Acc230 midterm solutions guide (part 1) __ correct answers !

Question 1 of 38

Which of the following is a correct accounting equation?

 

Assets + Revenue = Liabilities + Expenses

Assets + Liabilities = Owner’s equity

Assets + Revenue = Owner’s equity

Assets = Liabilities + Owner’s equity

 

Question 2 of 38

Which of the following financial statements lists the entity’s assets, liabilities, and owner’s equity as of a specific date?

 

income statement

balance sheet

statement of owner’s equity

statement of cash flows

 

Question 3 of 38

David has decided to open an auto-detailing business. He will pick up an automobile from the client, take it to his parents’ garage, detail it, and return it to the client. If he does all of the work himself and takes no legal steps to form a special organization, which type of business organization, in effect, has he chosen?

 

corporation

partnership

limited liability company

proprietorship

 

Question 4 of 38

Net income is $29, 000. Beginning owner’s equity is $34, 000. Ending owner’s equity is $55, 000. What were cash withdrawals?

 

$60, 000

$18, 000

$ 5, 000

$ 8, 000 

 

Question 5 of 38

Accounting information may be generated for a variety of purposes. The key product(s) of accounting is (are) which of the following documents?

 

financial statements

work papers

remittance advices

spreadsheets

 

Question 6 of 38

A business purchased $200 of supplies on account and recorded the following journal entry:

Supplies200

Accounts payable200

 

SuppliesAccounts Payable

  

 SuppliesAccounts Payable

  

SuppliesAccounts Payable

  

SuppliesAccounts Payable

  

  

Question 7 of 38

Which of the following is a method used to detect errors when the two columns of the trial balance are NOT equal?

 

Compute the difference in the columns and search the trial balance for a transposition if the difference is evenly divisible by 9.

Compute the difference in the columns, divide the difference between total debits and total credits by 2 and search for the amount in the trial balance.

Compute the difference in the columns and search the trial balance for the missing amount.

All of the above are suggested methods for detecting errors.

 

Question 8 of 38

Which of the following journal entries would be recorded if a business received cash of $1000 on account for services performed at an earlier date?

 

Cash1,000

Service Revenue1,000

 

Accounts Receivable1,000

Service Revenue1,000

 

Service Revenue1,000

Accounts Receivable1,000

 

Cash1,000

Accounts Receivable1,000

 

Question 9 of 38

Which of the following statements about revenue is correct?

 

Revenues decrease owner’s equity, so a revenue account’s normal balance is a credit balance.

Revenues decrease owner’s equity, so a revenue account’s normal balance is a debit balance.

Revenues increase owner’s equity, so a revenue account’s normal balance is a credit balance.

Revenues increase owner’s equity, so a revenue account’s normal balance is a debit balance.

 

Question 10 of 38

Which of the following statements about expenses is correct?

 

Expenses decrease owner’s equity, so an expense account’s normal balance is a credit balance.

Expenses increase owner’s equity, so an expense account’s normal balance is a credit balance.

Expenses increase owner’s equity, so an expense account’s normal balance is a debit balance.

Expenses decrease owner’s equity, so an expense account’s normal balance is a debit balance.

 

Question 11 of 38

If a company is using the accrual method of accounting, when is revenue recorded?

 

When services are rendered, even though cash may be received at a later date.

When cash is received, even though services may be rendered at a later date.

Only when cash is received at the completion of the services.

Only when cash is received after the completion of the services.

 

Question 12 of 38

Under which of the following methods of accounting is an expense recorded when it is incurred, regardless of when cash is paid?

 

Receivable

Deferral

Cash

Accrual

 

Question 13 of 38

The accountant for Hobson Electrical Repair Company failed to make an adjusting entry to record $5,000 of unpaid salaries for the last two weeks of the year. Which of the following is true?

 

Total revenue is overstated.

Total revenue is understated.

Total expenses are overstated.

Total expenses are understated.

 

Question 14 of 38

Which of the following accounts would appear in the Income Statement credit column on the work sheet?

 

Prepaid insurance

Unearned service revenue

Depreciation expense

Service revenue earned

 

Question 15 of 38

Totals of various columns from the worksheet are shown below. What is the net income or loss?

Income StatementBalance Sheet

Debit

$8,500Credit

$6,750Debit

$4,300Credit

$6,050

 

Net income of $4,300

Net income of $1,750

Net loss of $1,750    

Net loss of $4,300

 

Question 16 of 38

Revenues total $10,200. Expenses total $7,300. Owner’s withdrawals total $2,600. What is the balance in the Income Summary account prior to closing net income or loss to the owner’s capital account?

 

Credit balance of $300

Balance of $0

Debit balance of $2,900

Credit balance of $2,900 

 

Question 17 of 38

Which of the following is NOT a long-term asset?

 

Accounts receivable

Buildings

Land

Equipment

 

Question 18 of 38

Which of the following correctly describes the rate of inventory turnover?

 

The rate of inventory turnover indicates how many days it takes from the time an order is received to the day it is shipped.

The rate of inventory turnover indicates how quickly inventory is received from the supplier after the order is placed.

The rate of inventory turnover indicates how many days it takes the inventory to travel between the seller’s warehouse and the buyer’s warehouse.

The rate of inventory turnover indicates how rapidly inventory is sold.

 

Question 19 of 38

Which of the following statements concerning the Inventory account is true?

 

a) The Inventory account is used only for goods purchased for resale.

b) Inventory is an asset until it is sold.

c) The Inventory account is used for goods purchased for resale and for supplies to be used by the business.

d) Both A and B are true.

 

Question 20 of 38

Ending inventory for the current accounting period is overstated by $2,700. What effect will this error have on cost of goods sold and net income?

Cost of Goods SoldNet Income

Option A)UnderstatedOverstated

Option B)UnderstatedUnderstated

Option C)OverstatedUnderstated

Option B)OverstatedOverstated

 

A

B

C

D

 

Question 21 of 38

Ending inventory for the current period is understated. What effect will this error have on owner’s equity?

 

Owner’s equity will be overstated at the end of the current period and understated at the end of the next period.

Owner’s equity will be overstated at the end of the current period, but is will be correct at the end of the next period.

Owner’s equity will be overstated at the end of the current period and overstated at the end of the next period.

Owner’s equity will be understated at the end of the current period, but it will be correct at the end of the next period.

 

Question 22 of 38

Table 1.3 

The following is a list of account balances (all except owner’s equity) for Wilson Mowing Company, as of December 31 of the first year of operation:

Accounts receivable$2,500

Accounts payable3,500

Salary expense4,500

Repairs expense800

Truck8,500

Equipment6,300

Notes payable8,200

Cash6,800

Supplies expense1,600

Service revenue31,900

Gasoline expense3,800

Salary payable200

The owner, J.D. Wilson, invested $3, 000 at the beginning of the year and withdrew $12, 000 during the year for his personal use.

Refer to Case 1.3. At the end of the year, what is net income?

 

$12, 200

$21, 200 

$24, 100

$11, 900

 

Question 23 of 38

Which of the following concepts (principles) would be most likely to require an assumption that the entity will remain in operation for the foreseeable future?

 

entity concept

going-concern concept

reliability concept

cost principle

 

Question 24 of 38

Which of the following statements correctly describes a trial balance?

 

A trial balance is also known as a balance sheet.

A trial balance is also known as the chart of accounts.

A trial balance is the first step in the accounting cycle.

A trial balance is a list of all accounts with their balances.

 

Question 25 of 38

The accountant for Duman Legal Services failed to make an adjusting entry for supplies inventory that had been used for the year. Which of the following is true?

 

Total liabilities are overstated.

Total liabilities are understated.

Total assets are overstated.

Total assets are understated.

 

Question 26 of 38

Which of the following is the time span during which cash is paid for goods and services, which are then sold to customers from whom the business then collects cash?

 

Long-term asset

Liquidity

Operating cycle

Current ratio

 

Question 27 of 38

Which of the following accounts is an asset?

 

Service Revenue

Salary Expense

Accounts Payable

Prepaid Expenses

 

Question 28 of 38

What is TRUE if the Income Statement debit column on the worksheet exceeds the income statement credit column on a worksheet?

 

a) The owner’s capital account increased during the period.

b) The company has net income.

c) The company has a net loss.

d) Both A and C are true.

 

Question 29 of 38

Which of the following is the most popular inventory costing method in the United States?

 

Specific unit cost

Average cost

Last in first out

First in first out

 

Question 30 of 38

A $5, 000 account payable is paid. How is the accounting equation affected?

 

Assets decrease $5, 000; liabilities decrease $5, 000.

Assets increase $5, 000; liabilities increase $5, 000.

Assets increase $5, 000; owner’s equity decreases $5, 000.

Assets decrease $5, 000; owner’s equity increases $5, 000 .

 

Question 31 of 38

Which of the following accounts is a liability?

 

Service Revenue

Accounts Payable

Salary Expense

Prepaid Expenses

 

Question 32 of 38

Accrued revenue is which of the following?

 

Revenue that the business has collected but not yet earned

Revenue that will be collected and earned in the future

Revenue that the business has earned but not collected

Revenue that has been collected and earned

 

Question 33 of 38

Which of the following does “FOB Destination” mean?

 

a) The seller pays the transportation costs.

b) The buyer pays the transportation costs.

c) Both A and B are true

d) Neither A nor B are true.

 

Question 34 of 38

Under which of the following methods of accounting is an expense recorded ONLY when cash is paid?

 

Receivable

Accrual

Deferral

Cash

 

Question 35 of 38

Which of the following entries would be recorded ONLY if a company is using the accrual method of accounting?

 

a)

Cash1,000

Service Revenue1,000

 

b)

Salary Expense1,000

Cash1,000

 

c)

Cash1,000

Accounts Receivable1,000

 

 

d) Both A and C

 

Question 36 of 38

Which of the following is the revenue principle?

 

The principle that ensures that information is reported at regular intervals

The principle that determines when to record revenue

The principle that determines when to record expenses

None of the above

 

Question 37 of 38

An accrued expense is which of the following?

 

An expense that the business has paid but not yet incurred

An expense that has been paid and incurred

An expense that the business has incurred but not yet paid

An expense that will be incurred and paid in the future

 

Question 38 of 38

A prepaid expense is which of the following?

 

An expense that will be incurred and paid in the future

An expense that has been paid and incurred

An expense that the business has incurred but not yet paid

An expense that the business has paid but not yet incurred

 

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