Accrual Accounting Concepts 1. Lansing Cycles failed to record an adjusting entry for accrued expenses at the end of June. What effect does this have on the financial statements? a. Expenses are overstated and revenues are understated b. Assets are overstated and expenses are understated C. Expenses and liabilities are understated. d. Revenues and expenses are understated 2. Which of the following describes the timing of when revenue is recognized? a. In the period in which the related expenses are paid b. In the period in which the performance obligation is satisfied c. In the period in which payment is received for goods sold or work performed d. In the period in which the costs associated with earning the revenue are incurred and payment is received for goods sold or work performed 3. Which statement is not true concerning the accrual basis of accounting? a Transactions are recorded when payment is made for the costs incurred, b. GAAP requires the accrual basis for financial reporting, c. Transactions are recorded when events occur. d. Revenue is recognized when services are performed 4. Which one of the following is true as it relates to the Accumulated Depreciation account? a. It is a contra account. b. It is offset against an asset account on the income statement c. It represents the portion of the cost of a long-lived asset that has been allocated as a cost during the current accounting period. d. It is an operating expense. 5. The book value of a depreciable asset is defined as the asset's a. cost less accumulated depreciation b. current market value c. replacement cost. d. cost 6. Randall Automotive signed a $5,000,120-day note payable on October 1 that bears interest at an annual rate of 9% How much will appear on Randall's income statement for interest expense related to this note at December 31? a $450 b. $150 c. $112.50 d. $4,500 Financial Statements Concepts 7. The financial statements are usually prepared in which of the following sequences? a Balance sheet, retained earnings statement, statement of cash flows, and income statement b. Balance sheet, statement of cash flows, income statement and retained earnings statement c. Income statement, retained earnings statement, balance sheet, and statement of cash flows d. Income statement, balance sheet, retained earnings statement, and statement of cash flows 8. Which of the following would not appear on the income statement? a. Net income b. Service revenue Interest expense d. Dividends pald 9. Which of the following would not appear on the retained earnings statement? a Net Income b. Dividends Service revenue d. Beginning retained earning balance 10. Which one of the following is not the correct date format for the respective financial statement? a. A balance sheet as of May 31, 20XX b. A statement of retained earnings as of May 31, 20XX An income statement for the month ended May 31, 20XX d. A statement of cash flows for the month ended May 31, 20XX 11. The ending retained earnings balance appears on: a. The income statement and the retained earnings statement b. The balance sheet only. C. Both the retained earnings statement and the balance sheet d. The retained earnings statement only. 12. A financial statement that reports accounting data at a specific date is the a balance sheet b retained earnings statement o income statement d. statement of cash flows. 13. Which one of the following statements is true concerning the interrelationships of financial statements ? a Net Income on the income statement equals the cash balance at the end of the period on the balance sheet b. The ending balance of retained earnings on the statement of retained earnings is equal to net income on the income statement cThe amount of net income on the income statement is added to the beginning retained eamings balance on the statement of retained earnings d. The amount of cash used during the period on the statement of cash flows is equal to total expenses on the income statement Financial Statements Formulas and Calculations 14. The Retained Earnings account had a beginning balance of $60,000 and an ending balance of $70,000, $20,000 of dividends were declared and paid during the period, net income must have been a $20,000 b. $30,000 c. $10,000 d. $50,000 15. Saira's Maid Service began the year with total assets of $120,000 and stockholders' equity of $40,000. During the year the company earned $90,000 in net income and paid $20,000 in dividends. Total assets at the end of the year were $215,000. Total liabilities at the end of the year were: a $110.000 b. $105,000 C$80,000 d. $90,000 16. Barken Company's records show the following for the month of January Total Retained Earnings at January 1 $400,000 Total Retained Earings at January 31 500,000 Total Revenues 670,000 Total Dividends Declared 40,000 Total expenses for January were a $740,000 b. $770,000 0 $570,000 d. $530,000 Closing Process 17. A post-closing trial balance contains a real and nominal accounts b. permanent and temporary accounts. c. balance sheet or permanent accounts d. balance sheet and retained earnings statement accounts 18. What type of accounts can be found on a post-closing trial balance? a. All accounts that have balances after the closing process is complete b. Permanent and temporary accounts C. Assets, expenses, revenues, and liabilities d. Accounts that have been closed during the period 19. 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 20. The preparation of closing entries a. is an optional step in the accounting cycle. b. results in zero balances in all accounts at the end of the period so that they are ready for the following period's transactions c. is necessary before financial statements can be prepared d results in transferring the balances in all temporary accounts to Retained Eamings. 3 of 3