Mid-term test
Principles of accounting
Code: B
1. Sue Smiley has performed $500 of CPA services for a client but has not billed the client as of
the end of the accounting period. What adjusting entry must Sue make?
a. Debit Cash and credit Unearned Revenue
b. Debit Accounts Receivable and credit Unearned Revenue
c. Debit Accounts Receivable and credit Service Revenue
d. Debit Unearned Revenue and credit Service Revenue
2. Clark Real Estate signed a four-month note payable in the amount of $8,000 on
September 1. The note requires interest at an annual rate of 9%. The amount of interest to be
accrued at the end of September is
a. $240.
b. $60.
c. $720.
d. $80.
3. The adjusted trial balance is prepared
a. after financial statements are prepared. b. before the
trial balance.
c. to prove the equality of total assets and total liabilities.
d. after adjusting entries have been journalized and posted.
4. Employees at B Corporation are paid $5,000 cash every Friday for working Monday through Friday. The
calendar year accounting period ends on Wednesday, December 31. How much salary expense should be
recorded two days later on January 2?
a. $5,000
b. $3,000
c. None, matching requires the weekly salary to be accrued on December 31.
d. $2,000
5. On January 1, 2008, M. Johnson Company purchased equipment for $30,000. The company
is depreciating the equipment at the rate of $700 per month. The book value of the equipment at
December 31, 2008 is
a. $0.
b. $8,400.
c. $21,600.
d. $30,000.
6. At March 1, J.C. Retro Inc. reported a balance in Supplies of $200. During March, the
company purchased supplies for $750 and consumed supplies of $800. If no adjusting entry is
made for suppliesc
a. owner’s equity will be overstated by $800.
b. expenses will be understated by $750.
c. assets will be understated by $150.
d. net income will be understated by $800.
7. The accounting process is correctly sequenced as
a. identification, communication, recording.
b. recording, communication, identification.
c. identification, recording, communication.
d. communication, recording, identification.
8. Which of the following would not be considered an internal user of accounting data for the
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XYZ Company?
a. President of the company
b. Production manager
c. Merchandise inventory clerk
d. President of the employees' labor union
9. Which one of the following is not an external user of accounting information?
a. Regulatory agencies
b. Customers
c. Investors
d. All of these are external users
10. The economic entity assumption requires that the activities
a. of different entities can be combined if all the entities are corporations. b. must be reported to the Securities
and Exchange Commission.
c. of a sole proprietorship cannot be distinguished from the personal economic events of its owners.
d. of an entity be kept separate from the activities of its owner.
11. A small neighborhood barber shop that is operated by its owner would likely be organized as a
a. joint venture.
b. partnership.
c. corporation.
d. proprietorship.
12. A business that enjoys limited liability is a
a. proprietorship.
b. partnership.
c. corporation.
d. sole proprietorship.
13. The basic accounting equation may be expressed as
a. Assets = Equities.
b. Assets – Liabilities = Owner's Equity.
c. Assets = Liabilities + Owner's Equity.
d. all of these.
14. Liabilities
a. are future economic benefits.
b. are existing debts and obligations.
c. possess service potential.
d. are things of value used by the business in its operation.
15. Owner's equity can be described as
a. creditorship claim on total assets.
b. ownership claim on total assets.
c. benefactor's claim on total assets.
d. debtor claim on total assets.
16. If total liabilities increased by $15,000 and owner’s equity increased by $5,000 during a period of time,
then total assets must change by what amount and direction during that same period?
a. $20,000 decrease
b. $20,000 increase
c. $25,000 increase
d. $30,000 increase
17. As of June 30, 2008, Houston Company has assets of $100,000 and owner’s equity of
$5,000. What are the liabilities for Houston Company as of June 30, 2008?
a. $85,000
b. $90,000
c. $95,000
d. $100,000
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18. Collection of a $500 Accounts Receivable
a. increases an asset $500; decreases an asset $500.
b. increases an asset $500; decreases a liability $500.
c. decreases a liability $500; increases owner's equity $500.
d. decreases an asset $500; decreases a liability $500.
19. A Statement of Financial position shows
a. revenues, liabilities, and owner's equity.
b. expenses, drawings, and owner's equity.
c. revenues, expenses, and drawings.
d. assets, liabilities, and owner's equity
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20. The left side of an account is
a. blank.
b. a description of the account.
c. the debit side.
d. the balance of the account.
21. An account consists of
a. a title, a debit balance, and a credit balance.
b. a title, a left side, and a debit balance.
c. a title, a debit side, and a credit side.
d. a title, a right side, and a debit balance.
22. The normal balance of any account is the
a. left side.
b. right side.
c. side which increases that account.
d. side which decreases that account.
23. An account will have a credit balance if the
a. credits exceed the debits.
b. first transaction entered was a credit.
c. debits exceed the credits.
d. last transaction entered was a credit.
24. In the first month of operations, the total of the debit entries to the cash account
amounted to $900 and the total of the credit entries to the cash account amounted to
$500. The cash account has a(n)
a. $500 credit balance.
b. $800 debit balance.
c. $400 debit balance.
d. $400 credit balance.
25. At December 1, 2008, Marco Company’s accounts receivable balance was $1,200.
During December, Marco had credit revenues of $5,000 and collected accounts
receivable of $4,000. At December 31, 2008, the accounts receivable balance is
a. $1,200 debit.
b. $2,200 debit.
c. $6,200 debit.
d. $2,200 credit.
26. A journal provides
a. the balances for each account.
b. information about a transaction in several different places.
c. a list of all accounts used in the business.
d. a chronological record of transactions.
27. Tritan Company received a cash advance of $500 from a customer. As a result
of this event,
a. assets increased by $500.
b. owner’s equity increased by $500.
c. liabilities decreased by
$500.
d. both a and b.
28. Anderson Company purchased equipment for $1,800 cash. As a result of
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this event,
a. owner’s equity decreased by $1,800.
b. total assets increased by $1,800.
c. total assets remained
unchanged.
d. Both a and b.
29. Franklin Company provided consulting services and billed the client $2,500. As
a result of this event,
a. assets remained
unchanged.
b. assets increased by
$2,500.
c. owner’s equity increased by $2,500.
d. Both b and c.
30. A list of accounts and their balances at a given time is called a(n)
a. journal.
b. posting.
c. trial balance.
d. income statement.
31. A trial balance will not balance if
a. a journal entry is posted twice.
b. a wrong amount is used in journalizing.
c. incorrect account titles are used in
journalizing.
d. a journal entry is only partially posted.
32. Keypress Company collected $6,500 in May of 2008 for 5 months of service
which would take place from October of 2008 through February of 2009. The
revenue reported from this transaction during 2008 would be
a. $0
b. $3,900
c. $6,500
d. $2,600
33. Waterfalls Corporation purchased a one-year insurance policy in January 2008 for
$66,000. The insurance policy is in effect from March 2008 through February
2009. If the company neglects to make the proper year-end adjustment for the
expired insurance
a. Net income and assets will be understated by
$55,000.
b. Net income and assets will be overstated by
$55,000.
c. Net income and assets will be understated by
$11,000.
d. Net income and assets will be overstated by
$11,000.
34. If an adjusting entry is not made for an accrued
revenue,
a. assets will be overstated.
b. expenses will be understated.
c. owner's equity will be
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understated.
d. revenues will be overstated.
35. At March 1, 2008, Candy Inc. had supplies on hand of $500. During the month,
Candy purchased supplies of $1,200 and used supplies of $1,500. The March
31 adjusting journal entry should include a
a. debit to the supplies account for $1,500.
b. credit to the supplies account for $500.
c. debit to the supplies account for $1,200.
d. credit to the supplies account for $1,500.
36. Unearned revenue is classified as
a. an asset account.
b. a revenue account.
c. a contra-revenue account.
d. a liability.
37. As prepaid expenses expire with the passage of time, the correct adjusting entry will be a
a. debit to an asset account and a credit to an expense account.
b. debit to an expense account and a credit to an asset account.
c. debit to an asset account and a credit to an asset account.
38. If an adjustment is needed for unearned revenues, the
a. liability and related revenue are overstated before adjustment.
b. liability and related revenue are understated before adjustment.
c. liability is overstated and the related revenue is understated before adjustment.
d. liability is understated and the related revenue is overstated before adjustment.
39. Accrued expenses are
a. paid and recorded in an asset account before they are used or consumed.
b. paid and recorded in an asset account after they are used or consumed.
c. incurred but not yet paid or recorded.
d. incurred and already paid or
recorded.
40. An adjusting entry
a. affects two balance sheet accounts.
b. affects two income statement accounts.
c. affects a balance sheet account and an income statement account.
d. is always a compound entry.
