BU127 Study Guide - Midterm Guide: Income Statement, Retained Earnings, 6 Years
MGAB01 FINANCIAL ACCOUNTING I – 2014 Fall
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True or False Questions
1. Debits are used to record increases in assets, dividends and expenses.
2. The process of recording transactions in a journal is called posting.
3. In double entry accounting, all errors are avoided by being sure that debits and credits
equal when transactions are recorded.
4. The cost of renting an office during the current period is an expense, however the cost of
renting an office six periods in advance is an asset.
5. Liability accounts include Accounts Payable, Unearned Revenues and Notes Payable.
6. The effect of a debit to an Unearned Revenue account and a corresponding credit to a
revenue account is to transfer the earned portion of the fee from the liability account to
the revenue account.
7. If the accountant failed to make the end of period adjustment to remove from the Prepaid
Expense account the amount of expenses incurred, the omission would cause an
overstatement of Net Income.
8. If accrued interest is not recorded, the result is that interest expense is understated and
interest payable is overstated.
9. Under the accrual basis of accounting, revenues are recognized when they are earned
and expenses are matched with revenues.
10. Amortizing capital assets causes the expense to be recorded when the asset is
purchased.
11. If a business follows the practice of debiting prepayments of expenses to expense
accounts, the adjusting entries for prepaid expenses requires a debit to prepaid expense
accounts.
12. If a business records receipts of unearned revenues with debits to cash and credits to
revenue accounts, no adjusting entries are required at the end of the period.
MGAB01 FINANCIAL ACCOUNTING I – 2014 Fall
Page 2 of 9
Multiple Choice Questions
1. Joe Boxling’s company had a Retained Earnings balance of $33,400 on June 30 and
$46,700 on July 31. Withdrawals for the month of July were $5,200. How much was the
Net Income for the business during July?
a. ($8,100)
b. $5,200
c. $8,100
d. $13,300
e. $18,500
2. Which of the following transactions does not affect the Shareholders’/Owners’ Equity in a
proprietorship?
a. Investments by the owner.
b. Withdrawals of cash by the owner.
c. Cash receipts for earned revenues.
d. Cash receipts for unearned revenues.
e. Cash payments for incurred expenses.
3. A ledger is:
a. A book of original entry in which the effects of transactions are first recorded.
b. The collection of all accounts used by a business.
c. A book of original entry in which any type of transaction can be recorded.
d. A book of special journals.
e. An account with debit and credit columns and a third column for showing the
balance of the account.
4. The following transactions occurred during the month of October:
1) Paid $1,500 cash for store equipment.
2) Paid $1,000 in partial payment for supplies purchased 30 days previously.
3) Paid October’s utility bill of $600.
4) Paid $1,200 to owner of business for his personal use.
5) Paid $1,400 salary of office employee for October.
What is the total amount of expenses during October?
a. $3,000
b. $4,500
c. $2,000
d. $3,500
e. $5,700
5. Time periods covered by Financial Statements are called:
a. Seasonal periods
b. Fiscal Years
c. Operating Cycles
d. Accounting Periods
e. Natural Business Years
MGAB01 FINANCIAL ACCOUNTING I – 2014 Fall
Page 3 of 9
6. The journal entry to record the completion of legal work for a client on credit and billing
the client $1,700 for the services rendered would be:
a. Accounts Receivable 1,700
Unearned Legal Fees 1,700
b. Legal Fees Earned 1,700
Accounts Receivable 1,700
c. Accounts Payable 1,700
Legal Fees Earned 1,700
d. Legal Fees Earned 1,700
Sales 1,700
e. Accounts Receivable 1,700
Legal Fees Earned 1,700
7. J Company paid in advance $300 for six months of insurance on the business. At the
end of the first month, the journal entry to record the expense would be:
a. Insurance Expense 300
Cash 300
b. Prepaid Insurance 300
Cash 300
c. Insurance Expense 50
Prepaid Insurance 50
d. Prepaid Insurance 50
Insurance Expense 50
e. No entry should be made until the salaries are actually paid.
8. By the end of the current year, Kurt’s business had recorded $32,000 of consulting
revenues. In addition to this, consulting work for $540 had been completed but not
recorded. The adjusting entry at year-end would be:
a. Cash 540
Consulting Revenue 540
b. Accounts Receivable 540
Consulting Revenue 540
c. Consulting Revenue 540
Accounts Payable 540
d. Accounts Receivable 32,540
Consulting Revenue 32,540
e. No entry should be made until the cash is received.
9. On December 1, B&B Security Service collected three months worth of fees of $6,000 in
advance of providing services. The amount was recorded as a credit to Unearned
Security Service Fees. They provided the monthly service from that date forward. The
December 31 adjustment will require Unearned Service Fees be:
a. Credited for $2,000
b. Debited for $6,000
c. Credited for $6,000
d. Debited for $4,000
e. Debited for $2,000
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BU127 Full Course Notes
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Document Summary
True or false questions: debits are used to record increases in assets, dividends and expenses, the process of recording transactions in a journal is called posting. If the accountant failed to make the end of period adjustment to remove from the prepaid. Expense account the amount of expenses incurred, the omission would cause an overstatement of net income. Multiple choice questions: joe boxling"s company had a retained earnings balance of ,400 on june 30 and. Withdrawals for the month of july were ,200. What is the total amount of expenses during october: ,000, ,500, ,000, ,500, ,700, time periods covered by financial statements are called, seasonal periods, fiscal years, operating cycles, accounting periods, natural business years. Mgab01 financial accounting i 2014 fall: the journal entry to record the completion of legal work for a client on credit and billing the client ,700 for the services rendered would be, accounts receivable.
