accounting concepts and principles which of the items below is nota business organiz 242046

1. Which of the items below is nota business organization form?

entrepreneurship

proprietorship

partnership

corporation

ANS: A DIF: 1 OBJ: 01

2. An entity that is organized according to state or federal statutes and in which ownership is divided into shares of stock is a

proprietorship

corporation

partnership

governmental unit

ANS: B DIF: 1 OBJ: 01

3. Financial reports are used by

management

creditors

investors

all of the above

ANS: D DIF: 2 OBJ: 02

4. Which of the following best describes accounting?

records economic data but does not communicate the data to users according to any specific rules

is an information system that provides reports to stakeholders

is of no use by individuals outside of the business

is used only for filling out tax returns and for financial statements for various type of governmental reporting requirements

ANS: B DIF: 2 OBJ: 02

5. The two most common specialized fields of accounting in practice are

forensic accounting and financial accounting

managerial accounting and financial accounting

managerial accounting and environmental accounting

financial accounting and tax accounting systems

ANS: B DIF: 1 OBJ: 04

6. The initials GAAP stand for

General Accounting Procedures

Generally Accepted Plans

Generally Accepted Accounting Principles

Generally Accepted Accounting Practices

ANS: C DIF: 3 OBJ: 05

7. The business entity concept means that

the owner is part of the business entity

an entity is organized according to state or federal statutes

an entity is organized according to the rules set by the FASB

the entity is an individual economic unit for which data are recorded, analyzed, and reported

ANS: D DIF: 1 OBJ: 05

8. Smith Company purchased $105,000 of computer equipment from Brown Company. Smith Company paid for the equipment using cash that had been obtained from the initial investment by Connie Smith. The transaction involving the computer equipment should be recorded on the accounting records of which of the following entities?

Smith Company and Connie Smith’s personal records

Brown Company and Connie Smith’s personal records

Brown Company

Smith Company and Brown Company

ANS: D DIF: 5 OBJ: 05

9. The objectivity principle requires that

business transactions must be consistent with the objectives of the entity

the Financial Accounting Standards Board must be fair and unbiased in its deliberations over new accounting standards

accounting principles must meet the objectives of the Security and Exchange Commission

amounts recorded in the financial statements must be based on independently verifiable evidence

ANS: D DIF: 2 OBJ: 05

10. 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?

cost concept

objectivity concept

all of the above

none of the above

ANS: C DIF: 3 OBJ: 05

11. Assets are

Always greater than liabilities.

either cash or accounts receivables

the same as expenses because they are acquired with cash

financed by the owner and/or creditors

ANS: D DIF: 2 OBJ: 06

12. The accounting equation may be expressed as

Assets = Equities – Liabilities

Assets + Liabilities = Owner’s Equity

Assets = Revenues less Liabilities

Assets – Liabilities = Owner’s Equity

ANS: D DIF: 3 OBJ: 06

13. Expenses are recorded when

cash is paid for services rendered

a bill is received in advance of services rendered

services are rendered

none of the above

ANS: C DIF: 3 OBJ: 07

14. Goods purchased on account for future use in the business, such as supplies, are called

prepaid liabilities

revenues

prepaid expenses

liabilities

ANS: C DIF: 2 OBJ: 07

Chapter 2

15. Revenue should be recognized when

cash is received

the service is performed

the customer places an order

the customer charges an order

ANS: B DIF: 3 OBJ: 01

16. Which of the following accounts is an owner’s equity account?

Cash

Accounts Payable

Prepaid Insurance

Julia Davis, Capital

ANS: D DIF: 1 OBJ: 01

17. A chart of accounts is

the same as a balance sheet

usually a listing of accounts in alphabetical order

usually a listing of accounts in financial statement order

used in place of a ledger

ANS: C DIF: 2 OBJ: 01

18. The debit side of an account

depends on whether the account is an asset, liability or owner’s equity

can be either side of the account depending on how the accountant set up the system

is the right side of the account

is the left side of the account

ANS: D DIF: 2 OBJ: 02

19. An account is said to have a debit balance if

the amount of the debits exceeds the amount of the credits

there are more entries on the debit side than on the credit side

its normal balance is debit without regard to the amounts or number of entries on the debit side

the first entry of the accounting period was posted on the debit side

ANS: A DIF: 3 OBJ: 02

20. A debit may signify a(n)

decrease in asset accounts

decrease in liability accounts

increase in the capital account

decrease in the drawing account

ANS: B DIF: 1 OBJ: 03

21. Which of the following types of accounts have a normal credit balance?

assets and liabilities

liabilities and expenses

revenues and liabilities

capital and drawing

ANS: C DIF: 1 OBJ: 03

22. Which of the following groups of accounts have a normal debit balance?

revenues, liabilities, capital

capital, assets

liabilities, expenses

assets, expenses

ANS: D DIF: 1 OBJ: 03

23. Which of the following describes the classification and normal balance of the fees earned account?

asset, credit

liability, credit

owner’s equity, debit

revenue, credit

ANS: D DIF: 1 OBJ: 03

24. The classification and normal balance of the drawing account is

an expense with a credit balance

an expense with a debit balance

a liability with a credit balance

owner’s equity with a debit balance

ANS: D DIF: 1 OBJ: 03

25. In which of the following types of accounts are increases recorded by debits?

assets, liabilities

drawing, liabilities

expenses, liabilities

assets, expenses

ANS: D DIF: 1 OBJ: 03

Chapter 3

26. Using accrual accounting, revenue is recorded and reported only

when cash is received without regard to when the services are rendered

when the services are rendered without regard to when cash is received

when cash is received at the time services are rendered

if cash is received after the services are rendered

ANS: B DIF: 3 OBJ: 01

27. Using accrual accounting, expenses are recorded and reported only

when they are incurred, whether or not cash is paid

when they are incurred and paid at the same time

if they are paid before they are incurred

if they are paid after they are incurred

ANS: A DIF: 3 OBJ: 01

28. If the effect of the debit portion of an adjusting entry is to increase the balance of an expense account, which of the following describes the effect of the credit portion of the entry?

decreases the balance of an owner’s equity account

increases the balance of an liability account

increases the balance of an asset account

decreases the balance of an expense account

ANS: B DIF: 3 OBJ: 02

29. The primary difference between deferred and accrued expenses is that deferred expenses have

been incurred and accrued expenses have not

not been incurred and accrued expenses have been incurred

been recorded and accrued expenses have not been incurred

not been recorded and accrued expenses have been incurred

ANS: B DIF: 3 OBJ: 02

30. The balance in the prepaid rent account before adjustment at the end of the year is $15,000, which represents three months’ rent paid on December 1. The adjusting entry required on December 31 is

debit Rent Expense, $5,000; credit Prepaid Rent, $5,000

debit Prepaid Rent, $10,000; credit Rent Expense, $5,000

debit Rent Expense, $10,000; credit Prepaid Rent, $5,000

debit Prepaid Rent, $5,000; credit Rent Expense, $5,000

ANS: A DIF: 4 OBJ: 03

31. A business pays weekly salaries of $20,000 on Friday for a five-day week ending on that day. The adjusting entry necessary at the end of the fiscal period ending on Thursday is

debit Salaries Payable, $16,000; credit Cash, $16,000

debit Salary Expense, $16,000; credit Drawing, $16,000

debit Salary Expense, $16,000; credit Salaries Payable, $16,000

debit Drawing, $16,000; credit Cash, $16,000

ANS: C DIF: 4 OBJ: 03

32. The adjusting entry to record the depreciation of equipment for the fiscal period is

debit Depreciation Expense; credit Equipment

debit Depreciation Expense; credit Accumulated Depreciation

debit Accumulated Depreciation; credit Depreciation Expense

debit Equipment; credit Depreciation Expense

ANS: B DIF: 3 OBJ: 03

33. Data for an adjusting entry described as accrued wages, $2,020 means to debit

Wages Expense and credit Wages Payable

Wages Payable and credit Wages Expense

Accounts Receivable and credit Wages Expense

Drawing and credit Wages Payable

ANS: A DIF: 3 OBJ: 03

34. Supplies are recorded as assets when purchased. Therefore, the credit to supplies in the adjusting entry is for the amount of supplies

that are in the ending balance

purchased

used

either used or remaining

ANS: C DIF: 2 OBJ: 03

35. The general term employed to indicate an expense that has not been paid and has not yet been recognized in the accounts by a routine entry is

capital

deferral

accrual

inventory

ANS: C DIF: 2 OBJ: 03

36. The cost of office supplies to be used in future periods is ordinarily shown on the balance sheet as a(n)

capital

asset

contra asset

liability

ANS: B DIF: 2 OBJ: 03

37. The unearned rent account has a balance of $40,000. If $3,000 of the $40,000 is unearned at the end of the accounting period, the amount of the adjusting entry is

$3,000

$40,000

$37,000

$43,000

ANS: C DIF: 3 OBJ: 03

Chapter 4

38. A work sheet includes columns for

adjusting entries

closing entries

reversing entries

both a and b

ANS: A DIF: 1 OBJ: 02

39. When a work sheet is complete, the adjustment columns should have

total credits greater than total debits if a net income was earned

total debits grater than total credits if a net loss was incurred

total debits greater than total credits if a net income was earned

total debits equal total credits

ANS: D DIF: 2 OBJ: 02

40. The difference between the totals of the debit and credit columns of the Adjusted Trial Balance columns on a work sheet

is the amount of net income or loss

indicates there is an error on the work sheet

is not unusual when preparing the work sheet

is the net difference between revenue, expenses, and drawing

ANS: B DIF: 2 OBJ: 02

41. Net income appears on the work sheet in the

debit column of the Balance Sheet columns

debit column of the Adjustments columns

debit column of the Income Statement columns

credit column of the Income Statement columns

ANS: C DIF: 2 OBJ: 02

42. A net loss appears on the work sheet in the

debit column of the Balance Sheet columns

credit column of the Balance Sheet columns

debit column of the Income Statement columns

credit column of the Adjustments columns

ANS: A DIF: 2 OBJ: 02

43. The work sheet at the end of September has $4,000 in the Balance Sheet credit column for Accumulated Depreciation. The work sheet at the end of October has $4,750 in the Balance Sheet credit column for Accumulated Depreciation. What was the amount of the depreciation expense adjustment for the month of October?

amount can not be determined

$4,750

$4,000

$750

ANS: D DIF: 3 OBJ: 02

44. After all of the account balances have been extended to the Balance Sheet columns of the work sheet, the totals of the debit and credit columns are $25,250 and $21,825, respectively. What is the amount of net income or net loss for the period?

$3,425 net income

$25,250 net loss

$3,425 net loss

$21,825 net income

ANS: A DIF: 2 OBJ: 02

45. After all of the account balances have been extended to the Income Statement columns of the work sheet, the totals of the debit and credit columns are $87,500 and $98,300, respectively. What is the amount of the net income or net loss for the period?

$10,800 net income

$10,800 net loss

$98,300 net income

$87,500 net loss

ANS: A DIF: 2 OBJ: 02

46. Unearned Fees appear on the

balance sheet in the current assets section

balance sheet as a current liability

balance sheet in the owner’s equity section

income statement as revenue

ANS: B DIF: 2 OBJ: 03

47. Which one of the fixed asset accounts listed below will not have a related contra asset account?

Office Equipment

Land

Delivery Equipment

Building

ANS: B DIF: 1 OBJ: 03

48. Balance sheet accounts

represent amounts accumulated during a specific period of time

are called real accounts

have zero balances after the closing entries have been posted

are equal to assets and liabilities

ANS: B DIF: 3 OBJ: 03

49. Adjusting entries

need not be journalized since they appear on the work sheet

need not be posted if the financial statements are prepared from the work sheet

are not needed if reversing entries are prepared

must be journalized and posted

ANS: D DIF: 2 OBJ: 04

50. Which of the following accounts should be closed to Income Summary at the end of the fiscal year?

Supplies Expense

Accumulated Depreciation

Prepaid Insurance

Unearned Rent

ANS: A DIF: 2 OBJ: 04

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