ACCT 2301 Final Exam Review

If a company purchases equipment costing $5,300 on credit, the effect on the accounting equation would be:

• Assets increase $5,300 and liabilities increase $5,300.

• Equity decreases $5,300 and liabilities increase $5,300.

• Equity increases $5,300 and liabilities decrease $5,300.

• One asset increases $5,300 and another asset decreases $5,300.

• Assets increase $5,300 and liabilities decrease $5,300.

Answer explanation

Buying on credit:

Debit asset (supplies/equipment, etc) ⇒ increase

Credit Accounts Payable ⇒ increase

The measurement principle, also called the cost principle:

• Prescribes that a company report the details behind financial statements that would impact users' decisions.

• Means that accounting information reflects a presumption that the business will continue operating instead of being closed or sold.

• Prescribes that a company record the expenses it incurred to generate the revenue reported.

• Provides guidance on when a company must recognize revenue.

• Prescribes that accounting information is based on actual cost.

A company purchases equipment for $75,000 cash. This represents a(n):

• Investing activity.

• Operating activity.

• Financing activity.

• Revenue activity.

• Expense activity.

Answer explanation

Investing activities involve buying & selling assets held for long term use. (used to help make more money in the future)

Atkins Company collected $1,750 as payment for the amount owed by a customer from services provided the prior month on credit. How does this transaction affect the accounting equation for Atkins?

• Assets would increase $1,750 and liabilities would increase $1,750.

• Liabilities would decrease $1,750 and equity would increase $1,750.

• Assets would decrease $1,750 and liabilities would decrease $1,750.

• Assets would increase $1,750 and equity would increase $1,750.

• One asset would increase $1,750 and a different asset would decrease $1,750, causing no net change in the accounting equation.

Answer explanation

If the company is collecting a payment, you use:

-Accounts Receivable account (decreased b/c borrower no longer owes you money)

• -Cash account (increased since you are receiving payment)

Assets = Liabilities + Equity

Assets remains the same b/c increase in cash is canceled out by decrease in AR.

A company purchased $600 of supplies on credit. Identify the general journal entry below that the company will make to record the transaction.

• Dr. Supplies Expense $600, Cr. Supplies $600

• Dr. Accounts Payable $600, Cr. Supplies $600

• Dr. Supplies $600, Cr. Accounts Payable $600

• Dr. Supplies $600, Cr. Cash $600

• Dr. Cash $600, Cr. Supplies $600

A record of the increases and decreases in a specific asset, liability, equity, revenue, or expense is known as a(n):

• Chart of accounts.

• Posting.

• Account.

• Journal.

• Trial balance.

Identify which error will cause the trial balance to be out of balance.

• A $115 cash receipt from a customer in payment of her account posted as a $115 debit to Cash and a $115 credit to Cash.

• A $180 cash receipt from a customer in payment of her account posted as a $180 debit to Cash and a $18 credit to Accounts Receivable.

• A $74 cash purchase of office supplies posted as a $74 debit to Office Equipment and a $74 credit to Cash.

• A $280 cash salary payment posted as a $280 debit to Cash and a $280 credit to Salaries Expense.

• An $1,200 prepayment from a customer for services to be rendered in the future was posted as an $1,200 debit to Unearned Revenue and an $1,200 credit to Cash.

Unearned revenues are:

• Revenues that have been earned but not yet collected in cash.

• Revenues that have been earned and received in cash.

• Liabilities recorded when customers pay in advance for products or services.

• Increases to equity.

• Recorded as an asset in the accounting records.

Identify the account below that is classified as an asset account:

• Unearned Revenue

• Service Revenue

• Wages Expense

• Supplies

• Accounts Payable

Which of the following does not require an adjusting entry at year-end?

• Cash invested by stockholders.

• Accrued interest on notes payable.

• Expired portion of prepaid insurance.

• Supplies used during the period.

• Accrued wages.

Answer explanation

Adjusting entries affect at least one income statement and balance sheet account (EXCEPT CASH!!)