Question 1

On April 1, Smart, Inc. paid $7,200 for an insurance premium on a three-year insurance policy. How does this transaction affect Smart's accounts?

Accepted Answer

A)  Increase insurance expense and decrease cash by $7,200 each 
B)  Increase prepaid insurance and decrease cash by $7,200 each 
C)  Increase unearned insurance and decrease cash by $7,200 each 
D)  Increase prepaid insurance and decrease retained earnings by $7,200 each 
A)  Increase insurance expense and decrease cash by $7,200 each 
B)  Increase prepaid insurance and decrease cash by $7,200 each 
C)  Increase unearned insurance and decrease cash by $7,200 each 
D)  Increase prepaid insurance and decrease retained earnings by $7,200 each

Question 2

Under accrual accounting, expenses are recorded when incurred regardless of when paid.

Accepted Answer

A) True 
 B)False

Question 3

Refer to Coke's Statement of Cash Flows. What amount of depreciation and amortization did Coke record in 2008?

Accepted Answer

Coke recorded depreciation and

Question 4

XYZ Co. received $3,000 in payments from clients for services billed in a previous month. Which accounts will be affected and by what amounts under the accrual basis of accounting?

Accepted Answer

A)  Cash will increase by $3,000 and accounts receivable decrease by $3,000. 
B)  Cash will increase by $3,000 and revenues will increase $3,000. 
C)  Accounts receivable will increase by $3,000 and revenue will increase by $3,000. 
D)  Accounts receivable will increase by $3,000 and cash will increase by $3,000. 
A)  Cash will increase by $3,000 and accounts receivable decrease by $3,000. 
B)  Cash will increase by $3,000 and revenues will increase $3,000. 
C)  Accounts receivable will increase by $3,000 and revenue will increase by $3,000. 
D)  Accounts receivable will increase by $3,000 and cash will increase by $3,000.

Question 5

Every company must use the cash basis of accounting.

Accepted Answer

A) True 
 B)False

Question 6

Expenses not related to the primary operations of the business are sometimes reported as:

Accepted Answer

A)  administrative expense. 
B)  operating expense. 
C)  other expense. 
D)  all of these. 
A)  administrative expense. 
B)  operating expense. 
C)  other expense. 
D)  all of these.

Question 7

Accounts receivable arising from trade transactions amounted to $50,000 and $56,000 at the beginning and end of the year, respectively. Net income reported on the income statement for the year was $105,000. Exclusive of the effect of other adjustments, the cash flows from operating activities to be reported on the statement of cash flows prepared by the indirect method are:

Accepted Answer

A)  $105,000. 
B)  $111,000. 
C)  $99,000. 
D)  $156,000. 
A)  $105,000. 
B)  $111,000. 
C)  $99,000. 
D)  $156,000.

Question 8

Accrued expenses are ordinarily reported on the balance sheet as:

Accepted Answer

A)  assets. 
B)  liabilities. 
C)  fixed assets. 
D)  prepaid expenses. 
A)  assets. 
B)  liabilities. 
C)  fixed assets. 
D)  prepaid expenses.

Question 9

The revenue recognition concept states that revenue should be recorded in the same period as the cash is received.

Accepted Answer

A) True 
 B)False

Question 10

The accrual basis recognizes liabilities at the time the business incurs the obligation to pay for the services or goods purchased.

Accepted Answer

A) True 
 B)False

Question 11

Describe deferrals and accruals.

Accepted Answer

Deferrals are created by recording a tra

Question 12

Rights that are short-term in nature are called intangible assets.

Accepted Answer

A) True 
 B)False

Question 13

Unearned rent, representing rent for the next six months' occupancy, would be reported on the landlord's balance sheet as a(n):

Accepted Answer

A)  asset. 
B)  liability. 
C)  capital stock. 
D)  revenue. 
A)  asset. 
B)  liability. 
C)  capital stock. 
D)  revenue.

Question 14

UNI Co. received $1,000 advance from Newbie as rent for the use of a building owned by UNI. How does this transaction affect UNI's accounts if UNI recognizes a liability?

Accepted Answer

A)  Cash is increased and revenue is increased. 
B)  Cash is increased and revenue is decreased. 
C)  Cash is increased and unearned revenue is increased. 
D)  It is not recorded. 
A)  Cash is increased and revenue is increased. 
B)  Cash is increased and revenue is decreased. 
C)  Cash is increased and unearned revenue is increased. 
D)  It is not recorded.

Question 15

Updating accrual accounting records prior to preparing financial statements is called:

Accepted Answer

A)  the closing process. 
B)  converting to cash basis accounting. 
C)  the adjustment process. 
D)  going concern adjustments. 
A)  the closing process. 
B)  converting to cash basis accounting. 
C)  the adjustment process. 
D)  going concern adjustments.

Question 16

Under the cash basis of accounting, a business records only transactions involving increases or decreases of its cash.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following accounts would likely be included in a deferral adjusting entry?

Accepted Answer

A)  Interest Revenue 
B)  Unearned Revenue 
C)  Salaries Payable 
D)  Accounts Receivable 
A)  Interest Revenue 
B)  Unearned Revenue 
C)  Salaries Payable 
D)  Accounts Receivable

Question 18

Describe the differences between the cash and accrual bases of accounting.

Accepted Answer

Under the cash basis of accounting, tran

Question 19

St. Nick Corporation's Toy-Making Supplies account showed a beginning balance of $200 and supplies purchased of $800. There were $400 of supplies on hand at year-end. The year-end adjustment would include an increase in Toy-Making Supplies Expense for

Accepted Answer

A)  $1,000. 
B)  $800. 
C)  $600. 
D)  $400. 
A)  $1,000. 
B)  $800. 
C)  $600. 
D)  $400.

Question 20

Which of the following should be shown on a statement of cash flows under the financing activity section?

Accepted Answer

A)  The purchase of a long-term investment in the common stock of another company 
B)  The payment of cash to retire a long-term note 
C)  The proceeds from the sale of a building 
D)  The issuance of a long-term note to acquire land 
A)  The purchase of a long-term investment in the common stock of another company 
B)  The payment of cash to retire a long-term note 
C)  The proceeds from the sale of a building 
D)  The issuance of a long-term note to acquire land

On April 1, Smart, Inc. paid $7,200 for an insurance premium on a three-year insurance policy. How does this transaction affect Smart's accounts?

Under accrual accounting, expenses are recorded when incurred regardless of when paid.

Refer to Coke's Statement of Cash Flows. What amount of depreciation and amortization did Coke record in 2008?

XYZ Co. received $3,000 in payments from clients for services billed in a previous month. Which accounts will be affected and by what amounts under the accrual basis of accounting?

Every company must use the cash basis of accounting.

Expenses not related to the primary operations of the business are sometimes reported as:

Accrued expenses are ordinarily reported on the balance sheet as:

The revenue recognition concept states that revenue should be recorded in the same period as the cash is received.

The accrual basis recognizes liabilities at the time the business incurs the obligation to pay for the services or goods purchased.

Describe deferrals and accruals.

Rights that are short-term in nature are called intangible assets.

Unearned rent, representing rent for the next six months' occupancy, would be reported on the landlord's balance sheet as a(n):

UNI Co. received $1,000 advance from Newbie as rent for the use of a building owned by UNI. How does this transaction affect UNI's accounts if UNI recognizes a liability?

Updating accrual accounting records prior to preparing financial statements is called:

Under the cash basis of accounting, a business records only transactions involving increases or decreases of its cash.

Which of the following accounts would likely be included in a deferral adjusting entry?

Describe the differences between the cash and accrual bases of accounting.

St. Nick Corporation's Toy-Making Supplies account showed a beginning balance of $200 and supplies purchased of $800. There were $400 of supplies on hand at year-end. The year-end adjustment would include an increase in Toy-Making Supplies Expense for

Which of the following should be shown on a statement of cash flows under the financing activity section?

The Role of Accounting in Business

Basic Accounting Concepts

Accounting for Merchandising Businesses

Sarbanes-Oxley, Internal Control, and Cash

Receivables and Inventories

Fixed Assets and Intangible Assets

Liabilities and Stockholders Equity

Financial Statement Analysis

Accounting Systems for Manufacturing Businesses

Cost Behavior and Cost-Volume-Profit Analysis

Differential Analysis and Product Pricing

Budgeting and Standard Cost Systems

Performance Evaluation for Decentralized Operations

Capital Investment Analysis

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Exam 3: Accrual Accounting Concepts

On April 1, Smart, Inc. paid $7,200 for an insurance premium on a three-year insurance policy. How does this transaction affect Smart's accounts?

Under accrual accounting, expenses are recorded when incurred regardless of when paid.

Refer to Coke's Statement of Cash Flows. What amount of depreciation and amortization did Coke record in 2008?

XYZ Co. received $3,000 in payments from clients for services billed in a previous month. Which accounts will be affected and by what amounts under the accrual basis of accounting?

Every company must use the cash basis of accounting.

Expenses not related to the primary operations of the business are sometimes reported as:

Accrued expenses are ordinarily reported on the balance sheet as:

The revenue recognition concept states that revenue should be recorded in the same period as the cash is received.

The accrual basis recognizes liabilities at the time the business incurs the obligation to pay for the services or goods purchased.

Describe deferrals and accruals.

Rights that are short-term in nature are called intangible assets.

Unearned rent, representing rent for the next six months' occupancy, would be reported on the landlord's balance sheet as a(n):

UNI Co. received $1,000 advance from Newbie as rent for the use of a building owned by UNI. How does this transaction affect UNI's accounts if UNI recognizes a liability?

Updating accrual accounting records prior to preparing financial statements is called:

Under the cash basis of accounting, a business records only transactions involving increases or decreases of its cash.

Which of the following accounts would likely be included in a deferral adjusting entry?

Describe the differences between the cash and accrual bases of accounting.

St. Nick Corporation's Toy-Making Supplies account showed a beginning balance of $200 and supplies purchased of $800. There were $400 of supplies on hand at year-end. The year-end adjustment would include an increase in Toy-Making Supplies Expense for

Which of the following should be shown on a statement of cash flows under the financing activity section?

The Role of Accounting in Business

Basic Accounting Concepts

Accounting for Merchandising Businesses

Sarbanes-Oxley, Internal Control, and Cash

Receivables and Inventories

Fixed Assets and Intangible Assets

Liabilities and Stockholders Equity

Financial Statement Analysis

Accounting Systems for Manufacturing Businesses

Cost Behavior and Cost-Volume-Profit Analysis

Differential Analysis and Product Pricing

Budgeting and Standard Cost Systems

Performance Evaluation for Decentralized Operations

Capital Investment Analysis

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