1. Which of the following would be an example of an external user of financial reports? A. Supermarket manager looking at the cost overrun report from the deli department B. Loan officer looking over the financial statements of a loan applicant C. An employee who takes financial data and compiles it into report form for use by his supervisor D. A manager of a company who requests that internal financial reports be presented to him in a specific format 2. At the end of an accounting period, Lackawaxen Co. has the following account balances listed on its Adjusted Trial Balance. Sales Revenue: $100,000 Cost of Goods Sold: 50,000 Administrative Expense: 25,000 Retained Earnings: 250,000 Assume there are no other revenue and expense accounts, and that revenues and expenses are closed with a single journal entry. Which of the following is the correct closing entry for Lackawaxen Co.? A. Administrative Expense $ 25,000; Cost of Goods Sold 50,000; Sales Revenue 100,000; Retained Earnings $175,000 B. Retained Earnings 250,000; Sales Revenue 250,000 C. Retained Earnings 25,000;Cost of Goods Sold 25,000 D. Sales Revenue 100,000; Cost of Goods Sold 50,000; Administrative Expense 25,000; Retained Earnings 25,000 3. Recording the purchase price of a wastebasket (with an estimated useful life of 10 years) as an expense of the current period is justified by the A. going concern assumption. B. materiality constraint. C. matching principle. D. comparability principle. 4. Max Wealth Financial Advisors has had large losses for the past 10 years. It also appears they’ll be unable to meet both current and long-term financial commitments. Which of the following traditional assumptions of the accounting model does Max Wealth appear to be in danger of violating? A. Accounting period B. Economic entity C. Going concern D. Stable monetary units 5. Which of the following situations can be used as an example showing the fulfillment of the overall objective of financial reporting? A. An investor buys stock in a company after looking at a company’s financial statements. B. A manager of an entity finds an error on the balance sheet. C. An accountant compiles a letter to a company’s board of directors outlining audit procedures. D. A student uses a set of financial statements in a class exercise. 6. A sole proprietor deposits $10,000 of personal money into a business to pay business expenses. Which financial statement element is this an example of? A. Investment by owner B. Revenues C. Assets D. Comprehensive income 7. According to the FASB’s conceptual framework, the process of reporting an item in the financial statements of an entity is A. realization. B. recognition. C. matching. D. allocation. 8. L. Lane received $12,000 from a tenant on December 1 for four months’ rent of an office. This rent was for December, January, February, and March. If Lane debited Cash and credited Unearned Rental Income for $12,000 on December 1, what necessary adjustment would be made on December 31? A. Unearned Rental Income $3,000 Rental Income $3,000 B. Rental Income 3,000; Unearned Rental Income 3,000 C. Unearned Rental Income 9,000; Rental Income 9,000 D. Rental Income 9,000; Unearned Rental Income 9,000 9. Kim Bezzel includes personal expenses on her corporation’s financial reports. By her doing so, which of the following traditional assumptions of the accounting model is being violated? A. Accounting period B. Economic entity C. Going concern D. Stable monetary units 10. Scott Co. reported an allowance for doubtful accounts of $25,000 (credit) at December 31, before performing an aging of accounts receivable. As a result of the aging, Scott determined that an estimated $35,000 of the December 31 accounts receivable would prove uncollectible. What would be the adjusting entry required at December 31? A. Doubtful Accounts Expense $35,000; Allowance for Doubtful Accounts $35,000 B. Doubtful Accounts Expense 35,000; Accounts Receivable 35,000 C. Allowance for Doubtful Accounts 10,000; Doubtful Accounts Expense 10,000 D. Doubtful Accounts Expense 10,000; Allowance for Doubtful Accounts 10,000 =$35,000 - $25,000 = $10,000 Doubtful Accounts Expense $10,000 Allowance for Doubtful Accounts $10,000 11. Archbald Pothole Co. received an invoice from a supplier. The entry made to record the receipt of the invoice was a debit to Supplies Expense and a credit to Cash. An internal audit determined that this entry was incorrect because the invoice was never paid. The journal entry to correct this error would be a A. debit to Cash and a credit to Accounts Payable. B. debit to Supplies Expense and a credit to Accounts Payable. C. debit to Cash and a credit to Accounts Receivable. D. debit to Accounts Payable and a credit to Supplies Expense. 12. An item would be considered material and therefore would be disclosed in the financial statements if the A. expected benefits of disclosure exceed the additional costs. B. impact on earnings is greater than 3 percent. C. FASB threshold of materiality is met. D. amount is deemed large enough to make a difference to the users. I am not 100% sure about 12 13. Which one of the following is not a part of the recording phase? A. A trial balance of the accounts in the general ledger is prepared. B. Business documents are analyzed. C. Transactions are posted. D. Transactions are recorded. 14. The essence of _______ is that information becomes much more useful when it can be related to a benchmark or standard. A. relevance B. reliability C. comparability D. materiality 15. Crescent Corporation’s interest revenue was $13,100. Accrued interest receivable on December 31 was $2,275. The adjusting entry to record the accrued interest receivable would be A. Cash $10,825; Interest Revenue $10,825 B. Cash $10,825; Interest Receivable 2,275; Interest Revenue $13,100 C. Interest Receivable $2,275; Interest Revenue $2,275 D. Interest Revenue $2,275; Interest Receivable $2,275 31 To answer Questions 16–20, please complete work sheet, below: You’ll need the following additional information to complete the work sheet: ¦ Additional bad debt expense of $1,263 needs to be recorded. ¦ Only $400 of supplies remain on hand at year-end. ¦ Accrued interest receivable of $500 remains unrecorded. ¦ One-fourth of the prepaid insurance has expired. ¦ Year-end inventory balance should be $28,000. ¦ Equipment is being depreciated straight-line over a four-year life with a $4,000 salvage value. 16. The adjusted balance in the Allowance for Doubtful Accounts is A. $1,663. B. $1,263. C. $863. D. $400. 17. Cost of Goods Sold is A. $45,400. B. $44,000. C. $43,400. D. $42,600. 18. Depreciation Expense is A. $40,000. B. $36,000. C. $18,000. D. $9,000. 19. The total of each adjusted trial balance column is A. $57,313. B. $126,250. C. $126,800. D. $246,463. 20. Net Income is A. $5,587. B. $6,587. C. $6,737. D. $7,587.
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