Question 1

If the purchase of supplies on account is not recorded then:

Accepted Answer

A) liabilities will be overstated. 
B) expenses will be overstated. 
C) cash will be understated. 
D) assets will be understated.

Question 2

If a company incorrectly records a payment as an asset instead of an expense,how will this error affect net income in the current period?

Accepted Answer

A) Net income will be too high. 
B) Net income will be too low. 
C) Net income will not be affected by this error in the current period,but will be too low in a later period. 
D) Net income will never be affected by this error because assets are reported on the balance sheet.

Question 3

Income Tax Expense appears on the ________,while Income Tax Payable is a(n):

Accepted Answer

A) income statement;liability on the balance sheet. 
B) balance sheet;liability on the income statement. 
C) income statement;expense on the income statement. 
D) balance sheet;expense on the balance sheet.

Question 4

Which of the following is an example of an error that would cause the trial balance to be out of balance?

Accepted Answer

A) A journal entry was posted as a debit to Cash for $225 and a credit to Accounts Receivable for $522. 
B) A journal entry was posted as a debit to Cash and a credit to Sales Revenue when the company received a $360 payment from a customer on account. 
C) A purchase of supplies on account for $800 was posted as a debit to Supplies for $80 and a credit to Accounts Payable for $80. 
D) A $630 transaction was not recorded at all.

Question 5

The following transactions occurred during July: 1.Received $1,600 cash for services performed during July.
2.Received $10,000 cash from the issuance of common stock to owners.
3.Received $800 from a customer as payment for services performed during June.
4.Billed $7,000 to customers for services performed on account in July.
5.Borrowed $5,000 from the bank and signed a promissory note.
6.Received $2,000 from a customer for services to be performed during August.
What is the amount of revenue that will be reported on the income statement for the month ended July 31?

Accepted Answer

A) $10,600. 
B) $11,400. 
C) $8,600. 
D) $14,400.

Question 6

In January,the Huntington Beach Resort (HBR)accepts your reservation and receives your $2,000 payment for a week of sun and fun in California during spring break.In January,HBR will record a journal entry that includes a debit to:

Accepted Answer

A) Cash and a credit to Deferred Revenue. 
B) Accounts Payable and a credit to Service Revenue. 
C) Cash and a credit to Service Revenue. 
D) Service Revenue and a credit to Cash.

Question 7

During January 2018,the first month of operations,a consulting firm had following transactions: 1.Issued common stock to owners in exchange for $20,000 cash.
2.Purchased $5,000 of equipment,paying $1,000 cash and signing a promissory note for $4,000.
3.Received $9,000 in cash for consulting services performed in January.
4.Purchased $1,500 of supplies on account;all of the supplies were used in January.
5.Provided consulting services on account in the amount of $16,000.
6.Paid $750 on account.
7.Paid $3,000 to employees for work performed during January.
8.Received a bill for utilities for January of $3,400;the bill remains unpaid.
What is the total expenses that will be reported on the income statement for the month ended January 31?

Accepted Answer

A) $3,750. 
B) $7,900. 
C) $8,150. 
D) $4,500.

Question 8

On Time Computer Repair uses accrual basis accounting.A computer was repaired on July 15.The customer picked up the computer on August 1 and mailed the payment on August 5.On Time Computer Repair received the check in the mail on August 10.The revenue should be recognized on which date?

Accepted Answer

A) July 15 
B) August 1 
C) August 5 
D) August 10

Question 9

When a company pays cash in advance for rent that is to be used over the next two years,the company records a debit to ________ and a credit to ________.

Accepted Answer

A) Prepaid Rent;Cash 
B) Expense;Cash 
C) Cash;Prepaid Rent 
D) Prepaid Rent;Accounts Receivable

Question 10

Which of the following will result in an increase in revenue?

Accepted Answer

A) Borrowing $10,000 from a bank 
B) Stockholders investing $10,000 in a company 
C) Selling concert tickets for $10,000 four months before the performance 
D) Selling $10,000 of groceries to customers

Question 11

If beginning Accounts Payable is $10,000 and the purchases on account are $100,000 and payments made on account were $80,000 during the period,then the ending Accounts Payable balance is:

Accepted Answer

A) $30,000 credit 
B) $20,000 credit 
C) $20,000 debit 
D) $30,000 debit

Question 12

Accounts Receivable had beginning balance of $8,420 and an ending balance of $6,990,and collections on account were $19,200.What was the amount of services that were performed on account?

Accepted Answer

A) $17,770. 
B) $34,610. 
C) $20,630. 
D) $3,790.

Question 13

The expense recognition principle ("matching")dictates:

Accepted Answer

A) where on the income statement expenses should be presented. 
B) when revenues are recognized on the income statement. 
C) the ordering of current assets and current liabilities on the balance sheet. 
D) when costs are recognized as expenses on the income statement.

Question 14

During March,Seconds Best Company had cash sales of $35,000 and sales on account of $210,000.In April,payments on account totaled $175,000. The journal entry prepared by Seconds Best Company to record customer payments on account during April would include a debit to:

Accepted Answer

A) Cash and a credit to Deferred Revenue for $175,000. 
B) Cash and a credit to Sales Revenue for $175,000. 
C) Cash and a credit to Accounts Receivable for $175,000. 
D) Cash and a credit to Accounts Payable for $175,000.

Question 15

Which statements about the unadjusted trial balance is not correct?

Accepted Answer

A) An unadjusted trial balance is the same as a balance sheet. 
B) An unadjusted trial balance lists all the accounts with their current balances. 
C) An unadjusted trial balance can verify the equality of debits and credits. 
D) An unadjusted trial balance can be prepared at any point in time.

Question 16

It is possible for a company to be profitable,yet not have enough cash to pay its bills.

Accepted Answer

A) True 
 B)False

Question 17

Crest Co.receives and immediately pays a $5,250 utility bill from the Public Service Utility Company.Public Service Utility Company will record the receipt of this payment with a journal entry that includes a:

Accepted Answer

A) credit to Accounts Payable. 
B) debit to Utilities Expense. 
C) debit to Utilities Revenue. 
D) debit to Cash.

Question 18

Which of the following is an operating activity?

Accepted Answer

A) Repaying a bank loan 
B) Paying a dividend to owners 
C) Purchasing a new building 
D) Purchasing goods to be offered for sale

Question 19

Match the term and the definition.There are more definitions than terms.
-Time Period Assumption

Accepted Answer

A) To reduce the recorded value of an asset to better reflect its true market value. 
B) Any outlay of money by a company for any purpose. 
C) Total revenue minus total expenses. 
D) The concept that revenue should be recorded when earned,not necessarily when payment is received. 
E) The increase in value of financial assets held by a company.
F)The practice of dividing the life of the business into months and years.
G)The concept that a company should record revenue during the same period as expenses.
H)The concept that revenue and expenses should be recorded at the time received or paid.
I)Payments received for goods that have not yet been delivered or services that have not yet been performed.
J)Revenues should be recorded when they are earned and expenses when they are incurred.
K)Any use or sacrifice of a company's resources to generate revenue.

Question 20

Which of the following statements about the income statement is not correct?

Accepted Answer

A) Amounts received from customers for services performed in the current month would be revenues on the income statement. 
B) Costs incurred in the current month but not paid as of the end of the month would be expenses on the income statement for the current month. 
C) Amounts received from customers in payment of their accounts arising from service in the prior month would be revenues in the income statement for the current month. 
D) Amounts received from customer as deposits for services to be rendered next month will not be recorded as revenues on the income statement for the current month.

Exam 3: The Income Statement