ACCT 2101 Final Exam Study Guide Chapters 1 – 12
Chapter 1
1. The liability created by a business when it purchases coffee beans and coffee cups
... [Show More] on credit from suppliers is termed a(n) a. account payable.
b. account receivable.
c. revenue.
d. expense.
2. The right to receive money in the future is called a(n)
a. account payable. b. account receivable.
c. liability.
d. revenue.
3. Borrowing money is an example of a(n)
a. delivering activity. b. financing activity.
c. investing activity.
d. operating activity.
4. Which activities involve putting the resources of the business into action to generate a profit?
a. Delivering
b. Financing
c. Investing d. Operating
5. When expenses exceed revenues, which of the following is true? a. a net loss results
b. a net income results
c. assets equal liabilities
d. assets are increased
6. The retained earnings statement shows all of the following except:
a. The amounts of changes in retained earnings during the period.
b. The causes of changes in retained earnings during the period.
c. The time period following the one shown for the income statement.
d. Beginning retained earnings on the first line of the statement.
7. Jackson Company recorded the following cash transactions for the year: Paid $135,000 for salaries.
Paid $60,000 to purchase office equipment. Paid $15,000 for utilities.
Paid $6,000 in dividends.
Collected $225,000 from customers.
What was Jackson’s net cash provided by operating activities? a. $75,000 (225000-135000-15000)
b. $15,000
c. $90,000
d. $69,000
8. Which of the following financial statements is divided into major categories of operating, investing, and financing activities?
a. The income statement.
b. The balance sheet.
c. The retained earnings statement. d. The statement of cash flows.
9. Ending retained earnings for a period is equal to:
a. Beginning retained earnings + Net income + Dividends
b. Beginning retained earnings – Net income – Dividends c. Beginning retained earnings + Net income – Dividends
d. Beginning retained earnings – Net income + Dividends
10. To show how successfully your business performed during a period of time, you would report its revenues and expense in the
a. balance sheet.
b. income statement.
c. statement of cash flows.
d. retained earnings statement.
11. Net income results when
a. Assets > Liabilities.
b. Revenues = Expenses. c. Revenues > Expenses.
d. Revenues < Expenses.
12. Henson Company began the year with retained earnings of $350,000. During the year, the company recorded revenues of
$500,000, expenses of $380,000, and paid dividends of $40,000. What was Henson’s retained earnings at the end of the year?
a. $510,000
b. $430,000 (350000+500000-380000-40000)
c. $810,000
d. $470,000
13. Finney Company began the year by issuing $20,000 of common stock for cash. The company recorded revenues of $185,000, expenses of $160,000, and paid dividends of $10,000. What was Finney’s net income for the year?
a. $15,000
b. $35,000
c. $25,000 (185000-160000)
d. $45,000
14. Gilkey Corporation began the year with retained earnings of $155 ,000. During the year, the company issued $210,000 of common stock, recorded expenses of $600,000, and paid dividends of $40,000. If Gilkey’s ending retained earnings was $165,000, what was the company’s revenue for the year?
a. $610,000
b. $650,000 (155000+X-600000-40000=165000, X=650000)
c. $820,000
d. $860,000
15. The accounting equation may be expressed as:
a. Assets = Stockholders’ Equity – Liabilities. b. Assets = Liabilities + Stockholders’ Equity.
c. Assets + Liabilities = Stockholders’ Equity.
d. Assets + Stockholders’ Equity = Liabilities.
16. Elston Company compiled the following financial information as of December 31, 2012:
Revenues $420,000
Common stock 90,000
Equipment 120,000
Expenses 375,000
Cash 105,000
Dividends 30,000
Supplies 15,000
Accounts payable 60,000
Accounts receivable 45,000
Retained earnings, 1/1/12 225,000
Elston’s assets on December 31, 2012 are:
a. $705,000
b. $510,000
c. $240,000
d. $285,000 (120000+105000+15000+45000)
17. Benedict Company compiled the following financial information as of December 31, 2012:
Revenues $280,000
Common stock 60,000
Equipment 80,000
Expenses 250,000
Cash 70,000
Dividends 20,000
Supplies 10,000
Accounts payable 40,000
Accounts receivable 30,000
Retained earnings, 1/1/12 150,000
Benedict’s stockholders’ equity on December 31, 2012 is: a. $210,000
b. $220,000 (150000+280000-250000-20000+60000)
c. $160,000
d. $240,000
Chapter 2
1. The concept that a business has a reasonable expectation of remaining in business for the foreseeable future is called the
a. economic entity assumption.
b. monetary unit assumption.
c. periodicity assumption.
d. going concern assumption.
2. Generally accepted accounting principles
a. are accounting rules formulated by the Internal Revenue Service.
b. are sound in theory but rarely used in real life.
c. are accounting rules that are recognized as a general guide for financial reporting.
d. have eliminated all errors in accounting.
3. In 2012 Grider Corporation had cash receipts of $28,000 and cash disbursements of $16,000. Grider’s ending cash balance at December 31, 2012 was $44,000. What was Grider’s beginning cash balance?
a. $32,000 (X+28000-16000=44000; X=32000)
b. $40,000
c. $60,000
d. $56,000
4. At December 31, 2012 Lowery Company had retained earnings of $2,184,000. During 2012 they issued stock for $98,000, and paid dividends of $34,000. Net income for 2012 was $402,000. The retained earnings balance at the beginning of 2012 was:
a. $2,552,000
b. $1,816,000 (X+402000-34000=2184000; X=1816000) c. $1,914,000
d. $2,454,000
5. Use the following data to determine the total dollar amount of assets to be classified as property, plant, and equipment.
Carne Auto Supplies Balance Sheet December 31, 2012
Cash $ 60,000 Accounts Payable $ 65,000
Prepaid Insurance 40,000 Salaries Payable 10,000
Accounts Receivable 50,000 Mortgage Payable 90,000
Inventory 70,000 Total Liabilities $165,000
Land held for investment 80,000
Land 95,000
Buildings $100,000 Common Stock $120,000
Less Accumulated Retained Earnings 250,000
Depreciation (30,000) 70,000 Total stockholders’ equity $370,000
Trademarks 70,000 Total Liabilities and
Total Assets $535,000 Stockholders’ Equity $535,000
a. $315,000.
b. $245,000.
c. $165,000. (95000+70000) d. $195,000.
6. What is the order in which assets are generally listed on a classified balance sheet?
a. current and long-term
b. current; property, plant and equipment; long-term investments; intangibles
c. current; property, plant and equipment; intangibles; long-term investments d. current; long-term investments; property, plant and equipment, intangibles
7. Use the following data to determine the total dollar amount of assets to be classified as current assets.
Koonce Office Supplies Balance Sheet December 31, 2012
Cash $ 130,000 Accounts Payable $ 140,000
Prepaid Insurance 60,000 Salaries Payable 20,000
Accounts Receivable 100,000 Mortgage Payable 160,000
Inventory 140,000 Total Liabilities $320,000
Land held for Investment 150,000
Land 180,000
Buildings $200,000 Common Stock $240,000
Less Accumulated Retained Earnings 500,000
Depreciation (40,000) 160,000 Total Stockholders’ Equity $740,000
Trademarks 140,000 Total Liabilities and
Total Assets $1,060,000 Stockholders’ Equity $1,060,000
a. $580,000.
b. $430,000. (130000+60000+100000+140000) c. $360,000.
d. $290,000.
8.A current asset is
a. the last asset purchased by a business.
b. an asset which is currently being used to produce a product or service.
c. usually found as a separate classification in the income statement.
d. expected to be converted to cash or used in the business within a relatively short period of time.
9. Which of the following is not classified properly as a current asset?
a. Supplies
b. Marketable securities
c. A fund to be used to purchase a building within the next year
d. A receivable from the sale of an asset to be collected in two years
10. Liabilities are generally classified on a balance sheet as
a. small liabilities and large liabilities.
b. present liabilities and future liabilities.
c. tangible liabilities and intangible liabilities. d. current liabilities and long-term liabilities.
11. Which of the following would not be classified as a long-term liability? a. Current maturities of long-term debt
b. Bonds payable
c. Mortgage payable
d. Lease liabilities
12. On a classified balance sheet, companies usually list current assets
a. in alphabetical order.
b. with the largest dollar amounts first.
c. in the order in which they are expected to be converted into cash.
d. in the order of acquisition.
13. These are selected account balances on December 31, 2012.
Land $100,000
Land (held for future use) 150,000
Buildings 600,000
Inventory 200,000
Equipment 450,000
Furniture 100,000
Accumulated Depreciation 300,000
What is the total amount of property, plant, and equipment that will appear on the balance sheet? a. $1,300,000
b. $1,100,000
c. $1,600,000
d. $950,000 (100000+600000+450000+100000-300000)
Chapter 3
1. If total liabilities increased by $5,000, then
a. assets must have decreased by $5,000.
b. stockholders’ equity must have increased by $5,000.
c. assets must have increased by $5,000, or stockholders’ equity must have decreased by $5,000.
d. assets and stockholders’ equity each increased by $2,500.
2. Courtney Company purchased equipment for $1,800 cash. As a result of this event,
a. equity decreased by $1,800.
b. assets increased by $1,800. c. assets remained unchanged.
d. Both a and b.
3. The left side of an account is
a. blank.
b. a description of the account. c. the debit side.
d. the balance of the account.
4.A debit to an asset account indicates a(n)
a. error.
b. credit was made to a liability account.
c. decrease in the asset. d. increase in the asset.
5. The normal balance of any account is the
a. left side.
b. right side.
c. side which increases that account.
d. side which decreases that account.
6. The double-entry system requires that each transaction must be recorded a. in at least two different accounts.
b. in two sets of books.
c. in a journal and in a ledger.
d. first as a revenue and then as an expense.
7. Which of the following describes the classification and normal balance of the Unearned Revenue account?
a. Asset, debit
b. Liability, credit
c. Revenues, credit
d. Expense, debit
8. On June 1, 2012, England Inc. reported a cash balance of $18,000. During June, England made deposits of $8,000 and made disbursements totaling $24,000. What is the cash balance at the end of June?
a. $2,000 credit balance.
b. $26,000 debit balance.
c. $2,000 debit balance. (18000+8000-24000)
d. $6,000 credit balance.
9. Which of the following correctly identifies normal balances of accounts?
a. Assets Debit
Liabilities Credit
Common Stock Credit
Revenues Debit
Expenses Credit
b. Assets Debit
Liabilities Credit
Common Stock Credit
Revenues Credit
Expenses Credit
c. Assets Credit
Liabilities Debit
Common Stock Debit
Revenues Credit
Expenses Debit
10. Barnes Company showed the following balances at the end of its first year:
Cash $11,000
Prepaid insurance 700
Accounts receivable 3,500
Accounts payable 2,800
Notes payable 4,200
Common stock 5,400
Dividends 700
Revenues 21,000
Expenses 17,500
What did Barnes Company show as total credits on its trial balance? a. $34,100
b. $33,400 (2800+4200+5400+21000)
c. $32,700
d. $34,800
11. During 2012, its first year of operations, Jane's Bakery had revenues of $60,000 and expenses of $33,000. The business paid cash dividends of $18,000. What is the balance in Retained Earnings at December 31, 2012?
a. $0.
b. $18,000 debit.
c. $9,000 credit. (60000-33000-18000)
d. $27,000 credit.
12. When a company has performed a service but has not yet received payment, it a. debits accounts receivable and credits revenue from services.
b. debits revenue from services and credits accounts receivable.
c. debits revenue from services and credits accounts payable.
d. makes no entry until the cash is received.
13.A company that receives money in advance of performing a service
a. debits cash and credits prepaid fees.
b. debits unearned fees and credits accounts payable. c. debits cash and credits unearned fees.
d. debits cash and credits accounts receivable.
14. A list of accounts and their balances at a given time is called a(n)
a. journal.
b. posting.
c. trial balance.
d. income statement.
15.A trial balance will not balance if
a. a correcting journal entry is posted twice.
b. a $50 cash dividend is debited to dividends for $500 and credit to cash for $50.
c. a $300 payment on accounts payable is debited to accounts payable for $30 and credited to cash for $30.
d. a transaction is not posted at all.
16. Which of the following accounts has a normal credit balance?
a. Prepaid Rent
b. Notes Receivable c. Rent Revenue
d. Rent Expense
17. In the first month of operations, the total of the debit entries to the Cash account amounted to $1,200 and the total of the credit entries to the Cash account amounted to $800. The Cash account has a
a. $800 credit balance.
b. $400 debit balance. (1200-800)
c. $1,200 debit balance.
d. $400 credit balance.
18. Which account below is not a subdivision of stockholders’ equity?
a. Dividends
b. Revenues
c. Expenses d. Liabilities
19. Which of the following accounts is increased with a debit? a. Dividends
b. Service Revenue
c. Interest payable
d. Common Stock
20. Crawford Company started the year with $30,000 in its Common Stock account and a credit balance in Retained Earnings of
$12,000. During the year, the company earned net income of $24,000 and declared and paid $10,000 of dividends. In addition, the company sold additional common stock amounting to $14,000. As a result, the amount of its retained earnings at the end of the year would be:
a. $70,000
b. $26,000 (12000+24000-10000)
c. $56,000
d. $40,000
21. On March 1, 2012, Freeze Company hires a new employee who will start to work on March 6. The employee will be paid on the last day of each month. Should a journal entry be made on March 6? Why or why not?
a. Yes, the company is now obligated to pay the employee, thus that event must be recorded.
b. No, hiring an employee is an important event; however it is not an economic event that should be recorded.
c. Yes, failure to record the event would cause the financial statements to be misleading.
d. No, the financial position of the company has been changed, however, the dollar amount of the transaction is not yet known.
22. Are advanced receipts from customers treated as revenue at the time of receipt? Why or why not?
a. Yes, they are treated as revenue at the time of receipt because the company has access to the cash
b. No, the amount of revenue cannot be adequately determined until the company completes the work.
c. Yes, The intent of the company is to perform the work and the customer is confident that the services will be completed.
d. No, revenue cannot be recognized until the work is performed.
Chapter 4
1. The revenue recognition principle dictates that revenue should be recognized in the accounting records:
a. when cash is received. b. when it is earned.
c. at the end of the month.
d. in the period that income taxes are paid.
2.A flower shop makes a large sale for $1,000 on November 30. The customer is sent a statement on December 5 and a check is received on December 10. The flower shop follows GAAP and applies the revenue recognition principle. When is the
$1,000 considered to be earned?
a. December 5
b. December 10 c. November 30
d. December 1
3. Under the cash basis of accounting:
a. Revenue is recognized when services are performed.
b. Expenses are matched with the revenue that is produced. c. cash must be received before revenue is recognized.
d. a promise to pay is sufficient to recognize revenue.
4. Under the accrual basis of accounting:
a. cash must be received before revenue is recognized.
b. net income is calculated by matching cash outflows against cash inflows.
c. events that change a company's financial statements are recognized in the period they occur rather than in the period in which cash is paid or received.
d. the ledger accounts must be adjusted to reflect a cash basis of accounting before financial statements are prepared under generally accepted accounting principles.
5. La More Company had the following transactions during 2011:
• Sales of $4,500 on account
• Collected $2,000 for services to be performed in 2012
• Paid $1,375 cash in salaries for 2011
• Purchased airline tickets for $250 in December for a trip to take place in 2012
What is La More’s 2011 net income using accrual accounting? a. $3,375
b. $5,375
c. $5,125
d. $3,125 (4500 – 1375)
6. La More Company had the following transactions during 2011.
• Sales of $4,500 on account
• Collected $2,000 for services to be performed in 2012
• Paid $1,125 cash in salaries
• Purchased airline tickets for $250 in December for a trip to take place in 2012
What is La More’s 2011 net income using cash basis accounting? a. $5,375
b. $875
c. $5,125
d. $625 (2000 – 1125 – 250)
7. Accrued expenses are:
a. incurred but not yet paid or recorded.
b. paid and recorded in an asset account after they are used or consumed.
c. paid and recorded in an asset account before they are used or consumed.
d. incurred and already paid or recorded.
8. Accrued revenues are:
a. received and recorded as liabilities before they are earned.
b. earned and recorded as liabilities before they are received. c. earned but not yet received or recorded.
d. earned and already received and recorded.
9. Greese Company purchased office supplies costing $4,000 and debited Office Supplies for the full amount. At the end of the accounting period, a physical count of office supplies revealed $1,100 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be:
a. debit Office Supplies Expense, $1,100; credit Office Supplies, $1,100.
b. debit Office Supplies, $2,900; credit Office Supplies Expense, $2,900. c. debit Office Supplies Expense, $2,900; credit Office Supplies, $2,900.
d. debit Office Supplies, $1,100; credit Office Supplies Expense, $1,100.
10. Walton Company collected $7,200 in May of 2010 for 4 months of service which would take place from October of 2010 through January of 2011. The revenue reported from this transaction during 2010 would be:
a. $0
b. $5,400 (7200 / 4 = 1800, 1800 * 3 = 5400)
c. $7,200
d. $1,800
11. The closing entry process consists of closing:
a. all asset and liability accounts.
b. out the Retained Earnings account.
c. all permanent accounts. d. all temporary accounts. Chapter 5
1. Under a perpetual inventory system
a. accounting records continuously disclose the amount of inventory.
b. increases in inventory resulting from purchases are debited to purchases.
c. there is no need for a year-end physical count.
d. the account purchase returns and allowances is credited when goods are returned to vendors.
2. Under a perpetual inventory system, acquisition of merchandise for resale is debited to a. the Inventory account.
b. the Purchases account.
c. the Supplies account.
d. the Cost of Goods Sold account.
3.A company using a perpetual inventory system that returns goods previously purchased on credit would
a. debit Accounts Payable and credit Inventory.
b. debit Sales and credit Accounts Payable.
c. debit Cash and credit Accounts Payable.
d. debit Accounts Payable and credit Purchases.
4. Conway Company purchased merchandise inventory with an invoice price of $8,000 and credit terms of 2/10, n/30. What is the net cost of the goods if Conway Company pays within the discount period?
a. $8,000
b. $7,840 (8000 * .02 = 160, 8000 – 160 = 7840)
c. $7,200
d. $7,360
5. The journal entry to record a credit sale is
a. Cash
b. Cash
Sales Revenue
Service Revenue
c. Accounts Receivable
Sales Returns and Allowances
6. Under the perpetual inventory system, in addition to making the entry to record a sale, a company would
a. debit Inventory and credit Cost of Goods Sold.
b. debit Cost of Goods Sold and credit Purchases. c. debit Cost of Goods sold and credit Inventory.
d. make no additional entry until the end of the period.
7. The entry to record a sale of $900 with terms of 2/10, n/30 will include a
a. debit to Sales Discounts for $18.
b. debit to Sales Revenue for $882.
c. credit to Accounts Receivable for $900. d. credit to Sales Revenue for $900.
8. The collection of an $800 account within the 2 percent discount period will result in a a. debit to Sales Discounts for $16.
b. debit to Accounts Receivable for $784.
c. credit to Cash for $784.
d. credit to Accounts Receivable for $784.
9. Aber Company sells merchandise on account for $1,500 to Borth Company with credit terms of 2/10, n/30. Borth Company returns $250 of merchandise that was damaged, along with a check to settle the account within the discount period. What is the amount of the check?
a. $1,220
b. $1,230
c. $1,225 (1500 – 250 = 1250, 1250 * .02 = 25, 1250 – 25 = 1225)
d. $1,125
10. Piper Company sells merchandise on account for $1,800 to Morton Company with credit terms of 2/10, n/30. Morton Company returns $600 of merchandise that was damaged, along with a check to settle the account within the discount period. What entry does Piper Company make upon receipt of the check?
a. Cash 1,200
Accounts Receivable 1,200
b. Cash 1,176
Sales Returns and Allowances 624
Accounts Receivable . 1,800
1,800
d. Cash 1,764
Sales Discounts 36
Sales Returns and Allowances 600
Accounts Receivable 1,200
Chapter 6
1. The LIFO inventory method assumes that the cost of the latest units purchased are
a. the last to be allocated to cost of goods sold.
b. the first to be allocated to ending inventory. c. the first to be allocated to cost of goods sold.
d. not allocated to cost of goods sold or ending inventory.
2. Alpha First Company just began business and made the following four inventory purchases in June:
June 1 150 units $ 780
June 10 200 units 1,170
June 15 200 units 1,260
June 28 150 units 990
$4,200
A physical count of merchandise inventory on June 30 reveals that there are 250 units on hand. Using the LIFO inventory method, the value of the ending inventory on June 30 is
a. $1,300
b. $1,365 (780 + (1170 / 2) = 1365)
c. $1,650
d. $1,620
3. Baker Bakery Company just began business and made the following four inventory purchases in June:
June 1 150 units $ 780
June 10 200 units 1,170
June 15 200 units 1,260
June 28 150 units 990
$4,200
A physical count of merchandise inventory on June 30 reveals that there are 250 units on hand. Using the FIFO inventory method, the amount allocated to ending inventory for June is
a. $1,300
b. $1,365
c. $1,620 (990 + (1260 / 2) = 1620)
d. $1,650 [Show Less]