Question 1

Companies generally have a year that ends at the low point in their business activity.

Accepted Answer

A) True 
 B)False

Question 2

The debt ratio is the percentage of total assets financed by current debt.

Accepted Answer

A) True 
 B)False

Question 3

Permanent accounts include:

Accepted Answer

A)  cash, service revenue and land.
B)  cash, prepaid expenses and unearned revenue.
C)  cash, land and salaries expense.
D)  service revenue, salaries expense and utilities expense.

Question 4

The book value of an asset that cost $20,000 and has accumulated depreciation of $6,000 is:

Accepted Answer

A)  $20,000.
B)  $ 6,000.
C)  $26,000.
D)  $14,000.

Question 5

The unearned revenue adjustment decreases both net income and total assets.

Accepted Answer

A) True 
 B)False

Question 6

A company has $800 in beginning supplies and $150 of supplies on hand at the end of the month. The adjusting entry for this company is a debit to:

Accepted Answer

A)  Supplies of $150 and a credit of $150 to Supplies Expense.
B)  Supplies Expense of $150 and a credit of $150 to Supplies.
C)  Supplies Expense of $650 and a credit of $650 to Supplies.
D)  There is not enough information given to prepare the entry.

Question 7

GAAP requires use of the cash basis of accounting.

Accepted Answer

A) True 
 B)False

Question 8

On August 1 of the current year, Magic Carpet Entertainment received $4,800 for services to be performed evenly over the next twelve months. The adjusting entry on December 31, 2008, would include a:

Accepted Answer

A)  debit to Cash for $4,800.
B)  credit to Service Revenue for $4,800.
C)  debit to Unearned Service Revenue for $2,000.
D)  debit to Unearned Service Revenue for $2,800.

Question 9

Under the adjusting principle, a business should record revenue when it is earned, regardless of when payment is received from the customer.

Accepted Answer

A) True 
 B)False

Question 10

According to the revenue principle, revenue should be recorded:

Accepted Answer

A)  before it has been earned.
B)  when the cash is received.
C)  when it has been earned.
D)  whenever the company needs to record the revenue.

Question 11

The balance sheet lists:

Accepted Answer

A)  assets, liabilities and stockholders' equity.
B)  the changes in retained earnings.
C)  assets, liabilities, revenues and expenses.
D)  revenues and expenses.

Question 12

In accrual adjustments, the revenue or expense is recognized before the cash is received or paid.

Accepted Answer

A) True 
 B)False

Question 13

The method of accounting that records revenues when the cash is received and expenses as they are paid is the:

Accepted Answer

A)  deferral method.
B)  cash method.
C)  accrual method.
D)  hybrid method.

Question 14

On December 15, 2010, a company receives an order from a customer for services to be performed on December 28, 2010. Due to a backlog of orders, the company does not perform the services until January 3, 2011. The customer pays for the services on January 6, 2011. The matching principle requires the revenue to be recorded by the company on:

Accepted Answer

A)  December 15, 2010.
B)  January 3, 2011.
C)  December 28, 2010.
D)  January 6, 2011.

Question 15

Current assets are $40,000 and long-term assets are $50,000. Total liabilities are $60,000, of which current liabilities are 50%. The current ratio is:

Accepted Answer

A)  1) 33.
B)  1) 50.
C)  3) 00.
D)  9) 00.

Question 16

The entry made to close Service Revenue would include a debit to:

Accepted Answer

A)  Retained Earnings and a credit to Service Revenue.
B)  Service Revenue and a credit to Retained Earnings.
C)  Service Revenue and a credit to Dividends.
D)  Service Revenue and a credit to Net Income.

Question 17

The updating of accounts is called the adjusting process.

Accepted Answer

A) True 
 B)False

Question 18

Revenues and expenses affect stockholders' equity; therefore, net income is then transferred to:

Accepted Answer

A)  the income statement.
B)  retained earnings.
C)  the balance sheet.
D)  none of the above.

Question 19

Lefton Company made a $2 million sale on account. How will this transaction affect the current ratio and the debt ratio?

Accepted Answer

A)  It improves the current ratio and has no effect on the debt ratio.
B)  It improves both the current ratio and the debt ratio.
C)  It hurts the current ratio and has no effect on the debt ratio.
D)  It hurts both the current ratio and the debt ratio.

Question 20

The accumulated depreciation account decreases over the life of the asset.

Accepted Answer

A) True 
 B)False

Exam 3: Accrual Accounting Income

A company has $800 in beginning supplies and $150 of supplies on hand at the end of the month. The adjusting entry for this company is a debit to:

Correct Answer
verified

Current assets are $40,000 and long-term assets are $50,000. Total liabilities are $60,000, of which current liabilities are 50%. The current ratio is:

Correct Answer
verified

The debt ratio is the percentage of total assets financed by current debt.

Correct Answer
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The updating of accounts is called the adjusting process.

Correct Answer
verified

Permanent accounts include:

Correct Answer
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The entry made to close Service Revenue would include a debit to:

Correct Answer
verified

Revenues and expenses affect stockholders' equity; therefore, net income is then transferred to:

Correct Answer
verified

The book value of an asset that cost $20,000 and has accumulated depreciation of $6,000 is:

Correct Answer
verified

The balance sheet lists:

Correct Answer
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The method of accounting that records revenues when the cash is received and expenses as they are paid is the:

Correct Answer
verified

Under the adjusting principle, a business should record revenue when it is earned, regardless of when payment is received from the customer.

Correct Answer
verified

Companies generally have a year that ends at the low point in their business activity.

Correct Answer
verified

The accumulated depreciation account decreases over the life of the asset.

Correct Answer
verified

The unearned revenue adjustment decreases both net income and total assets.

Correct Answer
verified

Correct Answer
verified

In accrual adjustments, the revenue or expense is recognized before the cash is received or paid.

Correct Answer
verified

Lefton Company made a $2 million sale on account. How will this transaction affect the current ratio and the debt ratio?

Correct Answer
verified

GAAP requires use of the cash basis of accounting.

Correct Answer
verified

On August 1 of the current year, Magic Carpet Entertainment received $4,800 for services to be performed evenly over the next twelve months. The adjusting entry on December 31, 2008, would include a:

Correct Answer
verified

According to the revenue principle, revenue should be recorded:

Correct Answer
verified

Exam 3: Accrual Accounting Income

A company has $800 in beginning supplies and $150 of supplies on hand at the end of the month. The adjusting entry for this company is a debit to:

Correct AnswerverifiedShow Answer

Current assets are $40,000 and long-term assets are $50,000. Total liabilities are $60,000, of which current liabilities are 50%. The current ratio is:

Correct AnswerverifiedShow Answer

The debt ratio is the percentage of total assets financed by current debt.

Correct AnswerverifiedShow Answer

The updating of accounts is called the adjusting process.

Correct AnswerverifiedShow Answer

Permanent accounts include:

Correct AnswerverifiedShow Answer

The entry made to close Service Revenue would include a debit to:

Correct AnswerverifiedShow Answer

Revenues and expenses affect stockholders' equity; therefore, net income is then transferred to:

Correct AnswerverifiedShow Answer

The book value of an asset that cost $20,000 and has accumulated depreciation of $6,000 is:

Correct AnswerverifiedShow Answer

The balance sheet lists:

Correct AnswerverifiedShow Answer

The method of accounting that records revenues when the cash is received and expenses as they are paid is the:

Correct AnswerverifiedShow Answer

Under the adjusting principle, a business should record revenue when it is earned, regardless of when payment is received from the customer.

Correct AnswerverifiedShow Answer

Companies generally have a year that ends at the low point in their business activity.

Correct AnswerverifiedShow Answer

The accumulated depreciation account decreases over the life of the asset.

Correct AnswerverifiedShow Answer

The unearned revenue adjustment decreases both net income and total assets.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In accrual adjustments, the revenue or expense is recognized before the cash is received or paid.

Correct AnswerverifiedShow Answer

Lefton Company made a $2 million sale on account. How will this transaction affect the current ratio and the debt ratio?

Correct AnswerverifiedShow Answer

GAAP requires use of the cash basis of accounting.

Correct AnswerverifiedShow Answer

On August 1 of the current year, Magic Carpet Entertainment received $4,800 for services to be performed evenly over the next twelve months. The adjusting entry on December 31, 2008, would include a:

Correct AnswerverifiedShow Answer

According to the revenue principle, revenue should be recorded:

Correct AnswerverifiedShow Answer

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