ACCT 201 Principles of Financial Accounting
Practice Exam - Chapter 3
Reporting & Preparing Financial Statements
Dr. Fred Barbee

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1. The time period principle assumes that an organization's activities can be divided into specific time periods including:
a.  Months
b.  Quarters
c.  Years
d.  All of the above.
2. The accounting principle that requires revenue to be reported when earned is the:
a.  Matching Principle.
b.  Revenue Recognition Principle
c.  Time Period Principle
d.  Going-Concern Principle.
3. Adjusting entries
a.  Affect only income statement accounts.
b.  Affect only balance sheet accounts.
c.  Affect both income statement and balance sheet accounts.
d.  Affect only cash flow statement accounts.
4. Revenues, expenses, and owner's withdrawal accounts, which are closed at the end of each accounting period, are referred to as:
a.  Real Accounts
b.  Temporary Accounts
c.  Closing Accounts
d.  Permanent Accounts
5. The recurring steps performed each accounting period, starting with analyzing and recording transactions in the journal and continuing through the post-closing trial balance, is referred to as the:
a.  Accounting Period.
b.  Operating Cycle.
c.  Accounting Cycle.
d.  Closing Cycle.
6. A classified balance sheet:
a.  Measures a company's ability to pay its bills on time.
b.  Organizes assets and liabilities into important subgroups.
c.  Presents revenues, expenses, and net income.
d.  Reports operating, investing, and financing activities.
7. If a company failed to make an adjusting entry at the end of its accounting period to record depreciation for this period, the omission will cause:
a.  An understatement of expenses
b.  An overstatement of revenues.
c.  An understatement of assets.
d.  An overstatement of liabilities.
8. The current ratio:
a.  Is used to measure a company's profitability.
b.  Is used to measure the relation between assets and long-term debt.
c.  Measures the effect of operating income on profit.
d.  Is used to help evaluate a company's ability to pay its short-term obligations.
9. The total amount of depreciation recorded against an asset or group of assets during the entire time the asset or assets have been owned:
a.  Is referred to as depreciation expense.
b.  Is referred to as accumulated depreciation.
c.  Is shown on the income statement in the final period.
d.  Is only recorded when an asset is disposed of.
10. Which of the following assets is not depreciated?
a.  Store Fixtures
b.  Computers
c.  Land
d.  Buildings

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Part II: Short Problems

Short Problem #1

The following are steps in the accounting cycle. List them in the order in which they are completed

  Preparing Adjusted Trial Balance
  Posting
  Preparing an Unadjusted Trial Balance
  Journalizing
  Preparing the Financial Statements
  Closing the Temporary Accounts
  Adjusting the Accounts
  Preparing a Post-Closing Trial Balance
  Analyze Transactions

Short Problem #2

Classified balance sheets commonly include the following categories:

a. Current Assets
b. Investments
c. Plant Assets
d. Intangible Assets
e. Current Liabilities
f. Long-Term Liabilities
g. Equity

Indicate the typical classification of each item listed below by placing the letter of the correct balance sheet category a through g in the blank space next to the item.

1.
 
 Buildings used in business operations
2.   Office Supplies
3.   Land held for future plant expansion
4.   Long-term note payable
5.   Accounts Receivable
6.   Retained Earnings
7.   Accounts Payable
8.   Merchandise Inventory
9.   Patents
10.   Wages Payable
11.   Prepaid Expenses
12.   Cash

Short Problem #3

Following are selected accounts and their balances for a company after the adjustments as of May 31, the end of its fiscal year. (All accounts have normal balances).

Common Stock
$20,000
Retained Earnings
10,000
Dividends
6,000
Fees Earned
20,000
Salaries Expense
7,000
Insurance Expense
350
Utilities Expense
75
Supplies Expense
500
Supplies
400
Salaries Payable
300
Depreciation Expense
425

Prepare all necessary closing entries for this company.

Part III: Problems

In general journal form, record the December 31 adjusting entries for the following transactions and events. Assume that December 31 is the end of the annual accounting period.

a. The Prepaid Insurance account shows a debit balance of $2,340, representing the cost of a three-year fire insurance policy that was purchased on October 1 of the current year.
b. The Office Supplies account has a debit balance of $400; a year-end inventory count reveals $80 of supplies still available.
c. On November 1 of the current year, Rent Earned was credited for $1,500. This amount represented the rent earned for a three-month period beginning November 1.
d. Depreciation on office equipment is $600.
e. Accrued salaries amount to $400.

Last Modified January 15, 2003