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Fundamental Accounting Principles John Wild 24th Edition-Test Bank
Sample Questions
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Chapter 2 Analyzing and Recording Transactions
1) Business transactions and events are the starting points of financial statements.
Answer: TRUE
Difficulty: 1 Easy
Topic: Analyzing and Recording Process
Learning Objective: 02-C1 Explain the steps in processing transactions and the role of source documents.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
2) Preparation of a trial balance is the first step in processing a financial transaction.
Answer: FALSE
Difficulty: 1 Easy
Topic: Analyzing and Recording Process
Learning Objective: 02-C1 Explain the steps in processing transactions and the role of source documents.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
3) Source documents identify and describe transactions and events entering the accounting process.
Answer: TRUE
Difficulty: 1 Easy
Topic: Analyzing and Recording Process
Learning Objective: 02-C1 Explain the steps in processing transactions and the role of source documents.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
4) Items such as sales receipts, bank statements, checks, and purchase orders are examples of a business’s source documents.
Answer: TRUE
Difficulty: 1 Easy
Topic: Analyzing and Recording Process
Learning Objective: 02-C1 Explain the steps in processing transactions and the role of source documents.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
5) An account is a record of increases and decreases in a specific asset, liability, equity, revenue, or expense item.
Answer: TRUE
Difficulty: 1 Easy
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
6) A customer’s promise to pay on credit is classified as an account payable by the seller.
Answer: FALSE
Difficulty: 1 Easy
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
7) Withdrawals by the owner are a business expense.
Answer: FALSE
Difficulty: 1 Easy
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
8) The purchase of land and buildings will generally be recorded in the same ledger account.
Answer: FALSE
Difficulty: 1 Easy
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
9) Unearned revenues are classified as liabilities.
Answer: TRUE
Difficulty: 1 Easy
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
10) Cash withdrawn by the owner for personal expenses should be treated as an expense of the business.
Answer: FALSE
Difficulty: 1 Easy
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
11) When a company provides services for which cash will not be received until some future date, the company should record the amount billed as accounts receivable.
Answer: TRUE
Difficulty: 2 Medium
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
12) Owner withdrawals always decrease equity.
Answer: TRUE
Difficulty: 2 Medium
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
13) Expenses always decrease equity.
Answer: TRUE
Difficulty: 2 Medium
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
14) Revenues always increase equity.
Answer: TRUE
Difficulty: 2 Medium
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
15) Owner investments always decrease equity.
Answer: FALSE
Difficulty: 2 Medium
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
16) Unearned revenue is a liability that is settled in the future when a company delivers its products or services.
Answer: TRUE
Difficulty: 2 Medium
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
17) A company’s chart of accounts is a list of all the accounts used and includes an identification number assigned to each account.
Answer: TRUE
Difficulty: 1 Easy
Topic: Ledger and Chart of Accounts
Learning Objective: 02-C3 Describe a ledger and a chart of accounts.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
18) An account’s balance is the difference between the total debits and total credits for the account, including any beginning balance.
Answer: TRUE
Difficulty: 1 Easy
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
19) The right side of an account is called the debit side.
Answer: FALSE
Difficulty: 1 Easy
Topic: Debits and Credits
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
20) In a double-entry accounting system, total debits must equal total credits for all entries, and total debit account balances in the ledger must equal total credit account balances.
Answer: TRUE
Difficulty: 1 Easy
Topic: Debits and Credits
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
21) Increases in liability accounts are recorded as debits.
Answer: FALSE
Difficulty: 2 Medium
Topic: Debits and Credits
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
22) Debits increase asset and expense accounts.
Answer: TRUE
Difficulty: 2 Medium
Topic: Debits and Credits
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
23) Credits always increase account balances.
Answer: FALSE
Difficulty: 2 Medium
Topic: Debits and Credits
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
24) An expense account normally has a credit balance.
Answer: FALSE
Difficulty: 2 Medium
Topic: Debits and Credits
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
25) A revenue account normally has a debit balance.
Answer: FALSE
Difficulty: 2 Medium
Topic: Debits and Credits
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
26) Asset accounts are decreased by debits.
Answer: FALSE
Difficulty: 2 Medium
Topic: Debits and Credits
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
27) Debit means increase and credit means decrease for all accounts.
Answer: FALSE
Difficulty: 2 Medium
Topic: Debits and Credits
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
28) Asset accounts normally have debit balances and revenue accounts normally have credit balances.
Answer: TRUE
Difficulty: 2 Medium
Topic: Debits and Credits
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
29) An owner’s withdrawal account normally has a debit balance.
Answer: TRUE
Difficulty: 1 Easy
Topic: Debits and Credits
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
30) A debit entry always increases an account.
Answer: FALSE
Difficulty: 2 Medium
Topic: Debits and Credits
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
31) A transaction that credits an asset account and credits a liability account must also affect one or more other accounts.
Answer: TRUE
Difficulty: 3 Hard
Topic: Analyzing Transactions
Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements.
Bloom’s: Apply
AACSB/Accessibility: Analytical Thinking / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
32) A transaction that decreases a liability and increases an asset must also affect one or more other accounts.
Answer: TRUE
Difficulty: 3 Hard
Topic: Analyzing Transactions
Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements.
Bloom’s: Apply
AACSB/Accessibility: Analytical Thinking / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
33) If insurance coverage for the next two years is paid for in advance, the amount of the payment is debited to an asset account called Prepaid Insurance.
Answer: TRUE
Difficulty: 2 Medium
Topic: Analyzing Transactions
Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements.
Bloom’s: Understand
AACSB/Accessibility: Analytical Thinking / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
34) The purchase of supplies on credit should be recorded with a debit to Supplies and a credit to Accounts Payable.
Answer: TRUE
Difficulty: 2 Medium
Topic: Analyzing Transactions
Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements.
Bloom’s: Understand
AACSB/Accessibility: Analytical Thinking / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
35) If a company purchases equipment paying cash, the journal entry to record this transaction will include a debit to Cash.
Answer: FALSE
Difficulty: 2 Medium
Topic: Analyzing Transactions
Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements.
Bloom’s: Understand
AACSB/Accessibility: Analytical Thinking / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
36) If a company provides services to a customer on credit, the company providing the service should credit Accounts Receivable.
Answer: FALSE
Difficulty: 3 Hard
Topic: Analyzing Transactions
Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements.
Bloom’s: Understand
AACSB/Accessibility: Analytical Thinking / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
37) When a company bills a customer for $700 for services performed, the journal entry to record this transaction will include a $700 debit to Services Revenue.
Answer: FALSE
Difficulty: 3 Hard
Topic: Analyzing Transactions
Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements.
Bloom’s: Apply
AACSB/Accessibility: Analytical Thinking / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
38) The debt ratio helps to assess the risk a company has of failing to pay its debts and is helpful to both its owners and creditors.
Answer: TRUE
Difficulty: 2 Medium
Topic: Debt Ratio
Learning Objective: 02-A2 Compute the debt ratio and describe its use in analyzing financial condition.
Bloom’s: Understand
AACSB/Accessibility: Analytical Thinking / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
39) The higher a company’s debt ratio, the lower the risk of a company not being able to pay its debts.
Answer: FALSE
Difficulty: 2 Medium
Topic: Debt Ratio
Learning Objective: 02-A2 Compute the debt ratio and describe its use in analyzing financial condition.
Bloom’s: Understand
AACSB/Accessibility: Analytical Thinking / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
40) The debt ratio is calculated by dividing total assets by total liabilities.
Answer: FALSE
Difficulty: 1 Easy
Topic: Debt Ratio
Learning Objective: 02-A2 Compute the debt ratio and describe its use in analyzing financial condition.
Bloom’s: Remember
AACSB/Accessibility: Analytical Thinking / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
41) A company that finances a relatively large portion of its assets with liabilities is said to have a high degree of financial leverage.
Answer: TRUE
Difficulty: 3 Hard
Topic: Debt Ratio
Learning Objective: 02-A2 Compute the debt ratio and describe its use in analyzing financial condition.
Bloom’s: Understand
AACSB/Accessibility: Analytical Thinking / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
42) If a company is highly leveraged, this means that it has relatively high risk of not being able to repay its debt.
Answer: TRUE
Difficulty: 3 Hard
Topic: Debt Ratio
Learning Objective: 02-A2 Compute the debt ratio and describe its use in analyzing financial condition.
Bloom’s: Understand
AACSB/Accessibility: Analytical Thinking / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
43) Stark Co. has liabilities of $105 million and total assets of $350 million. Its debt ratio is 40.0%.
Answer: FALSE
Explanation: Debt Ratio = Total Liabilities/Total Assets
Debt Ratio = $105 million/$350 million = 30%
Difficulty: 2 Medium
Topic: Debt Ratio
Learning Objective: 02-A2 Compute the debt ratio and describe its use in analyzing financial condition.
Bloom’s: Apply
AACSB/Accessibility: Analytical Thinking / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
44) A journal entry that affects only two accounts is called a compound entry.
Answer: FALSE
Difficulty: 2 Medium
Topic: Analyzing Transactions
Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements.
Bloom’s: Remember
AACSB/Accessibility: Reflective Thinking / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
45) Posting is the transfer of journal entry information to the ledger.
Answer: TRUE
Difficulty: 1 Easy
Topic: Journalizing and Posting Transactions
Learning Objective: 02-P1 Record transactions in a journal and post entries to a ledger.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
46) Transactions are recorded first in the ledger and then transferred to the journal.
Answer: FALSE
Difficulty: 2 Medium
Topic: Journalizing and Posting Transactions
Learning Objective: 02-P1 Record transactions in a journal and post entries to a ledger.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
47) A general journal gives a complete record of each transaction in one place, and shows the debits and credits for each transaction.
Answer: TRUE
Difficulty: 1 Easy
Topic: Journalizing and Posting Transactions
Learning Objective: 02-P1 Record transactions in a journal and post entries to a ledger.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
48) The general journal is a collection of all accounts and their balances.
Answer: FALSE
Difficulty: 1 Easy
Topic: Journalizing and Posting Transactions
Learning Objective: 02-P1 Record transactions in a journal and post entries to a ledger.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
49) At a given point in time, a trial balance is a list of all ledger accounts and their balances.
Answer: TRUE
Difficulty: 1 Easy
Topic: Preparing a Trial Balance
Learning Objective: 02-P2 Prepare and explain the use of a trial balance.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
50) Errors made in journalizing transactions, posting to the ledger, and preparing the trial balance can still exist in a balanced trial balance.
Answer: TRUE
Difficulty: 2 Medium
Topic: Preparing a Trial Balance
Learning Objective: 02-P2 Prepare and explain the use of a trial balance.
Bloom’s: Remember
AACSB/Accessibility: Analytical Thinking / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
51) The trial balance can serve as a replacement for the balance sheet, since total debits must equal total credits.
Answer: FALSE
Difficulty: 2 Medium
Topic: Preparing a Trial Balance
Learning Objective: 02-P2 Prepare and explain the use of a trial balance.
Bloom’s: Understand
AACSB/Accessibility: Analytical Thinking / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
52) A balanced trial balance is proof that no errors were made in journalizing transactions, posting to the ledger, and preparing the trial balance.
Answer: FALSE
Difficulty: 1 Easy
Topic: Preparing a Trial Balance
Learning Objective: 02-P2 Prepare and explain the use of a trial balance.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
53) If cash was incorrectly debited for $100 instead of correctly debiting accounts receivable for $100, assuming no other errors, the trial balance will balance.
Answer: TRUE
Difficulty: 2 Medium
Topic: Analyzing Transactions
Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements.
Bloom’s: Apply
AACSB/Accessibility: Analytical Thinking / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
54) The financial statement that summarizes how equity changes over the reporting period is called the balance sheet.
Answer: FALSE
Difficulty: 2 Medium
Topic: Financial Statements
Learning Objective: 02-P3 Prepare financial statements from business transactions.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
55) An income statement reports revenues earned minus expenses incurred over a period of time.
Answer: TRUE
Difficulty: 1 Easy
Topic: Financial Statements
Learning Objective: 02-P3 Prepare financial statements from business transactions.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
56) The detail of individual revenue and expense accounts is reported on the balance sheet.
Answer: FALSE
Difficulty: 2 Medium
Topic: Financial Statements
Learning Objective: 02-P3 Prepare financial statements from business transactions.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
57) The heading on every financial statement lists the three W’s—Who (the name of the business); What (the name of the statement); and Where (the organization’s address).
Answer: FALSE
Difficulty: 2 Medium
Topic: Financial Statements
Learning Objective: 02-P3 Prepare financial statements from business transactions.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Reporting
58) If an owner’s capital account had a $10,000 credit balance at the beginning of the period, and during the period, the owner invests an additional $5,000, the balance in the capital account listed on the trial balance will be equal to a debit balance of $5,000.
Answer: FALSE
Explanation: $10,000cr + $5,000cr = $15,000 credit balance
Difficulty: 2 Medium
Topic: Debits and Credits; Preparing a Trial Balance
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting.; 02-P2 Prepare and explain the use of a trial balance.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Reporting
59) Owner’s withdrawals are not reported on a business’s income statement.
Answer: TRUE
Difficulty: 2 Medium
Topic: Financial Statements
Learning Objective: 02-P3 Prepare financial statements from business transactions.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Reporting
60) An income statement reports the revenues earned minus expenses incurred by a business over a period of time.
Answer: TRUE
Difficulty: 2 Medium
Topic: Financial Statements
Learning Objective: 02-P3 Prepare financial statements from business transactions.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Reporting
61) The balance sheet reports the financial position of a company at a point in time.
Answer: TRUE
Difficulty: 2 Medium
Topic: Financial Statements
Learning Objective: 02-P3 Prepare financial statements from business transactions.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Reporting
62) The same four basic financial statements are prepared by both U.S. GAAP and IFRS.
Answer: TRUE
Difficulty: 2 Medium
Topic: Financial Statements
Learning Objective: 02-P3 Prepare financial statements from business transactions.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Global; FN Reporting
63) Neither U.S. GAAP nor IFRS require the use of accrual basis accounting.
Answer: FALSE
Difficulty: 2 Medium
Topic: Financial Statements
Learning Objective: 02-P3 Prepare financial statements from business transactions.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Global; FN Reporting
64) The amount of net income is added on the statement of owner’s equity.
Answer: TRUE
Difficulty: 2 Medium
Topic: Financial Statements
Learning Objective: 02-P3 Prepare financial statements from business transactions.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Global; FN Reporting
65) The accounting process begins with:
- A) Analysis of business transactions and source documents.
- B) Preparing financial statements and other reports.
- C) Analysis of prepared financial statements.
- D) Presentation of financial information to decision-makers.
- E) Preparation of the trial balance.
Answer: A
Difficulty: 2 Medium
Topic: Analyzing and Recording Process
Learning Objective: 02-C1 Explain the steps in processing transactions and the role of source documents.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
66) Which of the following statements is not true:
- A) Accounts receivable are held by a seller.
- B) Accounts receivable arise from credit sales.
- C) Accounts receivable are increased by customer payments.
- D) Accounts receivable are classified as assets.
- E) Accounts receivable are increased by billings to customers.
Answer: C
Difficulty: 1 Easy
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
67) A business’s source documents may include all of the following except:
- A) Sales receipts.
- B) Ledgers.
- C) Checks.
- D) Purchase orders.
- E) Bank statements.
Answer: B
Difficulty: 2 Medium
Topic: Analyzing and Recording Process
Learning Objective: 02-C1 Explain the steps in processing transactions and the role of source documents.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
68) A business’s source documents:
- A) Include the ledger.
- B) Provide objective evidence that a transaction has taken place.
- C) Must be in electronic form.
- D) Are records of all increases and decreases in specific asset.
- E) Include the chart of accounts.
Answer: B
Difficulty: 2 Medium
Topic: Analyzing and Recording Process
Learning Objective: 02-C1 Explain the steps in processing transactions and the role of source documents.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
69) A record of the increases and decreases in a specific asset, liability, equity, revenue, or expense is known as a(n):
- A) Journal.
- B) Posting.
- C) Trial balance.
- D) Account.
- E) Chart of accounts.
Answer: D
Difficulty: 1 Easy
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
70) An account used to record the owner’s investments in a business is called a(n):
- A) Withdrawals account.
- B) Capital account.
- C) Revenue account.
- D) Expense account.
- E) Liability account.
Answer: B
Difficulty: 1 Easy
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
71) Identify the account used by businesses to record the transfer of assets from a business to its owner for personal use:
- A) A revenue account.
- B) The owner’s withdrawals account.
- C) The owner’s capital account.
- D) An expense account.
- E) A liability account.
Answer: B
Difficulty: 1 Easy
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
72) Identify the statement below that is correct.
- A) When a future expense is paid in advance, the payment is normally recorded in a liability account called Prepaid Expense.
- B) Promises of future payment by the customer are called accounts receivable.
- C) Increases and decreases in cash are always recorded in the owner’s capital account.
- D) An account called Land is commonly used to record increases and decreases in both the land and buildings owned by a business.
- E) Accrued liabilities include accounts receivable.
Answer: B
Difficulty: 3 Hard
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions.
Bloom’s: Apply
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
73) Unearned revenues are generally:
- A) Revenues that have been earned and received in cash.
- B) Revenues that have been earned but not yet collected in cash.
- C) Liabilities created when a customer pays in advance for products or services before the revenue is earned.
- D) Recorded as an asset in the accounting records.
- E) Increases to owners’ capital.
Answer: C
Difficulty: 2 Medium
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Measurement
74) Unearned revenues refer to a(n):
- A) Asset that will be used over time.
- B) Expense incurred because a customer has paid in advance.
- C) Liability that is settled in the future when a company delivers its products or services.
- D) Increase in assets as a result of delivering products or services to a customer.
- E) Decrease in an asset.
Answer: C
Difficulty: 2 Medium
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Measurement
75) Prepaid accounts (also called prepaid expenses) are generally:
- A) Payments made for products and services that never expire.
- B) Classified as liabilities on the balance sheet.
- C) Classified as equity on the balance sheet.
- D) Assets that represent prepayments of future expenses.
- E) Promises of payments by customers.
Answer: D
Difficulty: 2 Medium
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Measurement
76) A company’s written promise to pay (in the form of a promissory note) a future amount is a(n):
- A) Unearned revenue.
- B) Prepaid expense.
- C) Credit account.
- D) Note payable.
- E) Account receivable.
Answer: D
Difficulty: 2 Medium
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Measurement
77) The record of all accounts and their balances used by a business is called a:
- A) Journal.
- B) Chart of accounts.
- C) General Journal.
- D) Balance column journal.
- E) Ledger (or General Ledger).
Answer: E
Difficulty: 2 Medium
Topic: Ledger and Chart of Accounts
Learning Objective: 02-C3 Describe a ledger and a chart of accounts.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
78) A company’s ledger is:
- A) A record containing increases and decreases in a specific asset, liability, equity, revenue, or expense item.
- B) A journal in which transactions are first recorded.
- C) A collection of documents that describe transactions and events entering the accounting process.
- D) A list of all identification numbers used by the company.
- E) A record containing all accounts and their balances used by the company.
Answer: E
Difficulty: 2 Medium
Topic: Ledger and Chart of Accounts
Learning Objective: 02-C3 Describe a ledger and a chart of accounts.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
79) A company’s list of accounts and the identification numbers assigned to each account is called a:
- A) Source document.
- B) Journal.
- C) Trial balance.
- D) Chart of accounts.
- E) General Journal.
Answer: D
Difficulty: 2 Medium
Topic: Ledger and Chart of Accounts
Learning Objective: 02-C3 Describe a ledger and a chart of accounts.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Reporting
80) A credit:
- A) Always decreases an account.
- B) Is the right-hand side of a T-account.
- C) Always increases an account.
Fundamental Accounting Principles, 24e (Wild)
Chapter 4 Completing the Accounting Cycle
1) Accounts that appear in the balance sheet are often called temporary accounts.
Answer: FALSE
Difficulty: 1 Easy
Topic: Closing Process
Learning Objective: 04-C1 Explain why temporary accounts are closed each period.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
2) Income Summary is a temporary account only used for the closing process.
Answer: TRUE
Difficulty: 1 Easy
Topic: Closing Process
Learning Objective: 04-C1 Explain why temporary accounts are closed each period.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
3) Revenue accounts are temporary accounts that should begin each accounting period with zero balances.
Answer: TRUE
Difficulty: 1 Easy
Topic: Closing Process
Learning Objective: 04-C1 Explain why temporary accounts are closed each period.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
4) Closing revenue and expense accounts at the end of the accounting period serves to make the revenue and expense accounts ready for use in the next period.
Answer: TRUE
Difficulty: 1 Easy
Topic: Closing Process
Learning Objective: 04-C1 Explain why temporary accounts are closed each period.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
5) The closing process takes place before financial statements have been prepared.
Answer: FALSE
Difficulty: 1 Easy
Topic: Closing Process
Learning Objective: 04-C1 Explain why temporary accounts are closed each period.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
6) Revenue and expense accounts are permanent accounts and should not be closed at the end of the accounting period.
Answer: FALSE
Difficulty: 1 Easy
Topic: Closing Process
Learning Objective: 04-C1 Explain why temporary accounts are closed each period.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
7) Closing entries result in the owner’s capital account being transferred into net income or net loss for the period ending.
Answer: FALSE
Difficulty: 2 Medium
Topic: Closing Process
Learning Objective: 04-C1 Explain why temporary accounts are closed each period.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
8) The closing process is a step in the accounting cycle that prepares accounts for the next accounting period.
Answer: TRUE
Difficulty: 1 Easy
Topic: Closing Process
Learning Objective: 04-C1 Explain why temporary accounts are closed each period.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
9) Closing entries are required at the end of each accounting period to close all ledger accounts.
Answer: FALSE
Difficulty: 1 Easy
Topic: Closing Process
Learning Objective: 04-C1 Explain why temporary accounts are closed each period.
Bloom’s: Remember
AACSB/Accessibility: Analytical Thinking / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
10) Closing entries are designed to transfer the end-of-period balances in the revenue accounts, the expense accounts, and the withdrawals account to owner’s capital.
Answer: TRUE
Difficulty: 2 Medium
Topic: Closing Process
Learning Objective: 04-C1 Explain why temporary accounts are closed each period.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
11) The Income Summary account is a permanent account that will be carried forward period after period.
Answer: FALSE
Difficulty: 1 Easy
Topic: Closing Process
Learning Objective: 04-C1 Explain why temporary accounts are closed each period.
Bloom’s: Remember
AACSB/Accessibility: Analytical Thinking / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
12) Closing entries are necessary so that owner’s capital will begin each period with a zero balance.
Answer: FALSE
Difficulty: 2 Medium
Topic: Closing Process
Learning Objective: 04-C1 Explain why temporary accounts are closed each period.
Bloom’s: Understand
AACSB/Accessibility: Analytical Thinking / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
13) Permanent accounts carry their balances into the next accounting period.
Answer: TRUE
Difficulty: 2 Medium
Topic: Closing Process
Learning Objective: 04-C1 Explain why temporary accounts are closed each period.
Bloom’s: Understand
AACSB/Accessibility: Analytical Thinking / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
14) If a company plans to continue business into the future, closing entries are not required.
Answer: FALSE
Difficulty: 2 Medium
Topic: Closing Process
Learning Objective: 04-C1 Explain why temporary accounts are closed each period.
Bloom’s: Understand
AACSB/Accessibility: Analytical Thinking / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
15) The first step in the accounting cycle is to analyze transactions and events to prepare for journalizing.
Answer: TRUE
Difficulty: 1 Easy
Topic: Accounting Cycle
Learning Objective: 04-C2 Identify steps in the accounting cycle.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
16) The accounting cycle refers to the sequence of steps used in preparing the work sheet.
Answer: FALSE
Difficulty: 1 Easy
Topic: Accounting Cycle
Learning Objective: 04-C2 Identify steps in the accounting cycle.
Bloom’s: Remember
AACSB/Accessibility: Analytical Thinking / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
17) The first five steps in the accounting cycle include analyzing transactions, journalizing, posting, preparing an unadjusted trial balance, and recording adjusting entries.
Answer: TRUE
Difficulty: 2 Medium
Topic: Accounting Cycle
Learning Objective: 04-C2 Identify steps in the accounting cycle.
Bloom’s: Understand
AACSB/Accessibility: Analytical Thinking / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
18) The last four steps in the accounting cycle include preparing the adjusted trial balance, preparing financial statements, and recording closing and adjusting entries.
Answer: FALSE
Difficulty: 1 Easy
Topic: Accounting Cycle
Learning Objective: 04-C2 Identify steps in the accounting cycle.
Bloom’s: Understand
AACSB/Accessibility: Analytical Thinking / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
19) A classified balance sheet organizes assets and liabilities into important subgroups that provide more information to decision makers.
Answer: TRUE
Difficulty: 1 Easy
Topic: Classified Balance Sheet
Learning Objective: 04-C3 Explain and prepare a classified balance sheet.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Reporting
20) An unclassified balance sheet provides more information to users than a classified balance sheet.
Answer: FALSE
Difficulty: 1 Easy
Topic: Classified Balance Sheet
Learning Objective: 04-C3 Explain and prepare a classified balance sheet.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Reporting
21) Current assets and current liabilities are expected to be used up or come due within one year or the company’s operating cycle whichever is longer.
Answer: TRUE
Difficulty: 1 Easy
Topic: Classified Balance Sheet
Learning Objective: 04-C3 Explain and prepare a classified balance sheet.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Reporting
22) Intangible assets are long-term resources that benefit business operations and usually lack physical form.
Answer: TRUE
Difficulty: 1 Easy
Topic: Classified Balance Sheet
Learning Objective: 04-C3 Explain and prepare a classified balance sheet.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Reporting
23) Assets are often classified into current assets, long-term investments, plant assets, and intangible assets.
Answer: TRUE
Difficulty: 1 Easy
Topic: Classified Balance Sheet
Learning Objective: 04-C3 Explain and prepare a classified balance sheet.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Reporting
24) Current liabilities are cash and other resources that are expected to be sold, collected or used within one year or the company’s operating cycle whichever is longer.
Answer: FALSE
Difficulty: 1 Easy
Topic: Classified Balance Sheet
Learning Objective: 04-C3 Explain and prepare a classified balance sheet.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Reporting
25) Long-term investments can include land held for future expansion.
Answer: TRUE
Difficulty: 1 Easy
Topic: Classified Balance Sheet
Learning Objective: 04-C3 Explain and prepare a classified balance sheet.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Reporting
26) Intangible assets are assets that are long-term, have physical form, and are used to produce or sell products and services.
Answer: FALSE
Difficulty: 1 Easy
Topic: Classified Balance Sheet
Learning Objective: 04-C3 Explain and prepare a classified balance sheet.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Reporting
27) Current liabilities include accounts receivable, unearned revenues, and salaries payable.
Answer: FALSE
Difficulty: 1 Easy
Topic: Classified Balance Sheet
Learning Objective: 04-C3 Explain and prepare a classified balance sheet.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Reporting
28) Cash and office supplies are both classified as current assets.
Answer: TRUE
Difficulty: 1 Easy
Topic: Classified Balance Sheet
Learning Objective: 04-C3 Explain and prepare a classified balance sheet.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Reporting
29) Plant assets are usually listed by how quickly they can be converted to cash.
Answer: TRUE
Difficulty: 1 Easy
Topic: Classified Balance Sheet
Learning Objective: 04-C3 Explain and prepare a classified balance sheet.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Reporting
30) The current ratio is used to help assess a company’s ability to pay its debts in the near future.
Answer: TRUE
Difficulty: 1 Easy
Topic: Current Ratio
Learning Objective: 04-A1 Compute the current ratio and describe what it reveals about a company’s financial condition.
Bloom’s: Remember
AACSB/Accessibility: Analytical Thinking / Keyboard Navigation
AICPA: BB Industry; FN Risk Analysis
31) The current ratio is computed by dividing current liabilities by current assets.
Answer: FALSE
Difficulty: 1 Easy
Topic: Current Ratio
Learning Objective: 04-A1 Compute the current ratio and describe what it reveals about a company’s financial condition.
Bloom’s: Remember
AACSB/Accessibility: Analytical Thinking / Keyboard Navigation
AICPA: BB Industry; FN Risk Analysis
32) Trekker Bikes’ current assets are $300 million and its current liabilities are $125 million. Its current ratio is 0.417.
Answer: FALSE
Explanation: Current Ratio = Current Assets/Current Liabilities
Current Ratio = $300 million/$125 million = 2.4
Difficulty: 2 Medium
Topic: Current Ratio
Learning Objective: 04-A1 Compute the current ratio and describe what it reveals about a company’s financial condition.
Bloom’s: Apply
AACSB/Accessibility: Analytical Thinking / Keyboard Navigation
AICPA: BB Industry; FN Risk Analysis
33) If a company has current assets of $15,000 and current liabilities of $9,500, its current ratio is 1.6
Answer: TRUE
Explanation: Current Ratio = Current Assets/Current Liabilities
Current Ratio = $15,000/$9,500 = 1.6
Difficulty: 2 Medium
Topic: Current Ratio
Learning Objective: 04-A1 Compute the current ratio and describe what it reveals about a company’s financial condition.
Bloom’s: Apply
AACSB/Accessibility: Analytical Thinking / Keyboard Navigation
AICPA: BB Industry; FN Risk Analysis
34) Flo’s Flowers’ current ratio is 1.3. The industry average for the current ratio is 1.2. This indicates that Flo’s can cover its short-term liabilities with its short-term assets.
Answer: TRUE
Difficulty: 2 Medium
Topic: Current Ratio
Learning Objective: 04-A1 Compute the current ratio and describe what it reveals about a company’s financial condition.
Bloom’s: Analyze
AACSB/Accessibility: Analytical Thinking / Keyboard Navigation
AICPA: BB Industry; FN Risk Analysis
35) A benefit of using a work sheet is that it aids in the preparation of the financial statements.
Answer: TRUE
Difficulty: 1 Easy
Topic: Benefits of a Work Sheet (Spreadsheet)
Learning Objective: 04-P1 Prepare a work sheet and explain its usefulness.
Bloom’s: Remember
AACSB/Accessibility: Technology / Keyboard Navigation
AICPA: BB Industry; FN Leveraging Technology
36) Adjustments must be entered in the journal and posted to the ledger after the work sheet is prepared.
Answer: TRUE
Difficulty: 1 Easy
Topic: Benefits of a Work Sheet (Spreadsheet)
Learning Objective: 04-P1 Prepare a work sheet and explain its usefulness.
Bloom’s: Remember
AACSB/Accessibility: Technology / Keyboard Navigation
AICPA: BB Industry; FN Reporting
37) The work sheet is a required report made available to external decision makers.
Answer: FALSE
Difficulty: 1 Easy
Topic: Benefits of a Work Sheet (Spreadsheet)
Learning Objective: 04-P1 Prepare a work sheet and explain its usefulness.
Bloom’s: Remember
AACSB/Accessibility: Technology / Keyboard Navigation
AICPA: BB Industry; FN Reporting
38) A work sheet contains all of the balances for each account and therefore may be used as a substitute for the set of financial statements.
Answer: FALSE
Difficulty: 1 Easy
Topic: Benefits of a Work Sheet (Spreadsheet)
Learning Objective: 04-P1 Prepare a work sheet and explain its usefulness.
Bloom’s: Remember
AACSB/Accessibility: Technology / Keyboard Navigation
AICPA: BB Industry; FN Reporting
39) All necessary amounts needed to prepare the income statement can be taken from the income statement columns of the work sheet, including the net income or net loss.
Answer: TRUE
Difficulty: 2 Medium
Topic: Benefits of a Work Sheet (Spreadsheet)
Learning Objective: 04-P1 Prepare a work sheet and explain its usefulness.
Bloom’s: Understand
AACSB/Accessibility: Technology / Keyboard Navigation
AICPA: BB Industry; FN Reporting
40) On a work sheet, if the Debit total exceeds the Credit total of the Income Statement columns, a net loss is indicated.
Answer: TRUE
Difficulty: 2 Medium
Topic: Benefits of a Work Sheet (Spreadsheet)
Learning Objective: 04-P1 Prepare a work sheet and explain its usefulness.
Bloom’s: Understand
AACSB/Accessibility: Analytical Thinking / Keyboard Navigation
AICPA: BB Industry; FN Reporting
41) If all columns of a completed work sheet balance, you can be sure that no errors were made in its preparation.
Answer: FALSE
Difficulty: 2 Medium
Topic: Benefits of a Work Sheet (Spreadsheet)
Learning Objective: 04-P1 Prepare a work sheet and explain its usefulness.
Bloom’s: Understand
AACSB/Accessibility: Analytical Thinking / Keyboard Navigation
AICPA: BB Industry; FN Reporting
42) Normally closing entries are first entered in the general journal and then posted to the work sheet.
Answer: FALSE
Difficulty: 2 Medium
Topic: Benefits of a Work Sheet (Spreadsheet)
Learning Objective: 04-P1 Prepare a work sheet and explain its usefulness.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
43) Adjusting entries are usually entered in the work sheet before they are entered in the general journal.
Answer: TRUE
Difficulty: 2 Medium
Topic: Benefits of a Work Sheet (Spreadsheet)
Learning Objective: 04-P1 Prepare a work sheet and explain its usefulness.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
44) On a work sheet, the adjusted balances of revenues and expenses are sorted to the Income Statement columns of the work sheet.
Answer: TRUE
Difficulty: 2 Medium
Topic: Benefits of a Work Sheet (Spreadsheet)
Learning Objective: 04-P1 Prepare a work sheet and explain its usefulness.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Reporting
45) On the work sheet, net income is entered in the Income Statement Credit column as well as the Balance Sheet or Statement of Owner’s Equity Credit column.
Answer: FALSE
Difficulty: 2 Medium
Topic: Benefits of a Work Sheet (Spreadsheet)
Learning Objective: 04-P1 Prepare a work sheet and explain its usefulness.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Reporting
46) All necessary amounts to prepare the balance sheet, including ending owner’s capital, can be found in the Balance Sheet columns of the work sheet.
Answer: FALSE
Difficulty: 2 Medium
Topic: Benefits of a Work Sheet (Spreadsheet)
Learning Objective: 04-P1 Prepare a work sheet and explain its usefulness.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Reporting
47) A worksheet can be helpful in showing the effects of proposed or “what if” transactions but not in helping to prepare financial statements.
Answer: FALSE
Difficulty: 2 Medium
Topic: Benefits of a Work Sheet (Spreadsheet)
Learning Objective: 04-P1 Prepare a work sheet and explain its usefulness.
Bloom’s: Understand
AACSB/Accessibility: Analytical Thinking / Keyboard Navigation
AICPA: BB Industry; FN Reporting
48) Because it is a necessary financial statement, the work sheet must be prepared according to specified accounting procedures.
Answer: FALSE
Difficulty: 2 Medium
Topic: Benefits of a Work Sheet (Spreadsheet)
Learning Objective: 04-P1 Prepare a work sheet and explain its usefulness.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Reporting
49) An expense account is normally closed by debiting Income Summary and crediting the expense account.
Answer: TRUE
Difficulty: 2 Medium
Topic: Preparing Closing Entries
Learning Objective: 04-P2 Describe and prepare closing entries.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
50) The withdrawals account is normally closed by debiting it.
Answer: FALSE
Difficulty: 1 Easy
Topic: Preparing Closing Entries
Learning Objective: 04-P2 Describe and prepare closing entries.
Bloom’s: Remember
AACSB/Accessibility: Analytical Thinking / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
51) After posting the entries to close all revenue and expense accounts, the Income Summary account of Cleaver Auto Services has a $4,000 debit balance. This result implies that Cleaver earned a net income of $4,000.
Answer: FALSE
Difficulty: 2 Medium
Topic: Preparing Closing Entries
Learning Objective: 04-P2 Describe and prepare closing entries.
Bloom’s: Understand
AACSB/Accessibility: Analytical Thinking / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
52) After posting the entries to close all revenue and expense accounts, Marker Company’s Income Summary account has a credit balance of $6,000, and its Marker, Withdrawals account has a debit balance of $2,500. These balances indicate that net income for the current accounting period amounted to $3,500.
Answer: FALSE
Difficulty: 2 Medium
Topic: Preparing Closing Entries
Learning Objective: 04-P2 Describe and prepare closing entries.
Bloom’s: Understand
AACSB/Accessibility: Analytical Thinking / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
53) When there is a net loss, the Income Summary account would have a credit balance.
Answer: FALSE
Difficulty: 2 Medium
Topic: Preparing Closing Entries
Learning Objective: 04-P2 Describe and prepare closing entries.
Bloom’s: Understand
AACSB/Accessibility: Analytical Thinking / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
54) The Income Summary account is used to close the permanent accounts at the end of an accounting period.
Answer: FALSE
Difficulty: 2 Medium
Topic: Preparing Closing Entries
Learning Objective: 04-P2 Describe and prepare closing entries.
Bloom’s: Understand
AACSB/Accessibility: Analytical Thinking / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
55) The steps in the closing process are (1) close credit balances in revenue accounts to Income Summary; (2) close debit balances in expense accounts to Income Summary; (3) close Income Summary to Owner’s Capital; (4) close Withdrawals to Owner’s Capital.
Answer: TRUE
Difficulty: 2 Medium
Topic: Preparing Closing Entries
Learning Objective: 04-P2 Describe and prepare closing entries.
Bloom’s: Understand
AACSB/Accessibility: Analytical Thinking / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
56) During the closing process, Owner’s Capital is closed to the Owner’s Withdrawals account.
Answer: FALSE
Difficulty: 1 Easy
Topic: Preparing Closing Entries
Learning Objective: 04-P2 Describe and prepare closing entries.
Bloom’s: Remember
AACSB/Accessibility: Analytical Thinking / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
57) A post-closing trial balance is a list of permanent accounts and their balances after all closing entries.
Answer: TRUE
Difficulty: 1 Easy
Topic: Post-Closing Trial Balance
Learning Objective: 04-P3 Explain and prepare a post-closing trial balance.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
58) The aim of a post-closing trial balance is to verify that (1) total debits equal total credits for temporary accounts, and (2) all temporary accounts have zero balances.
Answer: FALSE
Difficulty: 1 Easy
Topic: Post-Closing Trial Balance
Learning Objective: 04-P3 Explain and prepare a post-closing trial balance.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
59) A company’s post-closing trial balance has total debits of $40,560 and total credits of $40,650. Accordingly, the company should review for errors in the closing process.
Answer: TRUE
Difficulty: 1 Easy
Topic: Post-Closing Trial Balance
Learning Objective: 04-P3 Explain and prepare a post-closing trial balance.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
60) Reversing entries are optional.
Answer: TRUE
Difficulty: 1 Easy
Topic: Reversing Entries
Learning Objective: 04-P4 Appendix 4A-Prepare reversing entries and explain their purpose.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
61) Reversing entries are recorded in response to external transactions that were created in error during the prior accounting period.
Answer: FALSE
Difficulty: 1 Easy
Topic: Reversing Entries
Learning Objective: 04-P4 Appendix 4A-Prepare reversing entries and explain their purpose.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
62) Reversing entries simplify the entries to pay accrued liabilities from the previous accounting period.
Answer: TRUE
Difficulty: 2 Medium
Topic: Reversing Entries
Learning Objective: 04-P4 Appendix 4A-Prepare reversing entries and explain their purpose.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
63) Which of the following accounts is a temporary account:
- A) Accounts receivable.
- B) J. Jones, capital.
- C) Accounts payable.
- D) Cash.
- E) Salaries expense.
Answer: E
Difficulty: 1 Easy
Topic: Closing Process
Learning Objective: 04-C1 Explain why temporary accounts are closed each period.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
64) Which of the following accounts is a permanent account?
- A) Fees earned.
- B) Office supplies expense.
- C) Interest revenue.
- D) Accounts payable.
- E) Salaries expense.
Answer: D
Difficulty: 2 Medium
Topic: Closing Process
Learning Objective: 04-C1 Explain why temporary accounts are closed each period.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
65) When closing entries are made:
- A) All ledger accounts are closed to start the new accounting period.
- B) All temporary accounts are closed but permanent accounts are not closed.
- C) All asset accounts are closed but liability accounts are not closed.
- D) All permanent accounts are closed but temporary accounts are not closed.
- E) All balance sheet accounts are closed.
Answer: B
Difficulty: 1 Easy
Topic: Closing Process
Learning Objective: 04-C1 Explain why temporary accounts are closed each period.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
66) Revenues, expenses, and withdrawals accounts, which are closed at the end of each accounting period are:
- A) Real accounts.
- B) Temporary accounts.
- C) Closing accounts.
- D) Permanent accounts.
- E) Balance sheet accounts.
Answer: B
Difficulty: 1 Easy
Topic: Closing Process
Learning Objective: 04-C1 Explain why temporary accounts are closed each period.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
67) Which of the following statements is incorrect?
- A) Permanent account is another name for revenue accounts.
- B) Temporary accounts carry a zero balance at the beginning of each accounting period.
- C) The Income Summary account is a temporary account.
- D) Permanent accounts remain open as long as the asset, liability, or equity items recorded in the accounts continue in existence.
- E) The closing process applies only to temporary accounts.
Answer: A
Difficulty: 2 Medium
Topic: Closing Process
Learning Objective: 04-C1 Explain why temporary accounts are closed each period.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
68) Assets, liabilities, and equity accounts are not closed; these accounts are called:
- A) Nominal accounts.
- B) Temporary accounts.
- C) Permanent accounts.
- D) Contra accounts.
- E) Accrued accounts.
Answer: C
Difficulty: 1 Easy
Topic: Closing Process
Learning Objective: 04-C1 Explain why temporary accounts are closed each period.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
69) Closing the temporary accounts at the end of each accounting period does all of the following except:
- A) Serves to transfer the effects of these accounts to the owner’s capital account on the balance sheet.
- B) Prepares the withdrawals account for use in the next period.
- C) Brings the revenue and expense accounts to zero balances.
- D) Has no effect on the owner’s capital account.
- E) Causes owner’s capital to reflect increases from revenues and decreases from expenses and withdrawals.
Answer: D
Difficulty: 2 Medium
Topic: Closing Process
Learning Objective: 04-C1 Explain why temporary accounts are closed each period.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
70) Journal entries recorded at the end of each accounting period to prepare the revenue, expense, and withdrawals accounts for the upcoming period and to update the owner’s capital account for the events of the period just finished are referred to as:
- A) Adjusting entries.
- B) Closing entries.
- C) Final entries.
- D) Work sheet entries.
- E) Updating entries.
Answer: B
Difficulty: 1 Easy
Topic: Closing Process
Learning Objective: 04-C1 Explain why temporary accounts are closed each period.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
71) The closing process is necessary in order to:
- A) Ensure compliance with payroll regulations.
- B) Ensure that all permanent accounts are closed to zero at the end of each accounting period.
- C) Ensure that the company complies with state laws.
- D) Ensure that net income or net loss and owner withdrawals for the period are closed into the owner’s capital account.
- E) Ensure that management is aware of how well the company is operating.
Answer: D
Difficulty: 2 Medium
Topic: Closing Process
Learning Objective: 04-C1 Explain why temporary accounts are closed each period.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
72) Closing entries are required:
- A) If management has decided to cease operating the business.
- B) Only if the company adheres to the accrual method of accounting.
- C) If a company’s bookkeeper does not choose to prepare reversing entries.
- D) If the temporary accounts are to reflect correct amounts for each accounting period.
- E) In order to satisfy the Internal Revenue Service guidelines.
Answer: D
Difficulty: 2 Medium
Topic: Closing Process
Learning Objective: 04-C1 Explain why temporary accounts are closed each period.
Bloom’s: Understand
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
73) The steps performed each reporting period in preparing financial statements, starting with analyzing and recording transactions in the journal and continuing through the post-closing trial balance, is referred to as the:
- A) Accounting period.
- B) Operating cycle.
- C) Accounting cycle.
- D) Closing cycle.
- E) Natural business year.
Answer: C
Difficulty: 1 Easy
Topic: Accounting Cycle
Learning Objective: 04-C2 Identify steps in the accounting cycle.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
74) Which of the following is the usual final step in the accounting cycle?
- A) Journalizing transactions.
- B) Preparing an adjusted trial balance.
- C) Preparing a post-closing trial balance.
- D) Preparing the financial statements.
- E) Preparing a work sheet.
Answer: C
Difficulty: 1 Easy
Topic: Accounting Cycle
Learning Objective: 04-C2 Identify steps in the accounting cycle.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
75) A classified balance sheet:
- A) Measures a company’s ability to pay its bills on time.
- B) Organizes assets and liabilities into important subgroups that provide more information.
- C) Broadly groups items into assets, liabilities, and equity.
- D) Reports operating, investing, and financing activities.
- E) Reports the effect of profit and withdrawals on owner’s capital.
Answer: B
Difficulty: 1 Easy
Topic: Classified Balance Sheet
Learning Objective: 04-C3 Explain and prepare a classified balance sheet.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Reporting
76) The assets section of a classified balance sheet usually includes the subgroups:
- A) Current assets, long-term investments, plant assets, and intangible assets.
- B) Current assets, long-term assets, revenues, and intangible assets.
- C) Current assets, long-term investments, plant assets, and equity.
- D) Current liabilities, long-term investments, plant assets, and intangible assets.
- E) Current assets, liabilities, plant assets, and intangible assets.
Answer: A
Difficulty: 1 Easy
Topic: Classified Balance Sheet
Learning Objective: 04-C3 Explain and prepare a classified balance sheet.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Reporting
77) The usual order for the asset subgroups of a classified balance sheet is:
- A) Current assets, prepaid expenses, long-term investments, intangible assets.
- B) Long-term investments, current assets, plant assets, intangible assets.
- C) Current assets, long-term investments, plant assets, intangible assets.
- D) Intangible assets, current assets, long-term investments, plant assets.
- E) Plant assets, intangible assets, long-term investments, current assets.
Answer: C
Difficulty: 1 Easy
Topic: Classified Balance Sheet
Learning Objective: 04-C3 Explain and prepare a classified balance sheet.
Bloom’s: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Reporting
78) A classified balance sheet differs from an unclassified balance sheet in that
- A) An unclassified balance sheet is never used by large companies.
- B) A classified balance sheet groups items into the broad categories of asset, liability, and equity.
- C) A classified balance sheet presents information in a manner that makes it easier to calculate a company’s current ratio.
- D) A classified balance sheet will include more accounts than an unclassified balance sheet for the same company on the same date.
- E) A classified balance sheet is not usually provided to outside parties.
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