Practice Test Chapters 1-4

Question 1

Hesson Properties, Inc.

The following transactions occurred during June:

June 1 Purchased two new maintenance carts on account at $750 each. Payment is due in 30 days.
June 8 Accepted $500 of advance payments from customers for services to be provided next month.
June 15 Received the utility bill for $300. Payment is due in 30 days.
June 20 Billed customers $1,500 for services provided. Payment is due in 30 days.
June 30 Received $500 from customers who were billed earlier.

What journal entry is required to record the cash collected in advance?

Answer 1

Cash Debit: $500
Unearned Revenue Credit: $500

Question 2

Which one of the following would never be considered a cash equivalent?

a. corporate commercial paper
b. U.S. Treasury bills
c. common stock issued by a corporation
d. money market funds

Answer 2

C

Question 3

The going concern assumption is concerned with what?

Answer 3

the company’s ability to continue operations long enough to carry out its existing obligations

Question 4

Designs on You

The following information relates to the company’s May bank reconciliation:

Bank statement balance $5,000
Unadjusted cash balance from the company records ?
Deposit in transit 1,000
Outstanding checks 500
Bank service charges 50
Interest earned on the bank account 10
Customer’s NSF check returned by the bank 25
In addition, a check issued was recorded in the accounting records as $1,200 but the correct amount as recorded by the bank was only $1,000.

What is the unadjusted cash balance according to the company’s records on May 31?

Answer 4

$5365
$5,000 unadjusted bank balance + $1,000 deposit in transit − $500 outstanding checks = $5,500 adjusted cash balance $5,500 − $200 (error) − $10 (interest) + $50 (service charges) + $25 (NSF) = $5,365

Question 5

If a company has assets of $5,000,000, liabilities of $3,000,000, and retained earnings of $1,200,000, how much is total stockholders’ equity?

a. $2,000,000
b. $800,000
c. $1,800,000
d. $3,800,000

Answer 5

A
$5,000,000 (Assets) − $3,000,000 (Liabilities) = $2,000,000 (Stockholders’ Equity)

Question 6

Which one of the following is not one of the three business activities?

a. investing
b. measuring
c. operating
d. financing

Answer 6

B

Question 7

What is the primary objective of financial reporting?

a. To help the investors assess the future prospects of a company
b. To help management make appropriate decisions related to company operations
c. To help the creditors in evaluating their decision to make loans to a company
d. All of these

Answer 7

D

Question 8

The account that records differences between amounts of cash deposited and amounts from the cash register tapes is called:

Answer 8

Cash over and short

Question 9

Hesson Properties, Inc.

The following transactions occurred during June:

June 1 Purchased two new maintenance carts on account at $750 each. Payment is due in 30 days.
June 8 Accepted $500 of advance payments from customers for services to be provided next month.
June 15 Received the utility bill for $300. Payment is due in 30 days.
June 20 Billed customers $1,500 for services provided. Payment is due in 30 days.
June 30 Received $500 from customers who were billed earlier.

What journal entry is required to record the collections on account from customers?

Answer 9

Cash Debit: $500
Accounts receivable: $500

Question 10

Cash Express had no supplies on January 1 but purchased $2,581 in supplies during the year. on December 31, the supplies on hand were $1,492. What amount for supplies will be reported on the firm’s balance sheet?

Answer 10

$1492

Question 11

Which of the following is not a form of a business organization?

a. governmental agency
b. sole proprietorship
c. corporation
d. partnership

Answer 11

A

Question 12

When should a shipping company recognize revenue from its delivery service?

Answer 12

When the package has been delivered

Question 13

Benchmark Surveyors

The following balances are provided:

Cash: $234,000
Accounts Payable: $97,000
Inventory: $121,000
Notes Payable, long-term: $211,000
Land: $453,000
Accounts Receivable: $46,000

Calculate Current Assets.

Answer 13

$401000
($234,000 Cash + $46,000 Accounts Receivable + $121,000 Inventory = $401,000)

Question 14

Which one of the following is the correct fundamental accounting equation?

a. Assets + Liabilities = Stockholders’ Equity
b. Assets + Stockholders’ Equity = Liabilities
c. Assets + Retained Earnings = Stockholders’ Equity
d. Assets = Liabilities + Stockholders’ Equity

Answer 14

D

Question 15

Bass Tours

The following balances were taken from the company’s records:

Inventory: $380,000
Accounts Receivable: $190,000
Land: $290,000
Accounts Payable: $180,000
Cash: $129,000
Unearned Revenue: $110,000
Prepaid Rent: $33,000
Common Stock: $312,000
Retained Earnings: $220,000
Long-term Notes Payable: $200,000

Calculate the current ratio.

Answer 15

2.52 to 1
($129,000 Cash + $190,000 Accounts Receivable + $380,000 Inventory + $33,000 Prepaid Rent) / ($180,000 Accounts Payable + $110,000 Unearned Revenue) = 2.52 to 1

Question 16

A check written on the company’s account in May and paid by the bank is returned with the bank statement for May. Identify the treatment of this check at the time of reconciliation.

Answer 16

Ignored (already accounted for)

Question 17

Which of the following transactions does not affect total assets?

a. Dividends are paid to stockholders.
b. New equipment is purchased on credit.
c. A bill is received for last month’s utilities.
d. Customers are billed for services provided on credit.

Answer 17

C

Question 18

Bellweather Times

The company reports the following balances:

Other Revenue: $180,000
General and Administrative Expense: $320,000
Dividends paid: $220,000
Gross Margin: $700,000
Selling Expenses: $280,000
Income Tax Expense: $60,000

What is the company’s Net Income?

Answer 18

$220000
$700,000 Gross Margin − $320,000 General and Administrative Expenses − $280,000 Selling Expenses = $100,000 + $180,000 Other Revenue − $60,000 Income Taxes = $220,000

Question 19

Which of the following would never appear on a bank statement for a checking account?

a. outstanding checks
b. interest earned
c. service charges
d. credit memos

Answer 19

A

Question 20

Which of the following accounts is decreased by a debit entry?

a. accounts payable
b. insurance expense
c. prepaid insurance
d. cash

Answer 20

A

Question 21

Which pair of accounts has the same set of rules for debit and credit entries?

a. salary expense and retained earnings
b. sales revenue and accounts receivable
c. cash and notes payable
d. common stock and accounts payable

Answer 21

D

Question 22

What is the classification unearned revenue on a balance sheet?

Answer 22

Liability

Question 23

A customer’s check for $25 that had been deposited into the company’s checking account the previous month was returned stamped ‘NSF’ by the bank. Which of the following journal entries is required in the company’s books?

Answer 23

Accounts receivable Debit: $25
Cash Credit: $25

Question 24

Which of the following statements is true concerning assets?

a. Assets are initially recorded at market value and then adjusted for inflation.
b. Assets are measured using a time-period approach.
c. Assets are initially recorded using the historical cost principle.
d. Assets are initially recorded at market value, since historical cost tends to be too arbitrary.

Answer 24

C

Question 25

If the end-of-year supplies on hand totaled $200, the purchases totaled $300, and the supplies on hand at the beginning of the year amounted to $100, how much will be reported as supplies expense for the current year?

Answer 25

$200
$100 (Beginning Balance) + $300 (Purchases) − $200 (Ending Balance) = $200

Question 26

Which one of the following is an example of a deferred revenue?

a. Sales are made to customers on credit.
b. Cash sales are made to customers.
c. Revenue has been earned but not yet recorded.
d. Payments are received prior to providing services to customers.

Answer 26

D

Question 27

Credit entries are used to

a. increase liability accounts.
b. increase expense and loss accounts.
c. increase dividend declared accounts.
d. increase asset accounts.

Answer 27

A

Question 28

Services are provided for customers who pay for their services immediately. What effect does this transaction have on the accounting equation?

Answer 28

Assets and retained earnings increase

Question 29

When are revenues and expenses recognized in the same accounting period that cash receipts and payments occur?

a. under the cash basis of accounting
b. under the adjusting method of accounting
c. under the strategic method of accounting
d. under the accrual basis of accounting

Answer 29

A

Question 30

Which of the following best describes the term “retained earnings” of a company?

a. The future economic resources of a company
b. The accumulated net income of a company that has not been distributed to owners in the form of dividends
c. The amount of total profits earned by a company since it began operations
d. The amount of claim that the owners have on the assets of the company

Answer 30

B

Question 31

Some of the steps in the accounting cycle are listed below. Select the option that places these steps in the correct order.
1. Close the accounts.
2. Post transactions to accounts in the ledger.
3. Journalize daily transactions.
4. Record and post adjustments.
5. Prepare financial statements.
a. 2, 3, 4, 5, 1
b. 3, 2, 4, 5, 1
c. 3, 2, 4, 1, 5
d. 3, 2, 5, 4, 1

Answer 31

B

Question 32

A company had the following balance sheet amounts at the beginning of the year:

Total assets: $650,000
Total stockholder’s equity: $250,000

During the year, total assets increased by $350,000, total liabilities increased by $100,000, and dividends were paid in the amount of $300,000. No other transactions occurred except revenues and expenses. How much is net income for the year?

Answer 32

$550000
Assets: $650,000 + $350,000 = $1,000,000
Liabilities: ($650,000 − $250,000) + $100,000 = $500,000
Stockholders’ Equity at Year End: $1,000,000 − $500,000 = $500,000
Net Income: $500,000 − $250,000 + 300,000 = $550,000

Question 33

Which of the following accounts is increased by a credit entry?

a. salary expense
b. capital stock
c. cash
d. dividends declared

Answer 33

B

Question 34

Which of the following groups of accounts represents permanent accounts?

a. Prepaid Insurance, Unearned Service Revenue, and Common Stock
b. Dividend, Retained Earnings, and Supplies Expenses
c. Depreciation, Cash, and Prepaid Insurance
d. Building, Rent Expense, and Utilities Expense

Answer 34

A

Question 35

Which financial statement would you refer to in order to determine how much resources (assets) the company owned?

Answer 35

Balance sheet

Question 36

Which of the following invests funds into a business and is considered an owner?

a. stockholders
b. lenders
c. bankers
d. creditors

Answer 36

A