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Financial Accounting, 11^th edition

Test Bank and Video Questions

By Pratt and Peters

Chapter 4: The Mechanics of Financial Accounting

For Instructor Use Only

Copyright © 2021 John Wiley & Sons, Inc. or the author, all rights reserved.

Table of Contents

Multiple Choice Questions 2

Matching Questions 35

Exercises 42

Short Essay Questions 60

Data Analytic Questions 66

Video Questions 70

Multiple Choice Questions

1) A transaction where the dollar amount is verifiable is considered:

A) objective.

B) economically viable.

C) relevant.

D) capitalized.

Diff: Easy

Learning Objective: 4.1

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Measurement

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 1 / None

2) An event that affects the economic well-being of a company is considered:

A) timely.

B) objectively measured.

C) relevant.

D) capitalized.

Diff: Easy

Learning Objective: 4.1

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Measurement

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 2 / None

3) If a transaction is considered to change a company's assets, liabilities, or shareholders' equity in an amount that is verifiable, then it is:

A) considered a financial changing event.

B) listed on the U.S. stock exchange.

C) considered a debt or payable of a company.

D) recorded in the books of a company.

Diff: Medium

Learning Objective: 4.1

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 3 / None

4) Which of the following is not one of the sources of assets?

A) They are borrowed.

B) They are contributed by shareholders.

C) They are paid to shareholders as dividends.

D) They are generated by the company's profitable operating activities.

Diff: Easy

Learning Objective: 4.2

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 4 / None

5) Which one of the following changes describes the receipt of $3,000 from the issuance of common stock?

A) Assets and shareholders' equity increase by $3,000.

B) Assets and shareholders' equity decrease by $3,000.

C) Assets and liabilities increase by $3,000.

D) Assets increase and shareholders' equity decreases by $3,000.

Diff: Medium

Learning Objective: 4.2

Bloom's: Application

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 5 / None

6) A revenue account:

A) is increased with a debit.

B) is included in the asset section of the balance sheet.

C) is reported on the statement of cash flows at the end of the accounting period.

D) when offset with expenses creates net income and an increase to retained earnings.

Diff: Easy

Learning Objective: 4.2

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 6 / None

7) The payment of a dividend:

A) leads to a credit of the retained earnings account.

B) appears in the financing section of the statement of cash flows.

C) is necessary for corporations.

D) is an expense on the income statement.

Diff: Easy

Learning Objective: 4.2

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 7 / None

8) Which one of the following changes describes the receipt of $4,000 from the issuance of a long-term note payable?

A) Assets and shareholders' equity increase by $4,000.

B) Assets and shareholders' equity decrease by $4,000.

C) Assets and liabilities increase by $4,000.

D) Assets and liabilities decrease by $4,000.

Diff: Medium

Learning Objective: 4.2

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 8 / None

9) Which of the following changes describes the purchase of $3,000 of inventory on credit?

A) Assets and shareholders' equity increase by $3,000.

B) Assets and shareholders' equity decrease by $3,000.

C) Assets and liabilities increase by $3,000.

D) Assets and liabilities decrease by $3,000.

Diff: Medium

Learning Objective: 4.2

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 9 / None

10) Providing $5,000 of services to customers on account causes:

A) assets and shareholders' equity to decrease by $5,000.

B) assets and shareholders' equity to increase by $5,000.

C) assets and liabilities to increase by $5,000.

D) assets and liabilities to decrease by $5,000.

Diff: Medium

Learning Objective: 4.2

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 10 / None

11) Which of the following changes describes the payment of $2,000 for cash dividends?

A) Assets and shareholders' equity increase by $2,000.

B) Assets and shareholders' equity decrease by $2,000.

C) Assets and liabilities increase by $2,000.

D) Assets and liabilities do not change.

Diff: Medium

Learning Objective: 4.2

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 11 / None

12) Which of the following changes describes the purchase of $4,000 of equipment financed by the issuance of a long-term note payable?

A) Assets and shareholders' equity increase by $4,000.

B) Assets and shareholders' equity decrease by $4,000.

C) Assets and liabilities decrease by $4,000.

D) Assets and liabilities increase by $4,000.

Diff: Medium

Learning Objective: 4.2

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 12 / None

13) Acacia Company provided landscaping services and received $3,000 from customers immediately. Which of the following occurred?

A) Assets and shareholders' equity increase by $3,000.

B) Assets and shareholders' equity decrease by $3,000.

C) Assets and liabilities increase by $3,000.

D) Assets and liabilities decrease by $3,000.

Diff: Medium

Learning Objective: 4.2

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 13 / None

14) Lakesha Corp. purchased $3,000 of supplies on account. The supplies will be used over the next few months. The purchase event causes:

A) assets and shareholders' equity to increase by $3,000.

B) assets and shareholders' equity to decrease by $3,000.

C) assets and expenses to decrease by $3,000.

D) assets and liabilities to increase by $3,000.

Diff: Medium

Learning Objective: 4.2

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 14 / None

15) Which one of the following changes describes the payment of $900 for utilities for the current month?

A) Assets and shareholders' equity decrease by $900.

B) Assets and shareholders' equity don't change.

C) Assets and liabilities increase by $900.

D) Assets and liabilities decrease by $900.

Diff: Medium

Learning Objective: 4.2

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 15 / None

16) Which of the following changes describes the payment of $30,000 for a new bulldozer with a 10-year expected useful life?

A) Assets and shareholders' equity decrease by $30,000.

B) Assets decrease and shareholders' equity increases by $30,000.

C) No net change in total assets.

D) Assets decrease by $30,000.

Diff: Medium

Learning Objective: 4.2

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 16 / None

17) Which of the following changes describes the collection of $7,000 from customers who had been charged on account for services performed during a previous accounting period?

A) Assets and shareholders' equity increase by $7,000.

B) Assets and liabilities increase by $7,000.

C) Assets and liabilities decrease by $7,000.

D) No changes in total assets, liabilities, or shareholders' equity.

Diff: Medium

Learning Objective: 4.2

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 17 / None

18) A year-end cash balance is shown on which of the following financial statements?

A) Statement of cash flows only.

B) Balance sheet, income statement, and statement of cash flows.

C) Balance sheet and statement of cash flows.

D) Balance sheet, statement of shareholders' equity, and statement of cash flows.

Diff: Medium

Learning Objective: 4.2

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 18 / None

19) An expense account:

A) is increased with a credit.

B) ultimately decreases shareholders' equity.

C) appears on the balance sheet at the end of the accounting period.

D) is not an income statement account.

Diff: Easy

Learning Objective: 4.3

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 19 / None

20) All of the following statements are true except:

A) All economic events recorded in financial statements must be relevant.

B) All economic events recorded in financial statements must affect liabilities.

C) All economic events recorded in financial statements must be objectively measurable in monetary terms.

D) All economic events recorded in financial statements must maintain the equality of the accounting equation.

Diff: Easy

Learning Objective: 4.1

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Measurement

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 20 / None

21) If the balance sheet is in balance:

A) assets must equal liabilities.

B) assets must exceed liabilities.

C) proves that transactions have been properly recorded.

D) errors may still exist.

Diff: Medium

Learning Objective: 4.2

Bloom's: Comprehension

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 21 / None

22) Items and rights that a company acquires through objectively measurable transactions that can be used in the future to generate economic benefits are:

A) liabilities.

B) assets.

C) contributing capital.

D) revenues.

Diff: Easy

Learning Objective: 4.2

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 22 / None

23) Shareholders' equity increases because of two primary reasons, which are the:

A) sale of stock and the earning of income.

B) earning of income and the payment of dividends.

C) payment of dividends and payment of expenses.

D) collection of cash from customers.

Diff: Medium

Learning Objective: 4.2

Bloom's: Comprehension

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 23 / None

24) Assets, liabilities, and shareholders' equity categories can be further divided into:

A) revenues.

B) accounts.

C) contributed capital.

D) journals.

Diff: Medium

Learning Objective: 4.2

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 24 / None

25) Which of the following sets of accounts consists of temporary accounts?

A) Interest Expense, Interest Payable, Interest Receivable

B) Unearned Revenue, Sales Revenue, Interest Revenue

C) Interest Expense, Rent Revenue, Dividends

D) Retained Earnings, Sales Revenue, Unearned Revenue

Diff: Medium

Learning Objective: 4.3

Bloom's: Comprehension

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 25 / None

26) The statement of cash flows provides information about:

A) operating activities.

B) financing activities.

C) investing activities.

D) all of the above.

Diff: Easy

Learning Objective: 4.2

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 26 / None

27) The statement of shareholders' equity is a record of activity over a period of time of the:

A) contributed capital accounts.

B) retained earnings account.

C) asset accounts.

D) both contributed capital accounts and the retained earning account.

Diff: Medium

Learning Objective: 4.2

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 27 / None

28) Closing entries result in net income being transferred to:

A) a revenue account.

B) the cash account.

C) the contributed capital account.

D) the retained earnings account.

Diff: Easy

Learning Objective: 4.3

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 28 / None

29) Which of the following debits and credits describes the payment of interest and principal on a loan?

A) Debit an asset and credit a liability

B) Debit an asset, debit an expense, and debit a liability

C) Credit an asset, debit an expense, and debit a liability

D) Credit an asset and debit a liability

Diff: Medium

Learning Objective: 4.3

Bloom's: Application

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 29 / None

30) Favre Company paid for insurance in advance. Which transaction will Favre record?

A) Debit Cash and credit Insurance Expense.

B) Debit Prepaid Insurance and credit Cash.

C) Debit Prepaid Insurance and credit Accounts Payable.

D) Debit Cash and Credit Prepaid Insurance.

Diff: Medium

Learning Objective: 4.3

Bloom's: Application

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 30 / None

31) Gilbert Company purchased equipment financed by the issuance of a 4-year note payable. To record this, Gilbert will:

A) debit assets and credit shareholders' equity.

B) debit shareholders' equity and credit liabilities.

C) debit assets and credit liabilities.

D) debit liabilities and credit assets.

Diff: Medium

Learning Objective: 4.3

Bloom's: Application

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 31 / None

32) Goodyear Co. purchased $5,000 of equipment with a $5,000 cash payment. Goodyear Co. should:

A) debit one asset and credit another asset for $5,000.

B) debit shareholders' equity and credit assets for $5,000.

C) debit assets and credit liabilities for $5,000.

D) Record no entry.

Diff: Medium

Learning Objective: 4.3

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 32 / None

33) During April, Tempe Corp. paid $5,000 on account for supplies that were acquired, recorded, and used during March. In recording this transaction, Tempe will:

A) debit Accounts Payable and credit Cash.

B) debit Cost of Goods Sold and credit Accounts Payable.

C) debit Supplies Expense and credit Accounts Payable.

D) accrue an expense of $5,000.

Diff: Medium

Learning Objective: 4.3

Bloom's: Application

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 33 / None

34) Scottsdale Corp. received several invoices in the mail for oil changes performed on its company trucks during the last week of April. The total of the invoices was $900 and all are due on May 13. What entry should Scottsdale make at April 30 as a result of receiving the invoices?

A) Debit Accounts Receivable and credit Cash for $900.

B) Debit Maintenance and Repairs Expense and credit Accounts Payable for $900.

C) Debit Maintenance and Repairs Expense and credit Cash for $900.

D) Debit Prepaid Expenses and credit Cash for $900.

Diff: Medium

Learning Objective: 4.3

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 34 / None

35) Dobson Company sold stock for cash and received cash for services performed during the current month. Which of the following summarizes the income statement impact of these transactions for the current month?

A) Both the sale of stock and the performance of services increased revenues for the company.

B) Only the performance of services caused an increase in revenues.

C) Only the performance of services caused a decrease in revenues.

D) Only the sale of stock caused revenues to increase.

Diff: Medium

Learning Objective: 4.3

Bloom's: Application

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 35 / None

36) A company sold vacant land that it had owned for three years. The difference between the amount of cash receipts and the original cost of land owned by the company:

A) is reported as a revenue or expense on the balance sheet.

B) represents the amount of gain or loss associated with the asset sold.

C) represents the amount of cash associated with the asset sold.

D) should be debited or credited directly to retained earnings.

Diff: Medium

Learning Objective: 4.4

Bloom's: Comprehension

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 36 / None

37) Vera Company, which prepares monthly financial statements, acquired a new forklift in exchange for signing a 6-month, 10%, $20,000 note dated May 1, 2021. Vera agreed to repay the entire principal at the end of the 6-month period. Vera should:

A) record one month of interest expense only if the forklift runs as intended.

B) record all 6 months of expense when the interest is paid.

C) accrue one month of interest expense at May 31, 2021.

D) record the interest payments as prepaid interest when paid.

Diff: Medium

Learning Objective: 4.5

Bloom's: Application

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 37 / None

38) Alberto Company paid its insurance premiums for a two-year insurance policy on May 1, 2021 and recorded them in a prepaid insurance account. The adjusting entry required at May 31, 2021, to recognize the one-month portion for the month of May will:

A) increase an expense account and increase a liability account.

B) increase an expense account and decrease an asset account.

C) increase an asset account and decrease an expense account.

D) increase a revenue account and decrease an asset account.

Diff: Medium

Learning Objective: 4.6

Bloom's: Application

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 38 / None

39) On May 31, 2021, the physical count of supplies was $2,400. During June, supplies were acquired at a cost of $1,600 and the company debited Supplies Expense. At June 30, actual supplies on hand totaled $500. The credit part of the adjusting entry required at the end of June is:

A) Supplies Expense of $1,900.

B) Supplies of $1,900.

C) Supplies Expense of $2,400.

D) Supplies of $500.

Explanation: $2,400 − $500 = $1,900

Diff: Medium

Learning Objective: 4.6

Bloom's: Application

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 2 min.

Title/Media Ref.: Multiple Choice Question 39 / None

40) When making adjustments to property, plant and equipment asset accounts:

A) the total dollar amount in the accumulated depreciation account will determine the amount of depreciation expense for the current accounting period.

B) depreciation expense is added to the plant asset account.

C) depreciation expense reduces net income.

D) the current market value of the long-lived asset determines the amount of depreciation expense.

Diff: Medium

Learning Objective: 4.6

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 2 min.

Title/Media Ref.: Multiple Choice Question 40 / None

41) Temporary accounts:

A) begin with a zero balance each period.

B) have balances that accumulate from one period to the next.

C) are reported on the balance sheet.

D) are never reported on the statement of shareholders' equity.

Diff: Medium

Learning Objective: 4.3

Bloom's: Comprehension

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 41 / None

42) Which of the following describes the receipt of $6,000 from the issuance of common stock?

A) Debit liabilities and credit shareholders' equity

B) Debit shareholders' equity and credit assets for $6,000

C) Debit assets and credit shareholders' equity for $6,000

D) Debit liabilities and credit assets for $6,000

Diff: Medium

Learning Objective: 4.3

Bloom's: Application

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 42 / None

43) Buckeye Company received $2,000 from customers for services provided during the current month. Buckeye will:

A) debit liabilities and credit revenue for $2,000.

B) debit revenue and credit assets for $2,000.

C) debit assets and credit revenue for $2,000.

D) debit liabilities and credit assets for $2,000.

Diff: Medium

Learning Objective: 4.3

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 43 / None

44) An asset account:

A) has a debit balance.

B) is increased with a credit.

C) is a shareholders' equity account because it has a book value.

D) will have a negative balance if the company's expenses exceed revenues for the period.

Diff: Easy

Learning Objective: 4.3

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 44 / None

45) Recognition of a gain or loss may result from:

A) the sale of inventory to customers on account.

B) the sale of a company's common stock to an investor.

C) the sale of a non-current asset.

D) the revenue recognition process associated with selling products to customers.

Diff: Medium

Learning Objective: 4.4

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 45 / None

46) Which one of the following transactions will ultimately cause a decrease in Retained Earnings?

A) Payment of the current month's telephone bill

B) Collection of cash from a customer for services provided in the current month

C) Payment of the prior month's Account Payable balance

D) Receipt of interest on a note receivable

Diff: Medium

Learning Objective: 4.3

Bloom's: Comprehension

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 46 / None

47) Which one of the following is a characteristic of the double entry system?

A) For every debit in every account, there must be a corresponding credit of the same dollar amount in the same account.

B) The total dollar value of debits and credits must equal the total value of assets and liabilities.

C) For every asset recorded in the accounting records, there must be a corresponding liability of the same dollar amount.

D) The total dollar amount of debits must equal the total dollar amount of the credits.

Diff: Medium

Learning Objective: 4.3

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 2 min.

Title/Media Ref.: Multiple Choice Question 47 / None

48) Journal entries are used to indicate how:

A) much profit was earned during the accounting period.

B) events affect the retained earnings account.

C) events affect the accounting equation.

D) much dividends were paid to shareholders.

Diff: Easy

Learning Objective: 4.3

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 48 / None

49) The biggest distinction between accruals and deferrals is:

A) one emphasizes conservatism while the other promotes aggressive accounting positions.

B) how long a company must wait until the collection of cash occurs.

C) with accruals, no record of the activity has been made prior to the adjustment process, and with deferrals, the activity has already been recorded in the accounting records, but the proper amount of revenue or expense has not been recognized.

D) adjustments are necessary for accruals, whereas adjustments are not necessary for deferrals.

Diff: Medium

Learning Objective: 4.5; 4.6

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 2 min.

Title/Media Ref.: Multiple Choice Question 49 / None

50) What effect does recognizing accrued wages expense at the end of the accounting period have on the accounting equation?

A) Assets decrease and shareholders' equity decreases.

B) Liabilities increase and shareholders' equity decreases.

C) Assets decrease and liabilities decrease.

D) Liabilities decrease and shareholders' equity decreases.

Diff: Medium

Learning Objective: 4.5

Bloom's: Application

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 50 / None

51) What effect does recognizing revenue at the end of the accounting period for rent received in advance have on the accounting equation?

A) Revenues increase and liabilities decrease.

B) Assets increase and shareholders' equity increases.

C) Revenues decrease and liabilities decrease.

D) Liabilities increase and revenues decrease.

Diff: Medium

Learning Objective: 4.6

Bloom's: Application

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 51 / None

52) A multinational is:

A) a company that prepares accruals and deferrals throughout the year as well as yearend.

B) a corporation that has no home country due to operations in several countries.

C) a corporation that has its home in one country but operates under the laws of other countries as well.

D) a type of adjusting entry necessary for companies that trade with corporations in other countries.

Diff: Easy

Learning Objective: 4.6

Bloom's: Knowledge

AACSB/AICPA: Analytic, Diversity / BB: Global, Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 52 / None

53) A company has a 4-month, 11%, $20,000 Notes Payable account in its general ledger at the end of the year. The note matures two months after the end of the accounting period. Which statement is true?

A) Interest revenue must be accrued at the end of the accounting period.

B) The notes payable would generate a gain if the note is paid off early.

C) The interest was paid when the cash was borrowed.

D) Interest expense must be accrued at the end of the accounting period.

Diff: Medium

Learning Objective: 4.5

Bloom's: Comprehension

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 2 min.

Title/Media Ref.: Multiple Choice Question 53 / None

54) When an adjusting entry that recognizes accrued interest revenue is recorded:

A) assets increase and liabilities increase.

B) shareholders' equity increases and liabilities decrease.

C) assets decrease and liabilities decrease.

D) shareholders' equity and assets increase.

Diff: Medium

Learning Objective: 4.5

Bloom's: Comprehension

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 54 / None

55) The accounting principles that underlie the accrual system of accounting are:

A) debits and credits.

B) revenue recognition and matching.

C) revenue recognition and debits equal credits.

D) matching and deferrals.

Diff: Easy

Learning Objective: 4.5

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Measurement

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 55 / None

56) Which one of the following statements is true?

A) Accruals are adjustments that are recorded prior to the associated cash flow taking place.

B) Cash is used in the accrual process.

C) Accrual accounting recognizes revenues and expenses based on current period cash flows.

D) Accrual accounting may use either two asset or two liability accounts.

Diff: Medium

Learning Objective: 4.5

Bloom's: Comprehension

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 2 min.

Title/Media Ref.: Multiple Choice Question 56 / None

57) The main purpose of the adjusting process is:

A) to remove the effects of all transactions recorded during the accounting period.

B) to make the account balances reflect the company's true position according to the guidelines of accrual accounting.

C) to get the accounting records ready for a new accounting period.

D) to identify the amount of cash available for dividends to be paid.

Diff: Medium

Learning Objective: 4.5

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 57 / None

58) Which one of the following is a required characteristic of accruals and deferrals?

A) An asset or a liability will always be affected.

B) Cash is either increased or decreased as a result of recording an accrual or deferral.

C) Accruals record revenues, and expenses record deferrals.

D) An asset and an expense item will always be affected.

Diff: Medium

Learning Objective: 4.5; 4.6

Bloom's: Knowledge

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 58 / None

59) When an adjusting entry for depreciation expense is recorded at the end of an accounting period:

A) assets and shareholders' equity increase.

B) the amount of depreciation expense is subtracted from accumulated depreciation.

C) assets and shareholders' equity decrease.

D) assets increase and shareholders' equity decreases.

Diff: Medium

Learning Objective: 4.6

Bloom's: Comprehension

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 59 / None

60) If assets are $1,100, liabilities are $600, and contributed capital is $200, then shareholders' equity is:

A) $500.

B) $1,700.

C) $800.

D) $900.

Explanation: $1,100 − $600 = $500

Diff: Medium

Learning Objective: 4.2

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Measurement

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 60 / None

61) Liabilities are $3,000, retained earnings are $1,000, and contributed capital is $4,000. Assets must be:

A) $4,000.

B) $8,000.

C) $5,000.

D) $6,000.

Explanation: $3,000 + $1,000 + $4,000 = $8,000

Diff: Medium

Learning Objective: 4.2

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 61 / None

62) On December 31, 2021, immediately after all the adjustments were made to Kingman Corp's accounting records for the 2021 fiscal year, but before the books were closed, the retained earnings account reflected a balance of $60,000. Kingman Corp's net income for 2021 was $12,000. Kingman paid no dividends during 2021. On the balance sheet for January 1, 2022, the balance in the retained earnings account will be:

A) $0 .

B) $72,000.

C) $38,000.

D) $60,000.

Explanation: $60,000 + $12,000 = $72,000

Diff: Medium

Learning Objective: 4.2

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Measurement

TOT: 2 min.

Title/Media Ref.: Multiple Choice Question 62 / None

63) On December 31, 2021, immediately after all the adjustments were made to Gilbert Inc.'s accounting records for the 2021 fiscal year, but before the books were closed, the retained earnings account reflected a balance of $85,000. The sum of the pre-closing balances of all of Gilbert's temporary accounts was a net debit balance of $10,000. Gilbert paid no dividends during 2021. On the balance sheet for January 1, 2022, the balance in the retained earnings account will be:

A) $0.

B) $75,000 credit.

C) $85,000 credit.

D) $95,000 credit.

Explanation: $85,000 credit − $10,000 debit = $75,000 credit

Diff: Medium

Learning Objective: 4.2; 4.3

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Measurement

TOT: 2 min.

Title/Media Ref.: Multiple Choice Question 63 / None

64) Meadville, Inc. began operations during 2021. During January of 2021, the following transactions occurred:

• Received $95,000 from shareholders as initial investments

• Received cash of $90,000 for services performed during January

• Billed customers an additional $12,000 for services performed during January

• Borrowed $11,500 from Regions Bank Company, and signed a one-year note payable

• Paid rent in the amount of $5,000 for January

• Paid dividends in January amounting to $8,000

• Paid wages equal to $34,000 for January

How much net income should Meadville, Inc. report for January?

A) $120,000

B) $63,000

C) $132,000

D) $52,000

Explanation: ($90,000 + $12,000) − ($5,000 + $34,000) = $63,000

Diff: Medium

Learning Objective: 4.2; 4.3

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Measurement

TOT: 2 min.

Title/Media Ref.: Multiple Choice Question 64 / None

65) On August 1, Amy Company borrowed $40,000 from another company on a 6%, one-year note. The journal entry that Amy would record on August 1 would include which of the following?

A) A debit to Notes Receivable for $40,000.

B) A credit to Cash for $40,000.

C) A credit to Notes Payable for $40,000.

D) A debit to Interest Expense for $2,400.

Explanation:

August 1:

Diff: Medium

Learning Objective: 4.2; 4.3

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 65 / None

66) The balance sheet reported supplies of $1,900 at December 31, 2021. On December 31, 2021, the actual supplies on hand amounted to $1,400. The adjusting entry required at the end of December 31, 2021 is:

A)

Supplies 1,900

Supplies Expense 1400

Cash 3,300

B)

Supplies Expense 1,900

Supplies 1,900

C)

Supplies 1,400

Supplies Expense 1,400

D)

Supplies Expense 500

Supplies 500

Explanation: $1,900 − $1,400 = $500

Diff: Medium

Learning Objective: 4.6

Bloom's: Application

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 2 min.

Title/Media Ref.: Multiple Choice Question 66 / None

67) Marks Corp. purchased supplies at a cost of $3,600 during 2021. At January 1, 2021, supplies on hand amounted to $800. At December 31, 2021, supplies on hand are $400. Supplies expense for 2021 is:

A) $2,200.

B) $3,200.

C) $2,600.

D) $4,000.

Explanation: $800 + $3,600 − $400 = $4,000

Diff: Medium

Learning Objective: 4.6

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Measurement

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 67 / None

68) On December 13, 2021, Michael Company received $10,000 in cash as a payment in advance from a customer and credited Unearned Revenue. The balance in the Unearned Revenue account was $2,000 at the beginning of December. At the end of December, all but $600 had been earned. What adjusting entry is necessary at the end of December?

A)

Cash 10,000

Unearned Revenue 1,500

Service Revenue 11,500

B)

Unearned Revenue 10,600

Service Revenue 10,600

C)

Unearned Revenue 11,400

Service Revenue 11,400

D)

Service Revenue 10,000

Unearned Revenue 10,000

Explanation: $2,000 + $10,000 − $600 = $11,400

Diff: Medium

Learning Objective: 4.6

Bloom's: Application

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 2 min.

Title/Media Ref.: Multiple Choice Question 68 / None

69) On December 13, 2021, Tucson Corp. paid $12,000 for a two-year property insurance policy covering their corporate headquarters for the period December 15, 2021 to December 15, 2023. The payment was charged to insurance expense. What adjusting entry is needed at the end of December?

A)

Cash 12,000

Prepaid Insurance 12,000

B)

Prepaid Insurance 11,750

Insurance Expense 11,750

C)

Insurance Expense 12,000

Cash 12,000

D)

Insurance Expense 11,750

Accounts Payable 11,750

Explanation: $12,000 − [($12,000 ÷ 24) × ½] = $11,750

Diff: Medium

Learning Objective: 4.6

Bloom's: Application

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 2 min.

Title/Media Ref.: Multiple Choice Question 69 / None

70) On January 1, payroll payable for Flagstaff Company equals $19,000. By the end of the current year, Wage Expense equals $345,000, and cash payments for payroll were $353,200. What is the balance in the T-account, payroll payable, on December 31?

A) $17,500

B) $8,200

C) $25,700

D) $10,800

Explanation:

Beginning balance — credit $ 19,000

Additional wages accrued — credit 345,000

Cash payments — debit (353,200)

Balance at December 31 $ 10,800

Diff: Medium

Learning Objective: 4.5

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Measurement

TOT: 2 min.

Title/Media Ref.: Multiple Choice Question 70 / None

71) On July 1, 2021, Erie Company rented a building from another company for $90,000 for a three-year time period. Erie Company debited the rent expense account when the payment was made. What adjustment for rent is necessary at December 31, 2021?

A) $30,000

B) $60,000

C) $75,000

D) $90,000

Explanation:

($90,000 × 30/36)

Diff: Medium

Learning Objective: 4.6

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Measurement

TOT: 2 min.

Title/Media Ref.: Multiple Choice Question 71 / None

72) On August 1, Amy Company borrowed $40,000 from another company on a 6%, one-year note. The journal entry on December 31 would include which of the following?

A) A debit to Notes Payable for $40,000.

B) A debit to Interest Receivable for $1,000.

C) A credit to Interest Payable for $2,400.

D) A debit to Interest Expense for $1,000.

Explanation:

December 31:

($40,000 × 6% × 5/12)

Diff: Medium

Learning Objective: 4.5

Bloom's: Application

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 2 min.

Title/Media Ref.: Multiple Choice Question 72 / None

73) If accounts receivable on January 1 totals $20,000, and during the current year sales revenue is $112,000, and cash receipts from customers is $98,000, then what is the balance in Accounts Receivable on December 31?

A) $13,000

B) $16,000

C) $34,000

D) $2,000

Explanation: $20,000 + $112,000 - $98,000 = $ 34,000

Diff: Medium

Learning Objective: 4.4A

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Measurement

TOT: 2 min.

Title/Media Ref.: Multiple Choice Question 73 / None

74) Able Industries has the following information related to its adjusting entries at the end of December.

• On December 31, 2021, insurance expired amounted to $100.

• Of the unearned revenue, $300 of services had been performed.

What is the net effect that the necessary adjusting entries for this information have on net income for Able?

A) $400 increase

B) $400 decrease

C) $200 increase

D) $200 decrease

Explanation: Decrease in net income for $100.

Increase in net income for $300.

Results are a net increase of $200 ($300 - $100).

Diff: Medium

Learning Objective: 4.5; 4.6; 4.4A

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Measurement

TOT: 2 min.

Title/Media Ref.: Multiple Choice Question 74 / None

75) Able Industries has the following information related to its adjusting entries at the end of December.

• Services have been performed for customers that have not yet been billed or received totaling $200.

• The office equipment computation for 2021 depreciation amounts to $580.

What is the net effect that the necessary adjusting entries for this information have on net income for Able?

A) $380 increase

B) $380 decrease

C) $780 increase

D) $780 decrease

Explanation: Increase in net income for $200.

Decrease in net income for $580.

Results are a net decrease of $380 ($580 - $200).

Diff: Medium

Learning Objective: 4.5; 4.6; 4.4A

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Measurement

TOT: 2 min.

Title/Media Ref.: Multiple Choice Question 75 / None

76) Interest receivable on January 1 and December 31 totals $3,780 and $3,450, respectively. During the year, cash received from interest is $11,000. Determine interest revenue for the current year.

A) $3,115

B) $1,330

C) $12,330

D) $10,670

Explanation: $3,450 + $11,000 - $3,780 = $10,670

Diff: Medium

Learning Objective: 4.5; 4.6

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Measurement

TOT: 2 min.

Title/Media Ref.: Multiple Choice Question 76 / None

77) Employees were paid $10,000 on June 3, 2021 for five days work, starting May 30. What adjusting entry was necessary at the company's year-end on May 31?

A) Debit Payroll Expense and credit Cash for $10,000

B) Debit Payroll Expense and credit Equity Income for $6,000

C) Debit Payroll Payable and credit Payroll Expense for $6,000

D) Debit Payroll Expense and credit Payroll Payable for $4,000

Explanation: $10,000 × 2/5 = $4,000

Diff: Medium

Learning Objective: 4.5

Bloom's: Application

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 77 / None

78) Accounts receivable on January 1 and December 31 was $19,500 and $22,400, respectively. During the year, sales revenue is $223,000. What is the current year's cash received from customers?

A) $3,900

B) $263,900

C) $220,100

D) $226,900

Explanation: $19,500 + $223,000 - $22,400 = $220,100

Diff: Medium

Learning Objective: 4.4A

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Measurement

TOT: 2 min.

Title/Media Ref.: Multiple Choice Question 78 / None

79) Inventory on January 1 and December 31 was $29,500 and $43,000, respectively, and the Accounts Payable balances for January 1 and December 31 were $12,000 and $15,000, respectively. During the year, cash paid to suppliers of inventory was $85,000. If all purchases of inventory are on account, how much is the current year's cost of goods sold?

A) $82,000

B) $74,500

C) $71,500

D) $90,000

Explanation: $15,000 + $85,000 - $12,000 = $88,000 (Inventory purchases on account);

$29,500 + $88,000 - $43,000 = $74,500 (COGS)

Diff: Hard

Learning Objective: 4.4A

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Measurement

TOT: 2 min.

Title/Media Ref.: Multiple Choice Question 79 / None

80) Inventory on January 1 and December 31 was $46,000 and $42,000, respectively. Accounts payable on January 1 and December 31 was $31,000 and $29,000, respectively. During the year, cost of goods sold is $186,000. How much is the current year's cash payments to suppliers of inventory?

A) $184,000

B) $213,000

C) $181,000

D) $191,000

Explanation: $186,000 - $46,000 + $42,000 = $182,000 (inventory purchases)

$31,000 + $182,000 - $29,000 = $184,000

Diff: Medium

Learning Objective: 4.4A

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Measurement

TOT: 2 min.

Title/Media Ref.: Multiple Choice Question 80 / None

81) Retained earnings on January 1 and December 31 is $65,000 and $58,000, respectively. During the year, net income is $113,000. Compute dividends.

A) $177,000

B) $171,000

C) $107,000

D) $120,000

Explanation: $65,000 + $113,000 - $58,000 = $120,000

Diff: Medium

Learning Objective: 4.2

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Measurement

TOT: 2 min.

Title/Media Ref.: Multiple Choice Question 81 / None

82) Phoenix Corp. paid rent of $15,000 for 3 months in advance on November 1, 2021. Phoenix accounting period ends on December 31, 2021. Which amount will be reported at December 31, 2021?

A) Prepaid Rent of $5,000 on its December 31, 2021 balance sheet

B) Accounts Payable of $15,000 on its December 31, 2021 balance sheet

C) Rent Expense of $15,000 on its income statement for the year ending December 31, 2021

D) Rent Expense of $5,000 on its income statement for the year ending December 31, 2021

Explanation: $15,000 ÷ 3 = $5,000

Diff: Medium

Learning Objective: 4.6

Bloom's: Application

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 1 min.

Title/Media Ref.: Multiple Choice Question 82 / None

83) During Bisbee's first year of business, office supplies were purchased for cash in the amount of $5,600 and the amount was debited to a Supplies account. At the end of the first year, the physical count indicated that $425 of supplies were unused. How much should be reported on the income statement at year end for supplies expense?

A) $5,600

B) $5,175

C) $6,025

D) $425

Explanation: Supplies Expense = $5,600 - $425 = $5,175

Supplies = $425 (Unused supplies are reported on the balance sheet.)

Diff: Medium

Learning Objective: 4.6

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Measurement

TOT: 2 min.

Title/Media Ref.: Multiple Choice Question 83 / None

84) During Bisbee's first year of business, office supplies were purchased for cash in the amount of $5,600 and the amount was debited to a Supplies account. At the end of the first year, the physical count indicated that $425 of supplies were unused. How much should be reported on the balance sheet for supplies?

A) $5,600

B) $5,175

C) $6,025

D) $425

Explanation: Supplies Expense = $5,600 - $425 = $5,175

Supplies = $425 (Unused supplies are reported on the balance sheet.)

Diff: Medium

Learning Objective: 4.6

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Measurement

TOT: 2 min.

Title/Media Ref.: Multiple Choice Question 84 / None

Matching Questions

85) For each transaction numbered 1 through 12 below, identify its effect on the accounting equation by selecting from a through h below. You may use each letter more than once or not at all.

Accounting Equation Effects

a. + A and + L

b. + A and + SE (Contributed Capital)

c. + A and + SE (Retained Earnings)

d. − A and − L

e. − A and − SE (Contributed Capital)

f. − A and − SE (Retained Earnings)

g. + A and − A

h. Not communicated by the formal accounting system

_______ 1. Purchased computer equipment for cash

_______ 2. Received cash in exchange for the issuance of a note payable

_______ 3. Purchased building and land in exchange for a mortgage note payable

_______ 4. Received cash in exchange for the issuance of common stock

_______ 5. Purchased computer supplies on account

_______ 6. Provided computer services to customers for cash

_______ 7. Paid an account payable

_______ 8. Provided computer services to customers on account

_______ 9. Used computer supplies in the regular operations of the business (acquired during a previous accounting period)

_______ 10. Recognize part of the cost of the service potential of the company's computer

_______ 11. Secured a large contract with Allegheny Company to provide computer services during the forthcoming year

_______ 12. Paid dividends to the owners of common stock

1. g

2. a

3. a

4. b

5. a

6. c

7. d

8. c

9. f

10. f

11. h

12. f

Diff: Medium

Learning Objective: 4.2

Bloom's: Application

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 8 min.

Title/Media Ref.: Matching Question 1 / None

86) For each transaction numbered 1 through 7 below, identify the effect (a through g) on the accounting equation by placing the letter of the effect in the space provided. You may use each letter more than once or not at all.

Accounting Equation Effects

a Decrease in revenue and decrease in an asset

b Increase in revenue and increase in an asset

c Decrease in expense and increase in an asset

d Increase in expense and decrease in an asset

e Increase in revenue and decrease in a liability

f Increase in expense and increase in a liability

g Decrease in revenue and increase in a liability

_______ 1. Adjusting for the accrual of wages

_______ 2. Adjusting for the earning of unearned revenue

_______ 3. Adjusting for the accrual of interest revenue

_______ 4. Adjusting for the accrual of interest expense

_______ 5. Adjusting the supplies account reflecting the supplies used during the period

_______ 6. Adjusting inventory downward to reflect shrinkage resulting from shoplifting

_______ 7. Adjusting prepaid rent for the portion used

1. f

2. e

3. b

4. f

5. d

6. d

7. d

Diff: Medium

Learning Objective: 4.2; 4.3

Bloom's: Application

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 6 min.

Title/Media Ref.: Matching Question 2 / None

87) For each transaction numbered 1 through 5 below, identify the effect (a through h) on the accounting equation by placing the letter of the effect in the space provided. You may use each letter more than once or not at all.

Accounting Equation Effects

a Debit assets and credit liabilities

b Debit assets and credit contributed capital

c Debit assets and credit revenue

d Debit retained earnings and credit assets

e Debit contributed capital and credit assets

f Debit expenses and credit assets

g Debit one asset and credit another asset

h Not communicated by the formal accounting system

_______ 1. Received payment from a customer for amount owed from a previous accounting period

_______ 2. Provided computer services to customers on account

_______ 3. Used supplies in the regular operations of the business

_______ 4. Used up part of the service potential of the computer equipment

_______ 5. Hired a new office manager to start to work next week

1. g

2. c

3. f

4. f

5. h

Diff: Medium

Learning Objective: 4.2; 4.3

Bloom's: Application

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 4 min.

Title/Media Ref.: Matching Question 3 / None

88) For each transaction numbered 1 through 6, identify its effect on the accounting equation by selecting from a through h below. You may use each letter more than once or not at all.

Accounting Equation Effects

a Debit assets and credit liabilities

b Debit one asset and credit another asset

c Debit assets and credit retained earnings/revenue

d Debit liabilities and credit assets

e Debit contributed capital and credit assets

f Debit retained earnings and credit assets

g Debit assets and credit contributed capital

h Not communicated by the formal accounting system

_______ 1. Received cash in exchange for the issue of common stock

_______ 2. Received cash in exchange for the issue of a note payable

_______ 3. Purchased building and land in exchange for a mortgage note payable

_______ 4. Purchased computer equipment for cash

_______ 5. Purchased computer supplies on account

_______ 6. Provided computer services to customers for cash

1. g

2. a

3. a

4. b

5. a

6. c

Diff: Medium

Learning Objective: 4.2; 4.3

Bloom's: Application

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 5 min.

Title/Media Ref.: Matching Question 4 / None

89) For each of the transactions listed in 1 through 5 below, indicate whether it involves a deferral (D) or an accrual (A) by placing the letter of the correct response in the space provided.

Answers Transactions

_______ 1. Industrial conveyer belt system acquired for cash

_______ 2. Cash collected from customers for rental of office space for next year

_______ 3. One year's premium on equipment insurance paid in advance

_______ 4. Property taxes owed to the state but not paid at year end

_______ 5. Rent owed to a landlord for the current month

1. D

2. D

3. D

4. A

5. A

Diff: Medium

Learning Objective: 4.5; 4.6

Bloom's: Comprehension

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 4 min.

Title/Media Ref.: Matching Question 5 / None

90) The accounts for Jalisa Company are listed below, identified by number. Following the list of accounts is a series of adjusting entries (a through f) prepared by Jalisa Company. For each entry, identify the number(s) of the accounts to be debited and credited and place them in the space provided adjacent to each adjusting entry.

Accounts

a. 2, 14

b. 17, 9

c. 15, 4

d. 18, 6

e. 16, 7

f. 19, 8

Diff: Medium

Learning Objective: 4.3; 4.5; 4.6

Bloom's: Application

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 10 min.

Title/Media Ref.: Matching Question 6 / None

Exercises

91) Total assets, liabilities, and shareholders' equity are $7,000, $5,000, and $2,000, respectively, before a new machine is purchased for $500 cash. What are the new amounts of assets, liabilities, and shareholders' equity after this event?

Liabilities = $5,000 (no change)

Shareholders' equity = $2,000 (no change)

Diff: Medium

Learning Objective: 4.2

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Measurement

TOT: 2 min.

Title/Media Ref.: Exercises Question 1 / None

92) Total assets, liabilities, and shareholders' equity are $14,000, $7,000, and $7,000, respectively, before a new copy machine is purchased in exchange for a $1,000 note payable. What are the new amounts of assets, liabilities, and shareholders' equity after this event?

Liabilities = $8,000 = ($7,000 + $1,000)

Shareholders' equity = $7,000 (no change)

Diff: Medium

Learning Objective: 4.2

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Measurement

TOT: 2 min.

Title/Media Ref.: Exercises Question 2 / None

93) Total assets, liabilities, and shareholders' equity are $5,000, $1,500, and $3,500, respectively, before common stock is issued for $500 cash. What are the new amounts of assets, liabilities, and shareholders' equity after this event?

Liabilities = $1,500 (no change)

Shareholders' equity = $4,000 = ($3,500 + $500)

Diff: Medium

Learning Objective: 4.2

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Measurement

TOT: 2 min.

Title/Media Ref.: Exercises Question 3 / None

94) Total assets, liabilities, and shareholders' equity are $7,000, $4,000, and $3,000, respectively, before $2,000 is received in exchange for a $2,000 bond payable. What change occurred to liabilities? Why is there no change in shareholders' equity?

Diff: Medium

Learning Objective: 4.2

Bloom's: Analysis

AACSB/AICPA: Analytic; Communication / BB: Critical Thinking; FN: Measurement

TOT: 2 min.

Title/Media Ref.: Exercises Question 4 / None

95) Total assets, liabilities, and shareholders' equity are $4,000, $1,000, and $3,000, respectively, before current period wages of $200 are paid. What are the new amounts of assets, liabilities, and shareholders' equity after this event?

Liabilities = $1,000 (no change)

Shareholders' equity = $2,800 = ($3,000 - $200)

Diff: Medium

Learning Objective: 4.2

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Measurement

TOT: 2 min.

Title/Media Ref.: Exercises Question 5 / None

96) Total assets, liabilities, and shareholders' equity are $15,000, $6,000, and $9,000, respectively, before a $2,000 note payable is paid. Determine the new amounts of assets, liabilities, and shareholders' equity after this event?

Liabilities = $4,000 = ($6,000 - $2,000)

Shareholders' equity = $9,000 (no change)

Diff: Medium

Learning Objective: 4.2

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Measurement

TOT: 3 min.

Title/Media Ref.: Exercises Question 6 / None

97) Payroll Payable on January 1 equals $12,000. By the end of the current year, Payroll Expense equals $420,000, and cash payments for payroll were $424,000. What is the balance in the T-account, Payroll Payable, on December 31?

Beginning balance — credit $ 12,000

Additional payroll accrued — credit 420,000

Cash payments — debit (424,000)

Balance at December 31 — credit $ 8,000

Diff: Medium

Learning Objective: 4.2; 4.3

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Measurement

TOT: 4 min.

Title/Media Ref.: Exercises Question 7 / None

98) Dena, Inc. began operations on January 1, 2021. During January the following transactions occurred:

• Received $80,000 from shareholders as initial investments

• Received cash of $55,000 for services performed during January

• Billed customers an additional $15,000 for services performed during January

• Borrowed $12,000 from NationsBank Company, and signed a one-year note payable

• Paid rent in the amount of $5,000 for January

• Paid dividends in January amounting to $8,000

• Paid wages of $35,000 for January

How much net income should Dena, Inc. report for January?

Diff: Medium

Learning Objective: 4.2; 4.3

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Measurement

TOT: 3 min.

Title/Media Ref.: Exercises Question 8 / None

99) Mingo Company has been in business several years. During January of 2021, the following transactions occurred:

• Paid employees $6,000 for wages during January.

• Paid $2,000 cash for other operating expenses of which $1,000 related to December and the balance related to January.

• Paid utilities and rent for January in the amount of $1,800.

• Paid a cash dividend to shareholders in the amount of $900 during January.

How much are total expenses that Mingo Company will report for January 2021? Why is this amount different than the amount paid during the month?

This amount differs due to the fact that expenses are calculated on the accrual basis and the cash paid does not reflect the timing of when the amounts were incurred. In addition, dividends are not expenses.

Diff: Medium

Learning Objective: 4.2; 4.3; 4.5

Bloom's: Analysis

AACSB/AICPA: Analytic; Communication / BB: Critical Thinking; FN: Measurement

TOT: 5 min.

Title/Media Ref.: Exercises Question 9 / None

100) Ohio Company, a corporation, began operations on December 1, 2020. During January of 2021, the following transactions occurred:

• Billed customers $12,000 for services performed during January.

• Received payment from customers in the amount of $6,000 for services performed and billed in December.

• Received cash of $7,000 for services performed during January for customers who paid cash immediately. (No bills were mailed.)

A. How much total revenue should Ohio Company report for January, 2021?

B. Determine the increase in cash during January of 2021 as a result of these transactions.

A. $12,000 + $7,000 = $19,000

B. $6,000 + $7,000 = $13,000

Diff: Medium

Learning Objective: 4.2; 4.3; 4.5

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Measurement

TOT: 5 min.

Title/Media Ref.: Exercises Question 10 / None

101) Assume that at the beginning of the month a landlord records cash received in advance from a tenant for the monthly rent payment. How would the adjusting entry recorded by the landlord at the end of the month affect assets, liabilities, shareholders' equity, revenues and expenses (increase, decrease, no effect)?

Liabilities - Decrease Expenses - No effect

Shareholders' equity - Increase

Diff: Medium

Learning Objective: 4.2; 4.3; 4.5

Bloom's: Comprehension

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 3 min.

Title/Media Ref.: Exercises Question 11 / None

102) Total assets, liabilities, and shareholders' equity are $22,000, $5,000, and $17,000 before land costing $10,000 is purchased in exchange for a $1,000 note payable and $9,000 cash. During the year, the company earned $50,000 of revenues of which only $45,000 was collected. Expenses totaling $44,000 were incurred, $2,000 had not been paid by the end of the year. Show the amounts that would be reported on the accounting equation as a result of these transactions.

Assets Liabilities Equity

Beginning balances $ 22,000 $ 5,000 $ 17,000

Purchase of land +10,000 +1,000

(9,000)

Revenues earned +50,000 +50,000

Expenses incurred (42,000) +2,000 (44,000)

Totals $ 31,000 $ 8,000 $ 23,000

Diff: Medium

Learning Objective: 4.2; 4.3; 4.5

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting, Measurement

TOT: 5 min.

Title/Media Ref.: Exercises Question 12 / None

103) Interest receivable on January 1 is $5,000. During the current year interest revenue is $65,000, and cash receipts from interest is $60,000. How much is the balance of Interest Receivable on December 31?

Diff: Medium

Learning Objective: 4.2; 4.3; 4.5, 4.4A

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Measurement

TOT: 2 min.

Title/Media Ref.: Exercises Question 13 / None

104) Retained earnings on January 1 was $27,000. During the current year net income is $160,000. Cash payments for dividends totaled $145,000. What is the Retained Earnings balance on December 31?

Diff: Medium

Learning Objective: 4.2; 4.3; 4.5

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Measurement

TOT: 2 min.

Title/Media Ref.: Exercises Question 14 / None

105) Lebron Company provides you, its auditor, with the following information that pertains to its income for the year ending December 31, 2021:

After you review the process Lebron used to derive this income statement, you discover that the company had omitted adjusting entries on December 31, 2021. The following adjusting information was omitted:

1. $500 of the $20,000 service revenue is for plumbing that will not be done until January 10, 2022.

2. Employees earned $700 of salaries for work done on December 31, 2021, but they will not be paid until January 2, 2022.

3. Depreciation for Lebron's truck and tools amounted to $2,400 for 2021.

4. Rent expense is $800 a month. On December 31, 2021, Lebron paid $800 rent for January, 2022, which is included in the rent expense given above.

Prepare Lebron Company's income statement after you include the results of the adjusting information provided.

Income Statement

For the Year Ended December 31, 2021

Service revenue

($20,000 - $500) $19,500

Expenses:

Payroll expenses

($3,000 + $700) $3,700

Depreciation expense 2,400

Rent expense

($10,400 - $800) 9,600 15,700

Net income $ 3,800

Diff: Hard

Learning Objective: 4.2; 4.3; 4.5

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 8 min.

Title/Media Ref.: Exercises Question 15 / None

106) Given below is a listing of selected accounts before adjusting entries for Duane Corporation as of December 31.

Account Balances

Complete the 'Adjusted Account Balances' column on the basis of the following information:

a. Unused supplies amount to $400 on December 31.

b. $300 of rent is prepaid on December 31.

c. Unpaid payroll amounts to $500 on December 31.

d. $1,200 of the $45,000 service revenue is not yet earned on December 31.

Adjusted Amounts Solution

Cash $11,700

Supplies 400

Prepaid Rent 300 ($0 + $300)

Payroll Payable 500 ($0 + $500)

Unearned Revenue 1,200 ($0 + $1,200)

Common Stock 20,000

Retained Earnings 9,400

Service Revenue 43,800 ($45,000 - $1,200)

Supplies Expense 2,600 ($3,000 - $400)

Payroll Expense 25,100 ($24,600 + $500)

Rent Expense 1,000 ($1,300 - $300)

Diff: Hard

Learning Objective: 4.2; 4.3; 4.5; 4.6

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 8 min.

Title/Media Ref.: Exercises Question 16 / None

107) If interest payable on January 1 is $3,000, and during the current year interest expense is $62,000, and cash payments for interest is $63,000, then what is the balance in the T-account, Interest Payable, on December 31?

Diff: Medium

Learning Objective: 4.3; 4.5; 4.4A

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 2 min.

Title/Media Ref.: Exercises Question 17 / None

108) If interest payable on January 1 is $1,000, and during the current year interest is accrued for $2,200, and cash payments for interest amount to $2,000, then what is the balance in the account, Interest Expense, on December 31?

Diff: Medium

Learning Objective: 4.3; 4.5

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Measurement

TOT: 2 min.

Title/Media Ref.: Exercises Question 18 / None

109) If accounts receivable on January 1 totals $21,000, and during the current year sales revenue on account is $310,000, and year-end balance in accounts receivable is $35,000, what were the cash receipts from customers during the year?

Diff: Medium

Learning Objective: 4.3; 4.4A

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Measurement

TOT: 2 min.

Title/Media Ref.: Exercises Question 19 / None

110) On July 1, Sanders, Inc. borrowed $12,000 from another company on a 12%, one-year note. Prepare the journal entries to record the note on July 1 and to accrue interest on December 31.

Debit Credit

July 1:

Cash 12,000

Notes Payable 12,000

December 31:

Interest Expense 720

Interest Payable 720

($12,000 × 12% × 6/12)

Diff: Medium

Learning Objective: 4.3; 4.5

Bloom's: Application

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 3 min.

Title/Media Ref.: Exercises Question 20 / None

111) Accounts receivable on January 1 and December 31 is $18,000 and $21,500, respectively. During the year, sales revenue on account is $260,000. What is the current year's cash received from customers?

Diff: Medium

Learning Objective: 4.3; 4.4A

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Measurement

TOT: 2 min.

Title/Media Ref.: Exercises Question 21 / None

112) The balances in the inventory account on January 1 and December 31 were $41,500 and $47,000, respectively, and the balances in the accounts payable account on January 1 and December 31 were $35,000 and $38,000, respectively. During the year, cash paid to suppliers of inventory was $100,000. Compute the inventory purchases on account and the cost of goods sold amount during the year.

$41,500 + $103,000 - $47,000 = $97,500 (Cost of goods sold)

Diff: Hard

Learning Objective: 4.3; 4.4A

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Measurement

TOT: 5 min.

Title/Media Ref.: Exercises Question 22 / None

113) Interest receivable on January 1 and December 31 totaled $4,800 and $3,600, respectively. During the year, cash received from interest is $20,000. Determine interest revenue for the current year.

Diff: Medium

Learning Objective: 4.3; 4.5

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Measurement

TOT: 2 min.

Title/Media Ref.: Exercises Question 23 / None

114) Marian Company collected $8,000 cash in advance during March for services to be performed in April and May. At the end of April an adjusting entry was made to debit Unearned Revenue and credit Service Revenue for $4,200.

A. What entry was made during March when the original $8,000 was collected?

B. How much will Marian report on its balance sheet as a liability at the end of April as a result of the transactions?

Debit Credit

A. Cash 8,000

Unearned Revenue 8,000

B. $3,800 = ($8,000 - $4,200) the balance of the unearned revenue account

Diff: Medium

Learning Objective: 4.3; 4.6

Bloom's: Application

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 4 min.

Title/Media Ref.: Exercises Question 24 / None

115) On October 1, 2021, Edinboro Company rented a building from another company for $90,000 for a two-year time period. Edinboro Company debited Rent Expense on October 1 when the payment was made. What adjustment for rent is necessary at December 31, 2021?

Debit Credit

Prepaid Rent 78,750

Rent Expense 78,750

($90,000 × 21/24)

Diff: Medium

Learning Objective: 4.3; 4.6; 4.4B

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 3 min.

Title/Media Ref.: Exercises Question 25 / None

116) The following are amounts from the accounting records of Farley Company before adjusting entries have been for the year ending December 31, 2021.

Cash $ 3,200

Accounts receivable 2,600

Supplies 2,100

Investment in Coca-Cola stock 10,000

Equipment 80,000

Accumulated depreciation-equip. 20,000

Accounts payable 4,800

Note payable 8% 20,000

Common stock 24,500

Retained earnings 11,800

Service revenue 42,600

Interest revenue 1,200

Supplies expense 5,000

Payroll expense 20,000

Depreciation expense 0

Interest expense 2,000

The following adjustments had not been made as of December 31, 2021:

1. Wages accrued on 12/31/21 amounted to $1,100.

2. Three months' interest on the note payable has not been paid or recognized.

3. Depreciation for 2021 amounted to $3,000.

4. Supplies on hand at 12/31/21 amounted to $700.

Prepare Farley's balance sheet at December 31, 2021 after the adjusting process is completed. Omit the heading.

Balance Sheet:

Assets

Cash $ 3,200

Accounts receivable 2,600

Supplies 700

Investment in Coca-Cola stock 10,000

Equipment 80,000

Less: Accumulated depreciation-equip. (23,000) ($20,000 + $3,000)

Total Assets $73,500

Liabilities and Shareholders' Equity

Liabilities:

Accounts payable $ 4,800

Payroll payable 1,100 ($0 + $1,100)

Interest payable 400 ($20,000 × 8% × 3/12)

Note payable 8% 20,000

Total Liabilities $26,300

Shareholders' Equity:

Common stock 24,500

Retained earnings 22,700 ($73,500 - $24,500 - $26,300)

Total liabilities and shareholders' equity $73,500

Diff: Hard

Learning Objective: 4.3

Bloom's: Application

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 10 min.

Title/Media Ref.: Exercises Question 26 / None

117) Given below is the Accounts Receivable T-account. Accounts Receivable on January 1 was $3,700. During the year, customers charged on account sales totaling $255,000. The current year's cash received from customers is $250,000. Post all amounts to this account and calculate the account balance.

Accounts Receivable

Diff: Medium

Learning Objective: 4.3

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 3 min.

Title/Media Ref.: Exercises Question 27 / None

118) On January 1, 2021, Somerville Co. received $3,600 in cash in advance for a three-year service subscription. Somerville credited a revenue account on January 1 for the cash received. What adjusting entry must be made on December 31, 2018?

Debit Credit

Service Revenue 2,400

Unearned Revenue 2,400

($3,600 × 2/3)

Diff: Medium

Learning Objective: 4.3; 4.7

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Reporting

TOT: 3 min.

Title/Media Ref.: Exercises Question 28 / None

119) Use the information that follows taken from the unadjusted accounting records of Sheena, Inc. for the year ending December 31, 2021.

The following information is needed for adjusting entries at the end of December.

a. On December 31, 2021, the insurance expired amounted to $80.

b. Of the unearned revenue, $250 of services had been performed.

c. Services have been performed for customers that have not yet been billed or paid totaling $180.

d. The equipment computation for 2021 depreciation amounts to $200.

What is the effect on net income of each of the adjusting entries necessary for Sheena, Inc.?

Entry a: Decrease in net income for $80.

Entry b: Increase in net income for $250.

Entry c: Increase in net income for $180.

Entry d: Decrease in net income for $200.

Diff: Medium

Learning Objective: 4.3; 4.4

Bloom's: Comprehension

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Measurement

TOT: 4 min.

Title/Media Ref.: Exercises Question 29 / None

120) Use the information that follows taken from the unadjusted accounting records of Sheena, Inc. for the year ending December 31, 2021.

The following information is needed for adjusting entries at the end of December:

a. On December 31, 2021, the insurance expired amounted to $80.

b. Of the unearned revenue, $250 of services had been performed.

c. Services have been performed for customers that have not yet been billed or paid totaling $180.

d. The equipment computation for 2021 depreciation amounts to $200.

How much net income will Sheena report for the year ending December 31, 2021?

Diff: Medium

Learning Objective: 4.3; 4.5

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Measurement

TOT: 4 min.

Title/Media Ref.: Exercises Question 30 / None

121) Use the information that follows taken from the unadjusted accounting records of Sheena, Inc. for the year ending December 31, 2021.

The following information is needed for adjusting entries at the end of December:

a. On December 31, 2021, the insurance expired amounted to $80.

b. Of the unearned revenue, $250 of services had been performed.

c. Services have been performed for customers that have not yet been billed or paid totaling $180.

d. The equipment computation for 2021 depreciation amounts to $200.

Determine total liabilities for Sheena, Inc. at December 31, 2021.

Accounts Payable $1,600

Unearned Revenue ($400 - $250) 150

Total Liabilities $1,750

Diff: Medium

Learning Objective: 4.3; 4.5

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Measurement

TOT: 2 min.

Title/Media Ref.: Exercises Question 31 / None

122) Inventory on January 1 and December 31 was $50,000 and $35,000, respectively. Accounts payable on January 1 and December 31 was $25,000 and $29,000, respectively. During the year, cost of goods sold is $180,000. How much are the current year's cash payments to suppliers of inventory?

$25,000 + $165,000 - $29,000 = $161,000 (Cash payments in suppliers)

Diff: Medium

Learning Objective: 4.5

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Measurement

TOT: 2 min.

Title/Media Ref.: Exercises Question 32 / None

123) Retained earnings on January 1 and December 31 were $72,000 and $69,000, respectively. During the year, net income is $100,000. Compute dividends.

Diff: Medium

Learning Objective: 4.5

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Measurement

TOT: 2 min.

Title/Media Ref.: Exercises Question 33 / None

124) During the first year of business, office supplies were purchased for cash in the amount of $2,000 and the amount was debited to the Supplies account. At the end of the first year, the physical count indicated that $500 of supplies was unused. How much should be reported on the income statement at year end for supplies expense? On the balance sheet for supplies?

Supplies = $500 (Unused supplies are reported on the balance sheet.)

Diff: Medium

Learning Objective: 4.6

Bloom's: Analysis

AACSB/AICPA: Analytic / BB: Critical Thinking; FN: Measurement

TOT: 4 min.

Title/Media Ref.: Exercises Question 34 / None

Short Essay Questions

125) Dora Manufacturing, a capital-intensive company that manufactures commercial snow blowers, announced that it is expecting a record loss of $7,000,000 in 2021. However, it also stated that its business is generating sufficient cash to meet its obligations due in 2021. How can Dora lose $7 million and still generate cash necessary to meet obligations?

Diff: Hard

Learning Objective: 4.6

Bloom's: Evaluation

AACSB/AICPA: Analytic; Communication / BB: Critical Thinking; FN: Decision Modeling

TOT: 5 min.

Title/Media Ref.: Short Essay Question 1 / None

126) How does the information presented in an income statement relate to the information reported in a statement of shareholders' equity?

Diff: Medium

Learning Objective: 4.2

Bloom's: Comprehension

AACSB/AICPA: Analytic; Communication / BB: Critical Thinking; FN: Reporting

TOT: 4 min.

Title/Media Ref.: Short Essay Question 2 / None

127) Describe a debit. How does it impact the accounts?

Diff: Medium

Learning Objective: 4.3

Bloom's: Comprehension

AACSB/AICPA: Analytic; Communication / BB: Critical Thinking; FN: Reporting

TOT: 3 min.

Title/Media Ref.: Short Essay Question 3 / None

128) How do the concepts of economic events and objectivity relate?

Diff: Medium

Learning Objective: 4.1

Bloom's: Comprehension

AACSB/AICPA: Analytic; Communication / BB: Critical Thinking; FN: Measurement

TOT: 3 min.

Title/Media Ref.: Short Essay Question 4 / None

129) Why are 'expenses paid for in advance' reported as assets? What happens to this 'asset' as time passes?

Diff: Medium

Learning Objective: 4.2; 4.4; 4.5

Bloom's: Comprehension

AACSB/AICPA: Analytic; Communication / BB: Critical Thinking; FN: Reporting

TOT: 3 min.

Title/Media Ref.: Short Essay Question 5 / None

130) Name two components of shareholders' equity and describe what each consists of.

Diff: Medium

Learning Objective: 4.2

Bloom's: Knowledge

AACSB/AICPA: Analytic; Communication / BB: Critical Thinking; FN: Reporting

TOT: 3 min.

Title/Media Ref.: Short Essay Question 6 / None

131) What are journal entries and how are they used in accounting?

Diff: Medium

Learning Objective: 4.2

Bloom's: Knowledge

AACSB/AICPA: Analytic; Communication / BB: Critical Thinking; FN: Reporting

TOT: 2 min.

Title/Media Ref.: Short Essay Question 7 / None

132) What are revaluation adjustments?

Diff: Medium

Learning Objective: 4.5

Bloom's: Comprehension

AACSB/AICPA: Analytic; Communication / BB: Critical Thinking; FN: Reporting

TOT: 3 min.

Title/Media Ref.: Short Essay Question 8 / None

133) Why is the acquisition of merchandise inventory capitalized as an asset?

Diff: Medium

Learning Objective: 4.5

Bloom's: Comprehension

AACSB/AICPA: Analytic; Communication / BB: Critical Thinking; FN: Measurement

TOT: 3 min.

Title/Media Ref.: Short Essay Question 9 / None

134) How does the accrual for wages relate to the cash paid for salaries and wages (payroll) expense?

Diff: Medium

Learning Objective: 4.5

Bloom's: Comprehension

AACSB/AICPA: Analytic; Communication / BB: Critical Thinking; FN: Reporting

TOT: 3 min.

Title/Media Ref.: Short Essay Question 10 / None

135) What purpose does a gain or loss associated with the sale of a plant asset serve?

Diff: Medium

Learning Objective: 4.4

Bloom's: Comprehension

AACSB/AICPA: Analytic; Communication / BB: Critical Thinking; FN: Reporting

TOT: 3 min.

Title/Media Ref.: Short Essay Question 11 / None

136) Why are 'unearned revenues' considered liabilities?

Diff: Medium

Learning Objective: 4.5

Bloom's: Comprehension

AACSB/AICPA: Analytic; Communication / BB: Critical Thinking; FN: Reporting

TOT: 3 min.

Title/Media Ref.: Short Essay Question 12 / None

137) Why do managers need to understand how economic events affect the financial statements?

Diff: Medium

Learning Objective: 4.4

Bloom's: Comprehension

AACSB/AICPA: Analytic; Communication / BB: Critical Thinking; FN: Measurement

TOT: 3 min.

Title/Media Ref.: Short Essay Question 13 / None

138) What is depreciation?

Diff: Easy

Learning Objective: 4.6

Bloom's: Knowledge

AACSB/AICPA: Analytic; Communication / BB: Critical Thinking; FN: Reporting

TOT: 2 min.

Title/Media Ref.: Short Essay Question 14 / None

139) Explain the difference between temporary and permanent accounts. Provide four examples of each.

Diff: Medium

Learning Objective: 4.3

Bloom's: Comprehension

AACSB/AICPA: Analytic; Communication / BB: Critical Thinking; FN: Reporting

TOT: 5 min.

Title/Media Ref.: Short Essay Question 15 / None

140) Explain what is meant by a "contra account" and give two examples of contra accounts that would be found on the balance sheet.

Diff: Medium

Learning Objective: 4.5

Bloom's: Comprehension

AACSB/AICPA: Analytic; Communication / BB: Critical Thinking; FN: Reporting

TOT: 4 min.

Title/Media Ref.: Short Essay Question 16 / None

Data Analytic Questions

Important Note to Instructor: All of the real world data included in the data analytic test bank questions was taken from the company information data base used for the data analytic concept practice exercises in the text located at www.wiley.com/go/pratt/financialaccounting11e. These questions can be used in at least two different ways to test two levels of data analytic skills. To test only the basic analysis required simply provide the student with the financial information followed by the questions just as they are illustrated in the test bank. Alternatively, to test both their ability to access and navigate the data base as well as their analysis skills, you can provide for the students only the questions and require them to access and navigate the data base, organize the data, and perform the analysis.

141) Income statements, balance sheets and other information reported by The New York Times for the years 2018 - 2019 is provided below. Review the information and prepare a statement of shareholders' equity for the year 2019. Assume that shareholders' equity is comprised only of contributed capital and retained earnings.

Contributed Retained

Capital Earnings Total

Beginning SE balance $(463) $1,506 $1,043

Increase in contributed capital 24 24

Net income 140 140

Dividends __ ___ (32) (32)

Ending SE balance $(439) $1,614* $1,175*

* Small rounding differences from data base.

Diff: Medium

Learning Objective: 4.7

Bloom's: Application

AACSB/AICPA: Analytic / BB: None; FC: Measurement

TOT: 10 min.

Title/Media Ref.: Data Analytic Question 1 / None

142) Income statements, balance sheets and other information reported by Steris, a pharmaceutical company, for the years 2018 - 2019 is provided below. Review the information and prepare a statement of shareholders' equity for the year 2019. Assume that shareholders' equity is comprised only of contributed capital and retained earnings.

Contributed Retained

Capital Earnings Total

Beginning SE balance $2,071 $1,146 $3,217

Decrease in contributed capital (224) (224)

Net income 304 304

Dividends ______ (113) (113)

Ending SE balance $1,847 $1,337* $3,184*

* Small rounding differences from data base.

Diff: Medium

Learning Objective: 4.7

Bloom's: Application

AACSB/AICPA: Analytic / BB: None; FC: Measurement

TOT: 10 min.

Title/Media Ref.: Data Analytic Question 2 / None

Video Questions

143) Which financial statement is a statement of the basic accounting equation and houses all three of the other statements?

A) Balance sheet

B) Income statement

C) Statement of cash flows

D) Statement of shareholders' equity

Diff: Easy

Learning Objective: 4.2

Bloom's: Knowledge

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Basic accounting equation Video: Question 1 / Video: Basic accounting equation. www.wiley.com/go/pratt/financialaccounting11e

144) On which financial statement would one find the accounts receivable account?

A) Balance sheet

B) Income statement

C) Statement of cash flows

D) Statement of shareholders' equity

Diff: Easy

Learning Objective: 4.2

Bloom's: Comprehension

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Basic accounting equation Video: Question 2 / Video: Basic accounting equation. www.wiley.com/go/pratt/financialaccounting11e

145) On which financial statement would one find the unearned revenue account?

A) Balance sheet

B) Income statement

C) Statement of cash flows

D) Statement of shareholders' equity

Diff: Easy

Learning Objective: 4.2

Bloom's: Comprehension

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Basic accounting equation Video: Question 3 / Video: Basic accounting equation. www.wiley.com/go/pratt/financialaccounting11e

146) On which financial statement would one find the interest expense account?

A) Balance sheet

B) Income statement

C) Statement of cash flows

D) Statement of shareholders' equity

Diff: Easy

Learning Objective: 4.2

Bloom's: Comprehension

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Basic accounting equation Video: Question 4 / Video: Basic accounting equation. www.wiley.com/go/pratt/financialaccounting11e

147) On which financial statement would one find the prepaid expense account?

A) Balance sheet

B) Income statement

C) Statement of cash flows

D) Statement of shareholders' equity

Diff: Easy

Learning Objective: 4.2

Bloom's: Comprehension

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Basic accounting equation Video: Question 5 / Video: Basic accounting equation. www.wiley.com/go/pratt/financialaccounting11e

148) Revenues, expenses and dividends make up which account on the balance sheet?

A) Contributed capital

B) Long term liabilities

C) Current assets

D) Retained earnings

Diff: Easy

Learning Objective: 4.2

Bloom's: Comprehension

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Basic accounting equation Video: Question 6 / Video: Basic accounting equation. www.wiley.com/go/pratt/financialaccounting11e

149) In which section of the statement of cash flows would one find payments made to purchase stocks and bonds?

A) Operating activities section

B) Investing activities section

C) Financing activities section

D) This transaction would not be reflected on the statement of cash flows.

Diff: Easy

Learning Objective: 4.2

Bloom's: Comprehension

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Basic accounting equation Video: Question 7 / Video: Basic accounting equation. www.wiley.com/go/pratt/financialaccounting11e

150) The statement of shareholders' equity explains changes in which part of the balance sheet?

A) Assets

B) Liabilities

C) Investments made by the company's owners

D) The statement of shareholders' equity does not explain changes in any part of the balance sheet.

Diff: Easy

Learning Objective: 4.2

Bloom's: Comprehension

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Basic accounting equation Video: Question 8 / Video: Basic accounting equation. www.wiley.com/go/pratt/financialaccounting11e

151) Which of the following statements is not true about dividends?

A) Dividends reduce retained earnings.

B) Dividends liquidate assets of the company.

C) Dividends are an expense that reduces net income.

D) Dividends are paid to owners from profits previously earned by the company.

Diff: Easy

Learning Objective: 4.2

Bloom's: Comprehension

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Basic accounting equation Video: Question 9 / Video: Basic accounting equation. www.wiley.com/go/pratt/financialaccounting11e

152) The long-term investment account would be found in which part of the balance sheet?

A) Current assets

B) Non-current assets

C) Non-current liabilities

D) Shareholders' equity

Diff: Easy

Learning Objective: 4.2

Bloom's: Comprehension

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Basic accounting equation Video: Question 10 / Video: Basic accounting equation. www.wiley.com/go/pratt/financialaccounting11e

153) Which of the following represents the proper order of the four steps required to record a transaction?

A) Identify dollar amount of transaction, record transaction maintaining the basic accounting equation, identify whether the accounts have increased or decreased, identify the affected accounts

B) Identify the affected accounts, record transaction maintaining the basic accounting equation, identify dollar amount of transaction, identify whether the accounts have increased or decreased

C) Identify the affected accounts, identify dollar amount of transaction, identify whether the accounts have increased or decreased, record transaction maintaining the basic accounting equation

D) Record transaction maintaining the basic accounting equation, identify the affected accounts, identify dollar amount of transaction, identify whether the accounts have increased or decreased

Diff: Medium

Learning Objective: 4.1; 4.2

Bloom's: Knowledge

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Preparing Gone Fishin's beginning balance sheet using the basic accounting equation Video: Question 1 / Video: Preparing Gone Fishin's beginning balance sheet using the basic accounting equation. www.wiley.com/go/pratt/financialaccounting11e

154) Recording the transaction maintaining the basic accounting equation means that:

A) the dollar effect on the asset accounts cannot be larger than the dollar effect on the shareholders' equity accounts.

B) the dollar effect on the liability accounts plus the dollar effect on the asset accounts must always equal the dollar effect on the shareholders' equity accounts.

C) the dollar effect on the liability accounts must be less than the dollar effect on the shareholders' equity accounts.

D) the dollar effect on the shareholders' equity accounts must always be equal to the dollar effect on the asset accounts less the dollar effect on the liability accounts.

Diff: Easy

Learning Objective: 4.1; 4.2

Bloom's: Comprehension

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Preparing Gone Fishin's beginning balance sheet using the basic accounting equation Video: Question 2 / Video: Preparing Gone Fishin's beginning balance sheet using the basic accounting equation. www.wiley.com/go/pratt/financialaccounting11e

155) Double entry bookkeeping does not means that:

A) the dollar values of at least two accounts are always affected when a transaction is recorded.

B) for every transaction something is exchanged for something else.

C) transactions must be recorded in a manner that maintains the equality of the basic accounting equation and that requires that at least two accounts must be involved.

D) at least two financial statements are affected when transactions are recorded.

Diff: Easy

Learning Objective: 4.1; 4.2

Bloom's: Knowledge

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Preparing Gone Fishin's beginning balance sheet using the basic accounting equation Video: Question 3 / Video: Preparing Gone Fishin's beginning balance sheet using the basic accounting equation. www.wiley.com/go/pratt/financialaccounting11e

156) When stock is issued to shareholders in exchange for cash, how is the basic accounting equation affected?

A) Assets are increased and liabilities are increased.

B) Assets are increased and shareholders' equity is decreased.

C) Assets are increased and shareholders' equity is increased.

D) Assets are increased and assets are decreased.

Diff: Medium

Learning Objective: 4.1; 4.2

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Preparing Gone Fishin's beginning balance sheet using the basic accounting equation Video: Question 4 / Video: Preparing Gone Fishin's beginning balance sheet using the basic accounting equation. www.wiley.com/go/pratt/financialaccounting11e

157) When stock is issued to shareholders in exchange for cash, which financial statements are affected?

A) Balance sheet only

B) Balance sheet and statement of cash flows

C) Balance sheet, statement of cash flows and statement of shareholders' equity

D) All four financial statements are affected.

Diff: Medium

Learning Objective: 4.1; 4.2

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Preparing Gone Fishin's beginning balance sheet using the basic accounting equation Video: Question 5 / Video: Preparing Gone Fishin's beginning balance sheet using the basic accounting equation. www.wiley.com/go/pratt/financialaccounting11e

158) When a company borrows cash from a bank, how is the basic accounting equation affected?

A) Assets are increased and liabilities are increased.

B) Assets are increased and shareholders' equity is decreased.

C) Assets are increased and shareholders' equity is increased.

D) Assets are increased and assets are decreased.

Diff: Medium

Learning Objective: 4.1; 4.2

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Preparing Gone Fishin's beginning balance sheet using the basic accounting equation Video: Question 6 / Video: Preparing Gone Fishin's beginning balance sheet using the basic accounting equation. www.wiley.com/go/pratt/financialaccounting11e

159) When a company borrows cash from a bank, which financial statements are affected?

A) Balance sheet only

B) Balance sheet and statement of cash flows

C) Balance sheet, statement of cash flows and statement of shareholders' equity

D) All four financial statements are affected.

Diff: Medium

Learning Objective: 4.1; 4.2

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Preparing Gone Fishin's beginning balance sheet using the basic accounting equation Video: Question 7 / Video: Preparing Gone Fishin's beginning balance sheet using the basic accounting equation. www.wiley.com/go/pratt/financialaccounting11e

160) When a company buys property in exchange for cash, how is the basic accounting equation affected?

A) Assets are increased and liabilities are increased.

B) Assets are increased and shareholders' equity is decreased.

C) Assets are increased and shareholders' equity is increased.

D) Assets are increased and assets are decreased.

Diff: Medium

Learning Objective: 4.1; 4.2

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Preparing Gone Fishin's beginning balance sheet using the basic accounting equation Video: Question 8 / Video: Preparing Gone Fishin's beginning balance sheet using the basic accounting equation. www.wiley.com/go/pratt/financialaccounting11e

161) When a company buys property in exchange for cash, which financial statements are affected?

A) Balance sheet only

B) Balance sheet and statement of cash flows

C) Balance sheet, statement of cash flows and statement of shareholders' equity

D) All four financial statements are affected.

Diff: Medium

Learning Objective: 4.1; 4.2

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Preparing Gone Fishin's beginning balance sheet using the basic accounting equation Video: Question 9 / Video: Preparing Gone Fishin's beginning balance sheet using the basic accounting equation. www.wiley.com/go/pratt/financialaccounting11e

162) In the video, transactions were recorded that established a beginning balance sheet for Gone Fishin'. Why is there no income statement?

A) Gone Fishin' had not yet raised any capital from the equity investors.

B) Gone Fishin' had not yet raised debt capital from the debt investors.

C) Gone Fishin' had not yet made any investments in producing and operating assets.

D) Gone Fishin' had not yet initiated operations.

Diff: Medium

Learning Objective: 4.1; 4.2

Bloom's: Comprehension

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Preparing Gone Fishin's beginning balance sheet using the basic accounting equation Video: Question 10 / Video: Preparing Gone Fishin's beginning balance sheet using the basic accounting equation. www.wiley.com/go/pratt/financialaccounting11e

163) When a company sells inventory for a cash amount greater than the cost of the inventory, how is the basic accounting equation affected?

A) Assets are increased and liabilities are increased.

B) Assets are increased and shareholders' equity is decreased.

C) Assets are increased and shareholders' equity is increased.

D) Assets are increased and assets are decreased by equal amounts.

Diff: Medium

Learning Objective: 4.1; 4.2

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Prepare Gone Fishin's first year financial statements using the basic accounting equation Video: Question 1 / Video: Preparing Gone Fishin's first year financial statements using the basic accounting equation. www.wiley.com/go/pratt/financialaccounting11e

164) When a company purchases inventory on account from a vendor, how is the basic accounting equation affected?

A) Assets are increased and liabilities are increased.

B) Assets are increased and shareholders' equity is decreased.

C) Assets are increased and shareholders' equity is increased.

D) Assets are increased and assets are decreased by equal amounts.

Diff: Medium

Learning Objective: 4.1; 4.2

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Prepare Gone Fishin's first year financial statements using the basic accounting equation Video: Question 2 / Video: Preparing Gone Fishin's first year financial statements using the basic accounting equation. www.wiley.com/go/pratt/financialaccounting11e

165) When a company receives cash in advance for services not yet performed, how is the basic accounting equation affected?

A) Assets are increased and liabilities are increased.

B) Assets are increased and shareholders' equity is decreased.

C) Assets are increased and shareholders' equity is increased.

D) Assets are increased and assets are decreased by equal amounts.

Diff: Medium

Learning Objective: 4.1; 4.2

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Prepare Gone Fishin's first year financial statements using the basic accounting equation Video: Question 3 / Video: Preparing Gone Fishin's first year financial statements using the basic accounting equation. www.wiley.com/go/pratt/financialaccounting11e

166) When a company performs services for which cash was received at an earlier date, how is the basic accounting equation affected?

A) Assets are increased and liabilities are increased.

B) Liabilities are decreased and shareholders' equity is increased.

C) Liabilities are increased and shareholders' equity is increased.

D) Assets are increased and shareholders' equity is increased.

Diff: Medium

Learning Objective: 4.1; 4.2

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Prepare Gone Fishin's first year financial statements using the basic accounting equation Video: Question 4 / Video: Preparing Gone Fishin's first year financial statements using the basic accounting equation. www.wiley.com/go/pratt/financialaccounting11e

167) When a company pays cash to employees for work just completed, how is the basic accounting equation affected?

A) Assets are decreased and liabilities are increased.

B) Assets are decreased and shareholders' equity is decreased.

C) Assets are decreased and shareholders' equity is increased.

D) Assets are decreased and assets are increased.

Diff: Medium

Learning Objective: 4.1; 4.2

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Prepare Gone Fishin's first year financial statements using the basic accounting equation Video: Question 5 / Video: Preparing Gone Fishin's first year financial statements using the basic accounting equation. www.wiley.com/go/pratt/financialaccounting11e

168) When a company pays cash to a bank that covers both interest that has not been accrued and part of the principle of a loan, how is the basic accounting equation affected?

A) Assets are decreased, liabilities are increased, and shareholders' equity is decreased.

B) Assets are decreased, liabilities are decreased, and shareholders' equity is decreased.

C) Assets are decreased and shareholders' equity is increased.

D) Assets are decreased and liabilities are decreased by the same amount.

Diff: Medium

Learning Objective: 4.1; 4.2

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Prepare Gone Fishin's first year financial statements using the basic accounting equation Video: Question 6 / Video: Preparing Gone Fishin's first year financial statements using the basic accounting equation. www.wiley.com/go/pratt/financialaccounting11e

169) When a company declares, but does not pay, a dividend, how is the basic accounting equation affected?

A) Assets are increased and liabilities are increased.

B) Assets are increased and shareholders' equity is decreased.

C) Liabilities are increased and shareholders' equity is decreased.

D) Liabilities are increased and assets are decreased.

Diff: Medium

Learning Objective: 4.1; 4.2

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Prepare Gone Fishin's first year financial statements using the basic accounting equation Video: Question 7 / Video: Preparing Gone Fishin's first year financial statements using the basic accounting equation. www.wiley.com/go/pratt/financialaccounting11e

170) When a company records an adjustment at the end of the period to reflect the depreciation of its property, plant & equipment, how is the basic accounting equation affected?

A) Assets are decreased and liabilities are increased.

B) Assets are decreased and shareholders' equity is decreased.

C) Assets are decreased and shareholders' equity is increased.

D) Assets are increased and assets are decreased by the same amount.

Diff: Medium

Learning Objective: 4.1; 4.2

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Prepare Gone Fishin's first year financial statements using the basic accounting equation Video: Question 8 / Video: Preparing Gone Fishin's first year financial statements using the basic accounting equation. www.wiley.com/go/pratt/financialaccounting11e

171) When a company records an adjustment at the end of the period to reflect an obligation that has accrued during the period, how is the basic accounting equation affected?

A) Assets are increased and liabilities are increased.

B) Assets are increased, liabilities are increased, and shareholders' equity is decreased.

C) Liabilities are increased and shareholders' equity is increased.

D) Liabilities are increased and shareholders' equity is decreased.

Diff: Medium

Learning Objective: 4.1; 4.2

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Prepare Gone Fishin's first year financial statements using the basic accounting equation Video: Question 9 / Video: Preparing Gone Fishin's first year financial statements using the basic accounting equation. www.wiley.com/go/pratt/financialaccounting11e

172) Which of the following is not true about the preparation of the financial statements at the end of the period?

A) The income statement can be prepared from revenues and expenses recorded in the retained earnings column.

B) The balance sheet is prepared from the final balances in the assets, liability and shareholders' equity columns.

C) The statement of cash flows can be prepared from the activity in the cash column, categorized into two groups — operating activities and investing activities.

D) The statement of shareholders' equity describes the changes from the beginning to the end of the period in the contributed capital and retained earnings columns.

Diff: Medium

Learning Objective: 4.1; 4.2

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Prepare Gone Fishin's first year financial statements using the basic accounting equation Video: Question 10 / Video: Preparing Gone Fishin's first year financial statements using the basic accounting equation. www.wiley.com/go/pratt/financialaccounting11e

173) Which of the account listings below include the six basic kinds of accounts that comprise the financial statements?

A) Current assets, long-term assets, current liabilities, long-term liabilities, contributed capital and retained earnings

B) Revenues, expenses, net income, return on assets, liabilities, shareholders' equity

C) Assets, liabilities, contributed capital, revenues, expenses, dividends

D) Assets, liabilities, shareholders' equity, net income, revenues, expenses

Diff: Medium

Learning Objective: 4.3

Bloom's: Knowledge

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Introduction to journal entries and ledgers linked to the basic accounting equation Video: Question 1 / Video: Introduction to journal entries and ledgers linked to the basic accounting equation. www.wiley.com/go/pratt/financialaccounting11e

174) Which of the ways of rearranging the basic accounting equation provided below highlight the two groups of accounts, separated by the equal sign, that are treated similarly for purposes of recording transactions.

A) Assets + Expenses + Dividends = Liabilities + Contributed capital + Revenues

B) Assets + Contributed capital + Revenues = Liabilities + Expenses + Dividends

C) Assets + Net income + Shareholders' equity = Liabilities + Dividends + Retained earnings

D) Assets + Expenses + Revenues = Liabilities + Contributed capital + Dividends

Diff: Medium

Learning Objective: 4.3

Bloom's: Knowledge

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Introduction to journal entries and ledgers linked to the basic accounting equation Video: Question 2 / Video: Introduction to journal entries and ledgers linked to the basic accounting equation. www.wiley.com/go/pratt/financialaccounting11e

175) Which of the statements below is not true about journals and ledgers?

A) Journals contain entries for each transaction and the adjustments entered into by a company.

B) Ledgers maintain running balances for the accounts that appear on the financial statements.

C) Transactions are recorded in the journal or the ledger, but not both.

D) Transactions are recorded in the journal and then posted in the ledger.

Diff: Easy

Learning Objective: 4.3

Bloom's: Knowledge

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Introduction to journal entries and ledgers linked to the basic accounting equation Video: Question 3 / Video: Introduction to journal entries and ledgers linked to the basic accounting equation. www.wiley.com/go/pratt/financialaccounting11e

176) Which of the following statements is not true about journal entries?

A) Journal entries are structured with account names and dollar values on the left and the right side.

B) Dollar values recorded on the left side increase the account in question while dollar values recorded on the right side decrease the account in question.

C) When a dollar value is recorded on the right side of an asset account, the account is decreased; when a dollar value is recorded on the left side of an asset account, the account is increased.

D) Revenue accounts are increased when the dollar value is recorded on the right side of the journal entry.

Diff: Easy

Learning Objective: 4.3

Bloom's: Knowledge

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Introduction to journal entries and ledgers linked to the basic accounting equation Video: Question 4 / Video: Introduction to journal entries and ledgers linked to the basic accounting equation. www.wiley.com/go/pratt/financialaccounting11e

177) Which of the following statements about journal entries is true?

A) Increases to expense accounts are recorded on the right side.

B) Increases to liability accounts are recorded on the left side.

C) Increases to expenses, assets, and dividends are recorded on the right side; increases to revenues, liabilities, and contributed capital are recorded on the left side.

D) Increases to expenses, assets, and dividends are recorded on the left side; increases to revenues, liabilities, and contributed capital are recorded on the right side.

Diff: Medium

Learning Objective: 4.3

Bloom's: Comprehension

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Introduction to journal entries and ledgers linked to the basic accounting equation Video: Question 5 / Video: Introduction to journal entries and ledgers linked to the basic accounting equation. www.wiley.com/go/pratt/financialaccounting11e

178) Which of the following statements about journal entries is not true?

A) Decreases to expenses, assets, and dividends are recorded on the right side; decreases to revenues, liabilities, and contributed capital are recorded on the left side.

B) Increases to retained earnings are recorded on the left side.

C) Increases to dividends are recorded on the left side.

D) When revenue is earned, it is recorded on the right side.

Diff: Medium

Learning Objective: 4.3

Bloom's: Comprehension

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Introduction to journal entries and ledgers linked to the basic accounting equation Video: Question 6 / Video: Introduction to journal entries and ledgers linked to the basic accounting equation. www.wiley.com/go/pratt/financialaccounting11e

179) A journal entry is provided below. Which of the statements following it best describes the exchange the journal entry represents?

Cash 500

Revenue 500

A) Receipt of cash for the purchase of an asset

B) Receipt of cash for providing a service

C) Cash payment for receiving a service

D) Sale of asset

Diff: Medium

Learning Objective: 4.3

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Introduction to journal entries and ledgers linked to the basic accounting equation Video: Question 7 / Video: Introduction to journal entries and ledgers linked to the basic accounting equation. www.wiley.com/go/pratt/financialaccounting11e

180) A journal entry is provided below. Which of the statements following it best describes the exchange the journal entry represents?

Inventory 500

Accounts payable 500

A) Payment of cash for the purchase of inventory

B) Sale of inventory on account

C) Sale of inventory for cash

D) Purchase of inventory on account

Diff: Medium

Learning Objective: 4.3

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Introduction to journal entries and ledgers linked to the basic accounting equation Video: Question 8 / Video: Introduction to journal entries and ledgers linked to the basic accounting equation. www.wiley.com/go/pratt/financialaccounting11e

181) A journal entry is provided below. Which of the statements following it best describes the exchange the journal entry represents?

Expense 500

Accrued payable 500

A) Recognition of an expense that has not yet been paid

B) Recognition of an expense that was paid for in advance

C) Declaration of a dividend

D) Recognition of an expense and a cash payment

Diff: Medium

Learning Objective: 4.3

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Introduction to journal entries and ledgers linked to the basic accounting equation Video: Question 9 / Video: Introduction to journal entries and ledgers linked to the basic accounting equation. www.wiley.com/go/pratt/financialaccounting11e

182) A journal entry is provided below. Which of the statements following it best describes the exchange the journal entry represents?

Cash 500

Unearned Revenue 500

A) Cash receipt for a service rendered

B) Received cash in advance for a service that has not been completed

C) Cash payment to reduce an outstanding liability

D) Sale of asset

Diff: Medium

Learning Objective: 4.3

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Introduction to journal entries and ledgers linked to the basic accounting equation Video: Question 10 / Video: Introduction to journal entries and ledgers linked to the basic accounting equation. www.wiley.com/go/pratt/financialaccounting11e

183) A journal entry is provided below. Which of the statements following it best describes how it affects the basic accounting equation?

Cash 200

Contributed capital 200

A) Increase assets, decrease shareholders' equity, no effect on liabilities

B) Decrease assets, no effect on shareholders' equity, increase liabilities

C) Increase assets, increase liabilities, increase shareholders' equity

D) Increase assets, increase shareholders' equity, no effect on liabilities

Diff: Medium

Learning Objective: 4.3

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Using journal entries and ledgers - Gone Fishin's beginning balance sheet Video: Question 1 / Video: Using journal entries and ledgers - Gone Fishin's beginning balance sheet. www.wiley.com/go/pratt/financialaccounting11e

184) A journal entry is provided below. Which of the following statements best describes which financial statements are affected at the time of the transaction?

Cash 200

Contributed capital 200

A) Balance sheet, income statement, and statement of cash flows only

B) All four financial statements

C) Balance sheet and income statement only

D) Balance sheet, statement of cash flows, and statement of shareholders' equity only

Diff: Medium

Learning Objective: 4.3

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Using journal entries and ledgers - Gone Fishin's beginning balance sheet Video: Question 2 / Video: Using journal entries and ledgers - Gone Fishin's beginning balance sheet. www.wiley.com/go/pratt/financialaccounting11e

185) A journal entry is provided below. Which of the statements following it best describes how it affects the basic accounting equation?

Cash 200

Long-term liability 200

A) Increase assets, decrease liabilities, increase shareholders' equity

B) Increase assets, increase liabilities, no effect on shareholders' equity

C) No effect on assets, increase liabilities, increase shareholders' equity

D) No effect on assets, decrease liabilities, increase shareholders' equity

Diff: Medium

Learning Objective: 4.3

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Using journal entries and ledgers - Gone Fishin's beginning balance sheet Video: Question 3 / Video: Using journal entries and ledgers - Gone Fishin's beginning balance sheet. www.wiley.com/go/pratt/financialaccounting11e

186) A journal entry is provided below. Which of the following statements best describes which financial statements are affected at the time of the transaction?

Cash 200

Long-term liability 200

A) Balance sheet and statement of cash flows only

B) All four financial statements

C) Balance sheet and income statement only

D) Balance sheet, statement of cash flows, and statement of shareholders' equity only

Diff: Medium

Learning Objective: 4.3

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Using journal entries and ledgers - Gone Fishin's beginning balance sheet Video: Question 4 / Video: Using journal entries and ledgers - Gone Fishin's beginning balance sheet. www.wiley.com/go/pratt/financialaccounting11e

187) A journal entry is provided below. Which of the statements following it best describes how it affects the basic accounting equation?

Property, plant & equip. 200

Cash 200

A) No effect on total assets, no effect on liabilities, increase shareholders' equity

B) Decrease total assets, decrease liabilities, decrease shareholders' equity

C) No effect on liabilities, increase shareholders' equity, decrease total assets

D) No effect on liabilities, no effect on total assets, no effect on shareholders' equity

Diff: Medium

Learning Objective: 4.3

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Using journal entries and ledgers - Gone Fishin's beginning balance sheet Video: Question 5 / Video: Using journal entries and ledgers - Gone Fishin's beginning balance sheet. www.wiley.com/go/pratt/financialaccounting11e

188) A journal entry is provided below. Which of the following statements best describes which financial statements are affected at the time of the transaction?

Property, plant & equip. 200

Cash 200

A) Balance sheet, income statement, and statement of cash flows only

B) All four financial statements

C) Balance sheet and statement of cash flows only

D) Balance sheet only

Diff: Medium

Learning Objective: 4.3

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Using journal entries and ledgers - Gone Fishin's beginning balance sheet Video: Question 6 / Video: Using journal entries and ledgers - Gone Fishin's beginning balance sheet. www.wiley.com/go/pratt/financialaccounting11e

189) A journal entry is provided below. Which of the statements following it best describes how it affects the basic accounting equation?

Inventory 200

Cash 200

A) Decrease total assets, no effect on liabilities, no effect shareholders' equity

B) No effect on total assets, decrease liabilities, decrease shareholders' equity

C) No effect on total assets, no effect on liabilities, no effect on shareholders' equity

D) Increase total assets, no effect on liabilities, increase shareholders' equity

Diff: Medium

Learning Objective: 4.3

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Using journal entries and ledgers - Gone Fishin's beginning balance sheet Video: Question 7 / Video: Using journal entries and ledgers - Gone Fishin's beginning balance sheet. www.wiley.com/go/pratt/financialaccounting11e

190) A journal entry is provided below. Which of the following statements best describes which financial statements are affected at the time of the transaction?

Inventory 200

Cash 200

A) Balance sheet and statement of cash flows only

B) All four financial statements

C) Balance sheet and income statement only

D) Balance sheet, income statement and statement of cash flows only

Diff: Medium

Learning Objective: 4.3

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Using journal entries and ledgers - Gone Fishin's beginning balance sheet Video: Question 8 / Video: Using journal entries and ledgers - Gone Fishin's beginning balance sheet. www.wiley.com/go/pratt/financialaccounting11e

191) A journal entry is provided below. Which of the statements following it best describes how it affects the basic accounting equation?

Short-term investments 200

Cash 200

A) Decrease total assets, no effect on liabilities, decrease shareholders' equity

B) Decrease total assets, decrease liabilities, decrease shareholders' equity

C) No effect on total assets, increase liabilities, decrease shareholders' equity

D) No effect on total assets, no effect on liabilities, no effect on shareholders' equity

Diff: Medium

Learning Objective: 4.3

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Using journal entries and ledgers - Gone Fishin's beginning balance sheet Video: Question 9 / Video: Using journal entries and ledgers - Gone Fishin's beginning balance sheet. www.wiley.com/go/pratt/financialaccounting11e

192) A journal entry is provided below. Which of the following statements best describes which financial statements are affected at the time of the transaction?

Short-term investments 200

Cash 200

A) Balance sheet and statement of cash flows only

B) All four financial statements

C) Balance sheet and income statement only

D) Balance sheet, income statement and statement of cash flows only

Diff: Medium

Learning Objective: 4.3

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Using journal entries and ledgers - Gone Fishin's beginning balance sheet Video: Question 10 / Video: Using journal entries and ledgers - Gone Fishin's beginning balance sheet. www.wiley.com/go/pratt/financialaccounting11e

193) A journal entry is provided below. Which of the statements following it best describes how it affects the basic accounting equation?

Cash 200

Sales revenue 200

Cost of goods sold 50

Inventory 50

A) Increase assets, decrease shareholders' equity, increase liabilities

B) Decrease assets, increase shareholders' equity, increase liabilities

C) Increase assets, increase shareholders' equity, no effect on liabilities

D) Increase assets, increase shareholders' equity, increase liabilities

Diff: Medium

Learning Objective: 4.3; 4.5

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Using journal entries and ledgers - Gone Fishin's first year of operations Video: Question 1 / Video: Using journal entries and ledgers - Gone Fishin's first year of operations. www.wiley.com/go/pratt/financialaccounting11e

194) A journal entry is provided below. Which of the following statements best describes which financial statements are affected at the time of the transaction?

Cash 200

Sales revenue 200

Cost of goods sold 50

Inventory 50

A) Balance sheet, income statement, and statement of cash flows only

B) All four financial statements

C) Balance sheet and income statement only

D) Balance sheet, income statement and statement of shareholders' equity only

Diff: Medium

Learning Objective: 4.3; 4.5

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Using journal entries and ledgers - Gone Fishin's first year of operations Video: Question 2 / Video: Using journal entries and ledgers - Gone Fishin's first year of operations. www.wiley.com/go/pratt/financialaccounting11e

195) A journal entry is provided below. Which of the statements following it best describes how it affects the basic accounting equation?

Unearned revenue 200

Service revenue 200

A) Increase assets, decrease shareholders' equity, increase liabilities

B) Decrease assets, increase shareholders' equity, increase liabilities

C) No effect on assets, increase shareholders' equity, no effect on liabilities

D) No effect on assets, increase shareholders' equity, decrease liabilities

Diff: Medium

Learning Objective: 4.3; 4.5

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Using journal entries and ledgers - Gone Fishin's first year of operations Video: Question 3 / Video: Using journal entries and ledgers - Gone Fishin's first year of operations. www.wiley.com/go/pratt/financialaccounting11e

196) A journal entry is provided below. Which of the following statements best describes which financial statements are affected at the time of the transaction?

Unearned revenue 200

Service revenue 200

A) Balance sheet, income statement, and statement of cash flows only

B) All four financial statements

C) Balance sheet and income statement only

D) Balance sheet, income statement and statement of shareholders' equity only

Diff: Medium

Learning Objective: 4.3; 4.5

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Using journal entries and ledgers - Gone Fishin's first year of operations Video: Question 4 / Video: Using journal entries and ledgers - Gone Fishin's first year of operations. www.wiley.com/go/pratt/financialaccounting11e

197) A journal entry is provided below. Which of the statements following it best describes how it affects the basic accounting equation?

Wages expense 200

Cash 200

A) Increase assets, decrease liabilities, increase shareholders' equity

B) Decrease assets, decrease liabilities, decrease shareholders' equity

C) No effect on liabilities, increase shareholders' equity, decrease assets

D) No effect on liabilities, decrease assets, decrease shareholders' equity

Diff: Medium

Learning Objective: 4.3; 4.5

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Using journal entries and ledgers - Gone Fishin's first year of operations Video: Question 5 / Video: Using journal entries and ledgers - Gone Fishin's first year of operations. www.wiley.com/go/pratt/financialaccounting11e

198) A journal entry is provided below. Which of the following statements best describes which financial statements are affected at the time of the transaction?

Wages expense 200

Cash 200

A) Balance sheet, income statement, and statement of cash flows only

B) All four financial statements

C) Balance sheet and income statement only

D) Balance sheet, income statement and statement of shareholders' equity only

Diff: Medium

Learning Objective: 4.3; 4.5

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Using journal entries and ledgers - Gone Fishin's first year of operations Video: Question 6 / Video: Using journal entries and ledgers - Gone Fishin's first year of operations. www.wiley.com/go/pratt/financialaccounting11e

199) A journal entry is provided below. Which of the statements following it best describes how it affects the basic accounting equation?

Depreciation expense 200

Accumulated depreciation 200

A) Decrease assets, no effect on liabilities, decrease shareholders' equity

B) Decrease assets, decrease liabilities, decrease shareholders' equity

C) Increase assets, increase liabilities, increase shareholders' equity

D) Increase assets, decrease liabilities, increase shareholders' equity

Diff: Medium

Learning Objective: 4.3; 4.5

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Using journal entries and ledgers - Gone Fishin's first year of operations Video: Question 7 / Video: Using journal entries and ledgers - Gone Fishin's first year of operations. www.wiley.com/go/pratt/financialaccounting11e

200) A journal entry is provided below. Which of the following statements best describes which financial statements are affected at the time of the transaction?

Depreciation expense 200

Accumulated depreciation 200

A) Balance sheet, income statement, and statement of cash flows only

B) All four financial statements

C) Balance sheet and income statement only

D) Balance sheet, income statement and statement of shareholders' equity only

Diff: Medium

Learning Objective: 4.3; 4.5

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Using journal entries and ledgers - Gone Fishin's first year of operations Video: Question 8 / Video: Using journal entries and ledgers - Gone Fishin's first year of operations. www.wiley.com/go/pratt/financialaccounting11e

201) A journal entry is provided below. Which of the statements following it best describes how it affects the basic accounting equation?

Income tax expense 200

Accrued taxes payable 200

A) Decrease assets, no effect on liabilities, decrease shareholders' equity

B) Decrease assets, decrease liabilities, decrease shareholders' equity

C) No effect on assets, increase liabilities, decrease shareholders' equity

D) No effect on assets, decrease liabilities, increase shareholders' equity

Diff: Medium

Learning Objective: 4.3; 4.5

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Using journal entries and ledgers - Gone Fishin's first year of operations Video: Question 9 / Video: Using journal entries and ledgers - Gone Fishin's first year of operations. www.wiley.com/go/pratt/financialaccounting11e

202) A journal entry is provided below. Which of the following statements best describes which financial statements are affected at the time of the transaction?

Income tax expense 200

Accrued taxes payable 200

A) Balance sheet, income statement, and statement of cash flows only

B) All four financial statements

C) Balance sheet and income statement only

D) Balance sheet, income statement and statement of shareholders' equity only

Diff: Medium

Learning Objective: 4.3; 4.5

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Using journal entries and ledgers - Gone Fishin's first year of operations Video: Question 10 / Video: Using journal entries and ledgers - Gone Fishin's first year of operations. www.wiley.com/go/pratt/financialaccounting11e

203) Which one of the following accounts is considered temporary because it is closed into retained earnings at the close of every accounting period?

A) Accounts receivable

B) Cost of goods sold

C) Dividend payable

D) Unearned revenue

Diff: Medium

Learning Objective: 4.2; 4.3; 4.4; 4.5; 4.6

Bloom's: Comprehension

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Closing Process Video: Question 1 / Video: Closing Process. www.wiley.com/go/pratt/financialaccounting11e

204) Which one of the following accounts is considered permanent because its balance carries over from one period to the next?

A) Service revenue

B) Interest expense

C) Sales revenue

D) Short-term investments

Diff: Medium

Learning Objective: 4.2; 4.3; 4.4; 4.5; 4.6

Bloom's: Comprehension

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Closing Process Video: Question 2 / Video: Closing Process. www.wiley.com/go/pratt/financialaccounting11e

205) Which of the following statements describes the purpose of the closing process?

A) The balances in the revenue, expense and dividend accounts, the temporary accounts, must be transferred to retained earnings, a permanent account, at the end of each year to prepare a final balance sheet.

B) The current asset accounts are netted off the current liability accounts to balance out the basic accounting equation.

C) The adjusting entries must be recorded in the journal and posted to the ledger at the end of the period to close out the reporting process.

D) The journal balances are all posted to the ledger at the end of the year to prepare the final set of financial statements.

Diff: Medium

Learning Objective: 4.2; 4.3; 4.4; 4.5; 4.6

Bloom's: Comprehension

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Closing Process Video: Question 3 / Video: Closing Process. www.wiley.com/go/pratt/financialaccounting11e

206) What is the role of the income summary account?

A) The income summary account provides a reconciliation of net cash from operating activities on the statement of cash flows and net income on the income statement.

B) The income summary is the balance sheet account that contains a summary of the net income amounts earned in past years.

C) The revenue and expense accounts are closed into the income summary account during the closing process, and then the income summary account is closed, transferring the net balance — net income — to retained earnings.

D) The income summary is a chart that includes net income amounts reported by the company over a period of years to facilitate trend analysis.

Diff: Medium

Learning Objective: 4.2; 4.3; 4.4; 4.5; 4.6

Bloom's: Comprehension

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Closing Process Video: Question 4 / Video: Closing Process. www.wiley.com/go/pratt/financialaccounting11e

207) The revenue and expense accounts are closed at the end of the accounting period:

A) because their balances need to begin the new accounting period at zero.

B) to create a new set of accounts for the income statement.

C) while the balance in the dividend account is carried over from one period to the next.

D) because revenue and expense accounts are permanent accounts.

Diff: Medium

Learning Objective: 4.2; 4.3; 4.4; 4.5; 4.6

Bloom's: Comprehension

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Closing Process Video: Question 5 / Video: Closing Process. www.wiley.com/go/pratt/financialaccounting11e

208) Retained earnings:

A) represents the net cash amount earned through operations during past years.

B) is the permanent account that contains all the revenues, less all the expenses, less all the dividends of the company's past history.

C) is the temporary account that contains all the revenues, less all the expenses, less all the dividends of the company's past history.

D) is a balance sheet account that for many companies represents their largest asset.

Diff: Medium

Learning Objective: 4.2; 4.3; 4.4; 4.5; 4.6

Bloom's: Comprehension

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Closing Process Video: Question 6 / Video: Closing Process. www.wiley.com/go/pratt/financialaccounting11e

209) Which of the following is not true about the dividend account?

A) The dividend account is a temporary account that at the end of the period is closed directly to the retained earnings account.

B) The balance in the dividend account serves to reduce the balance in the retained earnings account.

C) The dividend account, like all expense accounts, is closed to the income summary account, which in turn is closed to the retained earnings account.

D) Dividends do not appear on the income statement.

Diff: Medium

Learning Objective: 4.2; 4.3; 4.4; 4.5; 4.6

Bloom's: Comprehension

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Closing Process Video: Question 7 / Video: Closing Process. www.wiley.com/go/pratt/financialaccounting11e

210) Which of the following statements best describes the journal entry provided below?

Sales revenue 100

Income summary 100

A) This entry is recorded when goods are delivered to a customer.

B) This entry zeros out the sales revenue account in the ledger and transfers its balance to the income summary account.

C) This entry records the income amount associated with selling a good.

D) This entry illustrates the fact that within the double entry system revenues are increased by recording them on the left side.

Diff: Medium

Learning Objective: 4.2; 4.3; 4.4; 4.5; 4.6

Bloom's: Application

AACSB/AICPA: Analytic / None

Title/Media Ref.: Closing Process Video: Question 8 / Video: Closing Process. www.wiley.com/go/pratt/financialaccounting11e

211) Which of the following statements best describes the journal entry provided below?

Income summary 100

Wages expense 100

A) This entry is part of the process that closes wages expense to the income summary account, which in turn is closed to the retained earnings account.

B) This entry zeros out the income summary account in the ledger and transfers its balance to the retained earnings account.

C) This entry records the expense associated with employee wages.

D) This entry illustrates the fact that within the double entry system expenses are increased by recording them on the right side.

Diff: Medium

Learning Objective: 4.2; 4.3; 4.4; 4.5; 4.6

Bloom's: Application

AACSB/AICPA: Analytic / None

Title/Media Ref.: Closing Process Video: Question 9 / Video: Closing Process. www.wiley.com/go/pratt/financialaccounting11e

212) Which of the following statements best describes the journal entry provided below?

Income summary 100

Retained earnings 100

A) This entry shows that the company recorded a net loss on the income statement for the period just ended.

B) This entry zeros out the retained earnings account in the ledger and transfers its balance to the income summary account.

C) This entry shows that dividends during the period were $100.

D) This entry shows that the company recorded a net profit on the income statement for the period just ended.

Diff: Medium

Learning Objective: 4.2; 4.3; 4.4; 4.5; 4.6

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Closing Process Video: Question 10 / Video: Closing Process. www.wiley.com/go/pratt/financialaccounting11e

213) When a company purchases property, plant & equipment or pays for an intangible asset, which of the following statements is true?

A) The costs of these purchases are accounted for as expenses of the period in which they are acquired and because expenses are subtracted from revenues in the calculation of net income, serve to reduce net income of that period.

B) These kinds of purchases are considered financing activities and, therefore, are listed in the capital section of the balance sheet.

C) The costs of these purchases are considered non-current assets and these kinds of investments can be found in the asset section of the balance sheet. Over time, as they are used up by the operations of the company, the cost is periodically converted to an expense and matched against revenues generated in future periods.

D) Whether these kinds of purchases are treated as expenses or assets is determined by whether they are paid for in cash or financed over time.

Diff: Medium

Learning Objective: 4.3; 4.5

Bloom's: Comprehension

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Contra accounts Video: Question 1 / Video: Contra accounts. www.wiley.com/go/pratt/financialaccounting11e

214) Property, plant & equipment are subject to depreciation and intangible assets are subject to amortization. Which of the following statements best describes depreciation/amortization?

A) Depreciation/amortization represents the reduction in value of assets due to the fact that with each passing year the asset's market value decreases.

B) Depreciation/amortization represents the systematic conversion of the cost of an asset to an expense over its useful life.

C) Depreciation/amortization is recorded based on changes in the fair market values of the assets being depreciated or amortized.

D) Depreciation/amortization is also applied short-term investments in securities purchased by a company.

Diff: Medium

Learning Objective: 4.3; 4.5

Bloom's: Comprehension

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Contra accounts Video: Question 2 / Video: Contra accounts. www.wiley.com/go/pratt/financialaccounting11e

215) Which of the following journal entries represents how depreciation should be recorded?

A) Debit: Depreciation expense Credit: Accumulated depreciation

B) Debit: Depreciation expense Credit: Property, plant & equipment

C) Debit: Depreciation expense Credit: Cash

D) Debit: Depreciation expense Credit: Accounts payable

Diff: Medium

Learning Objective: 4.3; 4.5

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Contra accounts Video: Question 3 / Video: Contra accounts. www.wiley.com/go/pratt/financialaccounting11e

216) Which of the following statements is the correct interpretation of this disclosure, which one might find on the asset side of a company's balance sheet concerning equipment acquired five years ago?

Equipment $100,000

Less: accumulated depreciation (60,000)

Net balance sheet value $40,000

A) The fair market value of the equipment is estimated to be $40,000.

B) The original cost of the equipment was $40,000.

C) $60,000 of depreciation expense was recorded at the end of the period that ended at the date of the balance sheet.

D) The accumulated depreciation account is considered a contra account to the asset account, equipment, and it represents the accumulation of all the depreciation amounts recorded by the company with respect to this equipment up to the balance sheet date.

Diff: Medium

Learning Objective: 4.3; 4.5

Bloom's: Analysis

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Contra accounts Video: Question 4 / Video: Contra accounts. www.wiley.com/go/pratt/financialaccounting11e

217) Which of the following statements is the correct interpretation of this disclosure, which one might find on the asset side of a company's balance sheet concerning an intangible asset acquired five years ago?

Patents (net) $100,000

A) The fair market value of the patent is estimated to be $100,000.

B) The $100,000 represents the net amount of the original cost of the patent less dollar amount in the accumulated amortization account to date. In this case the contra account, accumulated amortization, would normally be disclosed in the footnotes along with the original cost of the patent.

C) The original cost of the patent was $100,000.

D) The fact that no contra account, accumulated amortization, is shown indicates that the patent is not subject to amortization.

Diff: Medium

Learning Objective: 4.3; 4.5

Bloom's: Analysis

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Contra accounts Video: Question 5 / Video: Contra accounts. www.wiley.com/go/pratt/financialaccounting11e

218) Which of the accounts listed below does not refer to a non-inventory asset?

A) Short-term investments

B) Machinery and equipment

C) Accounts payable

D) Patent

Diff: Easy

Learning Objective: 4.4

Bloom's: Knowledge

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Sale of non-inventory assets Video: Question 1 / Video: Sale of non-inventory assets. www.wiley.com/go/pratt/financialaccounting11e

219) When a short-term investment is purchased for cash, which financial statements are affected?

A) The balance sheet and statement of cash flows only

B) The balance sheet, income statement, and statement of cash flows only

C) All four financial statements

D) The balance sheet and the income statement only

Diff: Medium

Learning Objective: 4.4

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Sale of non-inventory assets Video: Question 2 / Video: Sale of non-inventory assets. www.wiley.com/go/pratt/financialaccounting11e

220) Which of the following statements is not true concerning the sale of a short-term investment?

A) A realized gain, which would appear on the income statement, is recognized if the cash collected on the sale exceeds the balance sheet (book) value of the investment at the time of the sale.

B) Any realized gains or losses on such sales are normally reported on the income statement in a special or "other" section which includes items not central to the core activities of the business.

C) The cash collected from such sales would appear in financing section of the statement of cash flows.

D) A realized loss, which would appear on the income statement, is recognized if the cash collected on the sale is less than the balance sheet (book) value of the investment at the time of the sale.

Diff: Medium

Learning Objective: 4.4

Bloom's: Comprehension

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Sale of non-inventory assets Video: Question 3 / Video: Sale of non-inventory assets. www.wiley.com/go/pratt/financialaccounting11e

221) On January 1, 20XX a company paid $10,000 for a vehicle. The vehicle was used for three years and during that time was depreciated at a rate of $2,000 per year. At the beginning of the fourth year, the vehicle was sold for $6,000. Which of the following statements would not be true?

A) The accumulated depreciation account would equal $6,000 at the end of the third year.

B) The balance sheet (book) value of the vehicle at the end of year 2 was $8,000.

C) The sale of the vehicle would give rise to a realized gain of $2,000 that would increase net income reported in the fourth year and the retained earnings balance as of the end of the fourth year.

D) The cash proceeds from the sale of the vehicle would be reported in the investing section of the statement of cash flows of the fourth year.

Diff: Medium

Learning Objective: 4.4

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Sale of non-inventory assets Video: Question 4 / Video: Sale of non-inventory assets. www.wiley.com/go/pratt/financialaccounting11e

222) Which of the following statements would not be true concerning the sale of the equipment described immediately below for $25,000?

Equipment $80,000

Less: accumulated depreciation (50,000)

Net balance sheet (book) value $30,000

A) A realized loss of $5,000 would appear on the income statement and a $25,000 cash inflow would be reported in the investing section of the statement of cash flows.

B) In terms of the basic accounting equation, the results of the sale would reduce assets by $5,000, reduce shareholders' equity by $5,000 and have no effect on liabilities.

C) The entry to record the sale would remove both the $80,000 cost of the equipment and the $50,000 amount of accumulated depreciation from the balance sheet, increase the cash balance on the balance sheet by $25,000, and recognize a $5,000 realized loss that would eventually reduce net income and retained earnings by $5,000.

D) The $30,000 net balance sheet (book) value is an asset account that would be removed from the balance sheet at the time of the sale.

Diff: Medium

Learning Objective: 4.4

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Sale of non-inventory assets Video: Question 5 / Video: Sale of non-inventory assets. www.wiley.com/go/pratt/financialaccounting11e

223) When a company performs a service for a customer and has not yet received payment, the following journal entry is recorded. How does the customer record this transaction?

Accounts receivable 100

Service revenue 100

A) Debit: expense Credit: accrued payable

B) Debit: expense Credit: prepaid expense

C) Debit: accrued payable Credit: expense

D) Debit: prepaid expense Credit: expense

Diff: Medium

Learning Objective: 4.4A; 14.4

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: An introduction to the differences between accruals and cash flow Video: Question 1 / Video: An introduction to the differences between accruals and cash flow. www.wiley.com/go/pratt/financialaccounting11e

224) When a company pays cash for insurance in advance of the coverage period, it records the following journal entry. How does the insurance company record this transaction?

Prepaid expense 100

Cash 100

A) Debit: cash Credit: revenue

B) Debit: cash Credit: prepaid expense

C) Debit: cash Credit: unearned revenue

D) Debit: cash Credit: short-term investment

Diff: Medium

Learning Objective: 4.4A; 14.4

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: An introduction to the differences between accruals and cash flow Video: Question 2 / Video: An introduction to the differences between accruals and cash flow. www.wiley.com/go/pratt/financialaccounting11e

225) What do these four balance sheet accounts all have in common: accounts receivable, prepaid expense, accrued payables, unearned revenue?

A) They all represent transactions where customers make payments after they receive services.

B) They are all temporary accounts closed to the income summary during the closing process at the end of the period.

C) They are all balance sheet accounts that when increased, reduce shareholders' equity.

D) They all represent balance sheet accounts that are created when the recognition of a revenue or an expense differs from the corresponding receipt or payment of cash.

Diff: Medium

Learning Objective: 4.4A; 14.4

Bloom's: Knowledge

AACSB/AICPA: Knowledge / None

Title/Media Ref.: An introduction to the differences between accruals and cash flow Video: Question 3 / Video: An introduction to the differences between accruals and cash flow. www.wiley.com/go/pratt/financialaccounting11e

226) Net income on the income statement and net cash from operating activities on the statement of cash flows are both measures of the company's operating performance. Why do they have different dollar amounts?

A) Net income covers a different time period than is covered by net cash from operating activities.

B) Net income is a relatively conservative estimate of operating performance, while net cash from operating activities is more aggressive.

C) Net income is the result of revenues that are recognized when the earning process is complete, less expenses recognized when incurred, and the timing of these two events may or may not coincide with the receipt or payment of cash. Net cash from operating activities, on the other hand, simply represents the actual cash inflows and outflows.

D) Net income reflects revenues less expenses, while net cash from operating activities reflects accruals.

Diff: Medium

Learning Objective: 4.4A; 14.4

Bloom's: Comprehension

AACSB/AICPA: Knowledge / None

Title/Media Ref.: An introduction to the differences between accruals and cash flow Video: Question 4 / Video: An introduction to the differences between accruals and cash flow. www.wiley.com/go/pratt/financialaccounting11e

227) Assume that a company provided a service to a customer for $100, but by the end of the period had not yet received payment. Which statement below accurately describes the effect on the company's net income dollar amount and net cash from operating activities dollar amount?

A) The dollar value effect of these events on net income would be the same as the effect on net cash from operating activities.

B) These events would cause net income to be higher than net cash from operating activities.

C) These events would cause net income to be lower than net cash from operating activities.

D) These events would affect neither net income nor net cash from operating activities.

Diff: Medium

Learning Objective: 4.4A; 14.4

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: An introduction to the differences between accruals and cash flow Video: Question 5 / Video: An introduction to the differences between accruals and cash flow. www.wiley.com/go/pratt/financialaccounting11e

228) Assume that at the end of the year a company owed wages of $100 to its employees but had not yet paid them. Which statement below accurately describes the effect on the company's net income dollar amount and net cash from operating activities dollar amount?

A) The dollar value effect of these events on net income would be the same as the effect on net cash from operating activities.

B) These events would cause net income to be higher than net cash from operating activities.

C) These events would cause net income to be lower than net cash from operating activities.

D) These events would affect neither net income nor net cash from operating activities.

Diff: Medium

Learning Objective: 4.4A; 14.4

Bloom's: Application

AACSB/AICPA: Knowledge / None

Title/Media Ref.: An introduction to the differences between accruals and cash flow Video: Question 6 / Video: An introduction to the differences between accruals and cash flow. www.wiley.com/go/pratt/financialaccounting11e

229) Which of the following statements would be true, given that during the year the balance in the accounts receivable account on the balance sheet increased from $2,300 to $2,500?

A) During the year revenues associated with sales to customers were higher than the cash amount collected from customers.

B) During the year revenues associated with sales to customers was lower than the cash amount collected from customers.

C) During the year revenues associated with sales to customers was recorded in the same amount as the cash collected from customers.

D) It shows that the company grew during the year.

Diff: Medium

Learning Objective: 4.4A; 14.4

Bloom's: Analysis

AACSB/AICPA: Knowledge / None

Title/Media Ref.: An introduction to the differences between accruals and cash flow Video: Question 7 / Video: An introduction to the differences between accruals and cash flow. www.wiley.com/go/pratt/financialaccounting11e

230) Which of the following statements would be true, given that during the year the balance in the prepaid expense account on the balance sheet, all associated with insurance coverage, decreased from $1,000 to $500?

A) During the year prepayments for insurance were made faster than the coverage period expired.

B) During the year prepayments for insurance were made slower than the coverage period expired.

C) During the year prepayments for insurance were made at the same rate as the coverage period expired.

D) It shows that the cost of the company's insurance policies decreased during the year.

Diff: Medium

Learning Objective: 4.4A; 14.4

Bloom's: Analysis

AACSB/AICPA: Knowledge / None

Title/Media Ref.: An introduction to the differences between accruals and cash flow Video: Question 8 / Video: An introduction to the differences between accruals and cash flow. www.wiley.com/go/pratt/financialaccounting11e

231) Which of the following statements would be true, given that during the year the balance in the accrued payable account on the balance sheet increased from $2,000 to $3,000?

A) During the year the expenses associated with this account were accrued faster than payments were made on this liability.

B) During the year the expenses associated with this account were accrued slower than payments were made on this liability.

C) During the year the expenses associated with this account were accrued at the same rate as payments were made on this liability.

D) During the year the cost of these expenses increased.

Diff: Medium

Learning Objective: 4.4A; 14.4

Bloom's: Analysis

AACSB/AICPA: Knowledge / None

Title/Media Ref.: An introduction to the differences between accruals and cash flow Video: Question 9 / Video: An introduction to the differences between accruals and cash flow. www.wiley.com/go/pratt/financialaccounting11e

232) Which of the following statements would be true, given that during the year the balance in the unearned revenue account on the balance sheet decreased from $2,000 to $1,500?

A) During the year payments received in advance for services not yet performed came in faster than the company performed the related services.

B) During the year payments received in advance for services not yet performed came in slower than the company performed the related services.

C) During the year payments received in advance for services not yet performed came in at the same rate as the company performed the related services.

D) During the year the price for these services was lower than for prior years.

Diff: Medium

Learning Objective: 4.4A; 14.4

Bloom's: Analysis

AACSB/AICPA: Knowledge / None

Title/Media Ref.: An introduction to the differences between accruals and cash flow Video: Question 10 / Video: An introduction to the differences between accruals and cash flow. www.wiley.com/go/pratt/financialaccounting11e

233) Assume that when a company makes a sale, it always records the sale before it receives cash payment. During the year the company recorded $2,000 in revenue from these sales, while the balance in the company's accounts receivable account increased from $100 to $200.

A) The amount of cash received from customers during the year was $2,000.

B) The amount of cash received from customers during the year was $2,100.

C) The amount of cash received from customers during the year was $1,900.

D) The amount of cash received from customers during the year was $1,800.

Diff: Hard

Learning Objective: 4.4A; 14.4

Bloom's: Analysis

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Differences between net income and net cash from operations Video: Question 1 / Video: Differences between net income and net cash from operations. www.wiley.com/go/pratt/financialaccounting11e

234) Assume that when a company makes a sale, it always records the sale before it receives cash payment. During the year the company recorded $2,000 in revenue from these sales, while the balance in the company's accounts receivable account decreased from $200 to $100.

A) The amount of cash received from customers during the year was $2,000.

B) The amount of cash received from customers during the year was $2,100.

C) The amount of cash received from customers during the year was $1,900.

D) The amount of cash received from customers during the year was $2,200.

Diff: Hard

Learning Objective: 4.4A; 14.4

Bloom's: Analysis

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Differences between net income and net cash from operations Video: Question 2 / Video: Differences between net income and net cash from operations. www.wiley.com/go/pratt/financialaccounting11e

235) Assume that when a company pays rent for facilities, it always pays for it in advance, prior to the rental period. During the year the company recorded rent expense of $4,000, while the balance in the company's prepaid rent account increased from $2,500 to $3,000.

A) The amount of cash paid for rent during the year was $4,000.

B) The amount of cash paid for rent during the year was $4,500.

C) The amount of cash paid for rent during the year was $3,500.

D) The amount of cash paid for rent during the year was $7,000.

Diff: Hard

Learning Objective: 4.4A; 14.4

Bloom's: Analysis

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Differences between net income and net cash from operations Video: Question 3 / Video: Differences between net income and net cash from operations. www.wiley.com/go/pratt/financialaccounting11e

236) Assume that when a company pays rent for facilities, it always pays for it in advance, prior to the rental period. During the year the company recorded rent expense of $4,000, while the balance in the company's prepaid rent account was $3,000 at both the beginning and the end of the year.

A) The amount of cash paid for rent during the year was $4,000.

B) The amount of cash paid for rent during the year was $4,500.

C) The amount of cash paid for rent during the year was $3,500.

D) The amount of cash paid for rent during the year was $7,000.

Diff: Hard

Learning Objective: 4.4A; 14.4

Bloom's: Analysis

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Differences between net income and net cash from operations Video: Question 4 / Video: Differences between net income and net cash from operations. www.wiley.com/go/pratt/financialaccounting11e

237) Assume that at the end of each year a company accrues wage expense for employee wages that are owed but unpaid as of the end of the year. During the year the company recorded wage expense of $5,000, while the balance in the company's wages payable account increased from $500 to $800.

A) The amount of cash paid for wages during the year was $5,000.

B) The amount of cash paid for wages during the year was $4,700.

C) The amount of cash paid for wages during the year was $5,300.

D) The amount of cash paid for wages during the year was $5,800.

Diff: Hard

Learning Objective: 4.4A; 14.4

Bloom's: Analysis

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Differences between net income and net cash from operations Video: Question 5 / Video: Differences between net income and net cash from operations. www.wiley.com/go/pratt/financialaccounting11e

238) Assume that a company rents real estate and is always paid in advance of the rental period. During the year the company recorded rent revenue of $8,000, while the balance in the company's unearned revenue account decreased from $1,000 to $600.

A) The amount of cash received for rent during the year was $8,000.

B) The amount of cash received for rent during the year was $8,400.

C) The amount of cash received for rent during the year was $7,600.

D) The amount of cash paid for rent during the year was $8,600.

Diff: Hard

Learning Objective: 4.4A; 14.4

Bloom's: Analysis

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Differences between net income and net cash from operations Video: Question 6 / Video: Differences between net income and net cash from operations. www.wiley.com/go/pratt/financialaccounting11e

239) Which of the following statements best describes the difference between the direct and the indirect form of presentation for the operating section of the statement of cash flows?

A) The direct form focuses on differences between net income as reported on the income statement and the actual cash received and paid related to the company's operating activities, while the indirect form reports only revenues and expenses.

B) The direct form provides the actual cash flows associated with the company's investing activities, while the indirect does not.

C) The direct form brings together the actual cash flows associated with the company's operating, investing and financing activities, while the indirect form focuses only on the company's operating activities.

D) The direct form computes net cash from operating activities directly from the operating cash inflows and outflows reflected in the cash ledger account, while the indirect form computes net cash from operating activities by starting with net income and then listing the adjustments necessary to convert accrual-based net income to net operating cash flows.

Diff: Hard

Learning Objective: 4.4A; 14.4

Bloom's: Analysis

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Differences between net income and net cash from operations Video: Question 7 / Video: Differences between net income and net cash from operations. www.wiley.com/go/pratt/financialaccounting11e

240) Which of the statements below is an accurate statement about this reconciliation between net income and net cash from operating activities?

Net income $3,000

Change in accounts receivable (100)

Change in unearned revenues (200)

Change in prepaid expense (200)

Change in accrued payables 50

Net cash from operation activities $2,550

A) It represents an example of the direct form of presentation for the operating section of the statement of cash flows.

B) The balance in the accounts receivable account must have increased by $100 during the year.

C) The balance in the accrued payables account must have decreased by $50 during the year.

D) During the year revenues earned on services for which cash payments were received in advance must have been less than the amount of cash advances received by $200.

Diff: Hard

Learning Objective: 4.4A; 14.4

Bloom's: Analysis

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Differences between net income and net cash from operations Video: Question 8 / Video: Differences between net income and net cash from operations. www.wiley.com/go/pratt/financialaccounting11e

241) Which of the statements below is an accurate statement about this reconciliation between net income and net cash from operating activities?

Net income $3,000

Change in accounts receivable (100)

Change in unearned revenues (200)

Change in prepaid expense (200)

Change in accrued payables 50

Net cash from operation activities $2,550

A) The balance in the prepaid expense account must have decreased during the year by $200.

B) During the year the cash received from outstanding accounts receivables must have exceeded the revenue earned on customer sales on account by $100.

C) The balance in the accrued payables account must have increased by $50 during the year.

D) The dollar value of net cash from operating activities is less than the dollar value of net income because revenues must have exceeded expenses during the year by $450.

Diff: Hard

Learning Objective: 4.4A; 14.4

Bloom's: Analysis

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Differences between net income and net cash from operations Video: Question 9 / Video: Differences between net income and net cash from operations. www.wiley.com/go/pratt/financialaccounting11e

242) Which of the statements below is an accurate statement about this reconciliation between net income and net cash from operating activities?

Net income $3,000

Change in accounts receivable (100)

Change in unearned revenues (200)

Change in prepaid expense (200)

Change in accrued payables 50

Net cash from operation activities $2,550

A) During the year cash payments to reduce accrued payables must have been less than the accrued expenses recorded.

B) The balance in the unearned revenue account must have increased during the year by $200.

C) The balance in the prepaid expense account must have decreased by $200 during the year.

D) The accrual accounting system used to compute net income normally records expenses faster than the cash is paid to cover these expenses, which explains why in this case the dollar value of net income is greater than the dollar value of net cash from operating activities.

Diff: Hard

Learning Objective: 4.4A; 14.4

Bloom's: Analysis

AACSB/AICPA: Knowledge / None

Title/Media Ref.: Differences between net income and net cash from operations Video: Question 10 / Video: Differences between net income and net cash from operations. www.wiley.com/go/pratt/financialaccounting

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