Accounting 1 (Summer 2018)
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Questions and Answers
- 1.
If adjusting entries are recorded in the worksheet, there is no need for them to be journalized or posted
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
The statement is false because although adjusting entries are recorded in the worksheet, they still need to be journalized and posted to the general ledger. The purpose of adjusting entries is to ensure that the financial statements are accurate and reflect the correct financial position of the company. Therefore, these entries must go through the journalizing and posting process to update the accounts in the general ledger and reflect the adjustments made.Rate this question:
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- 2.
Accrual accounting involves all of the following except
- A.
Recording all revenues when cash was received
- B.
Applying the matching rule
- C.
Recognizing expense when incurred
- D.
Adjusting the accounts
- E.
All of the above
Correct Answer
A. Recording all revenues when cash was receivedExplanation
Accrual accounting involves recognizing revenue and expenses when they are incurred, rather than when cash is received or paid. This allows for a more accurate representation of a company's financial position and performance. Therefore, recording all revenues when cash is received would be inconsistent with the principles of accrual accounting.Rate this question:
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- 3.
Is it true that the trial balance totals should agree?
- A.
No, there are sometimes good reasons why they differ
- B.
Yes, except where the trial balance is extracted at the year end
- C.
Yes, always
- D.
No, because it is not a balance sheet
Correct Answer
C. Yes, alwaysExplanation
The trial balance is a statement that lists all the balances of the general ledger accounts in a company. It is used to ensure that the debits and credits in the accounting system are equal and balanced. The purpose of the trial balance is to identify any errors or discrepancies in the accounting records. Therefore, it is necessary for the trial balance totals to agree at all times. If the totals do not agree, it indicates that there is an error in the accounting records that needs to be identified and corrected.Rate this question:
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- 4.
The current portion of a long term debt should
- A.
Be classsified as a long term liability
- B.
Not be separated from the long term portion of debt
- C.
Be paid immediately
- D.
Be reclassified as a current liability
Correct Answer
D. Be reclassified as a current liabilityExplanation
The current portion of a long-term debt should be reclassified as a current liability because it represents the amount of the debt that is expected to be paid within the next year. This is important for financial reporting purposes as it provides a more accurate representation of the company's current financial obligations. By separating the current portion from the long-term portion of debt, stakeholders can better assess the company's liquidity and ability to meet its short-term obligations.Rate this question:
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- 5.
Which of the following accounts is what is known as a temporary or nominal account ?
- A.
Asset
- B.
Owner's Equity (Capital)
- C.
Liability
- D.
Revenue
Correct Answer
D. RevenueExplanation
Revenue is considered a temporary or nominal account. It is a type of account that tracks the income earned by a company during a specific period, such as sales revenue or service revenue. These accounts are temporary because their balances are closed at the end of each accounting period and transferred to the company's retained earnings or owner's equity account. This helps to reset the revenue account for the next accounting period and accurately measure the company's financial performance.Rate this question:
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- 6.
A Debit:
- A.
Increase an Asset Account
- B.
Decrease an Asset Account
- C.
Increase an Liability Account
- D.
Increase owner's equity
Correct Answer
A. Increase an Asset AccountExplanation
A debit is an entry made in the accounting system that increases an asset account. Assets are resources owned by a company that have economic value, such as cash, inventory, or equipment. When a debit is made to an asset account, it means that the company has received or acquired more of that particular asset. This increases the balance of the asset account, reflecting the higher value of assets held by the company.Rate this question:
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- 7.
Under accrual accounting, revenue is recorded
- A.
When the cash is collected, regardless of when the services are performed
- B.
When the services are performed, regardless of when the cash is received
- C.
Either when the cash is received or the sale is made
Correct Answer
B. When the services are performed, regardless of when the cash is receivedExplanation
Under accrual accounting, revenue is recorded when the services are performed, regardless of when the cash is received. This means that revenue is recognized when the company has fulfilled its obligations to provide goods or services to the customer, regardless of whether the customer has paid for them yet. This is because accrual accounting aims to match revenues with the expenses incurred to generate those revenues, providing a more accurate representation of the company's financial performance.Rate this question:
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- 8.
Adjusting entries are:
- A.
Not needed under the accrual basis of accounting
- B.
Prepared at the option of the accountant
- C.
Prepared at the beginning of the accounting period to update all accounts.
- D.
Prepared at the end of the accounting period to update certain accounts.
Correct Answer
D. Prepared at the end of the accounting period to update certain accounts.Explanation
Adjusting entries are prepared at the end of the accounting period to update certain accounts. These entries are necessary to ensure that the financial statements reflect the correct financial position of the company. They are used to record accrued revenues or expenses, reconcile accounts, allocate expenses, and adjust the values of assets and liabilities. By making these adjustments, the financial statements become more accurate and reliable, providing a true representation of the company's financial performance. Therefore, adjusting entries are an essential part of the accounting process and are prepared at the end of the accounting period.Rate this question:
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- 9.
Prepaid insurance is reported on the balance sheet as a(n):
- A.
Expense
- B.
Liability
- C.
Asset
- D.
Contra asset
Correct Answer
C. AssetExplanation
Prepaid insurance is reported on the balance sheet as an asset because it represents an advance payment made by the company for insurance coverage that will benefit the company in the future. As the coverage period progresses, the prepaid insurance amount is gradually recognized as an expense on the income statement. Until then, it remains as an asset on the balance sheet, reflecting the company's right to receive insurance coverage in the future.Rate this question:
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- 10.
The book value of a plant asset is the
- A.
Accumulated depreciation less the cost of the asset
- B.
Cost of the asset
- C.
Balance in the accumulated depreciation account
- D.
Cost of the asset less the accumulated depreciation
Correct Answer
D. Cost of the asset less the accumulated depreciationExplanation
The book value of a plant asset is calculated by subtracting the accumulated depreciation from the cost of the asset. This is because accumulated depreciation represents the total amount of depreciation expense that has been recorded for the asset over its useful life, and it is subtracted from the original cost of the asset to determine its net value on the balance sheet. Therefore, the correct answer is "cost of the asset less the accumulated depreciation".Rate this question:
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- 11.
A liability that arises from an expense that has not yet been paid is a(n):
- A.
Unearned expense
- B.
Prepaid expense
- C.
Accrued expense
- D.
Accrued revenue
Correct Answer
C. Accrued expenseExplanation
An accrued expense refers to a liability that arises from an expense that has been incurred but has not yet been paid. This means that the expense has been recognized in the accounting records even though the payment has not been made. It is important to record accrued expenses to ensure that the financial statements accurately reflect the company's financial position and performance.Rate this question:
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- 12.
The financial statements are prepared from the
- A.
Adjustments
- B.
Unadjusted trial balance
- C.
Ledger
- D.
Adjusted trial balance
Correct Answer
D. Adjusted trial balanceExplanation
The financial statements are prepared from the adjusted trial balance because it reflects all the necessary adjustments made to the unadjusted trial balance. The adjusted trial balance includes adjustments for items such as accruals, deferrals, and estimates, which are necessary to ensure that the financial statements accurately represent the financial position and performance of the company. Therefore, the adjusted trial balance provides a more accurate and reliable basis for preparing the financial statements.Rate this question:
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- 13.
According to the revenue principle, revenue should be recorded
- A.
Before it has been earned
- B.
When the cash is received
- C.
When it has been earned
- D.
Whenever the company needs to record the revenue
Correct Answer
C. When it has been earnedExplanation
According to the revenue principle, revenue should be recorded when it has been earned. This means that revenue should be recognized and recorded in the financial statements when the company has completed the earnings process, regardless of when the cash is received. This principle ensures that revenue is reported accurately and reflects the company's actual performance in generating income. By recording revenue when it has been earned, financial statements provide a more reliable and transparent representation of the company's financial position and performance.Rate this question:
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- 14.
An expense that is paid in advance is a(n):
- A.
Unearned expense
- B.
Prepaid expense
- C.
Liability
- D.
Unearned asset
Correct Answer
B. Prepaid expenseExplanation
A prepaid expense refers to an expense that has been paid for in advance but has not yet been used or consumed. It is considered an asset because it represents a future benefit that the company will receive. This type of expense is recorded on the balance sheet as an asset until it is used or consumed, at which point it is recognized as an expense on the income statement.Rate this question:
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- 15.
Current assets include
- A.
Cash and receivables
- B.
Cash and payables
- C.
Land and Building
- D.
Retained earnings
Correct Answer
A. Cash and receivablesExplanation
Current assets are assets that are expected to be converted into cash or used up within one year or the operating cycle of a business. Cash and receivables are examples of current assets because they are expected to be converted into cash within a short period of time. Cash represents the amount of money a company has on hand, while receivables refer to the amounts owed to the company by its customers or clients. Including cash and receivables as current assets on the balance sheet allows for a clear representation of the company's liquidity and ability to meet short-term obligations.Rate this question:
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- 16.
Which account is debited in the adjusting entry to record depreciation expense during the current period?
- A.
Accumulated Depreciation
- B.
Equipment
- C.
Depreciation Expense
- D.
Depreciation Payable
Correct Answer
C. Depreciation ExpenseExplanation
Depreciation expense is the correct answer because it represents the decrease in value of an asset over time. In the adjusting entry, the account is debited to reflect the expense incurred during the current period. This entry helps to accurately reflect the decrease in the value of the asset on the financial statements.Rate this question:
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- 17.
Which of the following accurately describes the account type of the Accumulated Depreciation account?
- A.
Contra-expense account
- B.
Liability account
- C.
Contra-asset account
- D.
Expense account
Correct Answer
C. Contra-asset accountExplanation
The correct answer is "Contra-asset account." Accumulated Depreciation is a contra-asset account because it is used to track the decrease in value of an asset over time. It is subtracted from the original cost of the asset to determine its net book value. Contra-asset accounts have a credit balance and are used to offset the balance of the related asset account on the balance sheet.Rate this question:
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- 18.
The Accounting Equation is: ASSETS = LIABILITIES + OWNER'S EQUITY OR ASSETS - LIABILITIES = OWNER'S EQUITY
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
The accounting equation states that the total assets of a business are equal to the sum of its liabilities and owner's equity. This equation is the foundation of double-entry bookkeeping and helps to ensure that a company's financial records are accurate and balanced. By maintaining this equation, businesses can track and analyze their financial position and make informed decisions. Therefore, the statement that the accounting equation is true is correct.Rate this question:
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- 19.
Which of the following is/are a purpose of adjusting entries?
- A.
To update the accounts in the books
- B.
To apply the matching principle
- C.
To properly reflect the the correct net income
- D.
To make the equation A=L+C more accurate
- E.
All of the above
Correct Answer
E. All of the aboveExplanation
Adjusting entries are necessary to update the accounts in the books, apply the matching principle, and properly reflect the correct net income. By making these adjustments, the financial statements will provide more accurate and reliable information. Additionally, adjusting entries ensure that the accounting equation A=L+C remains balanced, making it a more accurate representation of the company's financial position. Therefore, all of the given options are valid purposes for adjusting entries.Rate this question:
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- 20.
Which one of the following categories of account is "credited" when it is increased?
- A.
Revenue
- B.
Purchases
- C.
Asset
- D.
Expenses
Correct Answer
A. RevenueExplanation
Revenue is the correct answer because revenue is a category of account that is credited when it is increased. In accounting, revenue represents the income generated by a company through its normal business activities. When revenue increases, it is recorded as a credit entry in the accounting books. This is because revenue is considered a source of funds for the company, and a credit entry increases the company's overall funds. Therefore, revenue is credited when it is increased.Rate this question:
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- 21.
Which one of the following categories of account is "debited" when it is increased?
- A.
Revenue
- B.
Purchases
- C.
Sources of fund
- D.
Liability
Correct Answer
B. PurchasesExplanation
When the category of account "Purchases" is increased, it means that more purchases have been made. This leads to an increase in the amount of money spent on purchasing goods or services. Therefore, the account "Purchases" is debited to record this increase in expenses.Rate this question:
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- 22.
A company using the accrual basis of accounting pays P15,000 for a television advertising campaign. Commercials will run evenly in December, January, and February. How much expense will be reported on an income statement prepared for the month of December?
- A.
P0
- B.
P5,000
- C.
P10,000
- D.
P15,000
Correct Answer
B. P5,000Explanation
Calculations: 15,000/3=5,000Rate this question:
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- 23.
A business sells merchandise to the customer for P85. The merchandise cost is P65. For this sale, how much is the Gross Profit?
- A.
P65
- B.
P20
- C.
Neither amount
Correct Answer
B. P20 -
- 24.
The book value of an asset that cost P20,000 and has accumulated depreciation of P6,000 is
- A.
P20,000
- B.
P 6,000
- C.
P26,000
- D.
P14,000
Correct Answer
D. P14,000Explanation
Calculations: 20,000-6,000=14,000Rate this question:
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- 25.
A company has P800 beginning balance of Supplies (asset). At the end of the month, the Supplies on hand is P150. The adjusting entry for this company is:
- A.
Debit supplies of P150 and a credit of P150 to Supplies Expense
- B.
Debit supplies Expense of P150 and a credit of P150 to Supplies
- C.
Debit supplies Expense of P650 and a credit of P650 to Supplies
- D.
There is not enough information given to prepare the entry
Correct Answer
C. Debit supplies Expense of P650 and a credit of P650 to SuppliesExplanation
Calculations: 800-150=650Rate this question:
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- 26.
On November 1, Phillips Company paid six months’ insurance in advance totalling P9,000. An adjusted trial balance prepared on December 31 would include a balance in the Prepaid Insurance account of:
- A.
P9000
- B.
P6000
- C.
P3000
- D.
P0
Correct Answer
B. P6000Explanation
Calculations: 9,000/6=1,500 insurance expense per month
1,500*2 months = 3,000 insurance expense Beg bal 9,000-3,000=6,000Rate this question:
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- 27.
On November 1 of the current year, Prepaid Rent was debited P5,400 for three months of rent, paid in advance. The amount of the adjusting entry to debit Rent Expense and credit Prepaid Rent on December 31 is (2 months):
- A.
P1800
- B.
P3600
- C.
P5400
- D.
P0
Correct Answer
B. P3600Explanation
Calculations: 5,400/3= 1,800 rent per month. 1,800 *2 months used =3,600Rate this question:
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- 28.
On August 1 of the current year, Atty. Jamie Simmons received P5,400 for legal services to be performed evenly throughout the next six months. An adjusted trial balance prepared on December 31 of the current year will show a credit balance in Unearned Revenue in the amount of:
- A.
P0
- B.
P900
- C.
P4500
- D.
P5400
Correct Answer
B. P900Explanation
Calculations: 5,400/6= 900 revenue per month. 900 *5 months used =4,500 earned
Beg bal in unearned 5,400 less 4,500 earned = 900 ending balanceRate this question:
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