Exam 1

Question 1

Is the following an asset, liability, or stockholder’s equity?

Retained earnings

Answer 1

Liability

Question 2

Is the following an asset, liability, or stockholder’s equity?

Service revenue

Answer 2

Stockholder’s equity

Question 3

Is the following an asset, liability, or stockholder’s equity?

Insurance expense

Answer 3

Stockholder’s equity

Question 4

Is the following an asset, liability, or stockholder’s equity?

Equipment

Answer 4

Asset

Question 5

Is the following an asset, liability, or stockholder’s equity?

Prepaid rent

Answer 5

Asset

Question 6

Is the following an asset, liability, or stockholder’s equity?

Dividends

Answer 6

Stockholder’s equity

Question 7

Is the following an asset, liability, or stockholder’s equity?

Common stock

Answer 7

Stockholder’s equity

Question 8

Is the following an asset, liability, or stockholder’s equity?

Interest expense

Answer 8

Asset

Question 9

Is the following an asset, liability, or stockholder’s equity?

Accounts payable

Answer 9

Liability

Question 10

Is the following an asset, liability, or stockholder’s equity?

Supplies expense

Answer 10

Liability

Question 11

Is the following an asset, liability, or stockholder’s equity?

Salaries and wages payable

Answer 11

Liability

Question 12

Is the following an asset, liability, or stockholder’s equity?

Supplies

Answer 12

Asset

Question 13

Is the following an asset, liability, or stockholder’s equity?

Cash

Answer 13

Asset

Question 14

Is the following an asset, liability, or stockholder’s equity?

Accounts receivable

Answer 14

Asset

Question 15

Is the following an asset, liability, or stockholder’s equity?

Notes payable

Answer 15

Liability

Question 16

Is the following an asset, liability, or stockholder’s equity?

Unearned service revenue

Answer 16

Liability

Question 17

Is the following an asset, liability, or stockholder’s equity?

Salaries and wages expense

Answer 17

Stockholder’s equity

Question 18

Is the following an asset, liability, or stockholder’s equity?

Utility’s expense

Answer 18

Stockholder’s equity

Question 19

Is the following an asset, liability, or stockholder’s equity?

Rent expense

Answer 19

Stockholder’s equity

Question 20

Is the following an asset, liability, or stockholder’s equity?

Prepaid insurance

Answer 20

Asset

Question 21

Is the following an asset, liability, or stockholder’s equity?

Interest payable

Answer 21

Liability

Question 22

Which one of the following is included in current assets?

A) Accounts receivable
B) Taxes payable
C) Automobiles
D) Common stock

Answer 22

A

A) Accounts receivable is included in current assets as it represents amount owed by customers that are expected to be paid within one year of the operating cycle

Question 23

Assets are recorded in the balance sheet in order of:

A) Market value
B) Historic value
C) Liquidity
D) Maturity

Answer 23

C

C) Liquidity refers to the ease of conversation to cash. Current assets will be used during the current operating cycle (starting with cash, short-term investments, accounts receivables, inventories, and other assets). Market value and historic value refer to the measurement of assets. Maturity refers to the order in which liabilities are recorded in the balance sheet.

Question 24

Which one of the following is not a current liability?

A) Taxes payable
B) Accounts payable
C) Wages payable
D) Wage expense

Answer 24

D

D) Wage expense. Wages expense is an income statement account, not a balance sheet account. Current liabilities are amounts owed and due to be repaid within one year or within operating cycle.

Question 25

Current assets are usually listed in the order of their: A) Size; smallest to largest B) Liquidity; most liquid to least liquid C) Size; largest to smallest D) Lack of liquidity; least liquid to most liquid

Answer 25

B B) Liquidity; most liquid to least liquid. Current assets are listed on a classified balance sheet in the order of their expected liquidity. Liquidity is determined by the ability of an asset to be readily converted into cash.

Question 26

Current assets are cash and other assets that will be converted into cash or used up within A) One year B) The normal operating cycle of the business or one year, whichever is longer C) The normal operating cycle of the business D) The normal operating cycle of the business or one year, whichever is shorter

Answer 26

Answer: B B) The normal operating cycle of the business or one year, whichever is longer. Current assets are cash and other assets that will be converted into cash or used up within the normal operating cycle of the business or one year, whichever is longer. The normal operating cycle of a business is the average period between the use of cash to deliver a service or to buy goods for resale and the subsequent collection of cash from customers who purchase those services or products.

Question 27

Which of the following accounts would not be classified as a current asset? A) Accounts receivable B) Prepaid rent C) Supplies D) Unearned service revenue

Answer 27

D D) Unearned service revenue

Question 28

The primary components of the stockholders’ equity section of a balance sheet for a corporation are: A) A capital amount for each stockholder in the corporation B) Net income and retained earnings C) Common stock and dividends D) Common stock and retained earnings

Answer 28

D D) Common stock and retained earnings. Stockholders’ equity is the residual ownership interest in the assets of a business after its liabilities have been paid off, The stockholders; equity of a corporation is divided into two main categories: amounts invested by stockholders (common stock) and the cumulative net income of a business that has not yet been distributed to its stockholders as a dividend (retained earnings).

Question 29

The current ratio is computed as: A) Current liabilities divided by current assets B) Current assets divided by current liabilities C) Current assets minus current liabilities D) Current assets divided by total assets

Answer 29

B B) Current assets divided by current liabilities. The current ratio of a company is its current assets divided by its current liabilities. The current ratio is a widely used measure of a company’s liquidity. A current ratio greater than one implies that a company has more cash and current assets than needed to pay off its current obligations and a ratio of less than one implies the opposite.

Question 30

Which of the following is not shown in the statement of stockholder’s equity? A) Unearned revenue B) Dividends C) Retained earnings D) Common stock

Answer 30

A A) Unearned revenue. Unearned revenue is a liability that represents amounts collected in advance from customers. It is an obligation that must be satisfied with a future cash payment or delivery of goods or services.

Question 31

Which one of the following does not impact retained earnings directly? A) Service revenue B) Gas expense C) Dividends D) Stock issuances

Answer 31

D D) Stock issuances. Stock issuances impact stockholders’ equity through the common stock account

Question 32

True or False? Debit = increase Credit = decrease

Answer 32

True

Question 33

What are the 9 steps of the accounts cycle?

Answer 33

1. Identify the recordable transactons 2. Jounalize 3. Post to ledgers 4. Trial balance 5. Adjusting entries are made and posted to ledgers 6. Adjusted trial balance 7. Financial statements 8. Closing entries and post to ledgers 9. Post closing trial balance

Question 34

What is the first step of the accounting cycle, and what does it mean?

Answer 34

1. Identify the recordable transactions Identify which area of the economy the transaction affects (asset, liability, or stockholder's equity.)

Question 35

What is the second step of the accounting cycle, and what does it mean?

Answer 35

2. Journalize. Enter the transaction data in a journal in chronological order.

Question 36

What is the third step of the accounting cycle, and what does it mean?

Answer 36

3. Post to ledgers Transferring the amount from the journal into the ledger account

Question 37

What is the fourth step of the accounting cycle, and what does it mean?

Answer 37

4. Trial balance A listing of all accounts from the general ledger with their respective debit or credit balances. Prepared at the end of the accounting period, serves as a check that debits = credits, aids in the preparation of the financial statements

Question 38

What is the fifth step of the accounting cycle, and what does it mean?

Answer 38

5. Adjusting entries are made and posted to ledgers Make sure that numbers match

Question 39

What is the sixth step of the accounting cycle, and what does it mean?

Answer 39

6. Adjusted trial balance Make sure that debit = credit

Question 40

What is the seventh step of the accounting cycle, and what does it mean?

Answer 40

7. Financial statements Prepare the statements in the following order:1)Income statements (2)Statement of stockholder's equity (3)Balance sheet (4)Statement of cash flows

Question 41

How to prepare income statement?

Answer 41

Income statement needs name of bank account, state its an income statement, what date the info is "Sep. 1-Sep. 30, 2023" Includes: revenue (+) advertisement exp. (-) Rent. (-) Salaries. (-) =net income

Question 42

How to prepare statement of stockholder's equity

Answer 42

Needs bank account, needs name of statement, needs date Beginning stockerholder's equity: 0 Common stock: 15,000 Divident: 600 (-) Revenue and expenses / net income:

Question 43

How to prepare balance sheet?

Answer 43

Presents the main categories of the basic accounting equation—Assets, Liabilities and Stockholder’s Equity.

Question 44

How to prepare statement of cash flow?

Answer 44

Provides information on the company’s change in cash over a period. Sources of cash Uses of cash