Accounting 115 - Information Technology



Accounting 115

Practice Exam 1

Name: __________________________ Student # ______________________

1 Which of the following is generally not considered an external user of accounting information?

a Stockholders of a corporation.

b Bank lending officers.

c Financial analysts.

d Factory managers.

2 Although accounting information is used by a wide variety of external parties, financial reporting is primarily directed toward the information needs of:

a Investors and creditors.

b Government agencies such as the Internal Revenue Service.

c Customers.

d Trade associations and labor unions.

3 The general purpose financial statements prepared annually by a corporation would not include the:

a Balance sheet.

b Income tax return.

c Income statement.

d Statement of cash flows.

4 Which of the following events is not a transaction that would be recorded in a company's accounting records?

a The purchase of equipment for cash.

b The purchase of equipment on account.

c The investment of additional cash in the business by the owner.

d The death of a key executive

5 A balance sheet is designed to show the financial position of an entity:

a At a single point in time.

b Over a period of time such as a year or quarter.

c At December 31 of the current year.

d At January 1 of the coming year.

6 The nature of an asset is best described as:

a Something with physical form that is valued at cost in the accounting records.

b An economic resource owned by a business and expected to benefit future operations.

c An economic resource representing cash or the right to receive cash in the near future.

d Something owned by a business that has a ready market value.

7 The balance sheet of Teddy Bear Designs includes the following items:

Accounts Receivable Cash

Capital Stock Accounts Payable

Equipment Supplies

Notes Payable Notes Receivable

This list includes:

a Four assets and three liabilities.

b Five assets and three liabilities.

c Five assets and two liabilities.

d Six assets and two liabilities

8 Which of the following will not cause a change in the stockholders’ equity of a business?

a Payment of a business debt.

b Withdrawal of cash by the owner.

c Sale of land at a profit.

d Losses from unprofitable operations.

9 If a transaction causes an asset account to decrease, which of the following related effects may occur?

a An increase of equal amount in an stockholders’ equity account.

b An increase in a liability account.

c An increase of equal amount in another asset account.

d An increase in the combined total of liabilities and stockholders’ equity.

10 A revenue transaction results in all of the following except:

a An increase in assets.

b An increase in stockholders’ equity.

c A positive cash flow in either the past, present, or future.

d An increase in liabilities.

Use the following data for independent items 11 and 12.

At December 31, 2006, the accounting records of Bob the Builder Foods, Inc. contain the following items:

Accounts Payable $ 36,000 Accounts Receivable $90,000

Land ? Cash 81,000

Building 750,000 Equipment 270,000

Note Payable 375,000 Capital Stock 900,000

Retained Earnings ?

11 Refer to the above data. If total assets of Bob the Builder Foods, Inc. are $1,731,000, Land is carried in Bob the Builder Food's accounting records at:

a $594,000.

b $540,000.

c $504,000.

d $120,000.

12 Refer to the above data. If total assets of Bob the Builder Foods, Inc. are $1,731,000, Retained Earnings at December 31, 2006, must be:

a $831,000.

b $456,000.

c $420,000.

d $294,000.

13 A transaction caused a $35,000 increase in both assets and total liabilities. This transaction could have been:

a Purchase for office equipment for $35,000 cash.

b Purchase of office equipment for $100,000, paying $65,000 cash and issuing a note payable for the balance.

c Repayment of a $35,000 bank loan.

d Investment of $35,000 cash in the business by the owner.

14 If $3,200 cash and a $10,000 note payable are given in exchange for some office machines to be used in a business:

a Total assets are increased.

b Total liabilities are decreased.

c Total assets are decreased.

d The stockholders’ equity is increased

15 During the current year, liabilities of Cam Jansen increased by $480,000, and stockholders’ equity increased by $135,000.

a Assets at the end of the year total $615,000.

b Assets at the end of the year total $345,000.

c Assets increased during the year by $615,000.

d Assets decreased during the year by $345,000.

Use the following data for question 16.

Thomas the Tank, Co. had the following transactions during the month of August, 2006:

• Cash received from bank loans was $5,000.

• Dividends of $2,000 were paid to stockholders in cash.

• Revenues earned and received in cash amounted to $4,500

• Expenses incurred and paid were $2,500

16 Refer to the above data. What amount of net income will be reported on an income statement for the month of August, 2006?

a $5,000.

b $2,000.

c $0.

d $4,500.

17 In accounting, the terms debit and credit indicate, respectively:

a Increase and decrease.

b Left and right.

c Decrease and increase.

d Right and left.

18 The process of originally recording a business transaction in the accounting records is termed:

a Journalizing.

b Footing.

c Posting.

d Balancing.

19 Which of the following represents revenue for the month of June for Cookie Monster Medical Group, Inc.?

a Performed medical services for a patient in June. Total amount of the invoice was $4,000, but no payment has been received as of the end of June.

b Collected cash of $2,400 in June on an account receivable. The receivable originated in January from services performed for a patient.

c During June, new capital stock was issued in exchange for $35,000 cash.

d Borrowed $5,000 from National Bank on June 15.

20 Which of the following accounts normally does not have a debit balance?

a Dividends.

b Wage Expense.

c Building.

d Capital Stock.

21 As You Like It, Inc., a jazz group, entertained at a black-tie dinner dance on April 26, and collected the fee in full at the end of the evening. This transaction:

a Causes an increase in assets and revenue, as well as an increase in owners’ equity.

b Is recorded by debiting Cash and crediting the Retained Earnings account.

c Causes an increase in assets and a decrease in owners’ equity.

d Violates the matching principle unless any expenses associated with this cash receipt are paid prior to recording the revenue.

22 At the end of October, Two Harbors Marina received a bill for fuel used in October. Payment is not due until November 30. This transaction:

a Should not be recorded in the accounting records until November.

b Causes a decrease in assets and in owners’ equity in November, when the bill is paid.

c Should be recorded as an expense of October, regardless of the payment date.

d Is recorded as a liability in October, but is not considered an expense until paid.

23 On June 27, Jump Start, Inc., performed extensive tests on lab specimens submitted by several customers and sent invoices totaling $2,500, due in 30 days.

a No revenue from rendering these services should be recorded until payment is received.

b This situation causes an increase in assets and in revenue in June, but has no effect on owners’ equity until payment is received.

c Revenue is earned in June, but assets are not increased until payment is received.

d Assets, revenue, and owners’ equity are increased in June, regardless of when payment is received.

24 The purchase of office equipment at a cost of $4,100 by an immediate payment of $900 and agreement to pay the balance within 60 days is recorded by:

a A debit of $900 to Office Equipment, a debit of $3,200 to Accounts Receivable, and a credit of $4,100 to Accounts Payable.

b A debit of $4,100 to Office Equipment, a credit of $900 to Cash, and a credit of $3,200 to Accounts Receivable.

c A debit of $3,200 to Accounts Receivable, a debit of $900 to Cash, and a credit of $4,100 to Office Equipment.

d A debit of $4,100 to Office Equipment, a credit of $900 to Cash, and a credit of $3,200 to Accounts Payable.

Use the following data for questions 25 and 26.

The bookkeeper for Vanderbilt Mfg. made the following journal entry on January 30, 2007:

Land 135,000

Building 45,000

Cash 30,000

Notes Payable 150,000

25 Refer to the above data. This transaction involves:

a The sale of land and building for $180,000

b Payment of $30,000 on a note payable.

c The receipt of $30,000 cash.

d An increase in liabilities of $150,000

26 Refer to the above data. Before the journal entry above, Vanderbilt had assets, liabilities, and owners’ equity of $450,000, $100,000, and $350,000, respectively. What are total assets immediately after the above transaction occurs?

a $300,000.

b $600,000.

c $630,000.

d $450,000.

27 No adjusting entry should consist of:

a A debit to an expense and a credit to an asset.

b A debit to an expense and a credit to revenue.

c A debit to an expense and a credit to a liability.

d A debit to a liability and a credit to revenue.

28 Depreciation expense may be described best as the:

a Decline in the market value of an asset during the period.

b Systematic allocation of the cost of long-lived assets to expense.

c Cash payments made during the period on loans used to finance the purchase of assets such as buildings and equipment.

d Cash being set aside each period to provide for the replacement of long-lived assets, such as buildings and equipment.

29 The book value of a depreciable asset is equal to:

a The original cost of the asset.

b The best estimate of the current market value of the asset.

c The cost to replace the asset.

d The original cost of the asset less the related accumulated depreciation.

30 The account Unearned Ticket Revenue would appear in the financial statements as a(n):

a Asset.

b Expense.

c Revenue.

d Liability.

31 Interest which has accrued during the accounting period on a note payable to the bank calls for an adjusting entry consisting of:

a A debit to Interest Expense and a credit to Cash.

b A debit to Notes Payable and a credit to Interest Payable.

c A debit to an asset and a credit to a liability.

d A debit to Interest Expense and a credit to Interest Payable.

32 Which of the following entries causes an immediate increase in assets and in net income?

a The entry to record depreciation expense.

b The entry to record revenue earned but not yet received.

c The entry to record the earned portion of rent received in advance.

d The entry to record accrued wages payable.

Use the following data for questions 33 through 35

Shown below is a trial balance for Encyclopedia Brown, Inc., on January 31, after the first month of operations, before adjusting entries:

Encyclopedia Brown, INC.

Trial Balance

January 31, 2007

Cash $ 6,300

Accounts receivable 4,500

Office equipment 9,000

Accounts payable $ 3,150

Capital Stock 11,100

Retained Earnings -0-

Dividends 2,700

Fees earned 15,000

Salaries expense 6,000

Advertising expense 150

Utilities expense 600

$29,250 $29,250

33 Refer to the above data. Using only the data shown in the trial balance above, compute net income or loss from January operations, before adjusting entries.

a $8,250 net income.

b $19,350 net income.

c $5,550 net income.

d $16,650 net income.

34 Refer to the above data. The office equipment shown in the trial balance was purchased on January 1 and has an estimated useful life of five years. The adjusting entry required at the end of January includes a:

a Debit to Accumulated Depreciation: Office Equipment for $150.

b Credit to Accumulated Depreciation: Office Equipment for $1,800.

c Credit to Office Equipment for $1,800.

d Debit to Depreciation Expense for $150.

35 Refer to the above data. The office equipment was purchased on January 1 and has an estimated useful life of five years. Compute net income or loss from January operations after the necessary adjusting entry is made for depreciation.

a $8,100 net income.

b $6,450 net income.

c $5,400 net income.

d $3,750 net income.

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