Financial Accounting

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1. The primary objective of financial accounting is:

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To serve the decision-making needs of internal users

To provide financial statements to help external users analyze and interpret an organization’s activities

To monitor and control company activities

To provide information on both the costs and benefits of managing products and services

To know what, when and how much to produce

 

2. Apatha Company has assets of $600,000, liabilities of $250,000 and equity of $350,000. It buys office equipment on credit for $75,000. The effects of this transaction include:

Assets increase by $75,000 and expenses increase by $75,000

Assets increase by $75,000 and expenses decrease by $75,000

Liabilities increase by $75,000 and expenses decrease by $75,000

Assets decrease by $75,000 and expenses decrease by $75,000

Assets increase by $75,000 and liabilities increase by $75,000

 

3. Source documents include all of the following except:

Sales tickets

Ledgers

Checks

Purchase orders

Bank statements

 

4. Ethical behavior requires:

That an auditors’ pay not depend on the figures in the client’s reports

Auditors to invest in businesses they audit

Analysts to report information favorable to their companies

Managers to use accounting information to benefit themselves

That an auditor provides a favorable opinion

 

5. A parcel of land is: offered for sale at $150,000, assessed for tax purposes at $95,000, recognized by its purchasers as being worth $140,000 and purchased for $137,000. The land should be recorded in the purchaser’s books at:

$95,000

$137,000

$138,500

$140,000

$150,000

 

6. An asset created by prepayment of an expense is:

Recorded as a debit to an unearned revenue account

Recorded as a debit to a prepaid expense account

Recorded as a credit to an unearned revenue account

Recorded as a credit to a prepaid expense account

Not recorded in the accounting records until the earnings process is complete

 

7. Which of the following accounting principles dictates when expenses are recognized?

Revenue recognition principle

Monetary unit principle

Business entity principle

Matching principle

Full disclosure principle

 

8. Risk is:

Net income divided by average total assets

The reward for investment

The uncertainty about the expected return that will be earned from an investment

Unrelated to expected return

 

9. Fast-Forward had cash inflows from operations of $62,500; cash outflows from investing activities of $47,000; and cash inflows from financing of $25,000. The net change in cash was:

$40,500 increase

$40,500 decrease

$134,500 decrease

$134,000 increase

 

10. If the liabilities of a business increased $75,000 during a period of time and the equity in the business decreased $30,000 during the same period, the assets of the business must have:

Decreased $105,000

Decreased $45,000

Increased $30,000

Increased $45,000

 

11. Net Income:

Decreases equity

Represents the amount of assets owners put into a business

Equals assets minus liabilities

Is the excess of revenues over expenses

Represents the owners’ claims against assets

 

12. Assets created by selling goods and services on credit are:

Accounts payable

Accounts receivable

Liabilities

Expenses

 

13. Of the following accounts, the one that normally has a credit balance is:

Cash

Office Equipment

Sales Salaries Payable

Dividends

Sales Salaries Expense

 

14. Prepaid expenses are:

Payments made for products and services that do not ever expire

Classified as liabilities on the balance sheet

Decreases in retained earnings

Assets that represent prepayments of future expenses

 

15. Generally Accepted Accounting Principles:

Focus on the review of a situation

Does not require financial statements

Never change

Intend to make information on the financial statements relevant, reliable and comparable

Oversees Security and Exchange Commission

 

16. A company purchased a new truck at a cost of $42,000 on July 1, 2011. The truck is estimated to have a useful life of 6 years and a salvage value of $3,000. How much depreciation expense will be recorded for the truck for the year ended December 31, 2011?

$3,250

$3,500

$4,000

$6,500

$7,000

 

17. On January 1, Able Company purchased equipment costing $135,000 with an estimated salvage value of $10,500, and an estimated useful life of five years. What is the amount that should be recorded as depreciation on December 31?

$27,000

$24,900

$29,100

$135,000

 

18. The Retained Earnings account has a credit balance of $17,000 before closing entries are made. If total revenues for the period are $55,200, total expenses are $39,800 and dividends are $9,000, what is the ending balance in the Retained Earnings account after all closing entries are made?

$8,000

$15,400

$23,400

$17,000

$32,400

 

19. The length of time covered by a set of periodic financial statements is referred to as the:

Fiscal cycle

Natural business year

Accounting period

Business cycle

Operating cycle

 

20. A classified balance sheet:

Measures a company’s ability to pay its bills on time

Organizes assets and liabilities into important subgroups

Presents revenues, expenses and net income

Reports operating, investing and financing activities

 

21. The approach to preparing financial statements based on recognizing revenues when they are earned and matching expenses to those revenues is:

Cash basis accounting

The matching principle

The time period principle

Accrual basis accounting

Revenue basis accounting

 

22. The adjusted trial balance contains information pertaining to:

Asset accounts only

Balance sheet accounts only

Income statement accounts only

All general ledger accounts

Revenue accounts only

 

23. A company earned $2,000 in net income for October. Its net sales for October were $10,000. Its profit margin is:

2%

20%

200%

500%

$8,000

 

24. A company had no office supplies available at the beginning of the year. During the year, the company purchased $250 worth of office supplies. On December 31, $75 worth of office supplies remained. How much should the company report as office supplies expense for the year?

$75

$125

$175

$250

$325

 

25. Unearned revenue is reported on the financial statements as:

A revenue on the balance sheet

A liability on the balance sheet

An unearned revenue on the income statement

An asset on the balance sheet

An operating activity on the statement of cash flows

 

26. An account linked with another account that has an opposite normal balance and that is subtracted from the balance of the related account is a(n):

Accrued expense

Contra account

Accrued revenue

Intangible asset

Adjunct account

 

27. On April 30, 2011, a three-year insurance policy was purchased for $18,000 with coverage to begin immediately. What is the amount of insurance expense that would appear on the company’s income statement for the year ended December 31, 2011?

$500

$4,000

$6,000

$14,000

$18,000

 

28. On June 30, 2011, Apricot Co. paid $5,000 cash for management services to be performed over a two-year period. Apricot follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment. The adjusting entry on December 31, 2011 for Apricot would include:

A debit to an expense for $1,250

A debit to a prepaid expense for $1,250

A credit to an expense for $3,750

A debit to a prepaid expense for $3,750

 

29. On April 1, 2011, a company paid the $1,350 premium on a three-year insurance policy with benefits beginning on that date. What will be the insurance expense on the annual income statement for the year ended December 31, 2011?

$1,350

$450

$1,012.50

$337.50

$37.50

 

30. A trial balance prepared after adjustments have been recorded is called a(n):

Balance sheet

Adjusted trial balance

Unadjusted trial balance

Classified balance sheet

Unclassified balance sheet

 

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Financial Accounting was first posted on September 8, 2019 at 8:34 am.
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