Review of a Company's Accounting System

MULTIPLE CHOICE

1. Which statement concerning accounting for accounting changes and errors is not true?

a. an error is accounted for retroactively

b. a change in accounting principle is accounted for prospectively

c. a change in accounting principle may be accounted for retroactively

d. a change in accounting estimate is accounted for prospectively

2. The mandatory adoption of a new accounting principle as a result of a new FASB Statement requires

a. footnote disclosure only

b. a cumulative effect adjustment

c. prospective adjustment

d. prior period adjustment

3. The use of the cumulative effect method to account for a change in accounting principle violates the accounting concept of

a. Materiality

b. Objectivity

c. Consistency

d. Conservatism

4. Closing entries do not

a. update the Inventory account

b. update the Retained Earnings account

c. apportion prepaid expenses and unearned revenues to bring the accounts up to date

d. reduce all temporary accounts to zero

5. Which of the following is a permanent account?

a. Dividends Distributed

b. Allowance for Doubtful Accounts

c. Interest Expense

d. Sales

6. Which of the following is a nominal account?

a. Retained Earnings

b. Accounts Receivable

c. Purchase Returns and Allowances

d. Accumulated Depreciation

7. The major financial statements presented by a company include all of the following statements, except for the

a. balance sheet

b. statement of changes in financial position

c. income statement

d. statement of cash flows

8. Which of the following accounts would not be closed to Income Summary during the year-end closing entry process?

a. Loss of Sale of Land

b. Prepaid Rent

c. Freight-in

d. Sales Discounts

9. Adjusting entries are made

a. to match the costs associated with prepaid assets against current revenues as the assets are consumed

b. to record accrued expenses

c. to record estimated items, such as depreciation

d. for all of the above reasons

10. Which of the following errors will be detected by a trial balance?

a. posting a credit to Sales instead of to Accounts Payable

b. incorrectly computing the balance of the cash account

c. not journalizing a complete sales transaction

d. forgetting to post a complete purchase transaction

11. The entire group of accounts for a company is referred to as the:

a. general ledger

b. Worksheet

c. Journal

d. document of original entry

12. Which of the following statements regarding a post-closing trial balance is not true?

a. post-closing trial balances only contain permanent accounts

b. a post-closing trial balance is prepared as of the end of the company's fiscal year

c. post-closing trial balances only contain temporary accounts

d. a post-closing trial balance verifies that the total of the debit balances equals the total of the credit balances of all accounts in the general ledger

13. Posting is the procedure of transferring information from the

a. journal to the ledger

b. trial balance to the worksheet

c. ledger to the journal

d. worksheet to the financial statements

14. All of the following closing entries are correct, except for

a. debit Unearned Rent, credit Income Summary

b. debit Sales Revenue, credit Income Summary

c. debit Retained Earnings, credit Dividends Distributed

d. debit Income Summary, credit Loss on Sale of Land

15. Which of the following is an accrued expense?

a. Depreciation

b. employees' salaries

c. interest revenue

d. rental expense paid three months in advance

BONOs

16. An accrued expense is an expense

a. incurred but neither paid nor recorded

b. incurred, paid, and recorded

c. paid and recorded but not incurred

d. whose amount is subject to estimation

17. Rent revenue collected in advance should be

a. recorded as revenue when collected

b. presented as a liability until earned

c. recorded as an asset until earned

d. presented as a separate item in stockholders' equity

18. The balance in deferred (unearned) revenue accounts represents amounts that are

Earned Collected

a. Yes No

b. Yes Yes

c. No No

d. No Yes

PROBLEM

1. December 31 balances for selected accounts of the Carley Company are presented below:

Accounts receivable $ 500

Sales 2,000

Interest revenue 600

Dividends distributed 300

Allowance for doubtful accounts 100

Salaries expense 800

Depreciation expense 400

Unearned rent 200

Required:

Prepare whatever closing entries are appropriate for the accounts above.