ACCY 2001

PRACTICE EXAM 1
(CHAPTERS 1-5)
1.

Which of the following best describes the balance sheet?

A.
It includes a listing of assets at their market values.
B. It includes a listing of assets, liabilities, and stockholders' equity at their market values.
C. It provides information pertaining to a company's assets and the claims against sources of financing for those
assets.
D. It provides information pertaining to a company's liabilities for a period of time.

2.

Which of the following accounts is not a liability on the balance sheet?

A.
B.
C.
D.

3.

Which of the following are the components of stockholders' equity on the balance sheet?
A.
B.
C.
D.

4.

Common stock and liabilities.

Common stock and assets.
Retained earnings and dividends.
Common stock and retained earnings.

What financial statement would you look at to determine the dividends declared by a business?
A.
B.
C.
D.

5.

Retained earnings.
Notes payable.
Accounts payable.
Interest payable.

Income statement.
Statement of stockholders' equity.
Statement of cash flows.
Balance sheet.

A calendar year reporting company preparing its annual financial statements should use the phrase "As of
December 31,2014" in the heading of which financial statements?
A.
On all of the required financial statements.
B.
On only the income statement.
C. On the income statement and balance sheet, but not the statement of cash flows.
D.
On the balance sheet only.

1 | Page

6.

Which of the following is included within current assets on a balance sheet?

A.
B.
C.
D.

7.

A truck.
Inventory.
Intangible assets.

In what order are current assets listed on a balance sheet?

A.
B.
C.
D.
8.

Land.

By dollar amount (largest first).

By date of acquisition (earliest first).
By liquidity.
By relevance to the operation of the business.

A company's January 1, 2014 balance sheet reported total assets of $150,000 and total liabilities of $60,000.
During January 2014, the company completed the following transactions: (A) paid a note payable using
$10,000 cash (no interest was paid); (B) collected a $9,000 accounts receivable; (C) paid a $5,000 accounts
payable; and (D) purchased a truck for $5,000 cash and by signing a $20,000 note payable from a bank. The
company's January 31, 2014 balance sheet would report which of the following?-

2 | Page

9.

Cadet Com-pany paid an account payable of $1,000. This transaction should be recorded on the payment date
as follows:

10. Centex, Inc. issued 50,000 shares of its $1 par value common stock for $20 per share. The journal entry to
record the stock issue would include which of the following?
A.
B.
C.
D.

A credit to cash for $1,000,000.

A credit to additional paid-in capital for $1,000,000.
A credit to additional paid-in capital for $50,000.
A credit to common stock for $50,000.

3 | Page

11. The Pioneer Company has provided the following account balances:
Cash $38,000;
Short-term investments $4,000;
Accounts receivable $48,000;
Supplies $6,000;
Long-term notes receivable $2,000;
Equipment $96,000;
Factory Building $180,000;
Intangible assets $6,000;
Accounts payable $30,000;
Accrued liabilities payable $4,000;
Short-term notes payable $14,000;
Long-term notes payable $92,000;
Common stock $180,000;
Retained earnings $60,000.
What are Pioneer's total current assets?

A.
B.
C.
D.

4 | Page

$48,000.
$96,000.
$90,000.
$42,000.

12. The following information has been provided by Hable Company:

Advertising expense $9,900;
Interest expense $3,700;
Rent expense $12,000;
Loss on sale of property and equipment $5,700;
Cost of goods sold $21,300;
Depreciation expense $7,100;
Prepaid insurance expense $1,000.
How much were Hable's operating expenses?
A.
B.
C.
D.

$50,300.
$54,000.
$59,700.
$43,200.

13. Which of the following is not a criterion pertaining to the revenue realization principle?
A.
B.
C.
D.

The goods or services have been delivered.

The selling price is fixed or determinable.
Collection is reasonably assured.
The cash payment has been received.

14. Which of the following journal entries is prepared when cash is received from a customer prior to delivery of
the goods or services?

5 | Page

15. Which of the following journal entries correctly records a transaction where services were provided to a
customer on account?

16. Which of the following statements is false?

A.
B.
C.
D.

The unearned revenue account has a credit balance.

The revenue account has a credit balance.
An expense account has a debit balance.
A prepaid expense account has a credit balance.

17. Which is the correct order of the following steps in the accounting cycle?
A. Prepare financial statements, journalize and post adjusting entries, journalize and post the closing entries,
and prepare a post-closing trial balance.
B. Prepare an unadjusted trial balance, journalize and post adjusting entries, journalize and post the closing
entries, and prepare financial statements.
C. Journalize and post adjusting entries, journalize and post the closing entries, prepare financial statements,
and prepare an adjusted trial balance.
D. Prepare an unadjusted trial balance, journalize and post adjusting entries, prepare financial statements, and
journalize and post the closing entries.
18. On October 1, 2014, Adams Company paid $4,800 for a two-year insurance policy with the insurance coverage
beginning on that date. As of December 31, 2014, which of the following account balances are correct after
adjusting entries have been made?

A.
B.
C.
D.

Prepaid insurance $4,800, and Insurance expense $0.

Prepaid insurance $0, and Insurance expense $4,800.
Prepaid insurance $2,400, and Insurance expense $2,400.
Prepaid insurance $4,200, and Insurance expense $600.

6 | Page

19. Which of the following journal entries is created as the result of an accrual?

20. On December 31, 2014, Krug Company reported pretax income of $120,000 prior to the following adjusting
entries:
Depreciation expense: $31,000.
Accrued service revenues: $29,000.
Accrued expenses: $12,000.
Used insurance: $9,000; the insurance was initially recorded as prepaid.
Rent revenue earned: $7,000; the rent was initially prepaid by the tenant and credited to unearned rent revenue.
How much is Krug's pretax income after adjusting entries?

A.
B.
C.
D.

$113,000.
$104,000.
$106,000.
$128,000.

21. Assume Idaho Company recorded the following adjusting journal entry at year-end:

If the beginning balance in prepaid insurance was $500, and $2,500 was paid for an insurance premium during
the year, what is the ending balance in the prepaid insurance account after the above adjusting entry?
A.
B.
C.
D.

7 | Page

$1,200.
$700.
$2,200.
$1,000.

22. Which of the following account balances would not be closed at year-end by debiting the account?
A.
B.
C.
D.

Interest revenue.
Gain on sale of building.
Sales revenues.
Unearned revenues.

23. Which of the following is not a responsibility of the chief executive officer (CEO) and the chief financial
officer (CFO)?
A.
Overseeing the financial statement external audit.
B. Ensuring the accuracy and completeness of all reports provided to the Securities & Exchange Commission
(SEC).
C. The certification of the strength of the internal control system.
D. The disclosure to the auditor committee of any frauds they are aware of.

24. Which of the following is an objective of the external audit of a company's financial statements?
A. To provide a forecast of the company's future earnings.
B. To assure no fraud has been committed by the company's management.
C. To provide credibility that the financial statements are fairly presented.
D. To detect all accounting errors made by the accounting system and employees.
25. Which of the following is not an element of the fraud triangle?
A.
B.
C.
D.

Pressure
Rationalization
Intent
Opportunity

8 | Page

26)
below
a.
b.
c.
d.
e.
JE

Complete Journal Entries for the following transactions in the table

Sold a bike for $1,200 in cash, which cost $600
Issued 10 shares of Common Stock for $15,000 cash
Paid $200 cash in Dividends
Collected $800 from a customer in cash
Paid $5,000 to a vendor for previously received inventory

Account

9 | Page

Debit

Credit

27)
Prepare An Adjusted Trial Balance after accounting for the following
transactions:
a. Incurred Rent expense of $100 during the period that was paid
previously
b. Equipment depreciates $500 each month
c. Incurred Salary Expense of $1,500 to be paid in a future period
TRIAL BALANCE
Debit
Credit
Cash
Accounts Receivable
Prepaid Rent
Equipment

$
245,000
$
45,000
$
4,700
$
150,000
$
10,000
$
40,900
$
6,000
$
15,000
$
125,000
$
55,000
$
325,000

Accumulated Depreciation
Accounts Payable
Salaries Payable
Common Stock (Par Value $0.10)
Additional Paid in Capital
Retained Earnings
Sales Revenue
Cost of Goods Sold
Rent Expense
Depreciation Expense
Salaries Expense

10 | P a g e

$
75,000
$
1,200
$
$
56,000
$
576,900

$
576,900

ADJUSTED
TRIAL BALANCE
Debit
Credit

28)
Using the Adjusted Trial Balance, Prepare the Income Statement and
Balance Sheet
BALANCE SHEET
ASSETS

LIABILITIES

Total Liabilities
EQUITY

Total Equity
Total Assets

Total Liabilities and Equity

INCOME STATEMENT

NET INCOME

11 | P a g e

12 | P a g e

13 | P a g e

Answers:
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25

C
A
D
B
D
C
C
B
A
D
B
A
D
B
C
D
D
D
B
B
D
D
A
C
C

14 | P a g e