Practice Set for Exam #1

A balance sheet shows

assets, liabilities, and stockholders' equity

Druganaut Company buys a $21,000 van on credit. The transaction will affect the

balance sheet only

Bookkeeping and accounting are one and the same because the bookkeeping function includes the accounting process

False

If total liabilities increased by $8,000, then

assets must have increased by $8,000, or stockholders' equity must have decreased by $8,000.

John and Sam met at law school and decide to start a small law practice after graduation. They agree to split revenues and expenses evenly. The most common form of business organization for a business such as this would be a

partnership

The primary purpose of the statement of cash flows is to provide information about the cash receipts and cash payments of a company during a period.

True

The purchase of office equipment on credit increases total assets and total liabilities.

True

Even though a partnership is not a separate legal entity, for accounting purposes the partnership affairs should be kept separate from the personal activities of the owners.

True

During the year 2015, Dilego Company earned revenues of $90,000, had expenses of $56,000, purchased assets with a cost of $10,000 and paid dividends of $6,000. Net income for the year is

$34,000
($90,000-$56,000)

Stockholders' equity is increased by

revenues

The origins of accounting are generally attributed to the work of

Luca Pacioli

GAAP stands for

Generally Accepted Accounting Principles

If total liabilities increased by $25,000 during a period of time and stockholders' equity decreased by $9,000 during the same period, then the amount and direction (increase or decrease) of the period's change in total assets is a(n)

$16,000 increase

If the transaction causes an asset account to decrease, which of the following related effects may occur?

An increase of equal amount in another asset account

If total liabilities increased by $30,000 and stockholders' equity increased by $20,000 during a period of time, then total assets must change by what amount and direction during that same period?

$50,000 increase

The monetary unit assumption states that transactions that can be measured in terms of money should be recorded in the accounting records.

true

Stockholders' equity is often referred to as

residual equity

Net income results when

Revenues > Expenses

Accounting communicates financial information about a business enterprise to both internal and external users

true

The historical cost principle requires that when assets are acquired, they be recorded at

cost

The liabilities of Olga Company are $80,000. Common stock account is $141,000; dividends are $40,000; revenues, $445,000; and expenses, $311,000. What is the amount of Olga Company's total assets?

$315,000

The total assets of Lafayette Company are $55,500. Common stock account is $20,000; dividends are $7,500; revenues, $49,500; and expenses, $40,000. What is the amount of the company's total liabilities?

$33,500

The total assets of Dierdorf Co. are $600,000 and its liabilities are equal to two-thirds of its total assets. What is the amount of Dierdorf Co.'s stockholders' equity?

200,000

The standard format of a journal would not include

a T-account

The complete effect of a transaction on the accounts is disclosed in the journal.

True

A numbering system for a chart of accounts

usually starts with balance sheet accounts.

A three column form of account is so named because it has columns for

debit, credit, and balance

The ledger should be arranged in

financial statement order

The primary purpose of a trial balance is to prove the mathematical equality of the debits and credits after posting.

true

A number in the reference column in a general journal indicates

that the entry has been posted to a particular account.

A trial balance is a listing of

general ledger accounts and balances.

The account titles used in journalizing transactions need not be identical to the account titles in the ledger.

False

Assets normally show

debit balances

A debit is not the normal balance for which of the following?

Common stock account

A credit balance in a liability account indicates that an error in recording has occurred.

False

An account is an individual accounting record of increases and decreases in specific

assets, liabilities, and stockholders' equity items

Posting is the process of proving the equality of debits and credits in the trial balance.

false

Which of the following rules is incorrect?

Debits increase the common stock account

Beethoven Company provided consulting services and billed the client $3,100. As a result of this event,

assets and stockholders' equity both increased by $3,100

When a company distributes dividends

it does not have to be cash, it could be another asset.

The usual sequence of steps in the transaction recording process is:

analyze ? journal ? ledger.

On October 3, Karl Schickele, a carpenter, received a cash payment for services previously billed to a client. Karl paid his telephone bill, and he also bought equipment on credit. For the three transactions, at least one of the entries will include a

credit to Accounts Payable

Transactions are entered in the ledger accounts and then transferred to journals.

False

Which statement is correct?

The use of the cash basis of accounting violates both the revenue recognition and expense recognition principles.

Which of the following time periods would not be referred to as an interim period?

Annually

The revenue recognition principle dictates that revenue should be recognized in the accounting records

when the performance obligation is satisfied.

Can financial statements be prepared directly from the adjusted trial balance?

Yes, adjusting entries have been recorded in the general journal and posted to the ledger accounts

Unearned revenue is a prepayment that requires an adjusting entry when services are performed.

True

A company's calendar year and fiscal year are always the same

False

Accrued revenues are

revenue for services performed but not yet received in cash or recorded.

Accrued revenues are revenues that have been recognized and received before financial statements have been prepared

false

A company usually determines the amount of supplies used during a period by

taking the difference between the balance of the Supplies account and the cost of supplies on hand

Financial statements can be prepared from the information provided by an adjusted trial balance

True

Ultramega Company collected $19,600 in May of 2015 for 4 months of service which would take place from October of 2015 through January of 2016. The revenue reported from this transaction during 2015 would be

$4,900

Expenses paid and recorded as assets before they are used are called

prepaid expenses

The cost of a depreciable asset less accumulated depreciation reflects the book value of the asset.

True

A small company may be able to justify using a cash basis of accounting if they have

few receivables and payables.

Expenses incurred but not yet paid or recorded are called

accrued expenses

An adjusted trial balance

proves the equality of the total debit balances and total credit balances of ledger accounts after all adjustments have been made.

Accrued revenues are amounts recorded and received but not yet recognized.

False

On January 1, 2014, Doolittle Company purchased furniture for $7,560. The company expects to use the furniture for 3 years. The asset has no salvage value. The book value of the furniture at December 31, 2015 is

$2,520

The time period assumption is also referred to as the

periodicity assumption

Financial statements are prepared directly from the

adjusted trial balance

The accounting process involves all of the following except

recording non-quantifiable economic events.

Which of the following would not be considered an internal user of accounting data for a company?

Internal Revenue Service

The first step in solving an ethical dilemma is to

recognize an ethical situation and the ethical issues involved

The historical cost principle dictates that companies originally record assets at their cost.

True

At the beginning of the year, Kimball Company had total assets of $700,000 and total liabilities of $400,000. If the total assets increased $100,000 and the total liabilities decreased $80,000, what is the amount of stockholders' equity at the end of the

$480,000

Performing services on account will have the following effects on the components of the basic accounting equation:

increase assets and increase stockholders' equity

On the last day of the period, Jim Otto Company buys a $900 machine on credit. This transaction will affect the

balance sheet only.

Revenues and expenses are reported on the

income statement.

Which of the following is not one of the career opportunities in accounting

personal accounting

The three most common forms of business organization, proprietorship, partnership, and corporation, are used in countries that use IFRS.

True

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

Increase in assets, increase in liabilities

Paid $3,000 cash for May rent on storage space.

Decrease in assets, decrease in stockholders' equity

Received $15,000 cash from customers for contracts billed in April.

Increase in assets, decrease in assets

Debits

increase assets and decrease liabilities.

The expanded accounting equation is

Assets = Liabilities + Common Stock - Dividends + Revenues - Expenses.

Companies initially record transactions in chronological order in the general journal

True

A ledger

is a collection of the entire group of accounts maintained by a company.

Transferring journal entries to the ledger accounts is called journalizing.

False

The chart of accounts is a

listing of the accounts and the account numbers that identify their location in the ledger.

Posting

transfers journal entries to ledger accounts

Before posting a payment of $5,000, the Accounts Payable of Senator Company has a normal balance of $16,000. The balance after posting this transaction was

$11,000

A trial balance will not balance if

a $100 cash drawing by the owner is debited to Dividends for $1,000 and credited to Cash for $100.

The primary purpose of a trial balance is to

rove that the debits equal the credits after posting