Question 1

Which of the following best describes the primary objective of financial accounting?

Accepted Answer

To provide financial information that is useful to external users in making decisions about providing resources to the entity.

Question 2

Which of the following is NOT a typical external user of financial accounting information?

Accepted Answer

Company management

Question 3

A company purchased equipment for $50,000 cash. Which of the following best describes the effect on the accounting equation?

Accepted Answer

One asset increases by $$50,000; another asset decreases by 50$$,000

Question 4

Which of the following equations correctly represents the basic accounting equation?

Accepted Answer

$$Assets = Liabilities + Equity$$

Question 5

If a company has total assets of $$120,000 and total liabilities of 45$$,000, what is the amount of equity?

Accepted Answer

$$Equity = Assets - Liabilities = 120,000 - 45,000 = 75,000$$

Question 6

Which of the following best describes the matching principle in accrual accounting?

Accepted Answer

Expenses are recognized in the same period as the revenues they help to generate.

Question 7

A company earned $$10,000 in revenue on account and collected 7$$,000 in cash from customers during the period. According to accrual accounting, how much revenue should be recognized?

Accepted Answer

$$10,000$$

Question 8

Which of the following transactions would NOT affect the total assets of a company?

Accepted Answer

Paying off a portion of accounts payable with cash

Question 9

Which of the following statements about the double-entry accounting system is correct?

Accepted Answer

Debits must always equal credits for each transaction.

Question 10

A company pays $2,000 for a one-year insurance policy on October 1. What is the amount of insurance expense recognized by December 31 under accrual accounting?

Accepted Answer

$$500$$

Question 11

Which of the following best describes the purpose of adjusting entries?

Accepted Answer

To ensure that revenues and expenses are recognized in the correct accounting period.

Question 12

A company has the following account balances at year-end: Cash $$10,000; Accounts Receivable 5$$,000; Supplies $$2,000; Equipment 20$$,000; Accounts Payable $$7,000; Common Stock 15$$,000. What is the amount of retained earnings?

Accepted Answer

$$Retained\ Earnings = Assets - Liabilities - Common\ Stock = (10,000 + 5,000 + 2,000 + 20,000) - 7,000 - 15,000 = 25,000$$

Question 13

Which of the following is an example of a deferral adjusting entry?

Accepted Answer

Allocating prepaid rent to expense

Question 14

Which of the following best describes the effect of an accrued expense adjusting entry?

Accepted Answer

Increases a liability and increases an expense

Question 15

A company started the year with $$30,000 in retained earnings. During the year, it earned net income of 12$$,000 and paid dividends of $5,000. What is the ending retained earnings balance?

Accepted Answer

$$Ending\ Retained\ Earnings = Beginning\ Retained\ Earnings + Net\ Income - Dividends = 30,000 + 12,000 - 5,000 = 37,000$$

Question 16

Which of the following statements about the accrual basis of accounting is correct?

Accepted Answer

Revenues are recognized when earned and expenses when incurred, regardless of cash flow.

Question 17

A company receives $1,200 cash in advance for a one-year subscription on July 1. What is the amount of revenue recognized by December 31 under accrual accounting?

Accepted Answer

$$600$$

Question 18

Which of the following is NOT a required financial statement under generally accepted accounting principles (GAAP)?

Accepted Answer

Statement of Budgeted Expenses

Question 19

Which of the following best describes the purpose of closing entries at the end of the accounting period?

Accepted Answer

To transfer the balances of temporary accounts to retained earnings

Question 20

A company has the following balances: Service Revenue $$40,000; Salaries Expense 25$$,000; Rent Expense $$5,000; Dividends 2$$,000. What is the company's net income?

Accepted Answer

$$Net\ Income = Service\ Revenue - (Salaries\ Expense + Rent\ Expense) = 40,000 - (25,000 + 5,000) = 10,000$$

ACCT 2010 - Principles of Accounting I (Financial Accounting) Syllabus and Study Guide

Study Guide - Practice Questions

Study Guide - Flashcards