Exam (elaborations) Test Bank for Intermediate Accounting 7th Edition Spiceland, Sepe, Nelson

TEST BANK with Complete Questions and Solutions. To clarify, this is the TEST BANK, not the textbook. You get immediate access to download your test bank. You will receive a complete test bank; in other words, all chapters will be there. Test banks come in PDF format; therefore, you do not need specialized software to open them. Exam (elaborations) Test Bank for Intermediate Accounting 7th Edition Spiceland, Sepe, Nelson Chapter 02 Review of the Accounting Process True / False Questions 1. Owners' equity can be expressed as assets minus liabilities. True False 2. Debits increase asset accounts and decrease liability accounts. True False 3. Balance sheet accounts are referred to as temporary accounts because their balances are always changing. True False 4. After an unadjusted trial balance is prepared, the next step in the accounting processing cycle is the preparation of financial statements. True False 5. Adjusting journal entries are required to comply with the realization and matching principles. True False 6. Accruals occur when the cash flow precedes either revenue or expense recognition. True False 7. The adjusted trial balance contains only permanent accounts. True False 8. The income statement summarizes the operating activity of a firm at a particular point in time. True False Full file at 9. The balance sheet can be considered a change or flow statement. True False 10. The statement of cash flows summarizes transactions that caused cash to change during a reporting period. True False 11. The statement of shareholders' equity discloses the changes in the temporary shareholders' equity accounts. True False 12. The post-closing trial balance contains only permanent accounts. True False 13. The closing process brings all temporary accounts to a zero balance and updates the balance in the retained earnings account. True False 14. A reversing entry at the beginning of a period for salaries would include a debit to salaries expense. True False 15. The sale of merchandise on account would be recorded in a sales journal. True False 16. The payment of cash to a supplier would be recorded in a purchases journal. True False Multiple Choice Questions Full file at 17. The accounting equation can be stated as: A. A + L - OE = 0. B. A - L + OE = 0. C. -A + L - OE = 0. D. A - L - OE = 0. 18. Examples of external transactions include all of the following except: A. Paying employees salaries. B. Purchasing equipment. C. Depreciating equipment. D. Collecting a receivable. 19. Examples of internal transactions include all of the following except: A. Writing off an uncollectible account. B. Recording the expiration of prepaid insurance. C. Recording unpaid wages. D. Paying wages to company employees. 20. XYZ Corporation receives $100,000 from investors for issuing them shares of its stock. XYZ's journal entry to record this transaction would include a: A. Debit to investments. B. Credit to retained earnings. C. Credit to capital stock. D. Credit to revenue. Full file at 21. Incurring an expense for advertising on account would be recorded by: A. Debiting liabilities. B. Crediting assets. C. Debiting an expense. D. Debiting assets. 22. A sale on account would be recorded by: A. Debiting revenue. B. Crediting assets. C. Crediting liabilities. D. Debiting assets. 23. Mary Parker Co. invested $15,000 in ABC Corporation and received capital stock in exchange. Mary Parker Co.'s journal entry to record this transaction would include a: A. Debit to investments. B. Credit to retained earnings. C. Credit to capital stock. D. Debit to expense. Full file at 24. Hughes Aircraft sold a four-passenger airplane for $380,000, receiving a $50,000 down payment and a 12% note for the balance. The journal entry to record this sale would include a: A. Credit to cash. B. Debit to cash discount. C. Debit to note receivable. D. Credit to note receivable. 25. Somerset Leasing received $12,000 for 24 months rent in advance. How should Somerset record this transaction? A. B. C. D. Full file at 26. Davis Hardware Company uses a perpetual inventory system. How should Davis record the sale of merchandise, costing $620 and sold for $960 on account? A. B. C. D. Full file at 27. Ace Bonding Company purchased merchandise inventory on account. The inventory costs $2,000 and is expected to sell for $3,000. How should Ace record the purchase? A. B. C. D. 28.Which of the following accounts has a debit balance? A. Accounts payable. B. Accrued taxes. C. Accumulated depreciation. D. Advertising expense. 29. An example of a contra account is: A. Depreciation expense. B. Accounts receivable. C. Sales revenue. D. Accumulated depreciation. Full file at 30. Making insurance payments in advance is an example of: A. An accrued receivable transaction. B. An accrued liability transaction. C. An unearned revenue transaction. D. A prepaid expense transaction. 31. Recording revenue that is earned, but not yet collected, is an example of: A. A prepaid expense transaction. B. An unearned revenue transaction. C. An accrued liability transaction. D. An accrued receivable transaction. 32.When a magazine company collects cash for selling a subscription, it is an example of: A. An accrued liability transaction. B. An accrued receivable transaction. C. A prepaid expense transaction. D. An unearned revenue transaction. Full file at 33. On December 31, 2012, Coolwear, Inc. had a balance in its prepaid insurance account of $48,400. During 2013, $86,000 was paid for insurance. At the end of 2013, after adjusting entries were recorded, the balance in the prepaid insurance account was 42,000. Insurance expense for 2013 would be: A. $6,40 0. B. $134,40 0. C. $86,00 0. D. $92,40 0. 34. Adjusting entries are primarily needed for: A. Cash basis accounting. B. Accrual accounting. C. Current value accounting. D. Manual accounting systems. 35. Prepayments occur when: A. Cash flow precedes expense recognition. B. Sales are delayed pending credit approval. C. Customers are unable to pay the full amount due when goods are delivered. D. Manufactured goods await quality control inspections. Full file at 36. Accruals occur when cash flows: A. Occur before expense recognition. B. Occur after revenue or expense recognition. C. Are uncertain. D. May be substituted for goods or services. 37. On December 31, 2013, the end of Larry's Used Cars' first year of operations, the accounts receivable was $53,600. The company estimates that $1,200 of the year-end receivables will not be collected. Accounts receivable in the 2013 balance sheet will be valued at: A. $53,60 0. B. $54,80 0. C. $52,40 0. D. $1,20 0. 38. Cal Farms reported supplies expense of $2,000,000 this year. The supplies account decreased by $200,000 during the year to an ending balance of $400,000. What was the cost of supplies the Cal Farms purchased during the year? A. $1,600,00 0. B. $1,800,00 0. C. $2,200,00 0. D. $2,400,00 0. Full file at 39.Which of the following is not an adjusting entry? A. B. C. D. 40. The adjusting entry required when amounts previously recorded as unearned revenues are earned includes: A. A debit to a liability. B. A debit to an asset. C. A credit to a liability. D. A credit to an asset. 41.Which of the following accounts has a credit balance? A. Salary expense. B. Accrued income taxes payable. C. Land . D. Prepaid rent. Full file at 42.When a tenant makes an end-of-period adjusting entry credit to the "Prepaid rent" account: A. (S)he usually debits cash. B. (S)he usually debits an expense account. C. (S)he debits a liability account. D. (S)he does none of the above. 43.When a business makes an end-of-period adjusting entry with a debit to supplies expense, the usual credit entry is made to: A. Accounts payable. B. Supplie s. C. Cash . D. Retained earnings. 44. The adjusting entry required to record accrued expenses includes: A. A credit to cash. B. A debit to an asset. C. A credit to an asset. D. A credit to liability. Full file at 45. Carolina Mills purchased $270,000 in supplies this year. The supplies account increased by $10,000 during the year to an ending balance of $66,000. What was supplies expense for Carolina Mills during the year? A. $300,00 0. B. $280,00 0. C. $260,00 0. D. $240,00 0. 46. Yummy Foods purchased a two-year fire and extended coverage insurance policy on August 1, 2013, and charged the $4,200 premium to Insurance expense. At its December 31, 2013, year-end, Yummy Foods would record which of the following adjusting entries? A. B. C. D. Full file at 47. The employees of Neat Clothes work Monday through Friday. Every other Friday the company issues payroll checks totaling $32,000. The current pay period ends on Friday, July 3. Neat Clothes is now preparing quarterly financial statements for the three months ended June 30. What is the adjusting entry to record accrued salaries at the end of June? A. B. C. D. 48. On September 1, 2013, Fortune Magazine sold 600 one-year subscriptions for $81 each. The total amount received was credited to unearned subscriptions revenue. What is the required adjusting entry at December 31, 2013? A. B. C. D. Full file at 49. Mama's Pizza Shoppe borrowed $8,000 at 9% interest on May 1, 2013, with principal and interest due on October 31, 2014. The company's fiscal year ends June 30, 2013. What adjusting entry is necessary on June 30, 2013? A. B. C. D. 50. On September 15, 2013, Oliver's Mortuary received a $6,000, nine-month note bearing interest at an annual rate of 10% from the estate of Jay Hendrix for services rendered. Oliver's has a December 31 year-end. What adjusting entry will the company record on December 31, 2013? A. B. C. D. Full file at 51. In its first year of operations Acme Corp. had income before tax of $400,000. Acme made income tax payments totaling $150,000 during the year and has an income tax rate of 40%. What is the balance in income tax payable at the end of the year? A. $160,000 credit. B. $150,000 credit. C. $10,000 credit. D. $10,000 debit. 52. Eve's Apples opened business on January 1, 2013, and paid for two insurance policies effective that date. The liability policy was $36,000 for 18 months, and the crop damage policy was $12,000 for a two-year term. What is the balance in Eve's prepaid insurance as of December 31, 2013? A. $9,00 0. B. $18,00 0. C. $30,00 0. D. $48,00 0. 53. Fink Insurance collected premiums of $18,000,000 from its customers during the current year. The adjusted balance in the Unearned premiums account increased from $6 million to $8 million dollars during the year. What is Fink's revenue from earned insurance premiums for the current year? A. $10,000,00 0. B. $16,000,00 0. C. $18,000,00 0. D. $20,000,00 0. Full file at 54. On November 1, 2013, Tim's Toys borrows $30,000,000 at 9% to finance the holiday sales season. The note is for a six-month term and both principal and interest are payable at maturity. What is the balance of interest payable for the loan as of December 31, 2013? A. $112,50 0. B. $225,00 0. C. $450,00 0. D. $1,350,00 0. 55. A future economic benefit owned or controlled by an entity is: A. A revenue. B. An asset. C. A liability. D. A contra asset until used. 56. Cost of goods sold is: A. An asset account. B. A revenue account. C. An expense account. D. A permanent equity account. Full file at