Finance Quiz

BUS 591_Quiz week 2

1. When a company receives a utility bill but will not pay it right away, it should (Points : 1)

debit Utilities Expense and credit Accounts Receivable.

debit Utilities Expense and credit Accounts Payable.

debit Accounts Payable and credit Utilities Expense.

make no entry until the bill is paid.

2. Is the purchase of equipment treated as an expense at the time of purchase? Why or why not? (Points : 1)

No, GAAP requires that 10% of the cost be expensed each year. This minimizes attempts to mislead financial statement users.

Yes, the matching principle requires that the cost be expensed in the period of purchase.

No, the cost needs to be allocated to the years of expected use.

Yes, the actual life of the asset is not known, thus there is no acceptable way to allocate the cost.

3. Unearned revenue is classified as a(n): (Points : 1)

asset account.

revenue account.

contra revenue account.

liability.

4. Given the data below for a firm in its first year of operation, determine net income under the accrual basis of accounting.

Cash received from customers    $44,000

Accounts receivable    12,000

Cash paid for expenses    26,000

Accounts payable (related to expenses)    3,000

Prepaid rent for next period    7,000

(Points : 1)

$18,000

$27,000

$20,000

$11,000

5. The Vintage Laundry Company purchased $6,500 worth of laundry supplies on June 2 and recorded the purchase as an asset. On June 30, an inventory of the laundry supplies indicated only $2,000 on hand.  The adjusting entry that should be made by the company on June 30 is: (Points : 1)

debit Laundry Supplies Expense, $2,000; credit Laundry Supplies, $2,000.

debit Laundry Supplies, $4,500; credit Laundry Supplies Expense, $4,500.

debit Laundry Supplies, $2,000; credit Laundry Supplies Expense, $2,000.

debit Laundry Supplies Expense, $4,500; credit Laundry Supplies, $4,500.

6. In the first month of operations, the total of the debit entries to the Cash account amounted to $1,200 and the total of the credit entries to the Cash account amounted to $800. The Cash account has a (Points : 1)

$800 credit balance.

$400 debit balance.

$1,200 debit balance.

$400 credit balance.

7. Which of the following accounts has a normal credit balance? (Points : 1)

Prepaid Rent

Notes Receivable

Rent Revenue

Rent Expense

8. The following is selected information from C Corporation for the fiscal year ending October 31, 2011.

Cash received from customers    $150,000

Revenue earned     195,000

Cash paid for expenses    85,000

Cash paid for computers on November 1, 2010 that

will be used for 3 years

24,000

Expenses incurred  including any depreciation    109,000

Proceeds from a bank loan, part of which was used to

pay for the computers

50,000

Based on the accrual basis of accounting, what is C Corporation’s net income for the year ending October 31, 2011? (Points : 1)

$102,000

$87,000

$86,000

$95,000

9. Expenses are recognized when: (Points : 1)

they contribute to the production of revenue.

they are paid.

they are billed by the supplier.

the invoice is received.

10. Assets normally show (Points : 1)

credit balances.

debit balances.

debit and credit balances.

debit or credit balances.