Financial Accounting Test 1 Multiple Choice
Review With correct answers.
A building is offered for sale at $500,000 but is currently assessed at $400,000. The purchaser of the
building believes the building is worth $475,000, but ultimately purchases the building for $450,000. The
purchaser records the building at:
A.$50,000
B.$400,000
C.$450,000
D.$475,000
E.$500,000 - Correct Answer c; $450,000 is the actual cost incurred.
On December 30, 2014, KPMG signs a $150,000 contract to provide accounting services to one of its
clients in 2015. KPMG has a December 31 year-end. Which accounting principle or assumption requires
KPMG to record the accounting services revenue from this client in 2015 and not 2014?
A.Business entity assumption
B.Revenue recognition principle
C.Monetary unit assumption
D.Cost principle
E.Going-concern assumption - Correct Answer b; revenue is recorded when earned.
If the assets of a company increase by $100,000 during the year and its liabilities increase by $35,000
during the same year, then the change in equity of the company during the year must have been:
A.An increase of $135,000.
B.A decrease of $135,000.
C.A decrease of $65,000.
D.An increase of $65,000.
E.An increase of $100,000. - Correct Answer d;
Assets($100,000)=Liabilities($35,000)+Equity(?)
, Brunswick borrows $50,000 cash from Third National Bank. How does this transaction affect the
accounting equation for Brunswick?
A.Assets increase by $50,000; liabilities increase by $50,000; no effect on equity.
B.Assets increase by $50,000; no effect on liabilities; equity increases by $50,000.
C.Assets increase by $50,000; liabilities decrease by $50,000; no effect on equity.
D.No effect on assets; liabilities increase by $50,000; equity increases by $50,000.
E.No effect on assets; liabilities increase by $50,000; equity decreases by $50,000. - Correct Answer A
Geek Squad performs services for a customer and bills the customer for $500. How would Geek Squad
record this transaction?
A.Accounts receivable increase by $500; revenues increase by $500.
B.Cash increases by $500; revenues increase by $500.
C.Accounts receivable increase by $500; revenues decrease by $500.
D.Accounts receivable increase by $500; accounts payable increase by $500.
E.Accounts payable increase by $500; revenues increase by $500. - Correct Answer A
Amalia Company received its utility bill for the current period of $700 and immediately paid it. Its journal
entry to record this transaction includes a
A.Credit to Utility Expense for $700.
B.Debit to Utility Expense for $700.
C.Debit to Accounts Payable for $700.
D.Debit to Cash for $700.
E.Credit to Common Stock for $700. - Correct Answer b; debit Utility Expense for $700, and credit Cash
for $700
On May 1, Mattingly Lawn Service collected $2,500 cash from a customer in advance of five months of
lawn service. Mattingly's journal entry to record this transaction includes a
A.Credit to Unearned Lawn Service Fees for $2,500.
B.Debit to Lawn Service Fees Earned for $2,500.
C.Credit to Cash for $2,500.
Review With correct answers.
A building is offered for sale at $500,000 but is currently assessed at $400,000. The purchaser of the
building believes the building is worth $475,000, but ultimately purchases the building for $450,000. The
purchaser records the building at:
A.$50,000
B.$400,000
C.$450,000
D.$475,000
E.$500,000 - Correct Answer c; $450,000 is the actual cost incurred.
On December 30, 2014, KPMG signs a $150,000 contract to provide accounting services to one of its
clients in 2015. KPMG has a December 31 year-end. Which accounting principle or assumption requires
KPMG to record the accounting services revenue from this client in 2015 and not 2014?
A.Business entity assumption
B.Revenue recognition principle
C.Monetary unit assumption
D.Cost principle
E.Going-concern assumption - Correct Answer b; revenue is recorded when earned.
If the assets of a company increase by $100,000 during the year and its liabilities increase by $35,000
during the same year, then the change in equity of the company during the year must have been:
A.An increase of $135,000.
B.A decrease of $135,000.
C.A decrease of $65,000.
D.An increase of $65,000.
E.An increase of $100,000. - Correct Answer d;
Assets($100,000)=Liabilities($35,000)+Equity(?)
, Brunswick borrows $50,000 cash from Third National Bank. How does this transaction affect the
accounting equation for Brunswick?
A.Assets increase by $50,000; liabilities increase by $50,000; no effect on equity.
B.Assets increase by $50,000; no effect on liabilities; equity increases by $50,000.
C.Assets increase by $50,000; liabilities decrease by $50,000; no effect on equity.
D.No effect on assets; liabilities increase by $50,000; equity increases by $50,000.
E.No effect on assets; liabilities increase by $50,000; equity decreases by $50,000. - Correct Answer A
Geek Squad performs services for a customer and bills the customer for $500. How would Geek Squad
record this transaction?
A.Accounts receivable increase by $500; revenues increase by $500.
B.Cash increases by $500; revenues increase by $500.
C.Accounts receivable increase by $500; revenues decrease by $500.
D.Accounts receivable increase by $500; accounts payable increase by $500.
E.Accounts payable increase by $500; revenues increase by $500. - Correct Answer A
Amalia Company received its utility bill for the current period of $700 and immediately paid it. Its journal
entry to record this transaction includes a
A.Credit to Utility Expense for $700.
B.Debit to Utility Expense for $700.
C.Debit to Accounts Payable for $700.
D.Debit to Cash for $700.
E.Credit to Common Stock for $700. - Correct Answer b; debit Utility Expense for $700, and credit Cash
for $700
On May 1, Mattingly Lawn Service collected $2,500 cash from a customer in advance of five months of
lawn service. Mattingly's journal entry to record this transaction includes a
A.Credit to Unearned Lawn Service Fees for $2,500.
B.Debit to Lawn Service Fees Earned for $2,500.
C.Credit to Cash for $2,500.
