ACCT 2301 Exam 1 Review (Ch. 1-3)
Student: ___________________________________________________________________________
1. The primary purpose(s) of financial accounting is (are) to:
A. Measure and record business transactions.
B. Prepare federal and state tax returns.
C. Communicate financial results to investors and creditors.
D. a and c
2. The accounting equation is defined as:
A. Assets = Liabilities + Stockholders' Equity.
B. Assets = Liabilities - Stockholders' Equity.
C. Net Income = Revenues - Expenses.
D. Liabilities + Revenues = Assets.
3. Creditors' claims to a corporation's resources are referred to as:
A. Dividends.
B. Assets.
C. Liabilities.
D. Stockholders' equity.
4. Generally Accepted Accounting Principles (GAAP) are best defined as:
A. Standards or methods for presenting financial accounting information.
B. Government-mandated rules that companies must follow.
C. Rules that best estimate profitability for a company.
D. The group of individuals that create and enforce all accounting rules.
5. The assumption that the assets and liabilities of the business are accounted for on the books of the company
but not included in the records of the owner is the:
A. Monetary unit assumption.
B. Going concern assumption.
C. Economic entity assumption.
D. Periodicity assumption.
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6. Providing services on account would be recorded with a:
A. Debit to Service Revenue.
B. Credit to Accounts Receivable.
C. Credit to Accounts Payable.
D. Debit to Accounts Receivable.
7. Liabilities normally carry a _______ balance and are shown in the _________.
A. Debit; Statement of stockholders' equity
B. Debit; Income statement
C. Credit; Balance sheet
D. Debit; Balance Sheet
8. Xenon Corporation borrows $75,000 from First Bank by signing a note. Xenon Corporation records this
transaction with a:
A. Debit to Investments.
B. Credit to Retained Earnings.
C. Credit to Notes Payable.
D. Credit to Interest Expense.
9. Assume that cash is paid for rent to cover the next year. The appropriate debit and credit are:
A. Debit Rent Expense, credit Cash.
B. Debit Prepaid Rent, credit Rent Expense.
C. Debit Prepaid Rent, credit Cash.
D. Debit Cash, credit Prepaid Rent.
10. Purchasing supplies for cash has what effect on the accounting equation?
A. Increase assets.
B. Decrease stockholders' equity.
C. Decrease liabilities.
D. No effect.
11. When a payment is made on an account payable:
A. Assets and stockholders' equity decrease.
B. Assets and liabilities decrease.
C. Liabilities and revenues decrease.
D. Assets and expenses decrease.
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12. The primary difference between accrual-basis and cash-basis accounting is:
A. The timing of when revenues and expenses are recorded.
B. Cash-basis accounting is allowed for financial reporting purposes but not accrual-basis accounting.
C. Accrual-basis accounting violates both the revenue recognition and matching principles.
D. Adjusting entries are only a necessary part of cash-basis accounting.
13. The following information pertains to Sooner Company:
Assuming that Sooner Company uses cash-basis accounting, when would the company record the expense
related to the supplies?
A. May 2.
B. May 8.
C. May 15.
D. May 20.
14. The following information pertains to Sooner Company:
Assuming that Sooner Company uses accrual-basis accounting, when would the company record the expense
related to the supplies?
A. May 2.
B. May 8.
C. May 15.
D. May 20.
15. Resources owned by the company that will provide a benefit for more than one year are called:
A. Current assets.
B. Current liabilities.
C. Long-term assets.
D. Revenues.
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16. The primary purpose of closing entries is to:
A. Prove the equality of the debit and credit entries in the general journal.
B. Ensure that all assets and liabilities are recognized in the appropriate period.
C. Update the balance of Retained Earnings and prepare revenue, expense, and dividend accounts for next
period's transactions.
D. Assure that adjusting entries balance.
17. The accounting principle that requires revenue to be recorded when earned is the:
A. Matching principle.
B. Revenue recognition principle.
C. Time period assumption.
D. Accrual reporting principle.
E. Going-concern assumption.
18. Supplies had a beginning balance of $359 and ending balance of $105. No supplies were purchased during
the year. The required adjusting entry for the use of supplies is:
A. Debit Office Supplies $105 and credit Office Supplies Expense $105.
B. Debit Office Supplies Expense $105 and credit Office Supplies $105.
C. Debit Office Supplies Expense $254 and credit Office Supplies $254.
D. Debit Office Supplies $254 and credit Office Supplies Expense $254.
E. Debit Office Supplies $105 and credit Supplies Expense $254.
19. The adjusting entry at the end of an accounting period to record the unpaid salaries of employees for work
provided is:
A. Debit Unpaid Salaries and credit Salaries Payable.
B. Debit Salaries Payable and credit Salaries Expense.
C. Debit Salaries Expense and credit Cash.
D. Debit Salaries Expense and credit Salaries Payable.
E. Debit Cash and credit Salaries Expense.
20. Which of the following accounts would not appear on a balance sheet?
A. Service Revenue.
B. Salaries Payable.
C. Deferred Revenue.
D. Neither Service Revenue nor Deferred Revenue would appear on a balance sheet.
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21. The following accounts and balances were drawn from the records of Hoover Company on December 31,
2013:
Total assets on the December 31, 2013 balance sheet would amount to:
A. $3,150.
B. $3,450.
C. $1,800.
D. $2,650.
22. On June 1 a company purchased a one-year insurance policy for $1,800 with coverage starting
immediately. If the purchase was recorded in the Prepaid Insurance account, and the company records
adjustments only at year-end on Dec 31, the adjusting entry at the end of the first year is:
A. Debit Prepaid Insurance, $1,800; credit Cash, $1,800.
B. Debit Prepaid Insurance, $900; credit Insurance Expense, $900.
C. Debit Prepaid Insurance, $360; credit Insurance Expense, $360.
D. Debit Insurance Expense, $900; credit Prepaid Insurance, $900.
E. Debit Insurance Expense, $1,800; credit Prepaid Insurance, $1,800.
23. All of the following are true regarding deferred revenues except:
A. They are payments received in advance of services performed.
B. The adjusting entry for deferred revenues increases assets and increases revenues.
C. The adjusting entry for deferred revenues increases revenues and decreases liabilities.
D. They are liabilities.
E. As they are earned, they become revenues.
24. A debit:
A. Always increases an account.
B. Is the right-hand side of a T-account.
C. Always decreases an account.
D. Is the left-hand side of a T-account.
E. Is not need to record a transaction.
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25. Identify the statement below that is incorrect.
A. The normal balance of accounts receivable is a debit.
B. The normal balance of dividends is a debit.
C. The normal balance of deferred revenues is a credit.
D. The normal balance of an expense account is a credit.
E. The normal balance of the owner's equity account is a credit.
26. Select the account below that normally has a credit balance.
A. Cash.
B. Office Equipment.
C. Wages Payable.
D. Dividends
E. Salaries Expense.
27. Riley Incorporated reports the following amounts at the end of the year:
In addition, the company had common stock of $65,000 at the beginning of the year and issued an additional
$5,000 during the year. The company also had retained earnings of $20,700 at the beginning of the year and
paid dividends of $2,000 during the year. Prepare the income statement, statement of stockholders' equity, and
balance sheet.
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