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The Financial Accounting Standards Board (FASB) is responsible for establishing:
a. the American Institute of Certified Public Accountants
b. generally accepted accounting principles
c. the code of professional conduct for accountants
d. the Securities and Exchange Commission
2.
An entity where ownership is divided into shares of stock is called a:
a. proprietorship
b. trade agreement
c. corporation
d. mutual agency
3.
According to the FASB, the primary objective of financial reporting is to provide information:
a. to the Internal Revenue Service
b. to the Securities and Exchange Commission
c. useful for making investing and lending decisions
d. regarding the revenues and expenses of a business
4.
The principle which states that assets acquired by the business should be recorded at their exchange price is the:
a. objectivity principle
b. cost principle
c. revenue recognition principle
d. matching principle
5.
The accounting equation can be stated as:
a. Assets = Liabilities – Owner’s Equity
b. Assets – Liabilities = Owner’s Equity
c. Liabilities = Assets + Owner’s Equity
d. Owner’s Equity = Assets + Liabilities
6.
Receiving cash from a customer in payment of an account receivable would:
a. decrease total assets and increase owner’s equity
b. increase owner’s equity and increase liabilities
c. increase total assets and decrease liabilities
d. have no effect on total assets or owner’s equity
7.
Borrowing money and signing a note payable would:
a. increase total assets and increase liabilities
b. decrease liabilities and increase total assets
c. increase liabilities and increase owner’s equity
d. increase total assets and increase owner’s equity
8.
The financial statement that presents a summary of the revenues and expenses of an entity is called the:
a. statement of owner’s equity
b. statement of financial position
c. income statement
d. balance sheet
9.
The financial statement that presents a summary of assets, liabilities, and owner’s equity as of a specific date is the:
a. statement of owner’s equity
b. balance sheet
c. income statement
d. statement of cash flows
10.
The normal balance of an expense account is a ________ while the normal balance of an asset account is a ____________.
a. debit, credit
b. debit, debit
c. credit, credit
d. credit, debit
11.
The normal balance of a liability account is a ________ while the normal balance of a revenue account is a __________.
a. credit, debit
b. debit, debit
c. debit, credit
d. credit, credit
12.
Which of the following entries records the billing of service revenue performed on account for $5,400:
a. debit to service revenue and a credit to accounts receivable for $5,400
b. debit to accounts payable and a credit to service revenue for $5,400
c. debit to accounts receivable and a credit to the owner’s capital for $5,400
d. debit to accounts receivable and a credit to service revenue for $5,400
13.
Performing a service for $500 cash and $700 on account would include a:
a. debit to cash for $1,200
b. debit to service revenue for $1,200
c. credit to service revenue for $500
d. debit to accounts receivable for $700
14.
The normal balance of cash is a _____ because it is a(n) _____ account.
a. debit, expense
b. credit, asset
c. debit, asset
d. credit, revenue
15.
The normal balance of accounts payable is a _____ because it is a(n) _____ account.
a. credit, liability
b. credit, revenue
c. credit, owner’s equity
d. credit, asset
16.
An owner investment of a building, valued at $200,000, with a $55,000 outstanding mortgage into an entity would:
a. increase owner’s equity $145,000
b. increase total assets $55,000
c. decrease liabilities $145,000
d. increase owner’s equity $200,000
17.
The matching principle is the basis for recording:
a. revenues
b. expenses
c. assets
d. liabilities
18.
Accrued revenue has:
a. not been earned nor has cash been received
b. been earned but cash has not been received
c. not been earned but cash has been received
d. been earned and cash has been received
19.
The supplies account shows a beginning balance of $3,000. Assume the supplies account shows a debit for $5,500 representing supplies purchased during the period and the supplies inventory at year-end is $1,700. The adjusting entry involves a:
a. debit so supplies expense for $6,800
b. debit so supplies for $6,800
c. debit to supplies expense for $1,700
d. debit to supplies for $1,700
20.
Prepaid insurance shows a beginning balance of $500 and an ending balance of $600. During the year, prepaid insurance was debited for $2,200. What is the amount of insurance expense shown on the current year’s income statement?
a. $2,100
b. $1,700
c. $1,600
d. $2,700
21.
The _____is/are transferred from the income statement to the statement of owner’s equity.
a. ending capital
b. withdrawals
c. net income
d. beginning capital
22.
Revenues total $10,200, expenses total $7,300, and the owner’s withdrawals account has a balance of $2,600. What is the balance in the income summary account prior to closing net income or net loss?
a. $2,900 debit
b. $300 debit
c. $2,900 credit
d. $300 credit
23.
Revenues total $10,200, expenses total $7,300, and the owner’s withdrawals account has a balance of $2,600. What is the balance in the income summary account after all closing entries are completed?
a. $2,600 credit
b. $2,900 debit
c. $2,900 credit
d. $ -0-
24.
The balance in the Accumulated Depreciation account must be:
a. $8,050
b. $10,200
c. $65,250
d. impossible to determine with this data
25.
Which of the following accounts are closed to the owner’s capital account?
a. revenues and expenses
b. the owner’s withdrawal account and expenses
c. income summary and owner’s withdrawal account
d. revenues, expenses and the owner’s withdrawal account
26.
Credit terms of 1/10, n/30 indicates that the buyer is:
a. allowed to a 10% discount if payment is made within 30 days
b. allowed a 1% discount if payment is made within 10 days
c. allowed a 1% discount if payment is made within 30 days
d. allowed a 30% discount if payment is made within 10 days
27.
A company makes a purchase of $2,000 of inventory, subject to credit terms of 3/10, n/45 and returns $500 of inventory prior to payment. What is the amount of the payment assuming payment is made within the discount period?
a. $1,500
b. $1,455
c. $1,440
d. $1,560
28.
The buyer is responsible for the shipping costs when the shipping terms are:
a. FOB destination
b. COD destination
c. FOB shipping point
d. COD shipping point
29.
Under a perpetual inventory system, the entries to record a $1,600 sales return for a sale originally made on account, when the merchandise had a cost of $900, include a:
a. debit to inventory for $900
b. debit to sales returns and allowances of $700
c. credit to cost of goods sold of $1,600
d. credit to accounts receivable of $900
30.
Inventory and cost of goods sold appear on the:
a. balance sheet and statement of owner’s equity, respectively
b. balance sheet and income statement, respectively
c. statement of owner’s equity and income statement, respectively
d. income statement and statement of cash flows, respectively
31.
(Points: 45)
On January 1, 2006, Angela Sanchez invested $1, 000 in Angela’s Bookkeeping Services. She withdrew $11, 000 for personal use during the year. Angela reports the following balances on December 31. Using the information provided below, prepare an income statement for the year ended December 31, 2006.
ANSWER:
Angela’s Bookkeeping Services
Income Statement
For the year ended December 31, 2006

REVENUES:
Service Revenue 39,000
EXPENSES:
Rent Expense 2,000
Salary Expense 10,000 12,000
Net Income 27,000
32.
(Points: 45)
Thermo Company is a heating and air conditioning service company. On December 31, 2007, after its first month of business, Thermo Company had the following balances in its accounts, listed alphabetically.
Determine the balance in the cash account and prepare a trial balance using proper format.
Thermo Company
Trial Balance
December 31, 2007

Accounts Debit Credit

Cash 84,800
Acct receivable 4,100
Supplies 2,900
Land 67,000
Equipment 1,800
Building 17,000
Accts payable 22,000
Note Payable 58,000
Jake Harrison, capital 45,000
Jake Harrison, withdrawals 1,800
Service revenue 62,000
Advertising expense 1,600
Salary expense 1,800
Utilities expense 4,200
187,000 187,000
33.
(Points: 30)
Lucent Electrical Repair performs services of $3,000 on January 13. Lucent receives the $3,000 on January 31. Record these transactions if Lucent uses the accrual method of accounting.
ANSWER:
January 13
Debit. Accounts Receivable $3,000
Credit. Service Revenue $3,000
January 31
Debit. Cash $3,000
Credit. Accounts Receivable $3,000
34.
(Points: 45)
Reid Art Supply Company uses a perpetual inventory system. The company had the following transactions during August, 2009. Prepare journal entries to record these transactions.
• Aug. 5 Reid Company purchased $2,900 of merchandise on account. Freight and credit terms were FOB shipping point, 3/15 n/60.
• Aug. 9 Reid Company paid transportation costs of $440 for the Aug. 5 purchase.
• Aug. 10 Reid Company returned $600 of defective merchandise that had been purchased on Aug. 5.
• Aug. 15 Reid Company paid for the merchandise purchased on Aug 5.
ANSWER:
August 5
Debit. Merchandise Inventory $2,900
Credit. Accounts Payable $2,900
August 9
Debit. Merchandise Inventory $440
Credit. Cash $440
August 10
Debit. Accounts Payable $600
Credit. Merchandise Inventory $600
August 15
Debit. Accounts Payable $2,300
Credit. Cash $2,231
Credit. Merchandise Inventory $69
35.
(Points: 45)
On November 1, 2009 Everett Janitorial Supply sold merchandise for $5,000, FOB destination, 2/10 n/30. The merchandise had cost $3,200. Everett paid transportation costs of $100. On November 6, 2009, merchandise of $1,000 from the Nov. 1 sale was returned. The returned merchandise had cost $600. Everett received payment for the balance of the sale on November 10, 2009. Journalize the entries for these transactions.