Accounting Exam 1 Review

Which of the following is the primary objective of financial accounting:

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a

to provide information for internal decision makers.

b

to provide information in order to determine if fraud occurred in a company.

c

to provide information for external decision makers.

d

to calculate taxable income for the IRS.

c

to provide information for external decision makers.

What is the purpose of the balance sheet?

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a

To report how net income and the distribution of dividends affected stockholders' equity.

b

To report revenues less expenses.

c

To report the financial position of the company at a point in time.

d

To report the sources and uses of cash

c

To report the financial position of the company at a point in time.

What information is obtained from the income statement?

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a

Total revenue generated by the company

b

Total dividends paid by the company

c

Total assets of the company

d

The amount of cash the company has on hand

a

Total revenue generated by the company

New Moon Corporation reported the following amounts at the end of the first year of operations, December 31, 2023:

Contributed Capital               $150,000
Sales Revenue                          $400,000
Total Assets                                $350,000
Dividends                                    $ 10,000
Total Liabilities:                         $150,000

Retained earnings would be:

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a

$ 340,000

b

$ 50,000

c

$ 150,000

d

$ 300,000

b

$ 50,000

Beginning retained earnings for New Moon Corporation was $50,000. Ending retained earnings was $75,000. If Net income was $35,000, how much in dividends were declared?

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a

$ 75,000

b

$ 45,000

c

$ 15,000

d

$ 10,000

d

$ 10,000

Ivy Corporation reported the following amounts on its most recent financial statements, December 31, 2023:

Contributed Capital                   $ 350,000
Total revenue                               $  300,000
Total Assets                                   $ 800,000
Dividends                                       $   12,000
Total Liabilities:                            $ 250,000
Beginning retained earnings  $ 160,000

Expenses for the year ended December 31, 2023 would be:

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a

$ 248,000

b

$ 272,000

c

$ 277,000

d

$ 350,000

a

$ 248,000

Which of the following are the rules US public companies must follow?

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a

PCAOB

b

FASB

c

SEC

d

GAAP

d

GAAP (Generally Accepted Accounting Principles)

Who is responsible for preparation of the financial statements?

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a

board of directors

b

management

c

auditors

d

CPA who files the company's taxes

b

management

Which of the following is a disadvantage of incorporation of a company?

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a

can easily transfer ownership between parties.

b

owners have limited liability of the company's activities.

c

dividends of the company are taxed two times.

d

easier to raise capital for the company.

c

dividends of the company are taxed two times.

Which of the following business transactions is an example of a FINANCING inflow?

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a

issuing common stock to investors for cash

b

paying for interest on outstanding debt

c

purchasing new computer equipment, expected to be used over 5 years

d

debt repayments

a

issuing common stock to investors for cash

What are the two types of stockholders equity on a company's balance sheet?

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a

contributed cash and liabilities

b

contributed capital and retained earnings

c

net income and retained earnings

d

dividends and notes payable

b

contributed capital and retained earnings

Which of the following is NOT an asset?

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a

accounts receivable

b

inventory

c

note payable

d

property, plant and equipment

c

note payable

Ivy Company purchased equipment for a new computer lab for $10,000 cash and a $50,000 note payable. Ivy had the computer equipment appraised for a value of $75,000.   At what amount should the equipment be recorded on the purchase date?

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a

$10,000

b

$50,000

c

$60,000

d

$75,000

c

$60,000

Which of the following items is NOT a current liability?

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a

accounts payable

b

current portion of long term debt

c

five-year note payable

d

wages payable

c

five-year note payable

Ivy Corporation borrows $35,000 from a bank to upgrade it's computer system, the note will be paid in nine months.
What is the effect on the accounting equation?

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a

Cash INCREASE and Accounts Receivable INCREASE

b

Cash DECREASE and Notes Payable DECREASE

c

Cash INCREASE and Notes Payable INCREASE

d

Cash DECREASE and Accounts Receivable DECREASE

c

Cash INCREASE and Notes Payable INCREASE

Which of the following is NOT possible as a result of the transaction analysis model?

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a

Liabilities DECREASE and Assets INCREASE

b

Liabilities INCREASE and Equity DECREASES

c

Liabilities INCREASE and Assets INCREASE

d

Equity DECREASES and Assets DECREASE

a

Liabilities DECREASE and Assets INCREASE

Jordan's Fitness Company paid for a repair completed this month.  As a result of this transaction, what would be the effect on the financial statement components?

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a

assets and net income would decrease

b

liabilities and expenses would increase

c

assets would decrease and net income would increase

d

expenses and equity would increase

a

assets and net income would decrease

Which of the following accounts has a normal credit balance (i.e., the account increases on the credit side)?

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a

interest expense

b

dividends

c

accounts receivable

d

common stock

d

common stock

Which of the following does NOT limit the use of the income statement?

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a

It does not display changes in cash.

b

It relies on estimations

c

It does not display changes in company value.

d

It does not display changes in revenue.

d

It does not display changes in revenue.

Jackson Motors has a current ratio of 1.4.  Prestige Autos has a current ratio of 1.2.  Which of the following statements is TRUE?  (HINT:  Current Ratio = Current Assets / Current Liabilities)

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a

Prestige is more liquid than Jackson based on the current ratio.

b

Jackson has $1 of current assets for every $1.40 of current liabilities

c

Prestige is more profitable than Jackson based on the current ratio.

d

Jackson is more liquid than Prestige based on the current ratio.

d

Jackson is more liquid than Prestige based on the current ratio.

On Sept. 1, 2023 Albertson Corp. paid $24,000 for two years of rent in advance. What adjusting entry should Albertson record on Dec. 31, 2023?

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a

increase rent expense $4,000 and decrease cash $4,000

b

increase rent expense $4,000 and decrease prepaid rent $4,000

c

increase rent expense $8,000 and decrease prepaid rent $8,000

d

increase rent expense $8,000 and increase rent payable $8,000

b

increase rent expense $4,000 and decrease prepaid rent $4,000

Phantom Company borrowed $25,000 from a bank on Sept. 1 of this year, at a rate of 8%. The principal amount and interest will both be paid on May 1 of the following year. The adjusting entry related to the loan on December 31 of this year will:

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a

increase interest payable and decrease cash

b

increase interest payable and decrease interest expense

c

increase interest payable and increase cash

d

increase interest payable and increase interest expense

d

increase interest payable and increase interest expense

Albertson Corp. began the year with supplies of $1,000.  During 2023, Albertson paid $4,000 for additional supplies. On Dec. 31, a physical count of supplies resulted in $2,100 balance in supplies.   Supplies expense should be __________________ in the Dec. 31, 2023 adjusting entry?

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a

increased by $2,900 

b

decreased by $2,900

c

increased by $2,100

d

decreased by $2,100

a

increased by $2,900 

Which of the following is an example of an accrued revenue?

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a

adjustment to cash collected in advance of earning revenue

b

adjustment for earned but unpaid employee wages

c

adjustment for rent revenue earned but not yet recorded

d

adjustment for the portion of an insurance policy used but not yet recorded

c

adjustment for rent revenue earned but not yet recorded

Which of the following accounts is a PERMANENT account? (i.e., the account is not closed at year-end)

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a

utility expense

b

dividends

c

sales revenue

d

accounts payable

d

accounts payable