ACC210 - EXAM 1 PREP (Practice Exam)

Which of the following is not an advantage of the corporate form of business organization?

Favorable tax treatment

A corporation has which of the following set of characteristics?

Easier to transfer ownership and raise funds, no personal liability

If a company pays dividends of $10,000,

Both retained earnings and stockholders' equity will be reduced by $10,000.

Howard Company had a transaction that caused a $5,000 increase in both total assets and total liabilities. This transaction could have been a(n)

Purchase of office equipment for $12,000, paying $7,000 cash and issuing a note payable for the balance.

JayHawk Company began the year with $126,000 in its Common Stock account and a debit balance in Retained Earnings of $54,000. During the year, the company earned net income of $69,000 and declared and paid $9,000 of dividends. In addition, the company sold additional common stock amounting to $33,000. Based on this information, what should be the ending total of all stockholders' equity accounts?

$165,000

The normal balance of any account is the

The side that increases the account balance

Which pair of accounts follows the rules of debit and credit in relation to increases and decreases in the same manner?

Dividends and Rent Expense

Under accrual accounting, the revenue recognition principle dictates that revenue should be recognized in the accounting records:

When the performance obligation is satisfied.

Adjusting entries are:

Typically required before financial statements are prepared.

WP Company had the following transactions during 2020:

Sales of $15,000 on account

Collected $5,000 for services to be performed in 2021

Paid $2,500 cash in salaries for 2020

Purchased airline tickets for $1,000 in December for a trip to take place in 2021

What is WP’s 2020 net income using accrual accounting?

$12,500

WP Company had the following transactions during 2020:

Sales of $15,000 on account

Collected $5,000 for services to be performed in 2021

Paid $2,500 cash in salaries for 2020

Purchased airline tickets for $1,000 in December for a trip to take place in 2021

What is WP’s 2020 net income using cash basis accounting?

$1,500

An architecture firm earned $2,000 for architecture services provided with the fee to be paid in the future. No entry was made at the time the service was provided. If the fee has not been paid by the end of the accounting period and no adjusting entry is made, this would cause:

Assets to be understated.

Which of the following accounts will reflect the account’s beginning balance on the adjusted trial balance?

Retained earnings

Closing entries:

Cause the revenue and expense accounts to have zero balances.

Equipment costing $20,000 is purchased by paying $5,000 cash and signing a note for the balance owed. The journal entry should include a:

Credit to Notes Payable for $15,000

Using accrual accounting, expenses are recorded and reported only:

When they are incurred whether or not cash is paid

A chart of accounts for a business firm

Lists the accounts in the general ledger

Consider the following transactions:

Issued common stock for cash.

Purchased equipment by signing a note payable.

Paid rent for the current month.

Collected cash from customers on account.

Paid the balance due on an accounts payable.

How many of these five transactions increased the company’s total assets?

Two

Consider the following eight accounts:

Accounts Payable               Insurance Expense

Prepaid Rent                      Common Stock

Salaries Payable                 Dividends

Supplies                             Deferred Revenue

How many of these accounts have a normal credit balance?

Four

James & Younger Corporation purchased a one-year insurance policy on March 1, 2020 for $42,000 and recorded it as a Prepaid Insurance. The insurance policy is in effect from March 2020 through February 2021. If the company neglects to make the proper year-end adjusting entry on December 31, 2020:

Net income and assets will be overstated by $35,000

Issuing shares of stock in exchange for cash is an example of a(n)

Financing activity

Lankston Company began the year by issuing $120,000 of common stock for cash. The company recorded revenues of $1,160,000, expenses of $960,000, and paid dividends of $60,000. What was Lankston’s net income for the year?

$200,000

On July 1 the Fisher Shoe Store paid $24,000 to Acme Realty for 6 months rent beginning July 1. Prepaid Rent was debited for the full amount. If financial statements are prepared on July 31, the adjusting entry to be made by the Fisher Shoe Store is:

Debit Rent Expense, $4,000; credit Prepaid Rent, $4,000

The Harris Company purchased equipment for $15,000 on December 1. It is estimated that the equipment will last five years and have a salvage value of $-0- at the end of the five years. If financial statements are to be prepared on December 31, the company should make the following adjusting entry:

Debit Depreciation Expense, $250; credit Accumulated Depreciation, $250.

If total liabilities decreased by $4,000, then

Assets must have decreased by $4,000, or stockholders’ equity must have increased by $4,000.

Clemson Company purchased equipment for $2,400 cash. As a result of this event,

Total assets remained unchanged.

The double-entry system requires that each transaction must be recorded

In at least two different accounts.

On March 1, 2022, Freeze Company hires a new employee who will start to work on March 6. The employee will be paid on the last day of each month. Should a journal entry be made on March 1? Why or why not?

No, hiring an employee is an important event; however it is not an economic event that should be recorded.

On September 1, 2021, Brokaw Industries borrows $40,000 and signs a 6%, 6-month note payable. How much interest expense will Brokaw report in its 2022 financial statements?

$400

Breeze Company purchased office supplies costing $7,000 and debited Supplies for the full amount. At the end of the accounting period, a physical count of office supplies revealed $2,500 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be:

Debit Supplies Expense, $4,500; credit Supplies, $4,500.