1. The balance sheet shows a company’s net income or loss due to earnings activi
ID: 2340106 • Letter: 1
Question
1. The balance sheet shows a company’s net income or loss due to earnings activities over a period of time, so cash account on the balance sheet shows the cumulative change over the period.
True False
2. Recording revenues early overstates current-period income; recording revenues late understates current period income.
True False
3. Failure to record depreciation expense will overstate the asset and understate the expense.
True False
4. Liability accounts normally have credit balances and expense accounts normally have debit balances.
True False
5. Depreciation expense is deducted in arriving at GAAP net income, but not deducted in arriving at net operating income.
True False
6. Accrued expenses at the end of one accounting period are expected to result in cash payments in a future period.
True False
7. Interest expense is deducted in arriving at net income but not deducted in arriving at net operating income.
True False
8. Net income for a period will be overstated if accrued salaries are not recorded at the end of the accounting period.
True False
9. If a company owns 70% of a real estate investment and determines that the investment is controlled and should be consolidated on a company’s financial statements, 100% of the revenues are recorded on the income statement.
True False
10. FFO is an alternate measure of profitability often used by REITs. In calculating FFO, gains and losses on the sale of real estate assets are added back to net income.
True False
11. A company reported total equity of $145,000 on its December 31, 2017, balance sheet. The following information is available for the year ended December 31, 2018:
2018 Revenues.......................................
$315,000
2018 Expenses........................................
224,000
2018 Capital Contributions ……………
Liabilities, at December 31, 2018..........
92,000
12,000
What is the total equity of the company at December 31, 2018?
_______________
12. List the four required statements that must be included in an entity’s financial statements to be in accordance with GAAP:
1) ___________________________________
2) ___________________________________
3) ___________________________________
4) ___________________________________
13. List the normal balance for each (answer debit or credit)
Owners Equity ______________
14. On April 30, 2007, a two-year insurance policy was purchased for $12,000 with coverage to begin immediately. What is the amount of insurance expense that would appear on the company's income statement for the year ended December 31, 2007?
_______________________
15. Rocky Industries received its telephone bill in the amount of $300, and immediately paid it. Rocky's general journal entry to record this transaction will include a:
A. Debit to Telephone Expense for $300.
B. Credit to Accounts Payable for $300.
C. Debit to Cash for $300.
D. Credit to Telephone Expense for $300.
E. Debit to Accounts Payable for $300.
16. For each of the following accounts, indicate whether a debit or a credit would decrease the account balance (answer debit or credit)
Repairs expenses _____________
Cash ______________
Owners Withdraws ______________
Notes Payable______________
Accounts receivable ________________
Owners Contributions ______________
Building (at cost) _______________
Accumulated depreciation ________________
Accrued salaries _______________
Rental income______________
Utilities expenses _____________
Deferred revenue ___________________
17. What is the accounting equation?
_________________________________________________________________________
18. Identify each asset as (“D”) - subject to depreciation or (“N) not depreciable:
Furniture & Fixtures ______________
19. At the beginning of December of the current year, Thomas Law Center's ledger reflected an accounts receivable balance with a debit of $21,000. During December, the company collected $12,800 from customers on account and provided additional services to customers on account totaling $16,500. Additionally, during December one customer paid Thomas $5,000 for services to be provided in the future. At the end of December, the balance in the accounts receivable account should be:
_______________________
20. PPW Co. leased a portion of its store to another company for eight months beginning on October 1, 2007, at a monthly rate of $800. This other company paid the entire $6,400 cash on October 1, which PPW Co. recorded as unearned revenue. The journal entry made by PPW Co. at year- end on December 31, 2007 would include:
A) A debit to Rent Earned for $2,400.
B) A credit to Unearned Rent for $2,400.
C) A debit to Cash for $6,400.
D) A credit to Rent Earned for $2,400.
E) A debit to Unearned Rent for $4,000.
21. Prior to recording adjusting entries, the Prepaid Insurance account had a $22,359 debit balance. The remaining amount of insurance that has not lapsed (and will apply to the next accounting period) is $10,359. The required adjusting entry is:
A) Debit Prepaid Insurance $12,000 and credit Insurance Expense $12,000.
B) Debit Insurance Expense $22,359 and credit Prepaid Insurance $22,359.
C) Debit Prepaid Insurance $22,359 and credit Insurance Expense $22,359.
D) Debit Insurance Expense $12,000 and credit Prepaid Insurance $12,000.
E) None of the above.
22. If the assets of a business increased $29,000 during a period of time and its liabilities increased $67,000 during the same period, equity in the business must have:
A) Increased $38,000.
B) Decreased $38,000.
C) Increased $29,000.
D) Decreased $96,000.
E) Increased $96,000.
23. Use the following information to calculate cash paid for wages and salaries:
Salaries expense...........................................
$168,000
Salaries payable, January 1.........................
12,400
Salaries payable, December 31...................
10,600
A. $157,400.
B. $163,800.
C. $168,000.
D. $178,600.
E. $169,800.
24. A company reported the following: Owner’s equity was $325,000 as of the balance sheet date on December 31, 2017. The following information includes all of the information recorded for the year ended December 31, 2018:
Rental income.........................................
$215,000
Management fee income.........................
$50,000
Deferred revenue....................................
$20,000
Property operating expenses..................
$423,000
Notes payable.........................................
$1,200,000
What is the total equity of the company at December 31, 2018?
A. $117,000.
B. $167,000.
C. $187,000.
D. $1,367,000.
E. $1,317,000.
F. None of these.
25. FastForward had beginning equity of $141,000, net loss of ($21,000), withdrawals of $20,000 and contributions to equity by owners of $36,000. Its ending equity should be:
_____________________________
26. If a parcel of land is assessed for tax purposes at $105,000, is offered for sale at $125,000, was originally purchased for $75,000, is recognized by its purchasers as easily being worth $140,000, and is sold for $137,000. At the time of the sale, assume that the seller still owed $50,000 to TrustOne Bank on the land. Immediately after the sale, the seller paid off the loan to TrustOne Bank. What is the effect of the sale of the land and the payoff of the loan on the accounting equation?
Assets (circle) increases OR decreases by ____________
Liabilities (circle) increases OR decreases by ______________
Owner's equity (circle) increases OR decreases by ______________
27. On June 30 Apricot Co. paid $7,500 cash for management services to be performed over a two-year period. Apricot follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment. On June 30 Apricot should record:
A. A credit to an expense for $7,500.
B. A debit to an expense for $7,500.
C. A debit to a prepaid expense for $7,500.
D. A credit to a prepaid expense for $7,500.
E. A debit to Cash for $7,500.
2018 Revenues.......................................
$315,000
2018 Expenses........................................
224,000
2018 Capital Contributions ……………
Liabilities, at December 31, 2018..........
92,000
12,000
Explanation / Answer
1. False.
It shows balance at the end of financial year on a particular day.
2. False
It is shows in balance sheet. Pre received incomes are liability.
3. True
4. True
5. True
6. True
7. True
8. True
9. True if a company's financial statement are consolidated in one company and then the share can be distrbuted.
10. False
Gains/loses are subtracted from Net income to calculate FFO.
11. 340000
145000+315000+92000+12000-224000
12.
1) balance sheet (or statement of financial position)
2) income statement
3) cash flow statement
4) statement of changes in owners' equity or stockholders' equity
13. Credit
14. (12000/2)*8/12 = 4000
15. A. Debit to Telephone Expense for $300
16. credit, credit, debit, debit, credit, debit, credit, debit, debit, debit, credit, debit
17. Assets = Liabilities + Equity
18. D
19. 21000-12800+16500 = 24700
5000 is unearned revenue and will come on credit side in balance sheet.
20. D) A credit to Rent Earned for $2,400.
21. B) Debit Insurance Expense $22,359 and credit Prepaid Insurance $22,359.
22. B) Decreased $38,000
Assets = Liabilities + Capital
23. E. $169,800
168000+12400-10600
24. B. $167,000.
325000+215000+50000-423000
25. 136000
$141,000-$21,000-$20,000+$36,000
26. Asset increase by 52000
Owner's equity increase by 52000
27. C. A debit to a prepaid expense for $7,500.
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