ACC 2101 Midterm Review

Is it possible to make an entry which changes only one account?

A) Yes

B) No

B) No

Journal entries always change two accounts

How many of the following transactions would affect operating cash flows reported in the

statement of cash flows (all transaction involve cash)?

Borrowed $50,000 from the bank

Purchased $12,000 in supplies

Provide services to customers for $27,000

Paid the utility bill of $750

Purchased a delivery truck for $12,000

Received $25,000 from issuing common stock

A) Four

B) Two

C) One

D) Three

D) Three

The transactions must affect OPERATING cash flow

Operating cash flows - cash receipts and cash payments for transactions involving revenue and expense activities

For a journal entry with only two lines, the following entry is valid:

Decrease in a liability, Decrease in Dividends.

A) False B) True

B) True

Make sure Debit = Credit

Decrease in Liability = Debit

Decrease in Dividends = Credit

Unearned Revenue is what kind of account?

A) Liability B) Revenue C) Expense D) Asset

A) Liability

Remember unearned revenue is a liability as you still owe a service

Usually we measure Inventory at

A) Benefit Value B) $0 C) Sacrifice Value

C) Sacrifice Value

Inventory is measured at the amount of cash we used to buy it = Sacrifice Value

For a journal entry with only two lines, the following entry is valid:

Increase in an asset, Increase in Dividends.

A) True B) False

B)False

Increase in an asset = Debit

Increase in dividends = Debit

For a journal entry with only two lines, the following entry is valid:

Increase in one Revenue, Increase in another Revenue.

A) False B) True

A) False

Increase in revenue = Credit

Increase in revenue = Credit

For a journal entry with only two lines, the following entry is valid:

Decrease in Owners' Equity, Decrease in Expense.

A) True B) False

A) True

Decrease in Owners' Equity = Debit

Decrease in Expense = Credit

If total change in cash = $44,000, net operating cash flows = $22,000, and net investing cash flows

= ($13,000); then net financing cash flows =

A) $35,000. B) $45,000. C) $15,000. D) $25,000.

A) $35000

Change in Cash = Net Operating Cash + Net Investing Cash + Net Financing Cash

For a journal entry with only two lines, the following entry is valid:

Decrease in Revenue, Increase in Dividends.

A) False B) True

A)False

Decrease in Revenue = Debit

Increase in Dividends = Debit

Which of the following are made ONLY at year end (This question may have multiple answers)

A) Adjusting Entries B) Closing Entries C) Transaction Entries

C) Adjusting Entries

B) Closing Entries

These entries are made to fix the accounts over an elapsed period of time

In the Allowance Method when we we collect on a previously written off receivable

A) Assets stay the same, Net Income stays the same.

B) Assets increase, Net Income increases.

C) It depends

D) Assets decrease, Net Income decreases

A) Assets stay the same, Net Income stays the same

A company received an order from a customer in June for services to be provided. Those services

were provided in July, and the customer paid the full amount in August. According to the revenue

recognition principle, in which month should the company record revenue?

A) June. B) August.

C) Evenly over the three months. D) July.

D) July

Revenue is recognized when goods/services are provided

NOT when cash is received

Before the 1st step in the Operating Cycle, the firm has?

A) Cash B) Receivable C) Inventory

A) Cash

We need cash to start buying things to build a business

The following financial information is from ABC:

Accounts Payable $15,000

Buildings 80,000

Cash 10,500

Accounts Receivable 9,500

Sales Tax Payable 4,500

Retained Earnings 47,500

Supplies 40,000

Notes Payable (due in 18 months) 35,000

Interest Payable 3,000

Common Stock 35,000

What is the amount of current assets, assuming the accounts above reflect normal activity?

A) $140,000. B) $20,000. C) $60,000. D) $175,000.

C) $60,000

Focus on CURRENT assets

-Cash

-Supplies

-Accounts Receivable

The assumption that a business will continue to operate into the future is the:

A) Economic entity assumption. B) Going concern assumption.

C) Monetary unit assumption. D) Periodicity assumption.

B) Going concern Assumption

Going Concern Assumption - Belief that a business will continue operating for the foreseeable future, or an indefinite time. This concept justifies, for example, recording revenue before it is collected and expenses before they are paid.

The usual balance in a Contra-Owners' Equity account is a:

A) DR B) It depends C) CR

A) DR

Contra-Owners' Equity - a contra account is usually the opposite of the normal balance of the account; its to provide the changes to the account

OE is usually a Credit account so to reduce the account the transactions are made under Debits

The usual balance in a Contra-Revenue account is a:

A) DR B) It depends C) CR

A) DR

Contra-Revenue - Revenue account is usually reported under Credit so to show the reduction to the account it is done in Debit

Below is the company's Cash T-account.

Cash

Beg. 1,200

5,200

3,100

End. 3,300

The $5,200 amount could represent which of the following?

A) Ending balance of cash. B) Purchase of supplies on account.

C) Collection from customers. D) Payment for salaries.

C) Collection from customers

Cash is an Asset which means all Debits are increases in cash

The $5,200 is an increase which means that it has to be collection as other all options are decreases and it is clearly not the ending balance

ABC reports the following information for the year:

Net credit sales $120,000

Average accounts receivable 20,000

Cash collections on credit sales 100,000

What is ABC's receivables turnover ratio?

A) 5.0. B) 1.2. C) 0.2. D) 6.0.

D) 6.0

Receivable Turnover ratio = SALES / Accounts Receivables

For a journal entry with only two lines, the following entry is valid:

Increase in a Liability, Decrease Owners' Equity.

A) True B) False

A) True

Increase in Liability = Credit

Decrease in Owners' Equity = Debit

When the company pays stockholders a dividend, what is the effect on the accounting equation for

that company?

A) Decrease assets and decrease liabilities.

B) Decrease assets and decrease stockholders' equity.

C) Decrease stockholders' equity and increase assets.

D) Increase liabilities and increase assets.

B) Decrease assets and decrease stockholders' equity

Dividends affects retained earnings which is a part of Owners' Equity. a

A decrease in Owners' Equity will result in a decrease in Assets

Which of the following would increase assets and increase liabilities?

A) Provide services to customers on account.

B) Purchase office supplies on account.

C) Pay dividends to stockholders.

D) Receive a utility bill but do not pay it immediately.

B) Purchase office supplies on account

Purchasing supplies = Increase Asset

Purchasing on account = Increase Liabilities

Which of the following are classified as Accounts Receivable? (This question may have multiple

answers)

A) Tax refunds owed to us by the IRS.

B) Monies that customers owe us for providing a service.

C) Monies that customers owe us from sale of merchandise.

D) Loans we made to a customer.

B) Monies that customers owe us for providing a service

C) Monies that customers owe us from sale of merchandise

Both of the transactions are money we are entitled to for sale/service

For a journal entry with only two lines, the following entry is valid:

Increase in a liability, Increase in an Expense.

A) True B) False

A) True

Increase in liability = Credit

Increase in Expense = Debit

Choose one:

A) It is possible for the Income Statement to balance

B) The Income Statement always balances

C) The Income Statement never balances

A) It is possible for the Income Statement to balance

Consider the following list of accounts:

Cash Retained Earnings

Service Revenue Utilities Expense

Salaries Expense Accounts Receivable

Accounts Payable Common Stock

Equipment Dividends

How many of these accounts have a normal debit balance?

A) Four. B) Five. C) Seven. D) Six.

D) Six

Debit accounts usually

-Assets

-Expenses

-Dividends

-Losses

After the Third STEP in the Operating Cycle the firm has?

A) Inventory B) None of the other three

C) Account Receivable D) Cash

D) Cash

The Income Statement always balances.

A) False B) True

A) False

If a Trial Balance balances

A) all account balances must be correct B) some account balances may be wrong

B) some account balances may be wrong

An adjusting entry might need to be made

How many of the following events would require an expense to be recorded?

Ordering office supplies

Hiring a receptionist

Paying employees' salaries for the current month

Receiving but not paying a current utility bill

Paying for insurance in advance

A) Three. B) Two. C) One. D) Four.

B) Two

Office supplies is an expense as well as paying employee salaries

When a company makes an end-of-period adjusting entry that includes a credit to Prepaid Rent, the

debit is usually made to:

A) Cash. B) Rent Expense.

C) Rent Receivable. D) Rent Payable.

B) Rent Expense

Which of the accounts are increased with a debit and decreased with a credit?

A) Liabilities, stockholders' equity, and revenues.

B) Assets, dividends, and expenses.

C) Expenses, dividends, and stockholders' equity.

D) Dividends, liabilities, and assets.

B) Assets, dividends and expense

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.

How many of these four transactions increased the given company's total assets?

A) Four. B) One. C) Three. D) Two.

D) Two

Usually we measure Accounts Receivable at

A) Benefit Value B) Sacrifice Value C) $0

A) Benefit Value

For a journal entry with only two lines, the following entry is valid:

Increase in a liability, Decrease in an Expense.

A) True B) False

B) False

Increase in liability = Credit

Decrease in Expense = Credit

An example of an adjusting entry would not include:

A) Recording unpaid salaries.

B) Recording the expiration of prepaid insurance.

C) Paying salaries to company employees.

D) Recording the use of office supplies.

C) Paying salaries to company employees

Which of the following best represents value created for stockholders during the current period?

A) Retained earnings. B) Stockholders' equity.

C) Total assets. D) Net income.

D) Net Income

Shows the amount of profit you made

When you develop an entry

A) Debits are on top, Credits are on the bottom

B) There is no required ordering of Debits and Credits

C) Credits are on top, Debits are on the bottom

A) Debits are on top, Credits are on the bottom

In Cash Flow reporting at the collection of an Account Receivable

A) There is no Loss and no Gain B) There is a Loss

C) There is a Gain D) It depends on the measuring system

C) There is a gain

Use the following appropriate amounts to calculate net income: Revenues, $12,000; Liabilities,

$5,000; Expenses, $4,000; Assets, $19,000; Dividends, $4,000.

A) $14,000. B) $6,000. C) $4,000. D) $8,000.

D) $8,000

NI = Rev - Exp

Duality of Asset Valuation is primarily as issue in

A) Measuring Assets B) Measuring Income

A) Measuring Assets

The ending balance of Retained Earnings can best be described as:

A) The amount of net income over the life of the company.

B) The amount of dividends paid over the life of the company.

C) The amount of cash received from stockholders over the life of the company.

D) The amount of net income over the life of the company not paid to owners in the form of

dividends.

D) The amount of net income over the life of the company not paid to owners in the form of

dividends.

For a journal entry with only two lines, the following entry is valid:

Increase in Expense, Decrease in Dividends.

A) False B) True

B) True

Increase in expense = Debit

Decrease in Dividends = Credit

For a journal entry with only two lines, the following entry is valid:

Decrease in an asset, Decrease in an Expense.

A) False B) True

A) False

Decrease in Asset = Credit

Decrease in Expense = Credit

For a journal entry with only two lines, the following entry is valid:

Increase in an asset, Increase in a Owners' Equity.

A) False B) True

B) True

Increase in Asset = Debit

Increase in OE = Credit

On January 1, ABC sold $30,000 in products to a customer on account. Then on January 10, ABC

collected the cash on that account. What is the impact on ABC's accounting equation from the

collection of cash on January 10?

A) Assets decrease and liabilities decrease.

B) No net effect on the accounting equation.

C) Assets increase and stockholders' equity increases.

D) Assets increase and liabilities decrease.

B) No net effect on the accounting equation.

In a sale on account, who is undertaking a financial risk of non-payment?

A) The seller B) Both the buyer and the seller

C) Neither the buyer nor the seller D) The buyer

A) The Seller

In Cash Flow reporting when the firm acquires inventory

A) There is no Loss and no Gain B) There is a Gain

C) There is a Loss D) It depends on the measuring system

C) There is a Loss

Separation of duties refers to auditors not being allowed to perform both audit and nonaudit

services for the same client.

A) False B) True

A) False

Purchasing office equipment on account has what impact on the accounting equation?

A) Stockholders' equity decreases and assets increase.

B) Assets increase and stockholders' equity increases.

C) Liabilities increase and assets increase.

D) Assets decrease and liabilities decrease.

C) Liabilities increase and assets increase

Buying on account increases Accounts Payable (Liability) and more equipment is more Assets

The following financial information is from ABC. All debt is due within one year unless stated

otherwise.

Retained Earnings $52,000

Supplies 37,000

Equipment 72,000

Accounts Receivable 8,600

Deferred Revenue 6,000

Accounts Payable 15,000

Common Stock 25,000

Notes Payable (due in 18 months) 35,000

Interest Payable 7,000

Cash 22,400

What is the amount of current liabilities?

A) $28,000. B) $22,000. C) $45,600. D) $63,000.

A) $28,000

Current means within the year

-Accounts Payable

-Deferred Revenue

-Interest Payable

After the Second STEP in the Operating Cycle the firm has?

A) Inventory B) Account Receivable

C) Cash D) None of the other three

B) Accounts Receivable

The Balance Sheet is a:

A) Snapshot B) Video

A) Snapshot

ABC engages in the following cash payments:

Purchase equipment $2,000

Pay rent 500

Repay loan to the bank 5,000

Pay worker's salaries 1,000

What is the total amount of cash paid for operating activities?

A) $7,000. B) $6,000. C) $1,500. D) $2,000.

C) $1,500

Operating Activities

-Paying Workers' salaries

-Pay rent

Which of the following is not a major section in the statement of cash flows?

A) Cash flows from customers. B) Cash flows from operating activities.

C) Cash flows from investing activities. D) Cash flows from financing activities.

A) Cash flows from customers

In the Allowance Method when we write off a receivable

A) It depends

B) Assets increase, Net Income increases.

C) Assets decrease, Net Income decreases

D) Assets stay the same, Net Income stays the same.

D) Assets stay the same, Net Income stays the same

ABC had the following final balances after the first year of operations: assets, $55,000;

stockholders' equity, $25,000; dividends, $3,000; and net income, $10,000. What is the amount of

ABC's liabilities?

A) $30,000. B) $13,000. C) $7,000. D) $55,000.

A) $30,000

ABC has the following information:

Net credit sales = $400,000

Net income = $100,000

Average total assets = $80,000

Average accounts receivable = $20,000

What is ABC's average collection period (rounded to the nearest whole day)?

A) 9 days. B) 5 days. C) 18 days. D) 73 days.

C) 18 Days

Average Receivable Turnover Ratio = Net Sales / Avg. AC

Avg Collection period = 365 / Avg Receivable Turnover Ratio

Given the information below about ABC, what was the amount of dividends the company paid in

the current period?

Beginning retained earnings $54,000

Ending retained earnings $110,000

Decrease in cash $10,000

Net income $84,000

Change in stockholders' equity $15,000

A) $13,000. B) $18,000. C) $110,000. D) $28,000.

D) $28,000

Retained Earnings = Beginning RE + Net Income - Dividends

Which of the following is possible for a particular business transaction?

A) Increase assets; Decrease liabilities

B) Decrease assets; Increase assets

C) Decrease assets; Increase stockholders' equity

D) Decrease liabilities; Increase expenses

B) Decrease in Assets, Increase Assets

On March 3, ABC purchased a desk for $450 on account. On March 22, ABC purchased another

desk for $500 also on account, and then on March 24, ABC paid $400 on account. At the end of

March, what amount should ABC report for desks (assuming these two desks were the only desks

they had)?

A) $950. B) $50. C) $450. D) $500.

A) $950

The desks should be reported when received

For a journal entry with only two lines, the following entry is valid:

Increase in a liability, Decrease in Revenue.

A) True B) False

A) True

Increase in Liability = Credit

Decrease in Revenue = Debit

For a journal entry with only two lines, the following entry is valid:

Decrease in one Owners' Equity, Decrease in a second Owners' Equity.

A) False B) True

A) False

Decrease in OE = Debit

Which of the following statements is NOT correct about the financial statements?

A) A balance sheet reports assets, liabilities, revenues, and expenses.

B) The statement of stockholders' equity presents common stock, dividends, and retained

earnings information.

C) An income statement reports revenues, expenses, and net income information.

D) The statement of cash flows shows cash inflows and outflows from operating, financing, and

investing activities.

A) A balance sheet reports assets, liabilities, revenues, and expenses.

Consider the following account balances of ABC at the end of the year:

Accounts Payable $4,400

Salaries Expense 12,800

Cash 1,700

Common Stock 2,400

Service Revenue 8,300

Supplies 4,300

Retained Earnings 1,100

Utilities Expense 5,000

How many of these accounts would appear in ABC's year-end balance sheet?

A) Three. B) Two. C) Five. D) Four.

C) Five

For a journal entry with only two lines, the following entry is valid:

Decrease in Owners' Equity, Decrease in Revenue.

A) True B) False

B) False

Decrease in OE = Debit

Decrease in Revenue = Debit

For a journal entry with only two lines, the following entry is valid:

Increase in Revenue, Increase in Expense.

A) True B) False

A_ True

Increase in Revenue = Credit

Increase in Expense = Debit

A company receives a $50,000 cash deposit from a customer on October 15 but will not provide

services until November 20. Which of the following statements is true?

A) The company records service revenue on October 15.

B) The company records cash collection on November 20.

C) The company records nothing on October 15.

D) The company records deferred revenue on October 15.

D) The company records deferred revenue on October 15th

Deferred Revenue - the amount received by customers but not earned

For a journal entry with only two lines, the following entry is valid:

Increase in one Owners' Equity, Decrease in a second Owners' Equity.

A) False B) True

B) True

Increase in OE = Credit

Decrease in OE = Debit

ABC estimates uncollectible accounts based on the percentage of accounts receivable. What effect

will recording the estimate of uncollectible accounts have on the accounting equation?

A) Increase liabilities and decrease stockholders' equity.

B) Decrease assets and decrease liabilities.

C) Decrease assets and decrease stockholders' equity.

D) Increase assets and decrease stockholders' equity.

C) Decrease assets and decrease stockholders' equity.

For a journal entry with only two lines, the following entry is valid:

Increase in one Liability, Decrease in a second second liability.

A) True B) False

A) True

Increase in Liability = Credit

Decrease in Liability = Debit

For a journal entry with only two lines, the following entry is valid:

Increase in an asset, Increase in an Expense.

A) False B) True

A)False

Increase in Asset = Debit

Increase in Exp = Debit

Which of the following is not possible when recording a transaction?

A) Liabilities increase and assets decrease.

B) Stockholders' equity increases and assets increase.

C) Stockholders' equity decreases and assets decrease.

D) One asset increases and another asset decreases.

A) Liabilities Increase and Assets Decrease

Increase in Liabilities = Credit

Decrease in Assets = Credit

How many of the following events would require an expense to be recorded?

Ordering office supplies

Hiring a receptionist

Paying employees' salaries for the current month

Receiving but not paying a current utility bill

Paying for insurance in advance

A) Three. B) One. C) Two. D) Four.

C) Two

- Ordering Office Supplies

-Paying employee's salaries for the current month

ABC had the following net income (loss) the first three years of operation: $7,100, ($1,600), and

$3,600. If the Retained Earnings balance at the end of year three is $1,100, what was the total

amount of dividends paid over these three years?

A) $8,000. B) $500. C) $0. D) $9,100.

A) $8,000

In a Big Bath, a firm

A) increases revenue B) changes accounting firms

C) does window dressing D) increases Expenses

D) increases Expenses

Which of the following are made when the business does something

A) Closing Entries B) Adjusting Entries C) Transaction Entries

C) Transaction Entries

For a journal entry with only two lines, the following entry is valid:

Decrease in an asset, Decrease in a liability.

A) True B) False

A) True

Decrease in Ass = Credit

Decrease in Lia = Debit

For a journal entry with only two lines, the following entry is valid:

Increase in an asset, Decrease in an Expense.

A) False B) True

B) True

Increase in Ass = Debit

Decrease in Exp = Credit

For a journal entry with only two lines, the following entry is valid:

Increase in Owners' Equity, Increase in Revenue.

A) False B) True

A) False

Increase in OE = Credit

Increase in Rev = Credit

Of the following, the most important objective for financial accounting is to provide information

useful for:

A) Providing accountability. B) Increasing future profits.

C) Predicting cash flows. D) Determining taxable income.

C) Predicting Cash Flow

Following are transactions of ABC., a new company, during the month of January:

1. Issued 10,000 shares of common stock for $15,000 cash.

2. Purchased land for $12,000, signing a note payable for the full amount.

3. Purchased office equipment for $1,200 cash.

4. Received cash of $14,000 for services provided to customers during the month.

5. Purchased $300 of office supplies on account.

6. Paid employees $10,000 for their first month's salaries.

How many of these transactions decreased ABC's total assets?

A) Three. B) One. C) Two. D) Four.

B) One

After the First STEP in the Operating Cycle the firm has?

A) Inventory B) Cash

C) Account Receivable D) None of the other three

A) Inventory

How many types of Cash Flow are there on the Cash Flow statement

A) Three B) Four C) Two D) One

A) Three

For a journal entry with only two lines, the following entry is valid:

Decrease in a liability, Increase in an Expense.

A) True B) False

B) False

Decrease in Lia = Debit

Increase in EXP = Debit

For a journal entry with only two lines, the following entry is valid:

Increase in an asset, Increase in a liability.

A) False B) True

B) True

Increase in ASS = Debit

Increase in Lia = Credit

Which statement is true?

A) All Balance Sheet accounts are Temporary

B) All Balance Sheet accounts are Permanent

C) Some Balance Sheet accounts are Temporary and some are Permanent

B) All Balance Sheet accounts are Permanent

Which of the following are made BEFORE we start preparing the financial statements?

A) Closing Entries B) Adjusting Entries C) Transaction Entries

B) Adjusting Entries

Allowance for Bad Debts is what kind of account?

A) Expense B) Contra-Expense C) Asset D) Contra-Asset

D) Contra-Asset

We always sell pens at $8. We sold a pen for $7 because it was damaged. Record the sale at

A) It depends B) $7 C) $8

B) $7

Which of the following accounts would normally have a credit balance?

A) Salaries Payable, Deferred Revenue, Delivery Expense.

B) Accounts Payable, Service Revenue, Common Stock.

C) Cash, Repairs and Maintenance Expense, Dividends.

D) Income Tax Payable, Service Revenue, Dividends.

B) Accounts Payable, Service Revenue, Common Stock

Investors and Creditors are interested in which of these entries? (This question may have multiple

answers)

A) Transaction Entries B) Closing Entries C) Adjusting Entries

A) Transaction Entries

For a journal entry with only two lines, the following entry is valid:

Decrease in one Expense, Decrease in another Expense.

A) True B) False

B) False

Decrease in EXP = Credit

Which of the following transactions would cause an increase in both the assets and liabilities of a

company?

A) Pay for inventory purchased 90 days ago.

B) Services received on account.

C) Paying for the current month's rent.

D) Purchase of a building by issuing a note payable.

D) Purchase of a building by issuing a note payable

For a journal entry with only two lines, the following entry is valid:

Decrease in an asset, Decrease in a Owners' Equity.

A) True B) False

A) True

Decrease in ASS = Credit

Decrease OE = Debit

For a journal entry with only two lines, the following entry is valid:

Decrease in an asset, Decrease in Dividends.

A) True B) False

B) False

Decrease in ASS = Credit

Decrease in Divi = Credit

For a journal entry with only two lines, the following entry is valid:

Increase in an asset, Decrease in Dividends.

A) True B) False

A) True

Increase in ASS = Debit

Decrease in DIvi = Credit

ABC paid dividends of $2,410, $0, $1,570 and $1,060 over the first four years of the company's

existence. If Retained Earnings after year four has an ending balance of $9,700, what is the

average annual amount of net income (loss) over the past four years for ABC?

A) $3,685. B) $840. C) $1,260. D) $14,740.

A) $3,685

For a journal entry with only two lines, the following entry is valid:

Increase in one Liability, Increase Owners' Equity.

A) False B) True

A) False

Increase in Liability = Credit

Increase in OE = Credit