A - I Multiple Choice

Circle the one best answer.

1. A private organization which establishes broad accounting principles as well as specific accounting rules is the

a. Securities and Exchange Commission.

b. Internal Revenue Service.

c. Financial Accounting Standards Board.

d. Corporate Board of Directors.

2. An increase in an expense

a. increases revenues.

b. increases assets.

c. decreases liabilities.

d. decreases stockholders equity.

3. A company with total stockholders equity of $85,000 paid a $10,000 business debt. As a result of this transaction, total stockholders equity

a. did not change.

b. increased by $10,000.

c. decreased by $10,000.

d. increased to $95,000.

4. The right side of an account is always

a. the debit side.

b. the credit side.

c. the balance of that account.

d. carried forward to the next accounting period.

5. Posting is the process of

a. preparing a chart of accounts.

b. adding a column of figures.

c. transferring journal entries to ledger accounts.

d. recording entries in a journal.

6. The purpose of recording depreciation on productive assets is to

a. reflect the decline in the market value of the assets each period.

b. reduce income when the company has an exceptionally profitable year.

c. be in conformity with the monetary recognition principle.

d. allocate the original cost of productive assets to expense over its useful life.

7. Logan Company debited Prepaid Insurance for $1,080 on July 1, 2013, for a one-year fire insurance policy. If the company prepares monthly financial statements, failure to make an adjusting entry on July 31 for the amount of insurance that has expired would cause

a. assets to be overstated by $1,080 and expenses to be understated by $1,080.

b. expenses to be overstated by $90 and assets to be understated by $90.

c. assets to be overstated by $90 and expenses to be understated by $90.

d. expenses to be overstated by $1,080 and assets to be understated by $1,080.

8. Which one of the following accounts is not closed at the end of an accounting period?

a. Retained Earnings account

b. Dividends account

c. Service Revenue account

d. Insurance Expense account

9. The second set of debit and credit columns on a worksheet is generally used for

a. closing entries.

b. the trial balance.

c. the balance sheet figures.

d. the adjustments.

10. Gross profit is calculated by subtracting

a. total expenses from total revenues.

b. cost of goods sold from net sales.

c. cost of goods sold from total revenues.

d. operating expenses from net sales.