. Factors that shape an accounting information system include the a. nature of the business. b. size of the firm. c. volume of data to be handled. d. all of these.

(a)  

12. Maintaining a set of accounting records is a. optional. b. required by the Internal Revenue Service. c. required by the Foreign Corrupt Practices Act. d. required by the Internal Revenue Service and the Foreign Corrupt Practices Act.

(a)  

13. Debit always means

a. right side of an account. b. increase. c. decrease. d. none of these.

(a)  

14. The double-entry accounting system means

a. Each transaction is recorded with two journal entries. b. Each item is recorded in a journal entry, then in a general ledger account. c. The dual effect of each transaction is recorded with a debit and a credit. d. More than one of the above.

(a)  

15. When a corporation pays a note payable and interest, a. the account notes payable will be increased. b. the account interest expense will be decreased. c. they will debit notes payable and interest expense. d. they will debit cash.

(a)  

16. Stockholders’ equity is not affected by all a. cash receipts. b. dividends. c. revenues. d. expenses.

(a)  

17. Which of the following criteria must be met before an event or item should be recorded for accounting purposes? a. The event or item can be measured objectively in financial terms. b. The event or item is relevant and reliable. c. The event or item is an element. d. All of these must be met.

(a)  

18. Which of the following is a recordable event or item? a. Changes in managerial policy b. The value of human resources c. Changes in personnel d. None of these

(a)  

19. Which of the following is not an internal event? a. Depreciation b. Using raw materials in the production process c. Dividend declaration and subsequent payment d. All of these are internal transactions.

(a)  

20. An accounting record into which the essential facts and figures in connection with all transactions are initially recorded is called the a. ledger. b. account. c. trial balance. d. none of these.

(a)  

21. The debit and credit analysis of a transaction normally takes place a. before an entry is recorded in a journal. b. when the entry is posted to the ledger. c. when the trial balance is prepared. d. at some other point in the accounting cycle.

(a)  

22. A trial balance a. proves that debits and credits are equal in the ledger. b. supplies a listing of open accounts and their balances that are used in preparing financial statements. c. is normally prepared three times in the accounting cycle. d. all of these.

(a)  

23. A trial balance may prove that debits and credits are equal, but a. an amount could be entered in the wrong account. b. a transaction could have been entered twice. c. a transaction could have been omitted. d. all of these.

(a)  

24. Which of the following is a real (permanent) account? a. Goodwill b. Sales c. Accounts Receivable d. Both Goodwill and Accounts Receivable

(a)  

25. Which of the following is a nominal (temporary) account? a. Unearned Revenue b. Salary Expense c. Inventory d. Retained Earnings

(a)  

26. Nominal accounts are also called a. temporary accounts. b. permanent accounts. c. real accounts. d. none of these.

(a)  

27. External events do not include a. interaction between an entity and its environment. b. a change in the price of a good or service that an entity buys or sells, a flood or earthquake. c. improvement in technology by a competitor. d. using buildings and machinery in operations.

(a)  

28. A general journal a. chronologically lists transactions and other events, expressed in terms of debits and credits. b. contains one record for each of the asset, liability, stockholders’ equity, revenue, and expense accounts. c. lists all the increases and decreases in each account in one place. d. contains only adjusting entries.

(a)  

29. A journal entry to record the sale of inventory on account will include a a. debit to inventory. b. debit to accounts receivable. c. debit to sales. d. credit to cost of goods sold.

(a)  

30. A journal entry to record a payment on account will include a a. debit to accounts receivable. b. credit to accounts receivable. c. debit to accounts payable. d. credit to accounts payable.

(a)  

31. A journal entry to record a receipt of rent revenue in advance will include a a. debit to rent revenue. b. credit to rent revenue. c. credit to cash. d. credit to unearned rent.

(a)  

32. Adjustments are often prepared a. after the balance sheet date, but dated as of the balance sheet date. b. after the balance sheet date, and dated after the balance sheet date. c. before the balance sheet date, but dated as of the balance sheet date. d. before the balance sheet date, and dated after the balance sheet date.

(a)  

33. At the time a company prepays a cost a. it debits an asset account to show the service or benefit it will receive in the future. b. it debits an expense account to match the expense against revenues earned. c. its credits a liability account to show the obligation to pay for the service in the future. d. more than one of the above.

(a)  

34. How do these prepaid expenses expire? Rent Supplies a. With the passage of time Through use and consumption b. With the passage of time With the passage of time c. Through use and consumption Through use and consumption d. Through use and consumption With the passage of time

(a)  

35. Recording the adjusting entry for depreciation has the same effect as recording the adjusting entry for a. an unearned revenue. b. a prepaid expense. c. an accrued revenue. d. an accrued expense.

(a)  

36. Unearned revenue on the books of one company is likely to be a. a prepaid expense on the books of the company that made the advance payment. b. an unearned revenue on the books of the company that made the advance payment. c. an accrued expense on the books of the company that made the advance payment. d. an accrued revenue on the books of the company that made the advance payment.

(a)  

37. To compute interest expense for an adjusting entry, the formula is principal X rate X a fraction. The numerator and denominator of the fraction are: Numerator Denomintor a. Length of time note has been outstanding 12 months b. Length of note 12 months c. Length of time until note matures Length of note d. Length of time note has been outstanding Length of note

(a)  

38. Adjusting entries are necessary to 1. obtain a proper matching of revenue and expense. 2. achieve an accurate statement of assets and equities. 3. adjust assets and liabilities to their fair market value. a. 1 b. 2 c. 3 d. 1 and 2

(a)  

39. Why are certain costs of doing business capitalized when incurred and then depreciated or amortized over subsequent accounting cycles? a. To reduce the federal income tax liability b. To aid management in cash-flow analysis c. To match the costs of production with revenues as earned d. To adhere to the accounting constraint of conservatism

(a)  

40. When an item of expense is paid and recorded in advance, it is normally called a(n) a. prepaid expense. b. accrued expense. c. estimated expense. d. cash expense.

(a)  

41. When an item of revenue or expense has been earned or incurred but not yet collected or paid, it is normally called a(n) (a)   revenue or expense. a. prepaid b. adjusted c. estimated d. none of these

42. When an item of revenue is collected and recorded in advance, it is normally called a(n) (a)   revenue. a. accrued b. prepaid c. unearned d. cash

43. An accrued expense can best be described as an amount a. paid and currently matched with earnings. b. paid and not currently matched with earnings. c. not paid and not currently matched with earnings. d. not paid and currently matched with earnings.

(a)  

44. If, during an accounting period, an expense item has been incurred and consumed but not yet paid for or recorded, then the end-of-period adjusting entry would involve a. a liability account and an asset account. b. an asset or contra asset account and an expense account. c. a liability account and an expense account. d. a receivable account and a revenue account.

(a)  

45. Which of the following must be considered in estimating depreciation on an asset for an accounting period? a. The original cost of the asset b. Its useful life c. The decline of its fair market value d. Both the original cost of the asset and its useful life.

(a)  

46. Which of the following would not be a correct form for an adjusting entry? a. A debit to a revenue and a credit to a liability b. A debit to an expense and a credit to a liability c. A debit to a liability and a credit to a revenue d. A debit to an asset and a credit to a liability

(a)  

47. Year-end net assets would be overstated and current expenses would be understated as a result of failure to record which of the following adjusting entries? a. Expiration of prepaid insurance b. Depreciation of fixed assets c. Accrued wages payable d. All of these

(a)  

48. A prepaid expense can best be described as an amount a. paid and currently matched with revenues. b. paid and not currently matched with revenues. c. not paid and currently matched with revenues. d. not paid and not currently matched with revenues.

(a)  

49. An accrued revenue can best be described as an amount a. collected and currently matched with expenses. b. collected and not currently matched with expenses. c. not collected and currently matched with expenses. d. not collected and not currently matched with expenses.

(a)  

50. An unearned revenue can best be described as an amount a. collected and currently matched with expenses. b. collected and not currently matched with expenses. c. not collected and currently matched with expenses. d. not collected and not currently matched with expenses.

(a)  

51. An adjusted trial balance a. is prepared after the financial statements are completed. b. proves the equality of the total debit balances and total credit balances of ledger accounts after all adjustments have been made. c. is a required financial statement under generally accepted accounting principles. d. cannot be used to prepare financial statements.

(a)  

52. Which type of account is always debited during the closing process? a. Dividends. b. Expense. c. Revenue. d. Retained earnings.

(a)  

53. When a company uses a periodic inventory system, the year-end entry to adjust the inventory account will debit and credit inventory as follows: Beginning Inventory Amount Ending Inventory Amount a. Debited Credited b. Debited Debited c. Credited Debited d. Credited Credited

(a)  

54. If the inventory account at the end of the year is understated, the effect will be to a. overstate the gross profit on sales. b. understate the net purchases. c. overstate the cost of goods sold. d. overstate the goods available for sale.

(a)  

*55. Under the cash basis of accounting, revenues are recorded a. when they are earned and realized. b. when they are earned and realizable. c. when they are earned. d. when they are realized.

(a)  

*56. When converting from cash basis to accrual basis accounting, which of the following adjustments should be made to cash receipts from customers to determine accrual basis service revenue? a. Subtract ending accounts receivable. b. Subtract beginning unearned service revenue. c. Add ending accounts receivable. d. Add cash sales.

(a)  

*57. When converting from cash basis to accrual basis accounting, which of the following adjustments should be made to cash paid for operating expenses to determine accrual basis operating expenses? a. Add beginning accrued liabilities. b. Add beginning prepaid expense. c. Subtract ending prepaid expense. d. Subtract interest expense.

(a)  

*58. Reversing entries are 1. normally prepared for prepaid, accrued, and estimated items. 2. necessary to achieve a proper matching of revenue and expense. 3. desirable to exercise consistency and establish standardized procedures. a. 1 b. 2 c. 3 d. 1 and 2

(a)  

*59. Adjusting entries that should be reversed include those for prepaid or unearned items that a. create an asset or a liability account. b. were originally entered in a revenue or expense account. c. were originally entered in an asset or liability account. d. create an asset or a liability account and were originally entered in a revenue or expense account.

(a)  

*60. Adjusting entries that should be reversed include a. all accrued revenues. b. all accrued expenses. c. those that debit an asset or credit a liability. d. all of these.

(a)  

61. Maso Company recorded journal entries for the issuance of common stock for $40,000, the payment of $13,000 on accounts payable, and the payment of salaries expense of $21,000. What net effect do these entries have on owners’ equity? a. Increase of $40,000. b. Increase of $27,000. c. Increase of $19,000. d. Increase of $6,000.

(a)  

62. Mune Company recorded journal entries for the payment of $50,000 of dividends, the $32,000 increase in accounts receivable for services rendered, and the purchase of equipment for $21,000. What net effect do these entries have on owners’ equity? a. Decrease of $71,000. b. Decrease of $39,000. c. Decrease of $18,000. d. Increase of $11,000.

(a)  

63. Pappy Corporation received cash of $13,500 on September 1, 2007 for one year’s rent in advance and recorded the transaction with a credit to Unearned Rent. The December 31, 2007 adjusting entry is a. debit Rent Revenue and credit Unearned Rent, $4,500. b. debit Rent Revenue and credit Unearned Rent, $9,000. c. debit Unearned Rent and credit Rent Revenue, $4,500. d. debit Cash and credit Unearned Rent, $9,000.

(a)  

64. Panda Corporation paid cash of $18,000 on June 1, 2007 for one year’s rent in advance and recorded the transaction with a debit to Prepaid Rent. The December 31, 2007 adjusting entry is a. debit Prepaid Rent and credit Rent Expense, $7,500. b. debit Prepaid Rent and credit Rent Expense, $10,500. c. debit Rent Expense and credit Prepaid Rent, $10,500. d. debit Prepaid Rent and credit Cash, $7,500.

(a)  

*65. Lopez Company received $6,400 on April 1, 2007 for one year's rent in advance and recorded the transaction with a credit to a nominal account. The December 31, 2007 adjusting entry is a. debit Rent Revenue and credit Unearned Rent, $1,600. b. debit Rent Revenue and credit Unearned Rent, $4,800. c. debit Unearned Rent and credit Rent Revenue, $1,600. d. debit Unearned Rent and credit Rent Revenue, $4,800.

(a)  

*66. Gibson Company paid $3,600 on June 1, 2007 for a two-year insurance policy and recorded the entire amount as Insurance Expense. The December 31, 2007 adjusting entry is a. debit Insurance Expense and credit Prepaid Insurance, $1,050. b. debit Insurance Expense and credit Prepaid Insurance, $2,550. c. debit Prepaid Insurance and credit Insurance Expense, $1,050 d. debit Prepaid Insurance and credit Insurance Expense, $2,550.

(a)  

67. Tate Company purchased equipment on November 1, 2007 and gave a 3-month, 9% note with a face value of $20,000. The December 31, 2007 adjusting entry is a. debit Interest Expense and credit Interest Payable, $1,800. b. debit Interest Expense and credit Interest Payable, $450. c. debit Interest Expense and credit Cash, $300. d. debit Interest Expense and credit Interest Payable, $300.

(a)  

68. Brown Company's account balances at December 31, 2007 for Accounts Receivable and the related Allowance for Doubtful Accounts are $460,000 debit and $700 credit, respectively. From an aging of accounts receivable, it is estimated that $12,500 of the December 31 receivables will be uncollectible. The necessary adjusting entry would include a credit to the allowance account for a. $12,500. b. $13,200. c. $11,800. d. $700.

(a)  

69. Chen Company's account balances at December 31, 2007 for Accounts Receivable and the Allowance for Doubtful Accounts are $320,000 debit and $600 credit. Sales during 2007 were $900,000. It is estimated that 1% of sales will be uncollectible. The adjusting entry would include a credit to the allowance account for a. $9,600. b. $9,000. c. $8,400. d. $3,200.

(a)  

*70. Garcia Corporation received cash of $18,000 on August 1, 2007 for one year's rent in advance and recorded the transaction with a credit to Rent Revenue. The December 31, 2007 adjusting entry is a. debit Rent Revenue and credit Unearned Rent, $7,500. b. debit Rent Revenue and credit Unearned Rent, $10,500. c. debit Unearned Rent and credit Rent Revenue, $7,500. d. debit Cash and credit Unearned Rent, $10,500.

(a)  

71. Starr Corporation loaned $90,000 to another corporation on December 1, 2007 and received a 3-month, 8% interest-bearing note with a face value of $90,000. What adjusting entry should Starr make on December 31, 2007? a. Debit Interest Receivable and credit Interest Revenue, $1,800. b. Debit Cash and credit Interest Revenue, $600. c. Debit Interest Receivable and credit Interest Revenue, $600. d. Debit Cash and credit Interest Receivable, $1,800.

(a)  

85. On September 1, 2006, Lowe Co. issued a note payable to National Bank in the amount of $600,000, bearing interest at 12%, and payable in three equal annual principal payments of $200,000. On this date, the bank's prime rate was 11%. The first payment for interest and principal was made on September 1, 2007. At December 31, 2007, Lowe should record accrued interest payable of a. $24,000. b. $22,000. c. $16,000. d. $14,667.

(a)  

86. Eaton Co. sells major household appliance service contracts for cash. The service contracts are for a one-year, two-year, or three-year period. Cash receipts from contracts are credited to Unearned Service Revenues. This account had a balance of $1,800,000 at December 31, 2007 before year-end adjustment. Service contract costs are charged as incurred to the Service Contract Expense account, which had a balance of $450,000 at December 31, 2007. Service contracts still outstanding at December 31, 2007 expire as follows: During 2008 $380,000 During 2009 570,000 During 2010 350,000 What amount should be reported as Unearned Service Revenues in Eaton's December 31, 2007 balance sheet? a. $1,350,000. b. $1,300,000. c. $850,000. d. $500,000.

(a)  

87. In November and December 2007, Lane Co., a newly organized magazine publisher, received $90,000 for 1,000 three-year subscriptions at $30 per year, starting with the January 2008 issue. Lane included the entire $90,000 in its 2007 income tax return. What amount should Lane report in its 2007 income statement for subscriptions revenue? a. $0. b. $5,000. c. $30,000. d. $90,000.

(a)  

88. On June 1, 2007, Nott Corp. loaned Horn $400,000 on a 12% note, payable in five annual installments of $80,000 beginning January 2, 2008. In connection with this loan, Horn was required to deposit $5,000 in a noninterest-bearing escrow account. The amount held in escrow is to be returned to Horn after all principal and interest payments have been made. Interest on the note is payable on the first day of each month beginning July 1, 2007. Horn made timely payments through November 1, 2007. On January 2, 2008, Nott received payment of the first principal installment plus all interest due. At December 31, 2007, Nott's interest receivable on the loan to Horn should be a. $0. b. $4,000. c. $8,000. d. $12,000.

(a)  

89. Allen Corp.'s liability account balances at June 30, 2007 included a 10% note payable in the amount of $2,400,000. The note is dated October 1, 2005 and is payable in three equal annual payments of $800,000 plus interest. The first interest and principal payment was made on October 1, 2006. In Allen's June 30, 2007 balance sheet, what amount should be reported as accrued interest payable for this note? a. $180,000. b. $120,000. c. $60,000. d. $40,000.

(a)  

*95. Jim Yount, M.D., keeps his accounting records on the cash basis. During 2007, Dr. Yount collected $360,000 from his patients. At December 31, 2006, Dr. Yount had accounts receivable of $50,000. At December 31, 2007, Dr. Yount had accounts receivable of $70,000 and unearned revenue of $10,000. On the accrual basis, how much was Dr. Yount's patient service revenue for 2007? a. $310,000. b. $370,000. c. $380,000. d. $390,000.

(a)  

*96. The following information is available for Ace Company for 2007: Disbursements for purchases $1,050,000 Increase in trade accounts payable 75,000 Decrease in merchandise inventory 30,000 Costs of goods sold for 2007 was a. $1,155,000. b. $1,095,000. c. $1,005,000. d. $945,000.

(a)  

Accrual basis. The records for Todd Inc. showed the following for 2007: Jan. 1 Dec. 31 Accrued expenses $1,800 $2,150 Prepaid expenses 720 870 Cash paid during the year for expenses, $42,500 The amount of expense that should be reported on the income statement.

(a)  

Accrual basis. Sales salaries paid during 2007 were $60,000. Advances to salesmen were $1,100 on January 1, 2007, and $800 on December 31, 2007. Sales salaries accrued were $1,360 on January 1, 2007, and $1,380 on December 31, 2007. Show the computation of sales salaries on an accrual basis for 2007.

(a)  

Cash basis. Revenue on the income statement was $125,800. Accounts receivable were $4,500 on January 1 and $3,540 on December 31. Unearned revenue was $1,050 on January 1 and $1,670 on December 31. Show the computation of revenue for the year on a cash basis.

(a)  

The supplies inventory on August 1, 2006 was $7,350. Supplies costing $20,150 were acquired during the year and charged to the supplies inventory. A count on July 31, 2007 indicated supplies on hand of $8,810. a. Supplies Expense 18,690 Supplies Inventory 18,690 b. Supplies inventory 18,690 Supplies expense 18,690

(a)  

On April 30, a ten-month, 9% note for $20,000 was received from a customer. A. Interest Receivable 450 Interest Revenue 450 B. Interest Revenue 450 Interest Receivable 450

(a)  

On March 1, $12,000 was collected as rent for one year and a nominal account was credited. A. Rent Revenue 7,000 Unearned Revenue 7,000 B. Unearned Revenue 7,000 Rent Revenue 7,000

(a)  

The equipment has a useful life of 15 years with no salvage value. (Straight-line method being used.) A. Depreciation Expense—Equipment ($840,000 – 0) ÷ 15 56,000 Accumulated Depreciation—Equipment 56,000 B. Accumulated Depreciation—Equipment ($840,000 – 0) ÷ 15 56,000 Depreciation expense —Equipment 56,000

(a)