Principles of Accounting Mid-term mock test True/Fatse questions: 1. The going concer principle is only applicable to profit organizations. (F) 2. The historical cost principle requires that assets be recorded on the balance sheet at their current market value. (F) 3. Liquidity refers to a company’s abilty to generate profits. (F) 4. The altemative name for “statement of earnings” is “statement of financial position (F) 5. Ifa. company borrows money from a bank, it increases both assets and liabilities. (T) 6. Revenue earned but not yet received in cash increases both assets and equity in the accounting equation. (T) 7. Investing in new equipment with cash decreases assets but has no impact on liabilities in the accounting equation, (F) 8. Accrual accounting requires adjusting entries at the end of each accounting period. (7) 9. The normal balance for accumulated depreciation account is a debit balance. (F) 10. The closing entry for the Income Summary account involves debiting or crediting it to bring its balance to zero. (T) 11, The steps for closing the Income Summary account and transfering it into Owner's Capital when there is net income are identical to the steps for closing the Income ‘Summary account and transfering it into Owner's Capital when there is a net loss. (F) 12, The procedure for closing temporary accounts remains the same, irrespective of whether there is a net income or a net loss. (T) 13. A business can enter into a transaction in which only the left side of the basic accounting equation is affected. (T) 14. Depreciation is @ non-cash expense that is recorded on financial statements to account for the gradual reduction in the value of an asset due to factors like wear and tear, obsolescence, and the passage of time, (T) 15, Public accounting firms provide auditing, tax, and consulting services to a wide range of clients, including businesses, governments, and nonprofit organizations, (T) 16, Forensic accounting primarily involves financial statement preparation for businesses and organizations. (F) 17. Internal financial statements are audited by CPA (F) 18, IFRS allows for the revaluation of property, plant, and equipment to fair value, while GAAP generally does not permit such revaluation. (T) 19. Convergence efforts between IFRS and GAAP have been ongoing to reduce the differences between the two sets of standards. (T) 20. A company pays $12,000 in advance for a one-year insurance policy that starts on June 1. On September 15, it should report $3,000 as an expense on its income statement. (F, $3,500)MCcQs 1. A company purchases a piece of equipment for $60,000, paying $10,000 in cash and taking out a loan for the remainder. How does this transaction affect the accounting equation? Assets increase by $60,000, liabilities increase by $60,000 Assets increase by $60,000, owner’s equity increases by $10,000 Assets increase by $50,000, liabilities increase by $50,000 Assets increase by $40,000, owner's equity increases by $60,000 Equipment (+$60,000) Cash (-$10,000) -> Assets increase by $50,000 Account Payable (+50,000) -> liabilities increase by $50,000 2. Accompany purchases a piece of equipment for $40,000, and pays the full amount. How does this transaction affect the accounting equation? Assets increase by $40,000 Cash increases by $40,000 Liabilities decrease by $40,000 No Impact on accounting equation Cash (-§40,000) and Equipment (+$40,000) -> No effect on accounting equation. ‘3. Which accounting standard governs the reporting of financial information for entities in the United States? a._ IFRS (Intemational Financial Reporting Standards) b. FASB (Financial Accounting Standards Board) ¢. GAAP (Generally Accepted Accounting Principles) d._ IAS (International Accounting Standards) 4, A company has $100,000 in assets, $40,000 in liabilities. There is no investment and withdrawals during the period, What is its total revenue if the expeneses are $40,000? a. $60,000 b. $100,000 e. $140,000 4. $160,000 OE = $100,000 - $40,000 = $60,000 OE = Investment - Withdrawals + Revenue - Expenses $60,000 = 0 - 0 + Revenue - $40,000 Revenue = $100,000 5. Which financial statement shows the financial position of a company at a specific point in time? a. P&L statement b. Statement of cash flows ¢. Balance sheet 4. Statement of owner's equity6. According to the revenue recognition principle, when should revenue be recognized? a. When it is earned and realized or realizable b. When cash is received cc. When the customer places an order d. Atthe end of the fiscal year 7. What does the materiality principle in accounting suggest? a. All financial information, regardless of its size or significance, should be disclosed in financial statements. b. Only information that is considered immaterial should be disclosed in financial statements. ¢. Information should be disclosed in financial statements if its omission or misstatement could influence the economic decisions of users. d. Materialty is not a consideration in financial reporting, 8. Which of the following is a key advantage of a sole proprietorship? Limited liability protection Ease of raising capital Itis complex to operate Direct control and decision-making by the owner ‘9.What is one significant disadvantage of a corporation in terms of taxation? a. Shareholders enjoy lower personal tax rates on corporate profits, b. Corporate profits are not taxed at all ©. Corporate profits are subject to double taxation. d. Corporate profits are taxed at a flat rate, regardless of income. 10. Which financial statement is often the main focus of private accountants? a. Income statement b. Balance sheet ¢, Statement of cash flows d. Statement of retained earnings 11, When a company pays rent for the month, which type of journal entry is typically used? a. Simple entry b. Compound entry ©. Complex entry d. None of the above 12. What is a compound journal entry in accounting? a. An entry that involves only one account being debited and one account being credited. b. An entry that involves multiple accounts being debited and credited. ‘An entry that is made at the end of the fiscal year. d. An entry that is used for cash transactions only. 13. What is the fundamental concept behind the double-entry system? a. Every transaction involves only one account. b. Every transaction is recorded in the income statement.c. Every transaction requires approval by two managers. d. Every transaction affects at least two accounts. 14. A customer pays $500 for services in advance. What journal entry should the company make? a. Debit Service Revenue, Credit Accounts Receivable b. Debit Accounts Payable, Credit Cash ©. Debit Cash, Credit Unearned Revenue d. Debit Uneamed Revenue, Credit Service Revenue 15. Tiffany Co. received an electricity bill of $400 for the current month, but the payment is due at the end of the next month. What journal entry should Russell Co. make to record this bill receipt? a. Debit Accounts Payable $400, Credit Cash $400. b. Debit Utiities Expense $400, Credit Accounts Receivable $400. ©. Debit Utilities Expense $400, Credit Accounts Payable $400. d. Debit Cash $400, Credit Accounts Payable $400. 16. During the month of May, Helena Cleaning Services made purchases on account totaling $20,000. Also during the month of March, Harley was paid $43,000 by a customer for services to be provided in the future and paid $11,428 of cash on its accounts payable balance. If the balance in the accounts payable account at the beginning of May was $215,852, what is the balance in accounts payable at the end of March? a. $224,442 b. $242,424 c. $224,424 d. $244,224 Balance in accounts payable at the end of March : $20,000 - $11,428 + $215,852 $224,424 17. What does the balance of an account, considering the beginning balance, indicate? a. The total debits for the account. b. The total credits for the account. c. The difference between the total debits and total credits. d. The account's closing balance at the end of the accounting period, 18. Acompany's revenue for the year is $150,000. They have operating expenses of ‘$80,000 and interest expenses of $5,000, What is the company's net income for the year? a. $65,000 b. $70,000 ©. $75,000 d. $85,000 Net Income = Revenue - Operating Expenses - Interest Expenses Net Income = $150,000 - $80,000 - $5,000 = $65,00019. ABC Company had the following transactions during the month. What would be the total ‘amount of expenses for the month if ABC Company uses the cash basis method? 2) Paid $4,800 for insurance for the next 12 months on account. b) Received $6,500 for services to be performed equally over the next 12 months. ¢) Paid $1,400 for the current month's rent in cash 4d) Paid $790 in Interest Expense in cash a. $2,190. b. $6,990. c. $7,530. d. $13,490. 20. If total liabilities increased by $15,000, then a. assets must have decreased by $15,000. b. owner's equity must have increased by $15,000. ¢. assets must have increased by $15,000, or owner's equity must have decreased by $15,000. d. assets and owner's equity each increased by $15,000 21. If total assets equal $247,618 and total owner's equity equal $149,771, then total liabilities must equal $45,293 b. $97,847 c. $128,516 d. There is not enough information given to determine this. A=L+0E $247,618 L= $97,847 4+ §149,771 22. Which reports that can be prepared from the adjusted trial balance? General Purpose Financial Statements b. Expense Reports c. Inventory Reports d. Payroll Spending Reports 23, The common characteristic possessed by all assets is a. long life b. great monetary value. c. tangible nature d, future economic benefit 24. Which of the following financial statements should be prepared first? Balance Sheet b. Income Statement ¢, Statement of owner's equity d. Statement of Cash Flows25. In the first month of operations, the total of debit entries to the Cash account amounted to $3,000 and the total of the credit entries to the Cash account amounted to $1,200. The Cash account has a a. $1,200 debit balance b. $1,800 debit balance ©. $3,000 credit balance 4. $1,800 credit balance 26. At November 1, 2022, Henry Inc. had an Account Receivable balance of $550,000. During the month, the company made sales on account of $150,000. Besides, Henry Inc. collected $80,000 from customers that owed them money. At Noveriber 30, 2022, the ‘Account Receivable balance is $580,000 credit balance b. $820,000 credit balance ©. $730,000 debit balance d, $620,000 debit balance Account Receivable 50,000 begining balance} 150,000, 80,000 620,000 27. A company buys equipment for $10,000 in cash. Which accounts are affected by this transaction? a. Cash and Equipment b. Cash and Accounts Payable c. Equipment and Accounts Receivable d. Equipment and Liabilities 28, At the end of the accounting period, a company owes $3,000 in utilities expenses for the month, which have not yet been paid, Calculate the adjusting entry needed to recognize accrued expense. a. Debit Utilities Expense $3,000, Credit Cash $3,000 b. Debit Cash $3,000, Credit Utilities Expense $3,000 c. Debit Utilities Expense $3,000, Credit Accounts Payable $3,000 4. Debit Accounts Payable $3,000, Credit Uilities Expense $3,00029. A company forgets to record $500 in depreciation expense on its equipment. How does this omission affect the financial statements? a. Understates expenses and overstates owner's equity. b. Overstates liabilities and understates expenses. ©. Overstates expenses and understates owner's equity 4d. Overstates expenses and understates liabilities. Forget to record depreciation expense -> expense account understated -> OE = Investment - Withdrawals + Revenue - Expense -> OE overstated 30. Josh signed a four-month note payable in the amount of $30,000 on September 15, 2022. The note requires interest at an annual rate of 8% What is the amount of interest to be accrued at the end of December, 20227 a. $700 b, $600 ©. $800 4. $900 Calculate the interest at the end of December, 2022: $30,000 x 8% x 3,5/12 = $700 31. The name given to entering transaction data in the journal is a. posting b. listing c. journalizing d. chronicling 32. Kylie Company sells tickets in advance for its weekly productions and records the proceeds as Uneamed Revenue. At the end of each month, the company makes an adjusting entry to account for the tickets used during the month (ticket revenue). On. June 1, the Unearned Revenue account had a credit balance of $13,000. During March, Kylie sold 830 tickets at $55 each, and 385 tickets were used during the month. What is the balance in Uneamed Revenue at the end of June? a. debit balance of $37,475 b. credit balance of $37,475 ©. debit balance of $38,574 d. credit balance of $38,574 Use T-account 33. What is the total amount of service revenues for the month using the accrual basis method for Hera Company, considering the following transactions? a) Paid $4,500 for insurance for the next 12 months b) On the first of the month, received $180,000 for services to be performed equally over the next 12 months. ©) Paid $7,500 for the current month's rent. d) Paid $2,150 cash for office supplies. €) Paid $8,500 in Salaries Expense. 1) Received $28,500 in cash for service revenue eamed this month.$145,300 $208,500 $43,500 $72,600 180,000/12 + 28,500 = 43,500 34.A company purchased medical equipment for $170,000 on January 1, 2022. The ‘company determined that the yearly depreciation expense is $17,000. What will be the ending balance in the Accumulated depreciation- Medical Equipment at December 31, 2024? a. $17,000 b. $51,000 ©. $102,000 d. $170,000 ‘Accumulated Depreciation = $17,000 x 3 years = $51,000 35. On October 1 of the current year, a company received $8,400 for services to be performed evenly over the next six months. If no adjusting entry was made on December 31 of the current year: a. net income would be understated by $8,400. b. net income would be understated by $4,200. ©. net income would be overstated by $2,100. d._net income would be overstated by $4,200. 36. Which of the following accounts is typically not closed at the end of an accounting period? a. Revenue accounts b. Expense accounts c. Withdrawals accounts d. Asset accounts 37. A company's owner's equity at the beginning of the year was $80,000. If the company had net income of $15,000 and owner withdrawals of $5,000 during the year, what is the ‘owner's equity at the end of the year before closing entries? a. $80,000 b. $90,000 ©. $85,000 d. $75,000 Owner's Equity at the End of the Year Before Closing Entries = Owner's Equity at the Beginning of the Year + Net Income - Owner Withdrawals Owner's Equity at the End of the Year Before Closing Entries = $80,000 + $15,000 - $5,000 = $90,000 38. What is the primary purpose of closing entries in the accounting cycle?To record daily transactions To identify errors in financial data To prepare financial statements To reset temporary accounts for the next accounting period 39, The accounting principle that ensures all expenses are recorded during the period when they are incurred and offsets those expenses against the revenues of the period is called the principle. accrual matching comparison revenue recognition eegp 40, The ledger of Hillstone Company contains the following balances: Owner's Capital ‘$45,000; Owner's Drawings $6,000; Service Revenue $32,000; Salaries and Wages Expense $10,000; and Supplies Expense $2,000. What is the ending balance of Owner's Capital? $49,000 $79,000 $59,000 $89,000 ‘Account Service revenue Income summary Income summary Salaries and wages expense Supplies expense Income summary ‘Owner's Capital Owner's Capital ‘Owner's Drawings Dr. cr. 32,000 32,000 42,000 10,000 2,000 20,000 20,000 6,000 6,000 Balance of Owner's Capital after closing entries: $45,000 + $20,000 - $6,000 = $59,000 More detail: use T-account