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Exam 1

1.Which of the following is NOT a typical source of monetary resources for a business enterprise?
a. Investors
b. Creditors
c. Business earnings
d. Employees

2.Which of the following financial statements reports the excess of a company's revenues over its
expenses?
a. Balance sheet
b. Income statement
c. Statement of retained earnings
d. Statement of cash flows

3. Which of the following financial statements reports the amount of cash collected and paid out
by a company?
a. Balance sheet
b. Income statement
c. Statement of retained earnings
d. Statement of cash flows

4. Which of the following is NOT an external user of financial information?


a. Competitors
b. Employees
c. Management
d. Suppliers

5.In 2008, the SEC began to


a. Allow U.S. companies trading on the U.S. stock exchange to issue their financial reports
using IASB standards
b. Require U.S. companies trading on the U.S. stock exchange to issue their financial reports
using IASB standards
c. Require non-U.S. companies trading on the U.S. stock exchange to issue their financial
reports using IASB standards
d. Allow non-U.S. companies trading on the U.S. stock exchange to issue their financial
reports using IASB standards

6. Ethics are especially important in accounting because


a. Independent accountants represent the public interest
b. Accountants can steal money more easily than other employees
c. Accountants have historically committed more company thefts than other employees
d. The accounting profession does not have a code of professional conduct

7. Which of the following is NOT one of the ways that technology has changed the way
accounting is done?
a. Technology easily allows companies to collect large amounts of data about transactions
b. Technology allows greater access to a company's financial statements and other financial
information
c. Technology is able to perform the mechanics of accounting therefore, people are not
required to understand the mechanics
d. Technology allows for large amounts of data to be compiled quickly and accurately

8. Which of the following is a reason that you may need to understand accounting information in
the future?
a. To evaluate an employer's short and long-term potential
b. To perform a personal budget
c. To perform responsibilities in future employment
d. All of these are reasons to study accounting

9.If a corporation has total assets of $350,000, total liabilities of $150,000, and retained earnings of
$100,000, what is the amount of capital stock?
a. $150,000
b. $0
c. $100,000
d. $250,000

10.The following information was taken from the records of Hart Corporation for the month ended
December 31, 2013:
Advertising expense
Income tax expense
Accounts payable
Dividends paid
Retained earnings (12/1/13)
Consulting fees revenue
Rent expense
Supplies expense

$20,625
13,095
13,450
14,125
57,860
97,875
11,728
16,917

Given the above information, retained earnings as of December 31, 2013 is


a. $79,045
b. $79,245
c. $55,795
d. $33,895

11.In 2012, Rodney Corporation's balance sheet had the following balances: cash, $306,500;
accounts receivable, $471,400; and accounts payable, $390,800. During 2013, Rodney had a
net increase in cash of $68,600 and net income of $47,800. Given this information, what is
the cash balance that will be reported on Rodney's 2013 balance sheet?
a. $375,100
b. $237,900
c. $354,300
d. $258,700

12.The transactions carried out by Blue Waters Corporation during the year caused an increase in
total assets of $25,650 and a decrease in total liabilities of $12,250. If no additional stock was
issued during the year and dividends of $7,850 were paid, what was the net income for the
year?
a. $53,600
b. $45,750
c. $29,100
d. $13,400

13.Which of the following is NOT one of the four general types of financial statement notes?
a. Summary of significant accounting policies
b. Additional information about the summary totals found in the financial statements
c. Disclosure of important information that is not recognized in the financial statements
d. Supplementary information required by the Internal Revenue Service

14.Which of the following is an example of additional information about summary totals that would
be explained in the notes to the financial statements?
a. The description of all the individual items that comprise notes payable
b. The disclosure of quarterly financial information
c. The method used to estimate depreciation on a piece of equipment
d. The disclosure of the uncertain, potential outcome of a lawsuit

15. Which of the following are the two economic factors that enable us to trust an independent
auditor despite the fact that the auditor was hired by the company being audited?
a. Reputation of auditor and government policy
b. Risk of lawsuits and integrity of auditor
c. Reputation of auditor and risk of lawsuits
d. Integrity of auditor and government policy

16. The idea that the activities of the entity are to be separated from those of the individual owner
is the
a. Separate entity concept
b. Arm's-length transaction assumption
c. Money measurement concept
d. Going concern assumption

17.Which of the following is NOT an advantage of a computerized accounting system over a manual
accounting system?
a. A computerized system is faster.
b. A computerized system is more accurate once the data is correctly entered.
c. Data can be managed more easily in a computerized system.

d. A computerized system can analyze the information for decision making.


18. The basic accounting equation is
a. Assets = Liabilities + Owners' Equity
b. Assets + Owners' Equity = Liabilities
c. Assets + Liabilities = Owners' Equity
d. Liabilities Owner's Equity = Assets

19.Assuming that capital stock increased $5,000, net income was $100,000, and dividends were
$120,000, if total assets increased by $25,000, what was the change in liabilities?
a. Liabilities increased $40,000
b. There was no change in liabilities
c. Liabilities decreased $10,000
d. The answer cannot be determined from the data given

20.On June 30, the balances in the General Ledger accounts of Pancho Company resulted in the
following totals:
Assets
Liabilities
Owners' equity

$517,600
323,400
200,500

Total assets do not equal total liabilities plus owners' equity because the following errors were
made:

Supplies of $500 were on hand but were not included in assets because all purchases
were debited to Supplies Expense.
Credit sales of $15,700 were posted to the Sales Revenue account as $17,500. The
Accounts Receivable account was posted correctly.
Equipment purchased on credit for $51,600 was incorrectly posted to Notes Payable as
$56,100. No error was made in the Equipment account.

The correct balances in the asset, liability, and owners' equity accounts, respectively, should
be
Assets
a. $518,100;

Liabilities
Owners' Equity
$318,900;
$199,200

b. $517,850;
c. $517,350;
d. $517,850;

$327,900;
$327,900;
$318,900;

$189,950
$189,450
$198,950

21.Solo Company borrowed $4,000 from National City Bank on June 1. On August 31, Solo
Company paid off the loan plus $100 interest. The correct entry to record the August 31
payment of the loan plus interest is
4,000
a. Cash
Interest Expense

100

Notes Payable

b. Notes Payable

4,100
4,000

Interest Expense

100

Cash

c. Cash
Notes Payable

3,900
4,000
100

Interest Expense

d. Notes Payable
Interest Expense

4,100
4,000
100

Cash

4,100

22.On July 24, Barkdull Inc. purchased $4,000 of inventory on account. On August 3, Barkdull, sold
$2,000 of inventory for $1,000 cash and $2,000 on credit. The correct entry by Barkdull Inc.
to record the sale of inventory or August 3 is
3,000
a. Cash
Sales Revenue
Cost of Goods Sold

3,000
2,000

Inventory

b. Cash
Accounts Receivable

2,000
1,000
2,000

Sales Revenue
Cost of Goods Sold

3,000
2,000

Inventory

c. Cost of Goods Sold

2,000
3,000

Sales Revenue
Accounts Receivable

3,000
2,000

Inventory

d. Cash
Accounts Receivable

2,000
1,000
2,000

Inventory
Cost of Goods Sold

3,000
2,000

Sales Revenue

2,000

23.During July 2013, Hasan Corporation incurred but did NOT pay a $500 utility expense. This
transaction would be posted as
Accounts Payable
Utility Expense
a.
|
500 |

b.

Utility Expense
|
| 500

c.

Utility Expense
|
500 |

d.

Accounts Payable
|
| 500

|
| 500
Cash
|
500 |
Cash
|
500 |
Utility Expense
|
500 |

24. When Jim was preparing the trial balance, he accidentally recorded a $300 debit as a credit
instead. By how much will this cause the trial balance columns to differ?
a. $0
b. $150
c. $300
d. $600

25.Under accrual-basis accounting, revenue is recognized


a. When cash is received without regard to when the services are rendered
b. When the services are rendered without regard to when cash is received
c. When cash is received before the time services are rendered
d. If cash is received after the services are rendered

26.During 2013, Rumbo Corporation had cash and credit sales of $21,760 and $15,225, respectively.
The company also collected accounts receivable of $9,765 and incurred operating expenses of
$27,700, 80 percent of which were paid during the year. In addition, Rumbo paid $4,500 for
an 18-month advertising campaign that began on September 30. Rumbo's accrual-basis net
income (loss) for 2009 was
a. $9,285

b. $8,535
c. $14,075
d. $(775)

27.Garcia Company has received advance payment for services yet to be performed. This
prepayment is an example of a(n)
a. Unrecorded liability
b. Unrecorded receivable
c. Prepaid expense
d. Unearned revenue

28.On June 1, 2013, Marino Corporation received $1,800 as advance payment for 12 months'
advertising. The receipt was recorded as a credit to Unearned Fees. What adjusting entry is
required at December 31, 2013?
1,050
a. Unearned Fees
Advertising Revenue

b. Advertising Revenue

1,050
1,050

Unearned Fees

c. Cash

1,050
750

Advertising Revenue

d. Unearned Fees
Advertising Revenue

750
750
750

29.Prior to making any adjusting entries, Terra Corporation had net income of $155,100. The
following adjusting entries were made: salaries payable, $1,574; interest earned on short-term
investments but not yet recorded or collected, $7,268; adjustment to prepaid insurance for
$5,538 for an insurance policy that expired during the period; and fees of $586 collected in
advance that have now been earned. After recording these adjustments, net income would be
a. $170,084
b. 158,008
c. 155,842
d. 155,836

Exhibit 4-1

The following are a selection of account balances taken from the Adjusted Trial Balance of
Cajon Corporation for December 31, 2012:

Cash
Store Supplies
Service Fees Revenue
Retained Earnings (1/1/2012)
Accounts Payable
Dividends
Unearned Service Fees Revenue
Wage Expense
Store Supplies Expense

Debit
$150
300

Credit

$600
50
70
200
180
200
50

30. Refer to Exhibit 4-1. Given the information above, Cajon Corporation had net income in 2012
of
a. $150
b. $530
c. $330
d. $350

31.The December 31, 2012 closing entries for Smith Corp. are as follows:

Sales Revenue
Interest Revenue
Cost of Goods Sold
Wages Expense
Supplies Expense
Retained Earnings
Retained Earnings
Dividends
Smith Corp. had net income in 2012 of
a. $13,750
b. $1,925
c. $12,750
d. $2,925

Debit
12,500
1,250

Credit

7,000
2,250
1,575
2,925
1,000
1,000

32.On December 31, 2011, the balance in the Retained Earnings account is $18,500. On December
31, 2012, the balance of Retained Earnings is $17,100. During 2012, dividends of $4,200
were declared and paid. Based on this information, net income for 2012 is
a. $2,800
b. $7,000
c. $2,100
d. $4,200

33.If the total amount for Insurance Expense is inadvertently posted to Prepaid Insurance at the end
of the year, what will be the effect on the year-end financial statements?
a. Revenues will be overstated
b. Revenues will be understated
c. Owner's equity will be overstated
d. Owner's equity will be understated

34.Which of the following is an example of an adequate segregation of duties?


a. Every year, Doug is required to take one full week of vacation time.
b. Greg is in charge of recording receipt of payments made to accounts receivable, while
Susan is in charge of making deposits to the bank.
c. Every evening, Shellie makes a back-up file of all transactions recorded in the computer
that day, burns the back-up file onto a CD and then locks the CD into a fire-proof vault
for the night.
d. John, a clerk, is authorized to perform transactions as large as $5,000 but must maintain
authorization from Andrea to perform larger transactions.

35. Which of the following is an example of a physical control over assets and records?
a. Every year, Doug is required to take one full week of vacation time.
b. Greg is in charge of recording receipt of payments made to accounts receivable, while
Susan is in charge of making deposits to the bank.
c. Every evening, Shellie makes a back-up file of all transactions recorded in the computer
that day, burns the back-up file onto a CD and then locks the CD into a fire-proof vault
for the night.
d. John, a clerk, is authorized to perform transactions as large as $5,000 but must maintain
authorization from Andrea to perform larger transactions.

36. Earnings management through deceptive accounting is best exemplified by

a. Changing the useful life of a depreciable asset and fully disclosing it in the notes.
b. Timing transactions such that large one-time gains and losses occur in the same quarter.
c. Changing the interest rate used in accounting for leases without describing the change in
the notes to the financial statements.
d. Capitalizing as assets expenditures that have no future economic benefit.

37.The GAAP Oval best represents


a. The fact that only one true earnings number exists.
b. The flexibility managers have within GAAP to report one earnings number from among
many possibilities.
c. The philosophy that earnings management within limits is ethical.
d. The fact that GAAP is not subject to interpretation.

38.The Public Company Accounting Oversight Board


a. Establishes requirements for entry into the CPA profession
b. Conducts inspections of accounting firms
c. Reviews tax returns of public companies
d. Enforces compliance with the Foreign Corrupt Practices Act

39.Which statement best describes the role of external auditors when auditing a large public
company?
a. Examine the organization's accounting for a sample of business transactions to provide
reasonable assurance that the financial statements are presented fairly
b. Examine the organization's accounting for a sample of business transactions to guarantee
that the financial statements are presented fairly
c. Examine the organization's accounting for every business transaction to provide
reasonable assurance that the financial statements are presented fairly
d. Examine the organization's accounting for every business transaction to guarantee that the
financial statements are presented fairly

40. Which of the following is an incentive that influences auditors to remain independent and to
provide fair and reliable financial information?
a. Management would be taking a large legal risk if they interfere with the auditors.
b. External auditors are taking a large legal risk if they allow their independence and

integrity to be compromised.
c. Auditors have a reputation to protect.
d. All of these are correct.

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