ACTG 221 Exam 1

The following general journal entry was recorded in the books of Bacon Company:

Debit: Accounts Payable 700

Credit: Cash 700

Based on this entry:

• net income was unaffected.

• assets increased.

• stockholders’ equity decreased.

• liabilities increased.

Ares Co. collected $9,000 cash that was due on an account receivable. Ares Company’s accountant recorded the entry as a debit to cash and a credit to service revenue. As a result of this error

• the totals of the trial balance will not be equal.

• retained earnings will be overstated.

• dividends will be understated.

• the amount of cash will be overstated.

The following information was drawn from the records of the Ramos Company. Cash $500, Equipment $2,000, Common stock $1,700, Retained Earnings $500, Service Revenue $900, and Operating Expenses $600. Based on this information, the amount of retained earnings reported on the year-end balance sheet would be

• $500

• $600

• $1,400

• $800

Which of the following statements is true?

• Expense accounts normally have debit balances immediately before the closing entries are recorded.

• A debit entry in an asset account will decrease the account.

• Adjusting entries are recorded at the beginning of an accounting cycle.

• Equal totals in a trial balance proves that no errors have been made in the recording process.

The entry to record accrued interest on a note payable involves a

• credit to interest expense and a debit to cash.

• debit to interest expense and a credit to interest payable.

• credit to interest expense and a debit to interest payable.

• credit to interest receivable and a debit to interest expense.

Select the true statement.

• A debit to a liability account will increase the balance of the account.

• A credit to a revenue account will decrease the balance of the account.

• A debit to an asset account will increase the balance of the account.

• A credit to the retained earnings account will decrease the balance of the account.

Hsu Company mistakenly recorded the purchase of supplies on account by debiting supplies and crediting cash. As a result of this error

• assets are understated.

• liabilities are overstated.

• expenses are understated.

• both a and b.

The following account balances were drawn from the adjusted trial balance of Jensen, Inc.

Service revenue $ 700

Operating expenses 400

Accounts payable 600

Unearned revenue 100

Dividends 200

Retained earnings 1,200

After the closing entries have been recorded and posted, the balance in the retained earnings account would be: 

• $1,200.

• $1,600.

• $1,400.

• None of the above.

X Company recognized $500 of revenue on account and realized $400 of cash collections. The company had accrued salary expense of $300 and invested $200 in a certificate of deposit. Based on this information alone, the amount of cash flow from operating activities would be

• $100.

• $500.

• $200.

• $400.

On January 1, Year 1, West Company had accounts receivable of $500. During Year 1 West earned $2,500 of service revenue on account. If the accounts receivable balance as of December 31, Year 1, was $400, what was the amount of cash flow from operating activities?

• $2,000

• $3,000

• $2,400

• $2,600