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Exam 2: Review of the Accounting Process

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Question 51

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When converting an income statement from a cash basis to an accrual basis, cash received for services:

A) Exceed service revenue.
B) May exceed or be less than service revenue.
C) Is less than service revenue.
D) Equals service revenue.

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Question 52

Multiple Choice

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When a tenant makes an end-of-period adjusting entry credit to the "Prepaid rent" account:

A) (S) he usually debits cash.
B) (S) he usually debits an expense account.
C) (S) he debits a liability account.
D) (S) he does none of these.

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Question 53

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Declared cash dividends on common stock.

Dave's Duds reported cost of goods sold of $2,000,000 this year. The inventory account increased by $200,000 during the year to an ending balance of $400,000. What was the cost of merchandise that Dave purchased during the year?

Which of the following accounts has a credit balance?

Making insurance payments in advance is an example of:

Paid rent for the next three months.

When Castle Corporation pays insurance premiums, the transaction is recorded as a debit to prepaid insurance. Additional information for the year ended December 31 is as follows: What was the total amount cash paid by Castle for insurance premiums during the year?

Adjusting entries are primarily needed for:

Pat's Custom Tuxedo Shop maintains its records on the cash basis. During this past year Pat's collected $42,000 in tailoring fees, and paid $14,000 in expenses. Depreciation expense totaled $2,000. Accounts receivable increased $1,500, supplies increased $4,000, and accrued liabilities increased $2,500. Pat's accrual basis net income would be:

Debits increase asset accounts and decrease liability accounts.

Owners' equity can be expressed as assets minus liabilities.

Eve's Apples opened business on January 1, 2009, and paid for two insurance policies effective that date. The liability policy was $36,000 for eighteen-months, and the crop damage policy was $12,000 for a two-year term. What was the balance in Eve's prepaid insurance as of December 31, 2009?

Balance sheet accounts are referred to as temporary accounts because their balances are always changing.

When the amount of interest receivable decreases during an accounting period:

The balance in retained earnings at the end of the year is determined by retained earnings at the beginning of the year:

-Cost of goods sold

Received payment for services to be performed next year.

The post-closing trial balance contains only permanent accounts.

-Retained earnings