Question 1

The primary source of revenues and expenses comes from:

Accepted Answer

A)  financing activities. 
B)  investing activities. 
C)  operating activities. 
D)  other activities.

Question 2

During 2015, Maverick Law Firm had the following transactions with it clients (customers):
-On February 1, 2015, the company received cash of $5,000 from clients in payment of their account balances as of December 31, 2014.
-On November 1, 2015, the company received $2,000 cash as payments in advance for law services to be performed in 2016.
-The company received a total of $13,000 in cash for law services that were performed during 2015.
-The company sent bills totaling $4,000 to clients for services performed during 2015; this amount was unpaid as December 31, 2015.
-Use the information above to answer the following question.What is the amount of Law Services Revenue that will be reported on the income statement for the year 2015?

Accepted Answer

A)  $19,000. 
B)  $22,000. 
C)  $24,000. 
D)  $17,000.

Question 3

On October 10,a company paid $12,000 to a supplier.Of that amount,$2,000 was for supplies received on October 10 and $10,000 was for supplies that were purchased on account during September.The journal entry to record the $12,000 payment would include a debit to:

Accepted Answer

A)  Supplies for $10,000, a debit to Accounts Payable for $2,000, and a credit to Cash for $12,000. 
B)  Supplies and a credit to Cash for $12,000. 
C)  Supplies Expense and a credit to Cash for $12,000. 
D)  Supplies for $2,000, a debit to Accounts Payable for $10,000, and a credit to Cash for $12,000.

Question 4

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)  liabilities will be understated.

Question 5

A company has total revenue of $560,000 and total expenses of $330,000.If the company overstates sales by $10,000,what is the effect on the company's net profit margin?

Accepted Answer

A)  Net profit margin would be overstated. 
B)  Net profit margin would be understated. 
C)  Net profit margin would be unaffected. 
D)  Net profit margin cannot be computed because overstating sales is unethical.

Question 6

Which of the following statements about cash basis accounting and accrual basis accounting is correct?

Accepted Answer

A)  Using the accrual basis of accounting, if payment is received before delivery of goods or a service, revenue is recorded at the time the payment is received. 
B)  Using the accrual basis of accounting, if payment is received after delivery of goods or a service, an asset is recorded at the time the good or service was delivered. 
C)  Using the cash basis of accounting, if payment is received before delivery of goods or a service, net income is affected when goods or services are delivered. 
D)  Using the cash basis, if payment is received after delivery of goods or a service, unearned revenue is recorded.

Question 7

A company entered into the following transactions during April.
Required:
Complete the following table by indicating the amount and effect of each transaction on the accounting equation.
  
A.Signed a lease and made a payment of $4,500 to the landlord comprised of the current month's rent of $1,500 and the required $3,000 security deposit.
B.Purchased equipment on account for $35,000.
C.Purchased supplies for $6,500 on account and used them immediately.
D.Performed services and received cash of $57,000.
E.Performed services on account for $28,000.
F.Received a payment of $24,000 for services to be performed in the future.
G.Collected $14,000 from customers on account.
H.Paid employees $11,000 for work done during the month.
I.Made a $35,000 payment on account for equipment that was purchased above.
J.Made a payment of $6,500 on account for the supplies purchased above.
K.Received bills for the current month from telephone and electricity companies totaling $3,800; payments will be made next month.

Accepted Answer

The answer of A company entered into the following transactions...

Question 8

During May,Many Happy Returns,Inc.earned $1,400,of which $1,000 was collected,and had expenses of $800,of which $700 was paid.Its net income equals:

Accepted Answer

A)  $600 using accrual accounting versus $300 using cash basis. 
B)  $300 using accrual accounting versus $600 using cash basis. 
C)  $700 using accrual accounting versus $200 using cash basis. 
D)  $200 using accrual accounting versus $700 using bash basis.

Question 9

If the total of debits equals the total of credits on the trial balance,it means that the accounting records do not contain any errors.

Accepted Answer

A) True 
 B)False

Question 10

The journal entry to record the purchase of supplies on account includes a debit to:

Accepted Answer

A)  Supplies and a credit to Accounts Payable. 
B)  Supplies and a credit to Cash. 
C)  Supplies Expense and a credit to Accounts Payable. 
D)  Supplies Expense and a credit to Cash.

Question 11

The employees of Solo Company employees worked during April but are not paid their wages totaling $500 until May.Which of the following best indicates how to account for this transaction in April?

Accepted Answer

A)  No journal entry needs to be made because payment has not yet been made. 
B)  A journal entry with a debit to Salaries and Wages Expense and a credit to Unearned Expense for $500 should be recorded. 
C)  A journal entry with a debit to Salaries and Wages Payable and a credit to Salaries and Wages Expense for $500 should be recorded. 
D)  A journal entry with a debit to Salaries and Wages Expense and a credit to Salaries and Wages Payable for $500 should be recorded.

Question 12

If a company incorrectly records cash received for services to be provided in the future with a debit to Cash and credit to Sales Revenue,how will this error affect net income for 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. 
D)  Net income will be too high in the following period.

Question 13

Indicate whether a debit (dr)or credit (cr)would be used to increase each of the following accounts.
1._____ Prepaid Rent
2._____ Sales Revenue
3._____ Salaries and Wages Expense
4._____ Service Revenue
5._____ Unearned Revenue
6._____ Accounts Receivable
7._____ Retained Earnings
8._____ Supplies Expense

Accepted Answer

The answer of Indicate whether a debit (dr)or credit (cr)would...

Question 14

Moore Co.had a beginning balance in accounts receivable of $12,000.During the year,it had credit sales of $150,000.Moore received payments on account of $140,000.At the end of the year,accounts receivable has a:

Accepted Answer

A)  debit balance of $22,000. 
B)  credit balance of $22,000. 
C)  debit balance of $2,000. 
D)  credit balance of $2,000.

Question 15

Net income refers to the:

Accepted Answer

A)  difference between what was earned and the costs incurred during a period. 
B)  difference between the cash received and the cash paid out during a period. 
C)  difference between what is owned and what is owed at a point in time. 
D)  change in the value of the company during a period.

Question 16

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 Unearned 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 17

When Harmony Inc.performs $1,000 of services on account for a customer,Harmony will record a journal entry with a debit to:

Accepted Answer

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

Question 18

Which of the following journal entries would decrease stockholders' equity?

Accepted Answer

A)  Debit Prepaid Insurance and credit Cash 
B)  Debit Unearned Revenue and credit Service Revenue 
C)  Debit Supplies and credit Accounts Payable 
D)  Debit Insurance Expense and credit Cash

Question 19

Seconds Best Retail Store receives and immediately pays a $3,500 utility bill from the City Gas & Electric Company.City Gas & Electric Company will record the receipt of this payment with a journal entry that includes a:

Accepted Answer

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

Question 20

Somerdale Corp.received an order from a customer on November 10.It manufactured the ordered items on November 15,shipped the goods on November 17,and received payment on December 2.Under the accrual basis of accounting,Somerdale should record revenue on:

Accepted Answer

A)  November 10. 
B)  November 15. 
C)  November 17. 
D)  December 2.

Exam 3: Reporting Operating Results on the Income Statement