Chapter 2A Review of the Accounting Cycle

Chapter 2—A Review of the Accounting Cycle

MULTIPLE CHOICE

• In an accrual accounting system,
• all accounts have normal debit balances.
• a debit entry is recorded on the left-hand side of an account.
• liabilities, owner's capital, and dividends all have normal credit balances.
• revenues are recorded only when cash is received.

ANS: B PTS: 1 DIF: Easy OBJ: LO 2 TOP: AICPA FN-Measurement MSC: AACSB Analytic

• A common business transaction that would not affect the amount of owners' equity is
• signing a note payable to purchase equipment.
• payment of property taxes.
• billing of customers for services rendered.
• payment of dividends.

ANS: A PTS: 1 DIF: Medium OBJ: LO 2 TOP: AICPA FN-Measurement MSC: AACSB Analytic

• Failure to record the expired amount of prepaid rent expense would not
• understate expense.
• overstate net income.
• overstate owners' equity.
• understate liabilities.

ANS: D PTS: 1 DIF: Medium OBJ: LO 3 TOP: AICPA FN-Measurement MSC: AACSB Analytic

• On June 30, a company paid $3,600 for insurance premiums for the current year and debited the

amount to Prepaid Insurance. At December 31, the bookkeeper forgot to record the amount expired.The omission has the following effect on the financial statements prepared December 31:

• overstates owners' equity.
• overstates assets.
• understates net income.
• overstates both owners’ equity and assets.

ANS: D PTS: 1 DIF: Medium OBJ: LO 3 TOP: AICPA FN-Measurement MSC: AACSB Analytic

• A chart of accounts is a
• subsidiary ledger.
• listing of all account titles.
• general ledger.
• general journal.

ANS: B PTS: 1 DIF: Easy OBJ: LO 2 TOP: AICPA FN-Measurement MSC: AACSB Analytic

• Which of the following criteria must be met before an event should be recorded for accounting

purposes?

• The event must be an arm's-length transaction.

Intermediate Accounting 19th Edition Stice Test Bank Visit TestBankDeal.com to get complete for all chapters

• The event must be repeatable in a future period.
• The event must be measurable in financial terms.
• The event must be disclosed in the reported footnotes.

ANS: C PTS: 1 DIF: Medium OBJ: LO 2 TOP: AICPA FN-Measurement MSC: AACSB Reflective Thinking

• Adjusting entries normally involve
• real accounts only.
• nominal accounts only.
• real and nominal accounts.
• liability accounts only.

ANS: C PTS: 1 DIF: Easy OBJ: LO 3 TOP: AICPA FN-Measurement MSC: AACSB Analytic

• Which of the following is an item that is reportable in the financial records of an enterprise?
• The value of goodwill earned through business operations
• The value of human resources
• Changes in personnel
• Changes in inventory costing methods

ANS: D PTS: 1 DIF: Medium OBJ: LO 1 TOP: AICPA FN-Reporting MSC: AACSB Reflective Thinking

• The balance in a deferred revenue account represents an amount that is

Earned Collected

• Yes Yes
• Yes No
• No Yes
• No No

ANS: C PTS: 1 DIF: Easy OBJ: LO 3 TOP: AICPA FN-Measurement MSC: AACSB Analytic

• The debit and credit analysis of a transaction normally takes place when the
• entry is posted to a subsidiary ledger.
• entry is recorded in a journal.
• trial balance is prepared.
• financial statements are prepared.

ANS: B PTS: 1 DIF: Easy OBJ: LO 2 TOP: AICPA FN-Measurement MSC: AACSB Reflective Thinking

• A trial balance is useful because it indicates that
• owners' equity is correct.
• net income is correct.
• all entries were made correctly.
• total debits equal total credits.

ANS: D PTS: 1 DIF: Medium OBJ: LO 3 TOP: AICPA FN-Measurement MSC: AACSB Analytic

• Which of the following would typically be considered a source document?
• Chart of accounts

• General ledger
• General journal
• Invoice received from seller

ANS: D PTS: 1 DIF: Easy OBJ: LO 2 TOP: AICPA FN-Measurement MSC: AACSB Reflective Thinking

• Which of the following is not among the first five steps in the accounting cycle?
• Record transactions in journals.
• Record closing entries.
• Adjust the general ledger accounts.
• Post entries to general ledger accounts.

ANS: B PTS: 1 DIF: Easy OBJ: LO 1 TOP: AICPA FN-Measurement MSC: AACSB Reflective Thinking

• A routine collection on a customer's account was recorded and posted as a debit to Cash and a credit to

Sales Revenue. The journal entry to correct this error would be

• a debit to Sales Revenue and a credit to Accounts Receivable.
• a debit to Sales Revenue and a credit to Unearned Revenue.
• a debit to Cash and a credit to Accounts Receivable.
• a debit to Accounts Receivable and a credit to Sales Revenue.

ANS: A PTS: 1 DIF: Medium OBJ: LO 2 TOP: AICPA FN-Measurement MSC: AACSB Analytic

• An accrued expense can be described as an amount
• paid and matched with earnings for the current period.
• paid and not matched with earnings for the current period.
• not paid and not matched with earnings for the current period.
• not paid and matched with earnings for the current period.

ANS: D PTS: 1 DIF: Medium OBJ: LO 3 TOP: AICPA FN-Measurement MSC: AACSB Analytic

• Which of the following errors will be detected when a trial balance is properly prepared?
• An amount that was entered in the wrong account
• A transaction that was entered twice
• A transaction that had been omitted
• None of these

ANS: D PTS: 1 DIF: Medium OBJ: LO 3 TOP: AICPA FN-Measurement MSC: AACSB Analytic

• The premium on a two-year insurance policy expiring on June 30, 2015, was paid in total on July 1,
• The original payment was debited to the insurance expense account. The appropriate journal

entry has been recorded on December 31, 2013. The balance in the prepaid asset account on December 31, 2013, should be

• the same as the original payment.
• higher than if the original payment had been initially debited to an asset account.
• lower than if the original payment had been initially debited to an asset account.
• the same as it would have been if the original payment had been initially debited to an

asset account.

ANS: D PTS: 1 DIF: Medium OBJ: LO 3 TOP: AICPA FN-Measurement MSC: AACSB Analytic

• If an inventory account is understated at year end, the effect will be to overstate the
• net purchases.
• gross margin.
• cost of goods available for sale.
• cost of goods sold.

ANS: D PTS: 1 DIF: Medium OBJ: LO 3 TOP: AICPA FN-Measurement MSC: AACSB Analytic

• An adjusting entry will not take the format of which one of the following entries?
• A debit to an expense account and a credit to an asset account
• A debit to an expense account and a credit to a revenue account
• A debit to an asset account and a credit to a revenue account
• A debit to a liability account and a credit to a revenue account

ANS: B PTS: 1 DIF: Medium OBJ: LO 3 TOP: AICPA FN-Measurement MSC: AACSB Analytic

• The last step in the accounting cycle is to
• prepare a post-closing trial balance.
• journalize and post closing entries.
• prepare financial statements.
• journalize and post adjusting entries.

ANS: A PTS: 1 DIF: Easy OBJ: LO 1 TOP: AICPA FN-Measurement MSC: AACSB Reflective Thinking

• Which of the following is not presented in an income statement?
• Revenues
• Expenses
• Net income
• Dividends

ANS: D PTS: 1 DIF: Easy OBJ: LO 2 TOP: AICPA FN-Reporting MSC: AACSB Reflective Thinking

• On March 1, 2012, Forest Co. borrowed cash and signed a 36-month, interest-bearing note on which

both the principal and interest are payable on February 28, 2015. At December 31, 2014, the liability for accrued interest should be

• 10 months' interest.
• 22 months' interest.
• 34 months' interest.
• 36 months' interest.

ANS: C PTS: 1 DIF: Medium OBJ: LO 3 TOP: AICPA FN-Measurement MSC: AACSB Analytic

• An example of an adjusting entry involving a deferred revenue is
• Cash ............................... xxx

Unearned Rental Revenue .......... xxx

• Rental Revenue ..................... xxx

Cash ............................. xxx

• Unearned Rental Revenue ............ x xx

Rental Revenue ................... xxx

• Accounts Receivable ................ xxx