Accounting Practice Test

At the beginning of 2022, Ironwood Company has assets of $260,000 and liabilities of $172,000. During 2022, assets increased $31,000 and liabilities increased $8,400. What was stockholder’s equity at December 31, 2022?

$110,600

Which of the following transactions affects both retained earnings and net income?

The recording of revenue for services provided.

When a company buys equipment for $165,000, paying two-thirds in cash the other one-third with a note payable, what are the effects on the accounting equation?

Total assets increase $55,000.

Which of the following best describes the purpose of an audit?

To lend credibility to a business’s financial statements.

Which of the following transactions would result in a decrease in the current ratio? 

Purchasing land by paying cash. 

Which of the following is primarily responsible for the information provided in the financial statements?

Chief executive officer/chief financial officer.

Which of the following transactions results in an increase in working capital? 

Receiving cash from investors in exchange for common stock.

During 2022, Sigma Company earned service revenue amounting to $770,000. Of this amount, $630,000 was collected in cash. The remainder will be collected in 2023.

Also in 2022, the company collected $9,000 cash from customers for services to be provided in the future.

What amount should the 2022 income statement report for services revenue? 

$770,000.

Which of the following is true of operating income?

It is equal to revenue minus COGS and operating expenses.

It is equal to gross profit minus operating expenses.

It is equal to earnings before interest and taxes.

What is the proper recorded transaction where services were provided to a customer on account?

Dr. Accounts Receivable

Cr. Service Revenue

Which of the following transactions increases net income?

Providing services the customer previously paid for.

The balance sheet “balances” because the sum of liabilities and stockholder’s equity equals:

Total assets.

Which of the following correctly describes the various financial statements?

An income statement covers a period of time.

The balance of retained earnings:

Equals total profits since the firm began minus total dividends paid to shareholders since the firm began.

Which of the following is not a liability on the balance sheet?

Retained earnings.

Which of the following accounts would be reported as assets on the balance sheet? 

Cash, accounts receivable, and supplies. 

Which financial statement does not provide information about dividends? 

Income statement. 

Which of the following properly describes the impact on the financial statements when a company borrows $23,000 from a local bank? 

Liabilities increase $23,000. 

On December 31, Barksdale Corporation bought supplies $93,000 on account. This transaction should be recorded as:

Dr. Supplies $93,000.

Cr. Accounts payable $93,000.

A customer paid Sherman Co. $40,000 cash for a prior purchase on credit. Sherman should record: 

Dr. Cash $40,000

Cr. Accounts receivable $40,000. 

Revenues and expenses are found on which financial statement?

Income statement.

In what order are the following assets normally listed on the balance sheet'?

Cash, inventory, land.

Stockholder’s equity is equal to:

Contributed capital plus retained earnings.

Which of the following describes the impact on the balance sheet of paying a current liability using cash?

Current assets decrease.

Kessler, Inc. borrowed $8,000 from First Bank and signed a promissory note. What entry should Kessler record?

Dr. Cash $8,000

Cr. Notes Payable $8,000

Which of the following journal entries is correct when a business purchases equipment by paying cash and by signing a note payable for the balance? 

Dr. Equipment

Dr. Cash

Cr. Notes Payable

Which of the following is true when a company reaches cash before products or services are provided: 

Liabilities and assets increase.

A company purchased supplies (to be consumed in future months) with cash. Which of the following correctly describes the impact of the transaction?

Total assets remain unchanged.

Which of the following journal entries is correct when a company has consumed employees’ labor but has not yet paid the related wages to employees?

Dr. Wages expense

Cr. Wages payable

On December 31, Barksdale Corporation $112,000 for next year’s rent. This transaction should be recorded as follows: 

Dr. Prepaid rent

Cr. Cash

June’s Printing Shop had the following information for office supplies:

Ordered $1,200 of supplies March 3

Received $600 of ordered supplies on March 16

Used $200 of the received supplies during March 

What is the total amount that should be reported as supplies expense for the month of March?

$200

On October 1, 2023, Penrod Company paid $4,680 for a two-year insurance policy with the insurance coverage beginning on that date.

As of December 31, 2023, which of the following account balances are correct?

Prepaid insurance $4,095; Insurance expenses $585. 

Which of the following statements is correct?

Income statement accounts are temporary accounts. Their balances reset to zero at the beginning of each accounting period. 

Cost of goods sold:

Revenue - Gross Profit

Net Profit Margin Ratio:

Net Income/Net Sales