‘Ast Year - 20" sheet- Revision 13 Principles of Accounting Failed) the oh ag yal Sgt 13. M4 1s. 16. 1 Adjusting entries for prepayments record the portion of the prepayment that represents the expense. True incurred or the revenue earned in the current accounting period. 12. An adjustment for wages expense, earned but unpaid at year end, is an example of an accrued expense. True 13, The book value of any depreciable asset is the difference between its cost and its salvage [Link] \ed earnings balance is reported on both the retained earnings statement and the balance sheet, True 15. The post-closing trial balance consists of asset, liability, owners’ equity, revenue and expense accounts. False 16. All revenues, expenses, and the dividends account are closed through the Income Summary account, False 17. Its not necessary to post the closing entries to the ledger accounts because new revenue and expense accounts will ‘be opened in the subsequent accounting period. False 18. The accrual basis recognizes revenue when earned and expenses in the period when cas 19. Reversing entries are made at the end of the accounting cycle to correct errors transactions. False 20, An adjusted trial bal entries. False paid. False the original recording of ee that shows equal debit and credit columnar totals proves the gecuracy of the adjusting . The assets and liabilities of the company are $128,000 and $84,000, respectively. Owner’ hould equal a. $212,000 b, $44,000 ©, $128,000 4. $84,000 . ANSWER: B If total liabilities decreased by $46,000 during a p period, the amount and direction (increase or decrease) of the period! a. $106,000 increase b. $14,000 increase $14,000 decrease 4. $106,000 decrease ANSWER: B ity inereased by $60,000 during thesame total assets is Which of the following is nota business transaction? a, make a sales offer b. sell goods for cash c. receive cash for services to be later 4, pay for supplies ANSWER: A A business paid $7,000 to a jayment of an amount owed. The effect of the transaction on the accounting equation was to a. increasg one agbet, be another asset S88 decrease a liability ct, jiérease a liability 1, increase owner's equity Earning revenue jereases assets, increases owner’s equity creases assets, decreases owner's equity creases one asset, lecreases another asset 4. decreases assets, increases liabilities ANSWE ‘The monetary value charged to customers for the performance of services sold is called a(n) a, asset b. net income «. capital d. revenue ANSWER: Dist Year - 20% sheet- Revision 13 Principles of Accounting Atal gahie of Aya 5 B92 18. 19. 20. a. 2. 23, mM, 25, 1. How does rec Revenues are reported when ‘a. a contract is signed b. cash is received from the customer . work is begun on the job 4. work is completed on the job ANSWER: D Expenses are recorded when a. cash is paid for services rendered b. a bill is received in advance of services rendered ¢. assets are used in the process of earning revenue d. assets are purchased ANSWER: C s Goods purchased on account for future use in the business, such as supplies, are called gy a, prepaid liabilities b. revenues. . prepaid expenses 4. liabilities ANSWER: C The asset created by a business when it makes a sale on account is teriie accounts payable ». prepaid expense ¢. unearned revenue 4d. accounts receivable ANSWER: D ‘The debt created by a business when it makes a purchase on ggount is referred to a, account payable », account receivable [Link] d. expense payable ANSWER: A If total assets decreased by $88,000 aditing Mporiod of time and owner's equity increased by $71,000 di period, then the amount and directign (ifdeas@y-decrease) of the period's change in total liabilities is a. $17,000 increase ‘b. $88,000 decrease «increase cash d. decrease owner's equity ANSWER: D How does paying a liability in cash affect the accounting equation? a. assets increase; liabilities decrease b, assets increase; lia increase «, assets decrease; liabilities decrease d. liabilities decrease; owner's equity increases ANSWER: C ing a bill to be paid next month for services received affect the accounting equation? a. assets decrease; owner's equity decreasesAst Year - 20% sheet- Revision 13 Principles of Accounting Ayainall ste ot hans Bass 27. 29, 30. 3h. 32, 3. b. assets increase; liabilities increase ¢, liabilities inerease; owner's equity increases 4. liabilities increases owner's equity decreases ANSWER: D How does the purchase of equipment by signing a note affect the accounting equation? ‘a. assets increase; assets decrease b. assets increase; liabilities decrease c. assets increase; liabilities inerease dd- assets increase; owner's equity increases ANSWER: C . Land, originally purchased for $30,000, is sold for $62,000 in cash, What is the effect of the sale on the accounting equation? 4 assets inerease $62,000; owner's equity increases $62,000 s b. assets inerease $32,000; owner's equity increases $32,000 ¢, assets inerense $62,000; liabilities decrease $30,000; owner's equity incred d. assets inerease $30,000; no change for liabilities; owner's equity increases $62. ANSWE! Whichofthefollowingis a liability? €. Accountspayable f. Accountsreceivable g. Wagesexpense h. Servicerevenue ANSWER: A Abbie Marson is the sole owner and operator of G? December 31, Year 1, Great Plains Company has assets of 8 invested an additional $73,000 and withdrew $33,000 from t 2, assuming that as of December 31, Year 2, assets were $9: a, $45,000 . $50,000 «$106,000 4. $370,000 ANSWER: A impany. As of the end of its accounting period, jes of $300,000. During Year 2,Marson fusiness, What is the amount of net incomeduring Year 100, and liabilities were $270,000? Whichofthefollowingassetaccountsiginer’ receivableiscollected? a, Accountsreceivable 8, Supple fecting F's equity include ents and payment of liabilities b. owne®tinféstments, owner's withdrawals, earning of revenues, and ineurrence of expenses ¢. owner's investments, earning of revenues, incurrence of expenses, and collection of accounts receivable dd owner's withdrawals, earning of revenues, incurrence of expenses, and purchase of supplies ‘on account ANSWER: B Michael Anderson is starting his computer programming business and has deposited in '$15,000into the business cash account, Identify how the accounting equation will be affected. a, Increase Assets (Cash) and increase Liabilities (Accounts Payable) bo Inerease Assets (Cash) and increase Owner's Equity (Michael Anderson, Capital) ¢. Increase Assets (Accounts Receivable) and decrease Liabilities (Accounts Payable) 4, Increase Assets (Cash) and increase Assets (Accounts Receivable) ANSWER: B tial investment ofist Year - 20% sheet: Revision 13 Principles of Accounting Hull shee A hows Bast “34, Gomez Service Company paid its first installment on a note payable in the amount 0f $2,000. How will thistransaction affect the accounting equation? ‘a crease Liabilities (Notes Payable) and deerease Assets (Cash) ncrecase Assets (Cas) and decrease Owners Equity (Note Payable Expense) Decrease Assets (Cash) and decrease Assets (Notes Receivable) ‘. Decrease Assets (Cash) and decrease Liabilities (Notes Payable) ANSWER: D 35, Ramon Ramos has withdrawn $750 from Ramos Repair Cot pany’s cash account to deposit in his personal account How does this transaction affect Ramos Repair Company's accounting equation? wr Increase Assets (Accounts Receivable) and decrease Assets (Cash) L, Decrease Assets (Cash) and decrease Owner's Equity (Owner's Withdrawal) er Decrease Assets (Cash) and decrease Liabilities (Accounts Payable) 4. Inerease Assets (Cash) and decrease Owner’s Equity (Owner's Withdrawal) ANSWER: B 36. Which of the following is nota business transaction ‘a. Erin deposits $15,000 in a bank account in the name of Ex b, Erin provided services to customers ear «, Erin purchased hedge trimmers for her Inwn servi . Erin pays her monthly personal credit card bill. ANSWER: D e agreeing to pay thegupptier next month. 37. Which of the following is a business transucti ¢. purchaseinventoryonaccount £ planadvertisingforupeomingsale ¢. giveemployeesaraisebeginningnextmonth h, submitestimateforconstructionproject ANSWER :A. 38, The financial statement that presents a summary oft such as a month or year, is called a(n) a, prior period statement b. statement of owner's equity c. income statement 4d. balanee sheet ANSWER: C les and expenses of a business for a specific periodof time, 39. Which of the following fi i tatey ts reports information as of a spe 40, Four financial statements are usually prepared for a business The statement of vt flows is usually preparediast. The vorriacat of owner's equity (OF), the balance sheet (B), and the income statement () 9° prepared in a certain order t0 sate mnformation needed for the next statement, In what order are these three statements prepared? 41, Liabilities are reported on the ‘a. income statement p, statement of owner's equity ¢, statement of eash flowsAst Year - 20% sheet- Revision 13 Principles of Accounting gual ste et a Byo8 2, 4B. 45. 46. 47. 4. balance sheet ANSWER: d Cash investments made by the owner tothe business are reported on the statement of cash flows in the ‘The year-end balance of the owner's capital accou! | financial statement user would determine if a company was profitable or 1 reviewing the a, financing activities section b. investing aetivities section «. operating activities section 4. supplemental statement ANSWER: a appears in ere oa statement of owner's equity and the income statement W only the statement of owner's equity 2 Pad the statement of owner's equity and the balance sheet * 6 bot he iatemont of owner's equity and the statement of cashflows ANSWER: C cific period of time by a. income statement b, balance sheet . statement of cash flows 4 statement of retained earnings ANSWER: o Iran owner wanted to know how money flowed into anit of | pany, which financial statement would theowner use? a, income statement b. statement of cash flows «. balance sheet d. statement of retained earnings ANSWER: B ‘The assets seetion of the balance sheet 1 sents assets in a, alphabetical order b, the order of largest to suallest Wgitaragnounts the order in whieh they wile Johverted into eash or used in operations e order of small get dollar amounts {s regarding the ratio of liabilities to owner’s equity are true except % that liabilities equal owner's equity. use this ratio but substitute total stockholders’ equity for total owner’s is ratio, the better able a business is to withstand poor business conditions and pay creditors. ao ee ower this ratio, the better able a business is to withstand poor business conditions and pay creditors. ANSWER: C 48, Given the following data:Compute the ratio of liabilities to owner’s equity for each year. Round fo (wo decimal places. 1.50 and 1.07, respectively , 1.38 and 1.50, respectively €, 1.07 and 1.19, respectively 4.1.19 and 1.35, respectively ANSWER: B