All of the following are true regarding prepaid expenses except:

BUS 112 Q2-2014

MidTerm Exam

Please read, select the best answer, post your answer to the answer sheet, then submit you answer sheet to the link on Moodle.

1. Accounting is an information and measurement system that does all of the following except: A. Identifies business activities. B. Records business activities. C. Communicates business activities. D. Does not use technology to improve accuracy in reporting. E. Helps people make better decisions.

2. Technology: A. Has replaced accounting. B. Has not changed the work that accountants do. C. Has closely linked accounting with consulting, planning, and other financial services. D. In accounting has replaced the need for decision makers. E. In accounting is only available to large corporations.

3. The primary objective of financial accounting is: A. To serve the decision-making needs of internal users. B. To provide financial statements to help external users analyze an organization's activities. C. To monitor and control company activities. D. To provide information on both the costs and benefits of looking after products and services. E. To know what, when, and how much to produce.

4. The area of accounting aimed at serving the decision making needs of internal users is: A. Financial accounting. B. Managerial accounting. C. External auditing. D. SEC reporting. E. Bookkeeping.

5. External users of accounting information include all of the following except: A. Shareholders. B. Customers. C. Purchasing managers. D. Government regulators. E. Creditors.

6. The question of when revenue should be recognized on the income statement (according to GAAP) is addressed by the: A. Revenue recognition principle. B. Going-concern assumption. C. Objectivity principle. D. Business entity assumption. E. Cost principle.

7. The International Accounting Standards Board (IASB): A. Hopes to create harmony among accounting practices of different countries. B. Is the government group that establishes reporting requirements for companies that issue stock to the public. C. Has the authority to impose its standards on companies. D. Is the only source of generally accepted accounting principles (GAAP). E. Only applies to companies that are members of the European Union.

8. If a parcel of land that was originally purchased for $85,000 is offered for sale at $150,000, is assessed for tax purposes at $95,000, is recognized by its purchasers as easily being worth $140,000, and is sold for $137,000. At the time of the sale, assume that the seller still owed $30,000 to TrustOne Bank on the land that was purchased for $85,000. Immediately after the sale, the seller paid off the loan to TrustOne Bank. What is the effect of the sale and the payoff of the loan on the accounting equation? A. Assets increase $52,000; owner's equity increases $22,000; liabilities decrease $30,000 B. Assets increase $52,000; owner's equity increases $30,000; liabilities decrease $30,000 C. Assets increase $22,000; owner's equity increases $52,000; liabilities decrease $30,000 D. Assets decrease $30,000; owner's equity decreases $30,000; liabilities decrease $30,000 E. Assets decrease $55,000; owner's equity decreases $55,000; liabilities decrease $30,000

9. If equity is $300,000 and liabilities are $192,000, then assets equal: A. $108,000. B. $192,000. C. $300,000. D. $492,000. E. $792,000.

10. Increases in equity from a company's earnings activities are: A. Assets. B. Revenues. C. Liabilities. D. Owner's Equity. E. Expenses.

11. The accounting process begins with: A. Analysis of business transactions and source documents. B. Preparing financial statements and other reports. C. Summarizing the recorded effect of business transactions. D. Presentation of financial information to decision-makers. E. Preparation of the trial balance.

12. Source documents include all of the following except: A. Sales tickets. B. Ledgers. C. Checks. D. Purchase orders. E. Bank statements.

13. An account used to record the owner's investments in the business is called a(n): A. Withdrawals account. B. Capital account. C. Revenue account. D. Expense account. E. Liability account

14. Of the following accounts, the one that normally has a credit balance is: A. Cash. B. Office Equipment. C. Wages Payable. D. Owner, Withdrawals. E. Sales Salaries Expense.

15. Management Services, Inc. provides services to clients. On May 1, a client prepaid Management Services $60,000 for 6-months services in advance. Management Services' general journal entry to record this transaction will include a: A. Debit to Unearned Management Fees for $60,000. B. Credit to Management Fees Earned for $60,000. C. Credit to Cash for $60,000. D. Credit to Unearned Management Fees for $60,000. E. Debit to Management Fees Earned for $60,000.

16. Robert Haddon contributed $70,000 in cash and land worth $130,000 to open a new business, RH Consulting. Which of the following general journal entries will RH Consulting make to record this transaction? A. Debit Assets $200,000; credit Haddon, Capital, $200,000. B. Debit Cash and Land, $200,000; credit Haddon, Capital, $200,000. C. Debit Cash $70,000; debit Land $130,000; credit Haddon, Capital, $200,000. D. Debit Haddon, Capital, $200,000; credit Cash $70,000, credit Land, $130,000. E. Debit Haddon, Capital, $200,000; credit Assets, $200,000.

17. The process of transferring general journal information to the ledger is: A. Double-entry accounting. B. Posting. C. Balancing an account. D. Journalizing. E. Not required unless debits do not equal credits.

18. 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.

19. The main purpose of adjusting entries is to: A. Record external transactions and events. B. Record internal transactions and events. C. Recognize assets purchased during the period. D. Recognize debts paid during the period. E. Correct errors.

20. The system of preparing financial statements based on recognizing revenues when the cash is received and reporting expenses when the cash is paid is called: A. Accrual basis accounting. B. Operating cycle accounting. C. Cash basis accounting. D. Revenue recognition accounting. E. Current basis accounting.

21. A company had $9,000,000 in net income for the year. Its net sales were $13,200,000 for the same period. Calculate its profit margin. A. 17.5%. B. 28.0%. C. 62.5%. D. 160.0%. E. 68.2%

22. An adjusting entry was made on year-end December 31 to accrue salary expense of $1,200. Which of the following entries would be prepared to record the $3,000 payment of salaries in January of the following year?

Salaries Expense .......................................... 3,000

A. Cash....................................................... 3,000 Salaries Payable .......................................... . 3,000

B. Cash....................................................... 3,000

Salaries Payable ........................................... 1,200

C. Cash....................................................... 1,200

Salaries Expense............................................... 1,200

D. Salaries Payable.......................................... 1,200

Salaries Payable................................................ 1,200

Salaries Expense............................................... 1,800

E. Cash....................................................... 3,000

23. On May 1, Carter Advertising Company received $3,600 from Kaitlyn Breanna for advertising services to be completed April 30 of the following year. The Cash receipt was recorded as unearned fees. The adjusting entry for the year ended December 31, Year 2 would include: A. a debit to Earned Fees for $3,600. B. a debit to Unearned Fees for $1,200. C. a credit to Unearned Fees for $1,200. D. a debit to Earned Fees for $2,400. E. a credit Earned Fees for $2,400.

24. Which of the following statements is incorrect? A. An income statement reports revenues earned less expenses incurred. B. An unadjusted trial balance shows the account balances after they have been revised to reflect the effects of end-of-period adjustments. C. Interim financial reports can be based on one-month or three-month accounting periods. D. The fiscal year is any 12 consecutive months (or 52 weeks) used by a business as its annual accounting period. E. Property, plant, and equipment are referred to as plant assets.

25. A trial balance prepared after adjustments have been recorded is called a(n) : A. Balance sheet. B. Adjusted trial balance. C. Unadjusted trial balance. D. Classified balance sheet. E. Unclassified balance sheet.

26. A balance sheet that places the liabilities and equity to the right of the assets is a(n): A. Account form balance sheet. B. Report form balance sheet. C. Interim balance sheet. D. Classified balance sheet. E. Unclassified balance sheet.

27. All of the following are true regarding prepaid expenses except: A. They are paid for in advance of receiving their benefits. B. They are assets. C. When they are used, their costs become expenses. D. The adjusting entry for prepaid expenses increases expenses and increases liabilities. E. The adjusting entry for prepaid expenses increases expenses and decreases assets.

28. Assuming prepaid expenses are originally recorded in balance sheet accounts, the adjusting entry to record use of a prepaid expense is: A. Increase an expense; increase a liability. B. Increase an asset; increase revenue. C. Decrease a liability; increase revenue. D. Increase an expense; decrease an asset. E. Increase an expense; decrease a liability.

29. Assuming unearned revenues are originally recorded in balance sheet accounts, the adjusting entry to record earning of unearned revenue is: A. Increase an expense; increase a liability. B. Increase an asset; increase revenue. C. Decrease a liability; increase revenue. D. Increase an expense; decrease an asset. E. Increase an expense; decrease a liability.