Multiple choice questions used for study aid.
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. Taco Hut pays the current month's rent, $600. This transaction
a. increases revenues by $600.
b. increases assets by $600.
c. decreases liabilities by $600.
d. decreases stockholders' equity by $600.
3. A corporation with total stockholders' equity of $85,000 paid a $5,000 business debt. As a result of this transaction, total stockholders' equity
a. did not change.
b. increased by $5,000.
c. decreased by $5,000.
d. increased to $90,000.
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.
6. Warton Company depreciates its equipment at the rate of $500 per month. The January 31 entry to record depreciation expense would include
a. a debit to Equipment for $500.
b. a credit to Retained Earnings for $500.
c. a credit to Accumulated Depreciation for $500.
d. a credit to Depreciation Expense for $500.
7. Logan Company debited Prepaid Insurance for $960 on July 1, 2005 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 $960 and expenses to be understated by $960.
b. expenses to be overstated by $80 and assets to be understated by $80.
c. assets to be overstated by $80 and expenses to be understated by $80.
d. expenses to be overstated by $960 and assets to be understated by $960.
8. Which one of the following accounts is not closed at the end of an accounting period?
a. Common Stock
c. Service Revenue
d. Insurance Expense
1. c. Financial Accounting Standards Board, because 2 are government and the board of directors can't make rules for other companies to follow.
2. d. decreases stockholders' equity by $600 ultimately because assets have decreased by the amount of the payment. It is not a revenue and not a liability which explains why a. and c. aren't correct.
3. c. decreased by $5,000, but I should explain ...
The solutions are given for 10 financial questions together with explanations of the answers. The questions include transaction effects to the balance sheet, effect of closing entries and other issues.