Practice Exam 1 Leader: Jacob K.
September 18, 2012 Course: ACCT 284 – AC
Supplemental Instruction Instructor: Clem
Iowa State University
Disclaimer: This practice exam was formulated using the exam 1 study guide published
on Blackboard. While it is not intended to be a comprehensive review of all topics that
might be covered on the first exam, it will serve as a helpful study tool when used in
combination with other available exams, class notes, and your textbook.
1) Which of the following is not part of financial accounting?
a. Processes information about an organization
b. It is a system that collects and processes financial information
c. It makes decisions for you
d. Reports information to decision makers
2) The financial statement that shows the financial position of a company at a point
a. Income statement
b. Statement of cash flows
c. Statement of retained earnings
d. Balance sheet
3) This financial statement shows how net income and the distribution of dividends
affected the financial position of the company for the accounting period:
a. Statement of cash flows
b. Balance sheet
c. Statement of retained earnings
d. Income statement
Use this table to answer the following three questions (4-6).
Liabilities, 12/31/2010 $350,000
Contributed Capital, 12/31/2010 $125,000
Beginning Retained Earnings, 1/1/2010 $175,000
Revenues for 2010 $650,000
Expenses for 2010 $200,000
Dividends for 2010 $20,000
4) How much are assets on 12/31/2010?
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5) How much is ending retained earnings on 12/31/2010?
6) What amount of dividend expense would the company report on its Income
Statement for 2010?
d. Would not be reported on income statement
7) The private body that actually writes the accounting rules:
8) Who is primarily responsible for the information contained in the financial
9) What is an disadvantage of incorporation
a. Limited liability of stockholder
b. Ability to raise capital
c. Ease of ownership transfer
d. None of the above
10) The statement of cash flows shows a change in cash from which three activities?
a. Operating, investing, and financing
b. Investing, assets, contributed capital
c. Financing, net income, debt
d. Credits, debits, operating
11) Which of the following is NOT part of PP&E?
12) An example of a non-current asset would be:
d. Prepaid Rent
13) The idea of conservatism relates to which Principle/Assumption?
a. Revenue Principle
b. Time Period Assumption
c. Cost Principle
d. Matching Principle
14) A classified balance sheet is placed in order by:
a. The first letter of the account
c. The amount in the account
d. The date the account began
15) A company’s balance sheet shows total assets of $400,000, including $135,000
of current assets. The company also has long-term liabilities of $207,000, and
total stockholders’ equity of $100,000. What is the company’s current ratio?
d. Cannot be determined from information given
16) On August 1, a company paid six months worth of rent in advance, at a cost of
$7,200. How should the company record the transaction?
a. With a debit to rent expense, $7,200
b. With a debit to prepaid rent, $7,200
c. With a credit to rent expense, $7,200
d. With a credit to prepaid rent, $7,200
17) On August 1st, Accounts Payable had a normal balance of $88,000, and at the
end of August had a normal balance of $61,000. If payments on the account
were $43,000 during the month, how much were purchases using the account?
18) When a company purchases equipment on account, the effect would be?
a. Assets increase and stockholders’ equity would increase
b. Liabilities decrease and stockholders’ equity would increase
c. Assets increase and liabilities increase
d. Assets increase and liabilities decrease
19) On September 1, a company recorded a transaction with a debit to Cash and a
credit to Notes Payable. Which of the following describes the transaction?
a. The company received money from a customer as payment on his or
b. The company borrowed money by signing a promissory note.
c. The company made a payment on a previously signed note payable.
d. The company allowed a customer to borrow money in exchange for the
customer signing a promissory note.
20) A company receives rent from a tenant on March 31st. The tenant paid in
advance for an entire year, starting April 1st. Rent is at a rate of $750 a month.
On December 31st, what will be the necessary adjusting entry?
a. A debit to unearned rent revenue and a credit to rent revenue, $6,750
b. A debit to cash and a credit to unearned rent revenue, $9,000
c. A debit to unearned rent revenue and a credit to rent revenue, $2,250
d. A debit to cash and a credit to rent revenue, $6,750
21) Which of the following would never happen based on our basic accounting
a. Increase stockholders’ equity and increase an asset
b. Decrease a liability and increase an asset
c. Decrease stockholders’ equity and increase a liability
d. All of the above would never happen
22) A lawn care company charged a customer for services completed this month for
$300, the transaction would look like:
a. Accounts receivable increases by $300
b. Cash increases by $300
c. Service revenue decreases by $300
d. Accounts receivable decreases by $300
23) For transaction analysis to be done correctly what must occur?
a. Have two or more accounts affected
b. Identify the effect on the all the accounts
c. Make sure the transaction is in balance
d. All of the above
24) Limitations of the income statement do not include:
a. Uses estimates to measure income
b. Cash flows equal net income
c. Does not directly measure the change in value of a company
d. All of the above are limitations of the income statement
25) All of the following are involved in closing entries, except:
a. Cost of goods sold
b. Sales revenue
26) A company earns interest revenue on its investments every month, but interest is
paid out annually on July 1. If the company issues financial statements every
December 31, what type of adjusting entry is required to record interest earned?
a. Accrued expense
b. Accrued revenue
c. Deferred expense
d. Deferred revenue
27) Under the accrual basis, which of the following is false:
a. It is required by GAAP for external reporting
b. Revenues are recognized when cash is collected
c. Revenues and expenses are recognized when they are earned/incurred
regardless of when cash is received
d. All of the above are true under the accrual basis
28) Which two financial statements do adjusting entries always affect?
a. Balance sheet and income statement
b. Statement of cash flows and the balance sheet
c. Income statement and statement of retained earnings
d. Statement of retained earnings and the balance sheet
29) A company receives $18,000 cash on June 1, 2011 for one-year club
memberships. The company sends out club materials at the beginning of every
month, beginning on July 1, 2011. As of September 1, 2011, what is the balance
in the Unearned Revenue account?
30) Forgetting to recognize the expense of using up a months worth of rent would
a. Assets and liabilities to be understated
b. Revenues to be overstated and expenses to be understated
c. Liabilities to be understated and stockholders’ equity to be overstated
d. Assets and stockholders’ equity to be overstated