Final Study Guide

PRATICE FINAL EXAM Chapter 1 1. Which of the following is a specialized field of accounting? a. social accounting b. tax accounting c. environmental accounting d. all are correct ANS:D 2.

Select the type of business that is most likely to obtain large amounts of resources by issuing stock. a. Partnership b. Corporation c. Proprietorship d. None are correct.

ANS:B 3. The following are examples of internal stakeholders except: a. Managers b. Owners c. Employees d.

all of the above ANS:B 4. Managerial accountants would be responsible for providing the following information: a.Tax reports to government agencies. b. Profit reports to owners and management.

c. Expansion of a product line report to management. d. Consumer reports to customers. ANS:C 5.

Which of the following is not a role of accounting in business? a. To provide reports to stakeholders about the economic activities and conditions of a business. b. To personally guarantee loans of the business. c. To provide information for managers to use in operating the business.

d. To assess the various informational needs of stakeholders and design its accounting system to meet those needs. e.To provide information to other stakeholders to use in assessing the economic performance and condition of the business. ANS:B 6. The business entity concept means that a.

the owner is part of the business entity b. an entity is organized according to state or federal statutes c. an entity is organized according to the rules set by the FASB d. the entity is an individual economic unit for which data are recorded, analyzed, and reported ANS:D 7. The Reynolds Company estimated that the value of its land had increased from $10,000 to $16,000 and therefore wrote up the land account to $16,000.Which accounting concept(s) was (were) violated? a.

cost concept b. objectivity concept c. unit of measure concept d. cost and objectivity concepts ANS:C 8. Aztec Company is selling a piece of land adjacent to their business. An appraisal reported the market value of the land to be $100,000.

The Majestic Company initially offered to buy the land for $87,000. The companies settled on a purchase price of $95,000. On the same day, another piece of land on the same block sold for $102,000. Under the cost concept, what is the amount that will be used to record this transaction in the ccounting records? a. $100,000 b. $87,000 c.

$102,000 d. $95,000 ANS:D 9. If total liabilities decreased by $25,000 during a period of time and owner’s equity increased by $30,000 during the same period, the amount and direction (increase or decrease) of the period’s change in total assets is a. $65,000 increase b. $5,000 decrease c.

$5,000 increase d. $65,000 decrease ANS:C 10. Expenses are recorded when a. cash is paid for services rendered b. a bill is received in advance of services rendered c. services are rendered d.

none are correct ANS:C 11.If total assets decreased by $47,000 during a period of time and owner’s equity increased by $24,000 during the same period, then the amount and direction (increase or decrease) of the period’s change in total liabilities is a. $23,000 increase b. $47,000 decrease c. $71,000 decrease d.

$71,000 increase ANS:C 12. How does the owner withdrawing cash from the business affect the accounting equation? a. assets decrease; owner’s equity decreases b. assets decrease; owner’s equity increases c. assets increase; liabilities decrease d.

no effect on the assets, liabilities, or owner’s equityANS:A 13. The Kennedy Company sold land for $60,000 in cash. The land was originally purchased for $40,000, and at the time of the sale, $15,000 was still owed to First National Bank on that purchase. After the sale, The Kennedy Company paid off the loan to First National Bank. What is the effect of the sale and the payoff of the loan on the accounting equation? a.

assets increase $20,000; liabilities decrease $15,000; owner’s equity increases $5,000 b. assets increase $5,000; liabilities decrease $15,000; owner’s equity increases $20,000 c. ssets increase $60,000; liabilities decrease $15,000; owner’s equity increases $20,000 d. assets increase $20,000; liabilities decrease $15,000; owner’s equity increases $35,000 ANS:B 14. The total assets and the total liabilities of a business at the beginning and at the end of the year appear below. During the year, the owner had withdrawn $50,000 for personal use and had made an additional investment of $35,000 in the business.

AssetsLiabilities Beginning of year$295,000$190,000 End of year355,000220,000 The amount of net income for the year was a. $85,000 b. $40,000 c. $135,000 d. 45,000 ANS:D 15.

Rivers Computer Makeover Company purchased $15,000 of Computer and Office Equipment. The company paid $3,000 in cash at the time of the purchase and signed a promissory note for the remainder to be paid in six monthly installments. How will this transaction affect the accounting equation? a. Increase Assets (Computer and Office Equipment $15,000) and decrease Liabilities (Accounts Payable $15,000) b. Increase Total Assets by a net amount of $12,000 (increase Computer and Office Equipment $15,000 and decrease Cash $3,000) and increase Liabilities (Notes Payable $12,000) c.Increase Total Assets by a net amount of $15,000 (increase Computer and Office Equipment $12,000 and increase Cash $3,000) and decrease Liabilities (Accounts Payable $15,000) d.

Increase Assets (Computer and Office Equipment $12,000) and increase Liabilities (Accounts Payable $12,000) ANS:B 16. There are four transactions that directly affect Owner’s Equity. Which are the two transactions that decrease Owner’s Equity? a. Owner’s withdrawals and expenses b. Revenues and expenses c. Owner’s investments and revenues d.

Owner’s investments and expenses ANS:A 17. Which of the following is not a business transaction? a.Becky deposits $25,000 in a bank account in the name of Becky’s Daycare. b. Becky provided services to customers earning fees of $300.

c. Becky pays her monthly personal credit card bill. d. Becky hires a part-timer to begin work next week. e. Becky purchased cribs for her daycare agreeing to pay the supplier next month.

ANS:C 18. Four financial statements are usually prepared for a business. The statement of cash flows is usually prepared last. The statement of owner’s equity (OE), the balance sheet (B), and the income statement (I) are prepared in a certain order to obtain information needed for the next statement.In what order are these three statements prepared? a.

I,OE, B b. B, I, OE c. OE, I, B d. B,OE, I ANS:A 19. Which of the following is not a principle financial statement? a. Income Statement b.

Statement of Resources Owned c. Statement of Owner’s Equity d. Statement of Cash Flows e. Balance Sheet ANS:B Chapter 2 20. Which statement(s) concerning cash is (are) true? a.

cash will always have more debits than credits b. cash will never have a credit balance c. cash is increased by debiting d. all of the above ANS:C 21. Which one of the statements below is not a purpose for the journal? a.

o show increases and decreases in accounts b. to show a chronological order by date c. to show a complete transaction in one place d. to help locate errors ANS:A 22. The classification and normal balance of the accounts payable account is a. an asset with a credit balance b.

a liability with a credit balance c. owner’s equity with a credit balance d. revenue with a credit balance ANS:B 23. In which of the following types of accounts are decreases recorded by debits? a. assets b. revenues c.

expenses d. drawing ANS:B 24. Which of the following entries records the payment of an account payable? a. ebit Cash; credit Accounts Payable b. debit Accounts Receivable; credit Cash c.

debit Cash; credit Supplies Expense d. debit Accounts Payable; credit Cash ANS:D 25. Office supplies purchased by J’s Appliance Repair on account were returned. Which of the following entries for J’s Appliance Repair records this transaction? a. Cash, debit; Office Supplies, credit b. Office Supplies, debit; Accounts Receivable, credit c.

Accounts Payable, debit; Office Supplies, credit d. Office Supplies, debit; Accounts Payable, credit ANS:C 26. Which of the following entries records the billing of patients for services performed? . Accounts Receivable, debit; Fees Earned, credit b. Accounts Payable, debit; Cash, credit c. Fees Earned, debit; Accounts Receivable, credit d.

Fees Earned, debit; Cash, credit ANS:A 27. A patient has a physical examination and asks the bookkeeper to mail the bill. The bookkeeper should a. make no entry until the cash is received b. Cash, debit; Accounts Receivable, credit c.

Cash, debit; Fees Earned, credit d. Accounts Receivable, debit; Fees Earned, credit ANS:D 28. When amounts of a transaction are entered on the left side of an account, they are said to be a. credited b. summarized c.

totaled d. ebited ANS:D 29. The balance of the account is determined by a. adding all of the debits to all of the credits. b. always subtracting the debits from the credits.

c. always subtracting all of the credits from the debit. d. adding all of the debits, adding all of the credits, and then subtracting the smaller sum from the larger sum. ANS:D 30. Which of the following is not a correct rule of debits and credits? a.

assets, expenses and withdrawals are increased by debits b. assets are decreased by credits and have a normal debit balance c. liabilities, revenues and owner’s equity are increased by credits d. he normal balance for revenues and expenses is a credit ANS:D 31. Which of the following statements is not true about liabilities? a. Liabilities are debts owned to outsiders.

b. Account titles of liabilities often include the term “payable”. c. Cash received before services are performed are considered to be liabilities. d. Liabilities do not include wages owed to employees of the company.

ANS:D 32. The chart of accounts classify the accounts to make identification of the accounts easier. This is done by way of assigning a number to each account. The first number identifies the classification of the type of account.Which of the following indicates the use of this classification? a. 1-Assets, 2-Liabilities, 3-Owner’s Equity, 4-Expenses, 5-Revenues b.

1-Assets, 2-Liabilities, 3-Owner’s Equity, 4-Revenues, 5-Expenses c. 1-Assets, 2-Owner’s Equity, 3-Revenues, 4-Expenses, 5-Drawing d. 1-Owner’s Equity, 2-Drawing, 3-Revenues, 4-Expenses ANS:B 33. Which of the following accounts would be increased with a credit? a. Land, Accounts Payable, Drawing b. Accounts Payable, Unearned revenue, BK Capital c.

BK Capital, Accounts Receivable, Unearned Revenue d. Cash, Accounts Receivable, BK Capital ANS:B 34. Net income will result when . revenues (credits) ; expenses (debits) b. revenues (debits) ; expenses (credits) c.

expenses (credits) ; revenues (debits) d. revenues (credits) = expenses (debits) ANS:A 35. The post reference columns are used to trace transactions from the journal to the accounts. What will be posted on the post reference column of (a) the journal and (b) on the account? a. (a) the amount of the debit or credit (b) the journal page number b.

(a) the journal page number (b) the date of the transaction c. (a) the journal page number, (b) the account number d. (a) the account number, (b) the journal page numberANS:D 36. An overpayment error was discovered in computing and paying the wages of a Bartson Repair Shop employee. When Bartson receives cash from the employee for the amount of the overpayment, which of the following entries will Bartson make? a.

Cash, debit; Wages Expense, credit b. Wages Payable, debit; Wages Expense, credit c. Wages Expense, debit, Cash, credit d. Cash, debit; Wages Payable, credit ANS:A 37. Supplies purchased on account were incorrectly recorded as Office Equipment. The correcting entry would be a.

Supplies, debit; Office Equipment, credit. b. Accounts Receivable, debit; Supplies, credit. . Office Equipment, debit; Supplies Expense, credit.

d. Supplies, debit; Accounts Payable, credit. ANS:A 38. Which of the following is not a short-cut in finding errors on the trial balance? a. Determine the difference between debits and credits and look for the amount. b.

Determine the amount and change any account to make the trial balance correct. c. Determine the difference between debits and credits, divide the amount by 2, look for the amount. d. Determine the difference between debits and credits, divide the amount by 9, if it divides evenly, look for a transposition or slide error.ANS:B Chapter 3 39.

If the effect of the credit portion of an adjusting entry is to increase the balance of a liability account, which of the following describes the effect of the debit portion of the entry? a. increases the balance of a contra asset account b. increases the balance of an asset account c. decreases the balance of an owner’s equity account d. increases the balance of an expense account ANS:D 40.

Adjusting entries affect at least one a. income statement account and one balance sheet account b. revenue and the drawing account c. asset and one owner’s equity account . revenue and one capital account ANS:A 41. 0The cash basis of accounting records revenues and expenses when the cash is exchanged while the accrual basis of accounting a.

records revenues when they are earned and expenses when they are paid b. records revenues and expenses when they are incurred. c. records revenues when cash is received and expenses when they are incurred. d.

records revenues and expenses when the company needs to apply for a loan. ANS:B 42. Which of the following is considered to be unearned revenue? a. Concert tickets sold for tonight’s performance. . Concert tickets sold yesterday on credit.

c. Concert tickets that were not sold for the current performance. d. Concert tickets sold for next month’s performance. ANS:D 43. Which one of the accounts below would likely be included in an accrual adjusting entry? a.

Insurance Expense b. Prepaid Rent c. Interest Expense d. Unearned Rent ANS:C 44. What is the proper adjusting entry at June 30, the end of the fiscal year, based on a prepaid insurance account balance before adjustment, $15,500, and unexpired amounts per analysis of policies, $4,500? a. ebit Insurance Expense, $4,500; credit Prepaid Insurance, $4,500 b.

debit Insurance Expense, $15,500; credit Prepaid Insurance, $15,500 c. debit Prepaid Insurance, $11,500; credit Insurance Expense, $11,500 d. debit Insurance Expense, $11,000; credit Prepaid Insurance, $11,000 ANS:D 45. The adjusting entry to record the depreciation of equipment for the fiscal period is a. debit Depreciation Expense; credit Equipment b. debit Depreciation Expense; credit Accumulated Depreciation c.

debit Accumulated Depreciation; credit Depreciation Expense d. debit Equipment; credit Depreciation Expense ANS:B 6. A company purchases a one-year insurance policy on June 1 for $840. The adjusting entry on December 31 is a. debit Insurance Expense, $350 and credit Prepaid Insurance, $350 b.

debit Insurance Expense, $280 and credit Prepaid Insurance, $280 c. debit Insurance Expense, $490, and credit Prepaid Insurance, $ 490. d. debit Prepaid Insurance, $720, and credit Cash, $720 ANS:C 47. If there is a balance in the prepaid rent account after adjusting entries are made, it represents a(n) a. deferral b.

accrual c. revenue d. liability ANS:A 48. Accrued revenues would appear on the balance sheet as . assets b.

liabilities c. capital d. prepaid expenses ANS:A 49. The general term employed to indicate a delay of the recognition of an expense already paid or of a revenue already received is a. depreciation b. deferral c.

accrual d. inventory ANS:B 50. The following adjusting journal entry was found on page 4 of the journal. Select the best explanation for the entry. Wages Expense2,555 Wages Payable2,555 ???????????????? a. Record the payment of wages b.

Record wages to be paid this month c. Record wages paid in advance d. Record wages expense incurred and to be paid next month ANS:D 51.The account type and normal balance of Accumulated Depreciation is a. revenue, credit b. expense, debit c.

asset, credit d. asset, debit ANS:C 52. At the end of the fiscal year, the usual adjusting entry for depreciation on equipment was omitted. Which of the following statements is true? a. Total assets will be understated at the end of the current year. b.

The balance sheet and income statement will be misstated but the statement of owner’s equity will be correct for the current year. c. Net income will be overstated for the current year. d. Total liabilities and total assets will be understated.

ANS:C 53. Which of the accounts below would appear on an adjusted trial balance but probably would not appear on the trial balance? a. Fees Earned b. Accounts Receivable c. Unearned Fees d.

Depreciation Expense ANS:D 54. What is the purpose of the adjusted trial balance? a. to verify that all of the adjusting entries have been posted b. to verify that the net income is correctly reported c. to verify that no adjusting journal entry has been omitted.

d. to verify that the debits and credits balance ANS:D Chapter 4 55. Once the adjusting entries are posted, the Adjusted Trial Balance will prepared to a. erify that the debits and credits are in balance. b.

verify that all of the adjustments were posted in the correct accounts. c. verify that the net income (loss) is correct for the period. d. verify the correct flow of accounts into the financial statements. ANS:A 56.

Which one of the fixed asset accounts listed below will not have a related contra asset account? a. Office Equipment b. Land c. Delivery Equipment d. Building ANS:B 57. The Statement of Owner’s Equity begins with the beginning balance followed by a.

plus Net Income (loss) less withdrawals b. plus Net Income (loss) plus investments c. lus investments less withdrawals d. plus investments plus Net Income (loss) less withdrawals ANS:D 58. After posting the second closing entry to the income summary account, the balance will be equal to a. zero.

b. owner’s equity. c. revenues for the period d. the net income or (loss) for the period.

ANS:D 59. Which of the following accounts should be closed to Income Summary at the end of the fiscal year? a. Supplies Expense b. Accumulated Depreciation c. Prepaid Insurance d. Unearned Rent ANS:A 60.

The following are steps to the accounting cycle. Of the following, which step should be done first. a.Closing entries are journalized and posted to the ledger. b. Transactions are posted to the ledger.

c. Adjusting entries are journalized and posted to the ledger. d. Financial statements are prepared. ANS:B 61. The difference between the totals of the debit and credit columns of the Adjusted Trial Balance columns on a work sheet a.

is the amount of net income or loss b. indicates there is an error on the work sheet c. is not unusual when preparing the work sheet d. is the net difference between revenue, expenses, and drawing ANS:B 62. Which of the statements below indicates that a company earned a net income for the period? . The sum of the debits exceeds the sum of the credits in the Balance Sheet columns on the work sheet.

b. The sum of the credits exceeds the sum of the debits in the Income Statement columns on the work sheet. c. The sum of the debits exceeds the sum of the credits in the Income Statement columns on the work sheet. d. Cash inflows exceeded cash outflows.

ANS:B 63. On October 1, the company pays rent for twelve months in advance and debits an asset account. At year end, the adjusting entry on the work sheet would a. increase an expense account b. decrease a liability account c. ncrease an asset account d.

decrease an expense account ANS:A Chapter 6 64. Which one of the following is not a difference between a retail business and a service business? a. in what is sold b. the inclusion of gross profit in the income statement c. accounting equation d.

merchandise inventory included in the balance sheet ANS:C 65. The form of income statement that derives its name from the fact that the total of all expenses is deducted from the total of all revenues is called a a. multiple-step statement b. revenue statement c. report-form statement d. single-step statement ANS:D 66.

When comparing a retail business to a service business, the financial statement that changes the most is the a. Balance Sheet b. Income Statement c. Statement of Owner’s Equity d. Statement of Cash Flow ANS:B 67.

The arrangements between buyer and seller as to when payments for merchandise are to be made are called a. credit terms b. net cash c. cash on demand d. gross cash ANS:A 68. Merchandise with a sales price of $500 is sold on account with term 2/10, n/30.

The journal entry to record the sale would include a a. debit to Cash for $500 b. Debit to Sales Discounts for $10 c. Credit to Sales for $500 d.Debit to Accounts Receivable for $490 ANS:C 69.

Which of the following accounts has a normal credit balance? a. Sales Returns and Allowances b. Sales c. Merchandise Inventory d. Delivery Expense ANS:B 70.

When a buyer returns merchandise purchased for cash, the buyer may record the transaction using the following entry a. debit Merchandise Inventory; credit Cash b. debit Cash; credit Merchandise Inventory c. debit Cash; credit Sales Returns and Allowances d. debit Sales Returns and Allowances; credit Cash ANS:B 71.

Using a perpetual inventory system, the entry to record the return of merchandise purchased on account includes a a. ebit to Cost of Goods Sold b. credit to Accounts Payable c. credit to Merchandise Inventory d. credit to Sales ANS:C 72. A retailer purchases merchandise with a catalog list price of $10,000.

The retailer receives a 25% trade discount and credit terms of 2/10, n/30. What amount should the retailer debit to the Merchandise Inventory account? a. $7,500 b. $10,000 c. $9,800 d. $7,350 ANS:A 73.

Merchandise is sold for cash. The selling price of the merchandise is $2,000 and the sale is subject to a 5% state sales tax. The journal entry to record the sale would include a. A debit to Cash for $2,000. .

A credit to Sales for $2,100. c. A credit to Sales Tax Payable for $100. d. None of the above. ANS:C 74.

When goods are shipped FOB destination and the seller pays the transportation charges, the buyer a. journalizes a reduction for the cost of the merchandise. b. journalizes a reimbursement to the seller. c. does not take a discount.

d. makes no journal entry for the transportation. ANS:D 75. Robles Co. sells $1,000 of inventory to Salas Co.

for cash. Robles paid $650 for the merchandise. Under a perpetual inventory system, the following journal entry(ies) would be recorded. a.Cash 1,000 Dr, Merchandise Inventory 650 Cr b.

Cash 1,000 Dr, Sales 1,000 Cr, Cost of Merchandise Sold 650 Dr, Merchandise Inventory 650 Cr. c. Cash 1,000 Dr, Sales 1,000 Cr d. Accounts Receivable 1,000 Dr, Sales 1,000 Cr, Cost of Merchandise Sold 650 Dr, Merchandise Inventory 650 Cr. ANS:B 76. Discounts taken by a buyer because of early payment are recorded on the seller’s accounting records as a.

Purchases discount b. Sales discount c. Trade discount d. Early payment discount ANS:B 77. Based on the following information, what would be recorded as the cash payment if the invoice is paid within the discount period? . $5,000 of merchandise inventory was ordered on April 2, 2007 2.

$2,000 of this merchandise was received on April 5, 2007 3. On April 6, 2007, an invoice dated April 4, 2007, with terms of 2/10, net 30 for $2,150 which included a $150 prepaid freight cost, was received. 4. On April 10, 2007, $500 of the merchandise was returned to the seller. a. $1,470 b.

$1,520 c. $2,150 d. $1,620 ANS:D 78. Who pays the freight cost when the terms are FOB destination? a. the seller b.

the buyer c. the customer d. either the buyer or the seller ANS:A 79. Under a perpetual inventory system a. ccounting records continuously disclose the amount of inventory b. increases in inventory resulting from purchases are debited to Purchases c.

there is no need for a year-end physical count d. the purchase returns and allowances account is credited when goods are returned to vendors ANS:A 80. What is the major difference between a periodic and perpetual inventory system? a. Under the periodic inventory system, the purchase of inventory will be debited to the Purchases account b. Under the periodic inventory system, no journal entry is recorded at the time of the sale of inventory.

c.Under the periodic inventory system, all adjustments such as purchases returns and allowances and discounts are reconciled at the end of the month. d. All are correct. ANS:D Chapter 7 81. When merchandise sold is assumed to be in the order in which the expenditures were made, the inventory method is called a.

first-in, last-out b. last-in, first-out c. first-in, first-out d. average cost ANS:C 82. Under a perpetual inventory system, when a shortage is discovered a. Merchandise Inventory is debited b.

Cost of Merchandise Sold is credited c. Inventory Shortages is credited d. Merchandise Inventory is credited ANS:D 3. Too much inventory on hand a. reduces solvency b. increases the cost to safeguard the assets c.

increases the losses due to price declines d. all of the above ANS:D 84. The following lots of a particular commodity were available for sale during the year: Beginning inventory10 units at $61 First purchase25 units at $63 Second purchase30 units at $64 Third purchase15 units at $73 The firm uses the periodic system and there are 20 units of the commodity on hand at the end of the year. What is the amount of the inventory at the end of the year according to the average cost method? a. $1,300 b. $1,305 c. $1,415 d. 1,236 ANS:A 85. Merchandise inventory at the end of the year is overstated. Which of the following statements correctly states the effect of the error? a. owner’s equity is overstated b. cost of merchandise sold is overstated c. gross profit is understated d. net income is understated ANS:A 86. A company will most likely use an estimated method of estimating inventory when a. the company decides not to do a physical inventory. b. a natural disaster has destroyed most of their inventory. c. the company has not kept up with their inventory records. d. trying to determine the amount of theft that has taken place. ANS:B