dividends paid during 2015 38,000
B. Indicate the impact on the accounting equation of each of the following transactions. Item 0 is
given as an example.
0. Paid dividends to stockholders. Ans.; Decreased assets and decreased stockholders’
equity
1. Stockholder investment of cash.
2. Purchase of equipment for cash
3. Borrowed money from bank by issuing a note payable.
4. Purchase of office furniture for cash.
5. Purchase of supplies on account.
6. Collect cash from customers for services performed.
7. Paid for a 24-month insurance policy
8. Paid monthly payroll.
Test Bank for Financial Accounting, Ninth Edition
AT1- 6
PART IV — TYPES OF ACCOUNTS (10 points)
Instructions: Place a check in the appropriate columns to designate whether each of the
following accounts: (1) has a debit or credit normal balance; and (2) is an asset, liability, or
stockholders’ equity account.
———————————————————————————————————————————
(1) (2)
Stockholders’
Account Debit Credit Asset Liability Equity
———————————————————————————————————————————
1. Service Revenue
———————————————————————————————————————————
2. Salaries and Wages Expense
———————————————————————————————————————————
3. Supplies
———————————————————————————————————————————
4. Common Stock
———————————————————————————————————————————
5. Accounts Payable
———————————————————————————————————————————
6. Salaries and Wages Payable
———————————————————————————————————————————
7. Dividends
———————————————————————————————————————————
8. Accounts Receivable
———————————————————————————————————————————
9. Prepaid Insurance
———————————————————————————————————————————
10. Notes Payable
———————————————————————————————————————————
Achievement Test 1
Solutions — Achievement Test 1: Chapters 1 and 2
Test Bank for Financial Accounting, Ninth Edition
AT1- 8