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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