Exam 1A KEY (Ch. 1-4)
True/False (1 point each)
A primary objective of accounting is to disclose the fair market value of assets on the balance sheet so investors and creditors know their current value.
The payment of a liability in cash will decrease stockholders' equity.
When a company borrows money from a bank, it leads to a cash inflow from an investing activity.
Only events that can be measured will be reflected in the journal entries
Every transaction affects both the income statement and the balance sheet
Matching (1 pt. each)
Match each account title with its related term by entering the appropriate letter in the space provided:
1. Prepaid Rent
A. Accrued Revenue
2. Salaries Payable
B. Accrued Expense
3. Unearned Revenue
C. Deferred Revenue
4. Interest Receivable
D. Deferred Expense
Fill in the blank:
1. The basic balance sheet equation is: ASSETS
2. The amount of cash paid by a business for office utilities would be reported on the statement of cash flows
as what kind of activity?
OMIT THIS QUESTION
3. To determine whether a company will be able to pay for goods when payment is due in 30 days, we should
look at which financial statement?
4. Sales - Cost of Goods Sold =
Work-out - Point allocations are indicated on each question. Problem 1:
Use the following list of accounts to identify the accounts that would be used in the journal entry for
each transaction given below. Write the appropriate account number in each debit and credit blank.
(½ pt. for each blank)
a. Provided service to a customer on credit
b. Paid current operating expenses
c. Paid insurance premium for next year
d. Received a deposit from a customer for
service to be performed next year
e. Received payment for transaction (a) above
An electronics store had the following transactions in February:
Sold $90,000 of goods to customers, receiving $65,000 in cash with the remainder on
account. The inventory had an original cost of $36,000. ($90,000 revenue; $36,000 COGS)
Purchased $16,000 of inventory and paid for $12,000 in cash and the remainder on
Paid $12,000 in wages to employees who worked in January (wage expense)
Received a customer order and payment of $9,000 for an audio system to be delivered
and installed in March (MARCH revenue)
$14,000 earned by employees in February hasn’t been paid by Feb. 28. (FEB. expense)
The store should report how much income for the month of February? (3 pts.)
(Rev. $90,000 - $36,000 COGS- $14,000 wage exp.)
A company has been operating for three years. At December 31, 2008, the accounting records reflected
the following: (in thousands $) Red=assets; Green=Liabilities
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