Accounting Final Exam Chapter 1-12

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Term

Definition

A corporation is legally separate and distinct from its owners.

True

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Financial accounting provides information to all users, while the main focus for managerial accounting is to provide information to the management.

True

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The cost principle is the basis for entering the purchase price into the accounting records.

True

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If the liabilities owed by a business total $300,000 and stockholders' equity is equal to $300,000, then the assets also total $300,000.

False

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If net income for a company was $50,000, $20,000 in cash dividends were paid and the shareholders invested $10,000 in cash, the stockholders' equity increased by $40,000.

False

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Receiving payments on an account receivable increases both equity and assets.

False

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Dividends paid to stockholders decrease assets and increase equity.

True

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Purchasing supplies on account increases liabilities and decreases equity.

True

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Revenue is earned only when money is received.

True

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The primary financial statements of a corporation are the income statement, the statement of stockholders' equity, and the balance sheet.

True

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The balance sheet represents the accounting equation

True

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Profit is the difference between

the amounts received from customers for goods or services and the amounts paid for the inputs used to provide the goods or services

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Accounts are records of increases and decreases in individual accounting equation elements.

True

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The chart of accounts should be the same for each business.

False

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Consuming goods and services in the process of generating revenues results in expenses.

True

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Accounts in the ledger are usually maintained in alphabetical order.

False

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The right side of a T account is known as a debit and the left side is known as a credit.

False

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The cash account will always be debited.

False

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The accounts payable account is listed in the chart of accounts as an asset.

False

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When an account receivable is collected in cash, the total assets of the business increase.

False

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Dividends Decrease Stockholders Equity and are listed on the income statement as deduction from revenue

False

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The normal balance of revenue accounts is a credit.

True

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The process of recording a transaction in the journal is called journalizing.

True

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Expenses are assets that are used up during the process of earning revenue.

True

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A retained earnings statement reports all changes in the cash for a period of time

False

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The Accumulated Depreciation's account balance is the sum of the depreciation expense recorded in past periods.

False

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A company depreciates its land’s value over 10 years

False

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Accumulated Depreciation is reported on:

The balance sheet

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Prepaid expenses are an example of an expense.

False

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The unearned revenues account is an example of a liability.

True

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A company pays an employee $3,000 for a five day work week, Monday - Friday. The adjusting entry on December 31, which is a Wednesday, is:

Debit Wages Expense, $1,800 and credit Wages Payable, $1,800.

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The matching concept requires expenses be recorded in the same period that the related revenue is recorded.

True

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The stockholders' right to the assets of the business is presented on the income statement below the Liabilities section.

False

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Once the adjusted trial balance is in balance, the flow of accounts will now go into the financial statements.

True

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After analyzing transactions, the next step would be to post the transactions in the ledger.

False

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The income statement is prepared from the adjusted trial balance.

True

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There is really no benefit in preparing financial statements in any particular order.

False

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The last step to the accounting cycle is the closing entries are journalized and posted to the ledger.

False

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All Revenue, Expense, & Retained Earnings accounts are closed to zero during the closing process.

False

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Cash and other assets that may reasonably be expected to be realized in cash, sold, or consumed through the normal operations of a business, usually longer than one year, are called current assets.

False

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Liabilities that will be due within one year or less and that are to be paid out of current assets are called current liabilities.

True

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One of the most important differences between a service business and a retail business is in what is sold.

True

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Cost of merchandise sold is the amount that the merchandising company pays for the merchandise it intends to sell.

True

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In the perpetual inventory system, purchases of merchandise for resale are debited to the Purchases account.

False

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In a perpetual inventory system, the Merchandise Inventory account is only used to reflect the beginning inventory.

False

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As we compare a merchandise business to a service business, the financial statement that changes the most is the Balance Sheet

False

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The ending merchandise inventory for 2019 is the same as the beginning merchandise inventory for 2020.

True

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Net sales is equal to sales minus cost of merchandise sold.

False

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Inventory is reported as a current asset on the balance sheet.

True

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The single-step income statement is easier to prepare, but a criticism of this format is that gross profit and income from operations are not readily available.

True

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During periods of increasing costs, the use of the FIFO method of costing inventory will yield an inventory amount for the balance sheet that is higher than LIFO would produce.

True

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When the LIFO method is used, the cost of goods on hand at the end of the period is made up of the earliest costs.

True

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When comparing the direct write-off method and the allowance method of accounting for uncollectible receivables, a major difference is that the direct write-off method

is used primarily by small companies with few receivables

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Under the allowance method of accounting for uncollectible receivables, writing off an uncollectible account

affects only balance sheet accounts

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When a company uses the allowance method of accounting for uncollectible receivables, the entry to reinstate a previously written off account would include:

A credit to Allowance for Doubtful Accounts

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The Lowery Co. uses the direct write-off method of accounting for uncollectible accounts receivable. Lowery has a customer whose accounts receivable balance has been determined to likely be uncollectible. The entry to write off this account would be which

debit Bad Debt Expense; credit Accounts Receivable

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On October 1, Black Company receives a 9% interest bearing note from Reese Company to settle a $20,000 account receivable. The note is due in six months. At December 31, Black should record interest revenue of $0

$450

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A capital expenditure results in a debit to

an asset account

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Which of the following below is an example of a capital expenditure?

replacing an engine in a company car

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All property, plant, and equipment assets are depreciated over time.

False

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A used machine with a purchase price of $77,000, requiring an overhaul costing $8,000, installation costs of $5,000, and special acquisition fees of $3,000, would have a cost basis of

$93,000

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The calculation for annual depreciation using the straight-line depreciation method is

depreciable cost / estimated useful life

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A used machine with a purchase price of $77,000, requiring an overhaul costing $8,000, installation costs of $5,000, and special acquisition fees of $3,000, would have a cost basis of

$93,000

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The depreciation method that does not use residual value in calculating the first year's depreciation expense is

double-declining-balance

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Current liabilities are due

and payable within one year

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On May 18, Rodriguez Co. issued an $84,000, 6%, 120-day note payable on an overdue account payable to Wilson Company. Assume that the fiscal year of Rodriguez ends on June 30. Which of the following relationships is true?

Rodriguez is the borrower and debits Accounts Payable

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Assuming a 360-day year, when a $50,000, 90-day, 9% interest-bearing note payable matures, total payment will be

$51,125

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The journal entry to record the payment of an interest-bearing note is

debit Notes Payable and Interest Expense; credit Cash

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Assuming a 360-day year, when a $20,000, 90-day, 5% interest-bearing note payable matures, total payment will be

$20,250

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The process of transferring the cost of metal ores and other minerals removed from the earth to an expense account is called

depletion

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Expected useful life is

estimated at the time that the asset is placed in service

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The total earnings of an employee for a payroll period, including any overtime pay, are called___________. From this amount is subtracted one or more deductions to arrive at the ___________.

gross pay, net pay

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Stockholders' equity

includes retained earnings and paid-in capital

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The excess of issue price over par of common stock is termed a(n)

premium

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The state charter allows a corporation to issue only a certain number of shares of each class of stock. This amount of stock is called

authorized stock

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Under the corporate form of business organization

ownership rights are easily transferred

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