Test 1

Question 1

Describe the effect of each transaction on assets, liabilities, and owner’s equity.

1. Purchased computers for $20,000 from Digital Equipment on account.

Answer 1

An increase in assets and an increase in liabilities

Question 2

Describe the effect of each transaction on assets, liabilities, and owner’s equity.

2. Paid $4,000 cash for May rent on storage space.

Answer 2

A decrease in assets and a decrease in owner’s equity

Question 3

Describe the effect of each transaction on assets, liabilities, and owner’s equity.

3. Received $17,000 cash from customers for contracts billed in April.

Answer 3

An increase in assets and a decrease in assets

Question 4

Describe the effect of each transaction on assets, liabilities, and owner’s equity.

4. Performed computer services for Viking Construction Company for $4,000 cash.

Answer 4

An increase in assets and an increase in owner’s equity

Question 5

Describe the effect of each transaction on assets, liabilities, and owner’s equity.

5. Paid Tri-State Power Co. $11,000 cash for energy usage in May.

Answer 5

A decrease in assets and a decrease in owner’s equity

Question 6

Describe the effect of each transaction on assets, liabilities, and owner’s equity.

6. Falske invested an additional $29,000 in the business.

Answer 6

An increase in assets and an increase in owner’s equity

Question 7

Describe the effect of each transaction on assets, liabilities, and owner’s equity.

1. Purchased computers for $20,000 from Digital Equipment on account.
2. Paid Digital Equipment for the computers purchased in (1) above.

Answer 7

A decrease in assets and a decrease in liabilities

Question 8

Pharoah Service Shop started the year with total assets of $326000 and total liabilities of $238000. During the year, the business recorded $630000 in revenues, $441000 in expenses, and owner drawings of $60400.

The net income reported by Pharoah Service Shop for the year was

A. $216600.
B. $238000.
C. $128600.
D. $189000.

Answer 8

D. $189000.

Question 9

Vaughn Company compiled the following financial information as of December 31, 2020:

Revenues	                      $350000
Owner's Capital (1/1/20) 	61800
Equipment	                        79000
Expenses	                        251000
Cash	                                90500
Owner's Drawings	                19500
Supplies	                                19500
Accounts payable           	40300
Accounts receivable       	70800

Vaughn’s assets on December 31, 2020 are

A. $189500.
B. $259800.
C. $321500.
D. $203000.

Answer 9

B. $259800.

Question 10

Sheffield Company’s owner’s equity at the beginning of August 2020 was $749000. During the month, the company earned net income of $176000 and owner’s drawings were $78000. At the end of August 2020, what is the balance in owner’s equity?

A. $827000
B. $847000
C. $749000
D. $671000

Answer 10

B. $847000

Question 11

Which of the following is not part of the accounting process?

A. Financial decision making
B. Communicating
C. Recording
D. Identifying

Answer 11

A. Financial decision making

Question 12

The first part of the accounting process is

A. processing.
B. communicating.
C. identifying.
D. recording.

Answer 12

C. identifying.

Question 13

Keeping a systematic, chronological diary of events that are measured in dollars and cents is called

A. recording.
B. processing.
C. communicating.
D. identifying.

Answer 13

A. recording.

Question 14

A proprietorship is a business

A. owned by two or more persons.
B. owned by one person.
C. organized as a separate legal entity under state 
     corporation law.
D. owned by a governmental agency.

Answer 14

B. owned by one person.

Question 15

Internal users of accounting information include all of the following except

A. production supervisors.
B. investors.
C. company officers.
D. marketing managers.

Answer 15

B. investors.

Question 16

The primary accounting standard-setting body in the United States is the

A. SEC
B. IASB
C. IFRS
D. FASB

Answer 16

D. FASB

Question 17

A net loss will result during a time period when

A. assets exceed liabilities.
B. expenses exceed revenues.
C. revenues exceed expenses.
D. assets exceed owner’s equity.

Answer 17

B. expenses exceed revenues.

Question 18

Which one of the following could represent the expanded basic accounting equation?

A. Assets – Liabilities – Owner’s Drawings = Owner’s Capital + Revenues – Expenses.

B. Assets = Revenues + Expenses – Liabilities.

C. Assets = Liabilities + Owner’s Capital + Owner’s Drawings – Revenue – Expenses.

D. Assets + Owner’s Drawings + Expenses = Liabilities + Owner’s Capital + Revenues.

Answer 18

D. Assets + Owner’s Drawings + Expenses = Liabilities + Owner’s Capital + Revenues.

Question 19

Which of the following correctly identifies normal balances of accounts?

A. Assets	        Credit
    Liabilities	        Debit
    Owner's Equity	Debit
    Revenues	        Credit
    Expenses	        Debit

B. Assets	        Debit
    Liabilities	        Credit
    Owner's Equity	Credit
    Revenues	        Credit
    Expenses	        Debit

C. Assets	        Debit
    Liabilities	        Credit
    Owner's Equity	Credit
    Revenues	        Debit
    Expenses	        Credit

D. Assets	         Debit
    Liabilities	        Credit
    Owner's Equity	Credit
    Revenues	        Credit
    Expenses	        Credit

Answer 19

B. Assets	        Debit
    Liabilities	        Credit
    Owner's Equity	Credit
    Revenues	        Credit
    Expenses	        Debit

Question 20

The best interpretation of the word credit is the

A. offset side of an account.
B. decrease side of an account.
C. right side of an account.
D. increase side of an account.

Answer 20

C. right side of an account.

Question 21

In recording an accounting transaction in a double-entry system

A. the number of debit accounts must equal the number of credit accounts.
B. there must only be two accounts affected by any transaction.
C. there must always be entries made on both sides of the accounting equation.
D. the amount of the debits must equal the amount of the credits.

Answer 21

D. the amount of the debits must equal the amount of the credits.

Question 22

Debits

A. decrease both assets and liabilities.
B. decrease liabilities and increase assets.
C. increase both assets and liabilities.
D. increase liabilities and decrease assets.

Answer 22

B. decrease liabilities and increase assets.

Question 23

A debit is not the normal balance for which account listed below?

A. Service Revenue
B. Cash
C. Owner’s Drawings
D. Accounts Receivable

Answer 23

A. Service Revenue

Question 24

An accountant has debited an asset account for $1350 and credited a liability account for $510. Which of the following would be an incorrect way to complete the recording of the transaction?

A. Credit another liability account for $840.
B. Credit an owner’s account for $840.
C. Debit an owner’s account for $840.
D. Credit an asset account for $840.

Answer 24

C. Debit an owner’s account for $840.

Question 25

Which of the following is not true of the terms debit and credit? A. They can be abbreviated as Dr. and Cr. B. They can be interpreted to mean increase and decrease. C. They can be interpreted to mean left and right. D. They can be used to describe the balance of an account.

Answer 25

B. They can be interpreted to mean increase and decrease.

Question 26

An account will have a credit balance if the A. last transaction entered was a credit. B. first transaction entered was a credit. C. debits exceed the credits. D. credits exceed the debits.

Answer 26

D. credits exceed the debits.

Question 27

For the basic accounting equation to stay in balance, each transaction recorded must A. always affect exactly two accounts. B. affect two or more accounts. C. affect the same number of asset and liability accounts. D. affect two or less accounts.

Answer 27

B. affect two or more accounts.

Question 28

What is the proper adjusting entry at June 30, the end of the fiscal year, based on a prepaid insurance account balance before adjustment, $18560, and unexpired amounts per analysis of policies of $5960? A. Debit Prepaid Insurance, $12600; Credit Insurance Expense, $12600. B. Debit Insurance Expense, $18560; Credit Prepaid Insurance, $18560. C. Debit Insurance Expense, $12600; Credit Prepaid Insurance, $12600. D. Debit Insurance Expense, $5960; Credit Prepaid Insurance, $5960.

Answer 28

C. Debit Insurance Expense, $12600; Credit Prepaid Insurance, $12600.

Question 29

At December 31, 2020, before any year-end adjustments, Sheridan Company's Insurance Expense account had a balance of $2580 and its Prepaid Insurance account had a balance of $3780. It was determined that $2810 of the Prepaid Insurance had expired. The adjusted balance for Insurance Expense for the year would be A. $5390. B. $3550. C. $2810. D. $2580.

Answer 29

A. $5390.

Question 30

Depreciation is the process of A. writing down an asset to its real value each accounting period. B. allocating the cost of an asset to expense over its useful life in a rational and systematic manner. C. increasing the value of an asset over its useful life in a rational and systematic manner. D. valuing an asset at its fair value.

Answer 30

B. allocating the cost of an asset to expense over its useful life in a rational and systematic manner.

Question 31

The balance in the Prepaid Rent account before adjustment at the end of the year is $24300, which represents three months’ rent paid on December 1. The adjusting entry required on December 31 is to A. debit Rent Expense, $8100; credit Prepaid Rent, $8100. B. debit Prepaid Rent, $16200; credit Rent Expense, $16200. C. debit Rent Expense, $16200; credit Prepaid Rent $16200. D. debit Prepaid Rent, $8100; credit Rent Expense, $8100.

Answer 31

A. debit Rent Expense, $8100; credit Prepaid Rent, $8100.

Question 32

An accumulated depreciation account A. is a contra-liability account. B. increases on the debit side. C. is offset against total assets on the balance sheet. D. has a normal credit balance.

Answer 32

D. has a normal credit balance.

Question 33

Which of the following would not result in unearned revenue? A. Services performed on account B. Sale of season tickets to football games C. Rent collected in advance from tenants D. Sale of two-year magazine subscriptions

Answer 33

A. Services performed on account

Question 34

The balances that appear on the post-closing trial balance will match the A. income statement account balances after adjustments. B. balance sheet account balances after adjustments. C. balance sheet account balances after closing entries. D. income statement account balances after closing entries.

Answer 34

C. balance sheet account balances after closing entries.

Question 35

The purpose of the post-closing trial balance is to A. prove the equality of the balance sheet account balances that are carried forward into the next accounting period. B. prove that no mistakes were made. C. prove the equality of the income statement account balances that are carried forward into the next accounting period. D. list all the balance sheet accounts in alphabetical order for easy reference.

Answer 35

A. prove the equality of the balance sheet account balances that are carried forward into the next accounting period

Question 36

A post-closing trial balance will show A. only income statement accounts. B. only balance sheet accounts. C. zero balances for all accounts. D. zero balances for balance sheet accounts.

Answer 36

B. only balance sheet accounts.

Question 37

Which of the following steps in the accounting cycle would not generally be performed daily? A. Post to ledger accounts B. Prepare adjusting entries C. Journalize transactions D. Analyze business transactions

Answer 37

B. Prepare adjusting entries

Question 38

Which of the following depicts the proper sequence of steps in the accounting cycle? A. Prepare a trial balance, prepare adjusting entries, prepare financial statements B. Journalize the transactions, analyze business transactions, prepare a trial balance C. Prepare a trial balance, post to ledger accounts, post adjusting entries D. Prepare a trial balance, prepare financial statements, prepare adjusting entries

Answer 38

A. Prepare a trial balance, prepare adjusting entries, prepare financial statements

Question 39

The first required step in the accounting cycle is A. analyzing transactions. B. journalizing transactions in the book of original entry. C. posting transactions. D. reversing entries.

Answer 39

A. analyzing transactions.