Financial Accounting: Key Concepts and Transactions Review

1) The primary purpose(s) of financial accounting is(are) to:

Measure and communicate financial information to external parties.

2) Which business form has the advantage of limited liability?

Corporation.

3) How many of the following transactions are financing activities? Borrow $50,000 from the bank; Purchase $12,000 in supplies; Provide services to customers for $27,000; Pay the utility bill of $750; Purchase a delivery truck for $12,000; Receive $25,000 from issuing common stock.

Three.

4) Amounts owed to suppliers for supplies purchased on account are defined as:

Liability.

5) The costs of providing goods and services to customers are referred to as:

Expenses.

6) Given the information provided (revenues and expenses), calculate net income in the current period.

$15,300.

7) Which of the following items is reported in the statement of stockholders' equity?

Dividends.

8) Nina Corp. had net income (loss) of $7,100, ($1,600), and $3,600 in the first three years. Ending retained earnings is $1,100. What were total dividends paid?

$8,000.

9) Which of the following is not a balance sheet item?

Revenues.

10) How many of the following transactions affect operating cash flows? Repay $40,000 bank loan; Pay $11,000 salaries; Receive $25,000 from customers; Pay $750 advertising; Purchase equipment for $15,000; Receive $25,000 from sale of land.

Three.

11) The body of rules and procedures guiding U.S. financial accounting is known as:

GAAP.

12) Independent auditors express an opinion on the extent to which financial statements comply with:

GAAP.

13) The accounting equation is defined as:

Assets = Liabilities + Stockholders' Equity.

14) In what order are the financial statements prepared: balance sheet, income statement, statement of stockholders' equity?

2, 3, 1.

15) Which step in measuring external transactions involves determining the effect on assets, liabilities, and stockholders' equity?

Analyze the impact on the accounting equation.

16) When a company pays employees' salaries for the current period, how is the accounting equation affected?

Stockholders' equity decreases.

17) Which of the following would increase assets and increase liabilities?

Purchasing office supplies on account.

18) Purchasing supplies for cash has what effect on the accounting equation?

No net effect.

19) Following are transactions of Gotebo Tanners, Inc. during January: Issued 10,000 shares for $15,000 cash; Purchased land for $12,000 on a note; Purchased office equipment for $1,200 cash; Received $14,000 cash for services; Purchased $300 supplies on account; Paid $10,000 salaries. How many of these transactions decreased total assets?

Two.

20) Sallisaw Sideboards, Inc. had retained earnings of $10,000 on April 1. During April: Issued stock for $5,000; Provided $2,000 services on account; Provided $900 services for cash; Purchased equipment for $4,300 cash; Paid $800 rent; Paid $700 salaries. What is ending retained earnings?

$11,400.

21) Assets normally carry what balance and appear where?

Debit; Balance sheet.

22) Which accounts normally have a credit balance?

Accounts Payable, Service Revenue, Common Stock.

23) When viewing accounting records, the terms "debit" and "credit" appear in the:

Journal.

24) Childers Service Company provides $3,000 of services on account. How is the transaction recorded?

Debit Accounts Receivable $3,000; Credit Service Revenue $3,000.

25) A company receives a $400 advertising bill to be paid in 10 days. How is the transaction recorded today?

Debit Advertising Expense $400; Credit Accounts Payable $400.

26) Posting is the process of:

Transferring journal information to the general ledger.

27) In the Cash T-account shown, the $3,100 amount likely represents:

Payment for salaries.

28) The revenue recognition principle states that revenue should be recognized:

When goods and services are provided.

29) A company orders supplies in June, receives and pays for them in July, and uses them in August. When should supplies expense be recorded?

August.

30) Which of the following is true about adjusting entries?

They are a necessary part of accrual-basis accounting.

31) Making rent payments in advance is an example of:

Prepaid expense.

32) Adjusting entries:

Involve one income statement account and one balance sheet account.

33) On May 1, Townsley borrowed $250,000 on a 6% note. What adjusting entry is needed on December 31?

Debit Interest Expense; Credit Interest Payable $5,000.

34) On July 1, Charlie Co. paid $18,000 for 18 months of rent. What adjusting entry is needed on December 31?

Debit Rent Expense; Credit Prepaid Rent $6,000.

35) A company receives a $4,200 December utility bill on December 31 and will pay it in January. What adjusting entry is required?

Debit Utilities Expense; Credit Utilities Payable $4,200.

36) A company owes $16,000 in employee salaries at year-end. What adjusting entry is required?

Debit Salaries Expense; Credit Salaries Payable $16,000.

37) The adjusted trial balance should be prepared before the financial statements to prove the:

Equality of debits and credits.

38) A classified balance sheet:

Shows subtotals for current assets and current liabilities.

39) The purpose of closing entries is to transfer:

Temporary account balances to a permanent account.

40) Of the following six accounts, which ones have temporary balances: (1) Service Revenue (2) Dividends (3) Salaries Expense (4) Common Stock (5) Retained Earnings (6) Cash

Service Revenue, Dividends, Salaries Expense.