ACC 231 Exam 1 Practice
Multiple Choice
Identify the choice that best completes the statement or answers the question.
____ 1. Liability accounts are increased
a. By debits
b. By credits
c. On the left side
d. Below the balance line
____ 2. A company's retained earnings balance would decrease by
a. The declaration and payment of dividends
b. Sales
c. Investments by owners
d. Net income
____ 3. Christopher Company purchased $20,000 of equipment for cash. The correct entry to record the purchase of
equipment is
a. Cash 20,000
Equipment 20,000
b. Equipment 20,000
Accounts Payable 20,000
c. Equipment 20,000
Cash 20,000
d. Accounts Payable 20,000
Equipment 20,000
____ 4. Owners' equity accounts are decreased with
a. Debit entries
b. Credit entries
c. Liabilities
d. Assets
____ 5. Revenues
a. Decrease assets
b. Decrease owners' equity
c. Increase liabilities
d. Increase owners’ equity
____ 6. A system of accounting in which revenues and expenses are recorded as they are earned and incurred, is
called
a. Revenue recognition accounting
b. Accrual-basis accounting
c. Realization accounting
d. Cash-basis accounting
____ 7. A system of accounting in which revenues and expenses are recorded only when cash is received or paid, is
called
a. Revenue recognition accounting
b. Accrual-basis accounting
c. Realization accounting
d. Cash-basis accounting
____ 8. Which of the following statements about adjusting entries is NOT true?
a. They are recorded on a daily basis as transactions occur.
b. They are posted at the end of an accounting period.
c. They do not affect the cash account.
d. None of these are true.
____ 9. Bay Graphics pays its employees each Friday for a five-day total workweek. The payroll is $9,000 per week.
If the end of the accounting period occurs on a Wednesday, the adjusting entry to record wages payable would
include a:
a. Debit to Salary Expense of $3,600
b. Debit to Salary Expense of $5,400
c. Credit to Cash of $9,000
d. Credit to Salaries Payable of $3,600
____ 10. Which of the following types of accounts will always be credited when a prepaid expense account is
adjusted?
a. Assets
b. Liabilities
c. Revenues
d. Expenses
____ 11. On August 1, 2009, Base Line Realty purchased a two-year insurance policy for $15,000. On that date, the
company debited Prepaid Insurance for $15,000. The adjusting entry on December 31, 2009, would include a
debit to
a. Prepaid Insurance for $2,500
b. Prepaid Insurance for $3,125
c. Insurance Expense for $3,125
d. Insurance Expense for $2,500
____ 12. Given the following data, what is the amount in the supplies account to be shown as an asset on the balance
sheet at the end of the period?
Supplies (beginning of period) $500
Supplies purchased (during period) 425
Supplies used (during period) 375
a. $350
b. $550
c. $375
d. $425
____ 13. If a company receives rent for January 2009 from a tenant in December 2008, that rent would be
a. A revenue in 2008
b. An asset in 2008
c. An expense in 2008
d. A liability in 2008
The following are a selection of account balances taken from the Adjusted Trial Balance of Cajon Corporation
for December 31, 2009
Debit Credit
Cash $150
Store Supplies 300
Service Fees Revenue $600
Retained Earnings 50
Accounts Payable 70
Dividends 200
Unearned Service Fees Revenue 180
Wage Expense 200
Store Supplies Expense 50
____ 14. From the information given, Cajon Corporation had net income in 2009 of
a. $150
b. $530
c. $330
d. $350
____ 15. Closing entries are
a. Required to bring all real accounts to a zero balance at the end of the accounting period
b. Not required to be posted
c. Required to bring all nominal accounts to a zero balance prior to starting a new accounting
cycle
d. Generally taken from the financial statements rather than from the work sheet or the
accounts themselves
____ 16. The entry to close the revenue accounts normally includes a
a. Debit to each revenue account
b. Credit to each revenue account
c. Debit to each expense account
d. Credit to each expense account
____ 17. The entry to close the expense accounts normally includes a
a. Debit to each revenue account
b. Credit to each revenue account
c. Debit to each expense account
d. Credit to each expense account
Exhibit 3-5
Use the five transactions for Narada & Associates, Inc. described below to answer the questions that follow.
Transactions:
May 1Bills are sent to clients for services provided in April in the amount of $800.
9City Office Inc. delivers furniture ($1,060) and office supplies ($160) to Narada
leaving an invoice for $1,220.
15Payment is made to City Office Inc. for the furniture and office supplies delivered on
May 9.
23A $430 bill for electricity for the month of April is received and will be paid on its due
date in June.
31Salaries are paid to employees, $850.
____ 18. Refer to Exhibit 3-5. The journal entry to record the May 1 transaction will include a debit of $800 to
a. sales revenue.
b. accounts receivable.
c. cash.
d. retained earnings.
____ 19. Refer to Exhibit 3-5. The journal entry to record the May 9 transaction will include a credit of $1,220 to
a. furniture and supplies.
b. cash.
c. accounts payable.
d. administrative expenses.
____ 20. Refer to Exhibit 3-5. The journal entry to record the May 15 transaction will include a debit of $1,220 to
a. furniture and supplies.
b. cash.
c. accounts payable.
d. administrative expenses.
____ 21. Refer to Exhibit 3-5. The journal entry to record the May 23 transaction will include a credit of $430 to
a. utilities expense.
b. cash.
c. prepaid expenses.
d. accounts payable.
____ 22. Refer to Exhibit 3-5. The journal entry to record the May 31 transaction will include a credit to
a. salaries payable.
b. salaries expense.
c. prepaid salaries.
d. cash.
____ 23. Refer to Exhibit 3-5. Based only on the above transactions, what is the total amount of expenses that should
appear on the income statement?
a. $430
b. $850
c. $1,280
d. $1,440
____ 24. Which of the following will not cause a trial balance to be out of balance?
a. The balance for an account is incorrectly computed.
b. A debit entry is posted as a credit.
c. A credit entry is posted to the wrong account as a credit.
d. An account is accidentally omitted from the trial balance.
____ 25. If the business has an ____ from a customer, then the customer has an ____ to the business.
a. Accounts receivable; accounts receivable
b. Accounts payable; accounts payable
c. Accounts receivable; accounts payable
d. Accounts payable; accounts receivable
____ 26. Hanna’s Swim Club sells season memberships for $200 each. During January of 2008, 60 season
memberships were sold. As of March 31, 2008, only $3,000 of season membership fees had been collected
from customers. The swim season runs for 4 months starting May 15, 2008. Which one of the following is an
amount reported on the financial statements for the period ending March 31, 2008?
a. Unearned swim membership revenue of $3,000
b. Unearned swim membership revenue of $9,000
c. Accounts receivable of $3,000
d. Swim membership revenue of $9,000
____ 27. Advantage Auto sold merchandise to a customer for $3,000 on credit on July 10, 2008. The customer paid
Advantage Auto the amount due on July 31. Under the accrual basis of accounting, which of the following
statements is true?
a. Advantage Auto will recognize the revenue on July 31, 2008.
b. The July 10th transaction increases revenue, but has no effect on assets because cash has
not been received.
c. Revenue is recognized after the cost of the merchandise sold has been paid by Advantage
Auto.
d. The July 31st transaction has no effect on total assets under the accrual basis.
____ 28. Food To Go is a local catering service. Conceptually, when should Food To Go recognize revenue from its
catering service?
a. At the date the customer places the order
b. At the date the meals are served
c. At the date the invoice is mailed to the customer
d. At the date the customer's payment is received
____ 29. Cray Corp. purchased supplies at a cost of $12,000 during 2008. At January 1, 2008, supplies on hand were
$2,000. At December 31, 2008, supplies on hand are $1,000. Determine the amount of supplies expense for
2008.
a. $10,000
b. $12,000
c. $13,000
d. $14,000
____ 30. Balance sheet accounts are also known as which of the following?
a. Nominal accounts
b. Real accounts
c. Temporary accounts
d. Closing accounts
____ 31. Income statement accounts are also known as which of the following?
a. Nominal accounts
b. Real accounts
c. Closing accounts
d. Both a and c
____ 32. Forney Industries' plant operates five days per week with a daily payroll of $4,000. Employees are paid every
Saturday for the work week just completed (Monday through Friday). The last day of the month is
Wednesday, March 31. The correct adjusting entry at March 31 is
a. Wages Expense 4,000
Wages Payable 4,000
b. Wages Payable 4,000
Cash 4,000
c. Wages Expense 12,000
Cash 12,000
d. Wages Expense 12,000
Wages Payable 12,000
Problem
33. Listed below are selected accounts from the financial statements of Windham Company for the year ended
December 31, 2007. In the blank space provided for each account, indicate what type of account it is, its
normal balance, and the debit/credit rules for increasing and decreasing it. Use the following abbreviations for
your answers:
Type of Account
Normal Account
Balance
Rules to Increase or
Decrease the Account
A = Asset Dr = Debit Dr = Debit
L = Liability Cr = Credit Cr = Credit
OE = Owners' Equity
R = Revenue
E = Expense
Type of
Account
Normal
Balance
Rule to
Increase
Rule to
Decrease
Example: Cash A Dr Dr Cr
(a) Income Taxes _______ _______ _______ _______
(b) Accounts Payable _______ _______ _______ _______
(c) Retained Earnings _______ _______ _______ _______
(d) Prepaid Expenses _______ _______ _______ _______
(e) Sales Revenues _______ _______ _______ _______
(f) Long-term Debt _______ _______ _______ _______
(g) Intangibles _______ _______ _______ _______
(h) Common Stock _______ _______ _______ _______
34. Several accounts from the financial statements of Adelphia Cable Company are listed below. In the two
columns provided for answers, indicate the type of account and the normal account balance. Use the
following identification codes for your answers:
Accounts Normal Balance
A = Asset DR = Debit
L = Liability CR = Credit
OE = Owners' Equity
R = Revenue
E = Expense
Account
Normal
Balance
(a) Prepaid Expenses _______ _______
(b) Cable Television Equipment _______ _______
(c) Subscriptions Received in Advance _______ _______
(d) Cost of Sales _______ _______
(e) Common Stock _______ _______
(f) Accounts Payable _______ _______
(g) Income Taxes Expense _______ _______
(h) Interest Income _______ _______
(i) Cable Television Franchises _______ _______
(j) Long-term Debt _______ _______
ACC 231 Exam 1 Practice
Answer Section
MULTIPLE CHOICE
1. ANS: B
2. ANS: A
3. ANS: C
4. ANS: A
5. ANS: D
6. ANS: B
7. ANS: D
8. ANS: A
9. ANS: B
Wages payable: $9,000 3/5 = $5,400
10. ANS: A
11. ANS: C
12. ANS: B
Supplies balance at end of period: $500 + $425 – $375 = $550
13. ANS: D
14. ANS: D
Net income: $600 – $200 – $50 = $350
15. ANS: C
16. ANS: A
17. ANS: D
18. ANS: B
19. ANS: C
20. ANS: C
21. ANS: D
22. ANS: D
23. ANS: C
24. ANS: C
25. ANS: C
26. ANS: A
($200 60) - $9,000 = $3,000
27. ANS: D
28. ANS: B
29. ANS: C
$2,000 + $12,000 - $1,000 = $13,000
30. ANS: B
31. ANS: A PTS: 1 DIF: 1 REF: p. 170
OBJ: 7 TOP: AICPA FN-Reporting MSC: AACSB Communication
32. ANS: D
PROBLEM
33. ANS:
Type of
Account
Normal
Balance
Rule to
Increase
Rule to
Decrease
(a) Income Taxes E Dr Dr Cr
________ ________ ________ ________
(b) Accounts Payable L Cr Cr Dr
________ ________ ________ ________
(c) Retained Earnings OE Cr Cr Dr
________ ________ ________ ________
(d) Prepaid Expenses A Dr Dr Cr
________ ________ ________ ________
(e) Sales Revenues R Cr Cr Dr
________ ________ ________ ________
(f) Long-term Debt L Cr Cr Dr
________ ________ ________ ________
(g) Intangibles A Dr Dr Cr
________ ________ ________ ________
(h) Common Stock OE Cr Cr Dr
________ ________ ________ ________
34. ANS:
(a) Prepaid Expenses A DR
(b) Cable Television Equipment A DR
(c) Subscriptions Received in Advance L CR
(d) Cost of Sales E DR
(e) Common Stock OE CR
(f) Accounts Payable L CR
(g) Income Taxes Expense E DR
(h) Interest Income R CR
(i) Cable Television Franchises A DR
(j) Long-term Debt L CR
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