WorksheetsAccounting Chapter 1-6 Final Review
Total questions: 75
Worksheet time: 13hrs 30mins
A company reports the following in its balance sheet: Total assets of $800,000 and total liabilities of $700,000. Which of the following is true?
Net income equals $100,000.
Total expenses equal $1,500,000.
Total revenues equal $1,500,000.
Total stockholders’ equity equals $100,000.
The balance in retained earnings represents:
Income earned during the current period.
Income earned during the current period minus dividends distributed to stockholders’ during the current period.
The amount of income earned by the company over its life.
The amount of income earned over the company’s life minus the dividends paid to shareholders over the company’s life.
The primary function(s) of financial accounting is(are) to:
Measure business activities of a company.
Communicate information about business activities to outside users.
Compute the company’s taxes owed to the government.
Measure business activities of a company and communicate information about business activities to outside users.
Financial accounting information is essential to:
Making good business decisions.
Paying the appropriate amount of taxes.
Marketing the company’s products to customers.
Quality of the work environment for employees.
Which of the following represents a resource of the company?
Expense.
Dividend.
Asset.
Liability.
Which of the following equations correctly represents the fundamental accounting equation?
Assets + Stockholders’ Equity = Liabilities.
Liabilities – Assets = Stockholders’ Equity.
Assets + Liabilities = Stockholders’ Equity.
Assets = Liabilities + Stockholders’ Equity.
Which of the following represents an obligation of the company?
Assets.
Liabilities.
Expenses.
Dividends.
Sales of products or services are referred to as
Assets.
Revenues.
Liabilities.
Expenses.
Financial accounting provides information primarily to:
Investors and creditors.
Tax regulators.
Government officials.
Suppliers and customers.
Financial accounting helps with:
Maintaining records of multiple business transactions.
Exchange of goods and services among individuals.
Development of more complex societies.
All of the choices are correct.
An account balance represents:
The equality of debits and credits in the accounting records.
The net amount of all debits and credits posted to an account over a period of time.
All transactions that affect net income for the period.
A chart showing the list of all accounts used to record transactions.
The term commonly used in accounting to describe the format for recording a transaction is:
Journal entry.
General ledger.
Trial balance.
Chart of accounts.
If a company has gone bankrupt, its financial statements likely violate the:
Periodicity assumption.
Economic entity assumption.
Monetary unit assumption.
Going concern assumption.
A(n) _______________ summarizes all transactions related to a particular item over a period of time.
Source document
Account
Chart of accounts
Debit
Which of the following transactions causes a decrease in stockholders' equity?
Pay dividends to stockholders.
Obtain cash by borrowing from a local bank.
Purchase office equipment for cash.
Provide services to customers on account.
Which of the following accounts would normally have a debit balance and appear in the balance sheet?
Deferred Revenue.
Dividends.
Salaries Expense.
Accounts Receivable.
The equation that shows assets equal liabilities plus stockholders’ equity signifies that a company:
All of the other answers provide a correct statement.
Has resources equal to claims to those resources.
Is able to pay its obligations as they come due.
Is profitable.
Revenues normally carry a _______ balance and are shown in the ______________.
Credit; Income statement
Debit; Statement of stockholders' equity
Debit; Balance sheet
Credit; Balance sheet
The two categories of stockholders' equity usually found in the balance sheet of a corporation are:
Assets and liabilities.
Common stock and retained earnings.
Common stock and liabilities.
Revenues and expenses.
On December 1, Bears Lawn Maintenance, Inc. signed a contract with a retailer to supply maintenance for the next calendar year. How should this transaction be recorded on December 1?
No transaction should be recorded on December 1.
Debit Cash, credit Accounts Receivable.
Debit Cash, credit Service Revenue.
Debit Accounts Receivable, credit Service Revenue.
The accounts that represent resources owed to creditors are called:
Assets.
Liabilities.
Dividends.
Stockholders' Equity.
Assume that $18,000 cash is paid for insurance to cover the next year. The appropriate debit and credit would be:
Debit Cash $18,000, credit Prepaid Insurance $18,000.
Debit Cash $18,000, credit Prepaid Insurance $18,000.
Debit Prepaid Insurance $18,000, credit Insurance Expense $18,000.
Debit Prepaid Insurance $18,000, credit Cash $18,000.
The following statements pertain to recording transactions. Which of them are true?
I. Total debits should equal total credits.
II. It is possible to have multiple debits or credits in one journal entry.
III. Assets are always listed first in journal entries.
IV. Some journal entries will have debits only.
I and II.
I only.
I, II, and IV.
II, III, and IV.
Which of the following best describes the primary role of auditors in financial reporting?
Government employees assigned by local officials to ensure accurate financial reporting and operational integrity by the company.
Independent party hired by management to express a professional opinion of the extent to which the company’s financial reporting is in compliance with generally accepted accounting principles.
Key employees of the company that actively participate on the management team in strategic planning, product development, and financial reporting.
Consultants that are hired by company management to advise on key matters related to competition, product pricing, employee retention, and financial reporting strategies.
An alternative form of the accounting equation is:
Assets = Liabilities − Stockholders' Equity.
Assets − Liabilities = Stockholders' Equity.
Net Income = Revenues − Expenses.
Stockholders' Equity = Assets + Liabilities.
An increase to an asset account is shown with a ______________. An increase to a liability account is shown with a ______________.
Debit; Credit
Credit; Credit
Debit; Debit
Credit; Debit
The figure below is a depiction of a T-account.
Account
|1,700 Beg.
1,200|800
|3,300 End.
Which of the following statements is correct?
The account could be a liability account.
All of the other answers provide a correct statement.
During the period, a journal entry was recorded that included a credit to the account for $800.
The amount reported to stockholders at the end of the period for this account is $3,300.
To ensure that management has in fact appropriately applied GAAP, the SEC requires independent outside verification of the financial statements of public traded companies by an:
Advisor.
Auditor.
Analyst.
Attorney.
Which of the following typically is considered a source document for gathering information about a transaction?
General ledger.
Sales invoice.
Trial balance.
Income statement.
Bostel wanted to expand the size of its warehouse in order to generate more profits. The company decided to purchase the building adjacent to its existing warehouse. The company pays for the building by borrowing from the bank. The purchase would be recorded as:
Debit Buildings; credit Cash.
Debit Cash and Buildings; credit Notes Payable.
Debit Buildings; credit Notes Payable.
Debit Cash; credit Notes Payable.
The conceptual framework's qualitative characteristic of relevance includes:
Predictive value.
Completeness.
Verifiability.
Neutrality.
The term "cooking the books" refers to:
Hiring an auditor to provide independent verification of the fairness of financial statements.
Filing all tax-related statements by the required deadline.
Purposely providing misleading financial information to investors and creditors.
Preparing internal budgets to plan for expenditures in the following year.
Providing services to customers for $1,000 on account is recorded as:
Debit Service Revenue $1,000, credit Accounts Receivable $1,000.
Debit Cash $1,000, credit Accounts Receivable $1,000.
Debit Accounts Receivable $1,000, credit Service Revenue $1,000.
Debit Service Revenue $1,000, credit Cash $1,000.
Daniel Dino Restaurant owes employees' salaries of $15,000. This would be recorded as:
Debit Salaries Expense, credit Salaries Payable.
Debit Salaries Expense, credit Cash.
Debit Salaries Payable, credit Salaries Expense.
Debit Salaries Payable, credit Cash.
Stockholders' claims to the company's resources are referred to as:
Liabilities.
Assets.
Stockholders' equity.
Revenues.
Closing entries are:
Made to record events that occurred during the period but have not yet been recorded.
Made to transfer the balances of permanent accounts to retained earnings.
Optional.
Made to transfer the balances of temporary accounts to retained earnings.
Chan Sports purchases one year of rent on November 1 for $12,000 ($1,000 per month), debiting Prepaid Rent. On December 31, Chan Sports would record the following year-end adjusting entry:
Debit Rent Expense 2,000
Credit Prepaid Rent 2,000
Debit Rent Expense 12,000
Credit Prepaid Rent 12,000
No entry is required on December 31 because full cash payment was made on November 1.
Debit Rent Expense 10,000
Credit Prepaid Rent 10,000
Consistent with the COSO framework, an effective internal control system includes the control environment. The control environment refers to:
Accountability through separation of duties.
The ethical tone set by top management.
The risk of failing to achieve company objectives.
The reliability of financial information.
Who is ultimately responsible for the establishment and success of a company’s internal control system?
The company’s top executives.
The company’s stockholders.
The company's board of directors.
The company’s external auditors.
A company owes employee salaries of $5,000 on December 31 for work completed in the current year, but the company doesn’t plan to pay those salaries until the following year. What adjusting entry, if any, is needed on December 31?
No adjusting entry is needed.
Debit Salaries Payable for $5,000; Credit Salaries Expense for $5,000.
Debit Salaries Payable for $5,000; Credit Cash for $5,000.
Debit Salaries Expense for $5,000; Credit Salaries Payable for $5,000.
Recording salaries owed to employees that will not be paid by the company until the following accounting period is an example of a(n):
Unearned revenue.
Accrued expense.
Prepaid expense.
Accrued revenue.
On November 15, Meier Company received $3,000 cash from a customer for services that were performed on November 1. According to the Revenue Recognition Principle, on which date should the revenue be recorded?
One-half on each date.
November 1.
November 15.
Neither.
Which of the following describes the information reported in the balance sheet?
Changes in stockholders’ equity are shown through changes in common stock and retained earnings.
Total assets equal total liabilities plus stockholders’ equity.
Net income for the period is calculated by subtracting expenses from revenues.
All accounts and account balances are shown and all debits equal all credits.
On November 1, 2021, a company receives cash of $6,000 from a customer for services to be provided evenly over the next six months. Deferred revenue is recorded at that time. Which of the following adjusting entries is needed on December 31, 2021?
Debit Deferred Revenue for $2,000; Credit Service Revenue for $2,000.
Debit Deferred Revenue for $2,000; Credit Cash for $2,000.
Debit Deferred Revenue for $6,000; Credit Service Revenue for $6,000.
Debit Service Revenue for $2,000; Credit Deferred Revenue for $4,000.
What is a direct purpose of internal controls?
To help managers determine which projects are likely to be more profitable.
To minimize tax payments to the Internal Revenue Service (IRS).
To assist top executives in planning employment capacity.
To improve the accuracy and reliability of accounting information.
Under cash-basis accounting, companies typically record revenue:
In the period in which customers order goods and services.
In the period in which we received cash from customers for goods and services.
In the period in which we provide goods and services to customers.
In the period in which goods and services are prepared to be sold to customers.
Under accrual-basis accounting, companies typically report expenses:
In the same period in which an asset is purchased.
In the same period in which cash is paid.
In the same period in which a liability is paid.
In the same period as the revenue they help to generate.
Sarbanes-Oxley Act (SOX) was passed in response to:
Increasing pressure of foreign competition for American products and services.
Increasing inflation.
Corporate scandals involving unethical behavior of top executives.
The establishment of the Securities and Exchange Commission (SEC).
Which of the following accounts is not listed in a post-closing trial balance?
Service Revenue.
Accounts Receivable.
Interest Payable.
Equipment.
Which of the following is an example of an accrued revenue?
Delaying the payment of interest on an outstanding loan until next year.
Prepaying insurance coverage for the next 12 months.
Receiving cash in advance of a service to be provided to a customer.
Providing services to a customer without having yet collected the cash.
The adjusting entry to record supplies used during the period includes a:
Credit to Cash
Credit to Service Revenue
Debit to Supplies Expense
Debit to Supplies.
Section 404 of the Sarbanes-Oxley Act requires companies to:
File their tax return with the Internal Revenue Service.
Document and assess internal controls.
Provide financial statements.
Provide healthcare for employees.
Which of the following describes the information reported in the statement of cash flows?
Equality of total assets with total liabilities plus stockholders’ equity.
Changes in stockholders’ equity through changes in common stock and retained earnings.
Net cash flows from operating, investing, and financing activities.
Net income for the period calculated as revenues minus expenses.
The revenue recognition principle states that companies typically record revenue:
In the period in which we provide goods and services to customers.
In the period in which we received cash from customers for goods and services.
In the period in which goods and services are prepared to be sold to customers.
In the period in which customers order goods and services.
Which of the following describes the information reported in the income statement?
Total assets equal total liabilities plus stockholders’ equity.
Net income for the period is calculated by subtracting expenses from revenues.
All accounts and account balances are shown.
Changes in stockholders’ equity are shown through changes in common stock and retained earnings.
The amount of cash owed to a company by its customers from the sale of goods or services on account is commonly referred to as:
Revenue.
Cash.
Accounts Receivable.
Accounts Payable.
At the end of its first year of operations, a company has accounts receivable of $250,000. The company expects to collect 90% of these accounts. The company’s year-end adjusting entry for uncollectible accounts would be:
Debit Allowance for Uncollectible Accounts; Credit Accounts Receivable for $25,000.
Debit Allowance for Uncollectible Accounts; Credit Bad Debt Expense for $25,000.
Debit Bad Debt Expense; Credit Allowance for Uncollectible Accounts for $25,000.
Debit Bad Debt Expense; Credit Accounts Receivable for $25,000.
A company accounts for possible bad debts using the allowance method. When an actual bad debt occurs, what effect does it have on the accounting equation?
Decreases assets and decreases liabilities.
Increases assets and increases stockholders' equity.
Decreases assets and decreases stockholders' equity.
No effect on the accounting equation.
LeGrand Corporation reported the following amounts in its income statement:
Sales revenue $440,000
Advertising expense 60,000
Interest expense 10,000
Salaries expense 55,000
Utilities expense 25,000
Income tax expense 45,000
Cost of goods sold 180,000
What was LeGrand's net income?
$65,000.
$110,000.
$60,000.
$120,000.
Compared to other methods of estimating uncollectible accounts, the aging of accounts receivables method tends to:
Be more accurate.
Result in the highest net income.
Result in the lowest net income.
Recognize bad debts earlier.
Which of the following best describes credit sales?
Sales to customers on account.
Sales with a high risk that the customer will return the product.
Cash sales to customers that are new to the company.
Sales to customers using credit cards.
The direct write-off method is used when:
A company elects to use this method as one of several alternatives.
A company has greater cash outflows than cash inflows.
A company expects excessive sales returns.
Uncollectible accounts are not anticipated or are immaterial.
Tyler Toys has beginning inventory for the year of $18,000. During the year, Tyler purchases inventory for $230,000 and has cost of goods sold equal to $233,000. Tyler's ending inventory equals:
$19,000.
$21,000.
$18,000.
$15,000.
The direct write-off method is an acceptable method for what purpose?
Issuing financial statements to stockholders.
Compliance with Generally Accepted Accounting Principles.
Tax reporting.
Financial reporting.
Shupe Inc. estimates uncollectible accounts based on the percentage of accounts receivable. What effect will recording the estimate of uncollectible accounts have on the accounting equation?
Increase liabilities and decrease stockholders' equity.
Increase assets and decrease stockholders' equity.
Decrease assets and decrease liabilities.
Decrease assets and decrease stockholders' equity.
Inventory records for Marvin Company revealed the following:
Date Transaction Number of Units Unit Cost
Mar.1 Beginning Inventory 1,000 $7.20
Mar10 Purchase 600 7.25
Mar.16 Purchase 800 7.30
Mar.23 Purchase 600 7.35
Marvin sold 2,300 units of inventory during the month. Ending inventory assuming FIFO would be:
$5,140.
$5,050.
$5,060.
$5,080.
When $2,500 of accounts receivable are determined to be uncollectible, which of the following should the company record to write off the accounts using the allowance method?
A debit to Bad Debt Expense and a credit to Accounts Receivable.
A debit to Allowance for Uncollectible Accounts and a credit to Bad Debt Expense.
A debit to Bad Debt Expense and a credit to Allowance for Uncollectible Accounts.
A debit to Allowance for Uncollectible Accounts and a credit to Accounts Receivable.
Inventory records for Dunbar Incorporated revealed the following:
Date Transaction Number of Units Unit Cost
Apr.1 Beginning Inventory 500 $2.40
Apr.20 Purchase 400 2.50
Dunbar sold 700 units of inventory during the month. Cost of goods sold assuming LIFO would be:
$1,700.
$1,720.
$1,710.
$1,730.
Beginning inventory is $40,000. Purchases of inventory during the year are $200,000. Ending inventory is $100,000. What is cost of goods sold?
$240,000.
$340,000.
$140,000.
$260,000.
A company reports the following information for June:
Sales revenue $104,000
Income tax expense $11,000
Operating expenses 22,000
Cost of goods sold 65,000
Deferred revenues 15,000
Nonoperating revenues 12,000
What is the company's gross profit for June?
$17,000.
$104,000.
$18,000.
$39,000.
Beginning inventory is $30,000. Purchases of inventory during the year are $50,000. Cost of goods sold is $60,000. What is ending inventory?
$50,000.
$10,000.
$20,000.
$30,000.
In a period when inventory costs are falling, the lowest taxable income is most likely reported by using the inventory method of:
Moving-average.
FIFO.
Weighted-average.
LIFO.
The distinction between the direct write-off method and the allowance method is:
The customers to which goods or services are provided.
The amount of bad debt expense reported in each year.
The year in which cash is collected from customers.
The cumulative amount of bad debt expense reported across years.
LIFO is considered an income-statement approach for reporting inventory because it:
Always results in a higher amount of net income being reported.
Better approximates the value of ending inventory.
Always results in a lower amount of net income being reported.
Better approximates inventory cost necessary to generate revenue.
A company reported the following amounts at the end of the year: total sales revenue = $500,000; sales discounts = $10,000; sales allowances = $15,000; net revenues = $440,000. What amount did the company report for sales returns for the year?
$35,000.
$475,000.
$415,000.
$25,000.
