Multiple Choice Answers

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The Net Income amount from the Income Statement is used as a line item on which statement?
The balance sheet
The statement of owner’s equity
The statement of financial position
The trial balance

The financial statements submitted by a corporation to the SEC include the auditor’s report. The auditor’s report:
interprets the financial performance of the corporation.
certifies that the financial statements are completely accurate.
confirms that the financial information is prepared in conformity with generally accepted accounting principles.
publishes the salaries of all of the officers of the corporation.

Assume that a firm has the following information in its analysis of its business transactions during its first year of business: fees income of $7,000, an investment by the owner of $5,000, salaries expenses of $4,000, and withdrawals of $2,000. What is the total amount of owner’s equity that will be reported on the firm’s balance sheet?
$3,000
$6,000
$9,000

When J. Simmons, the owner, invests in her business, the transaction would be entered on the
right side of the J. Simmons, Capital T account.
left side of the J. Simmons, Capital T account.
right side of the Cash T account.
left side of the J. Simmons, Capital T account and the right side of the Cash T account.

A firm purchased telephone equipment for cash. By mistake, the person who recorded the transaction debited Utilities Expense instead of Office Equipment. The error was discovered after the data posted. The correcting entry should contain
a debit to Utilities Expense and a credit to Cash.
a debit to Office Equipment and a credit to Cash.
a debit to Cash and a credit to Office Equipment.
a debit to Office Equipment and a credit to Utilities Expense.

If an adjusting entry relating to prepaid insurance is not entered onto the worksheet, assets on the balance sheet
will be overstated.
will be understated.
will not be affected.
may be either overstated or understated.

After all account balances have been transferred from the Adjusted Trial Balance section of the worksheet to the financial statement sections, the Income Statement section of the worksheet includes the following totals. The Credit column total is $120,000 and the total of the Debit column is $80,000. The Income Statement section of the worksheet
is now complete.
would be completed by entering $40,000 in the Credit column with the words “Net Income” in the Account Name column.
would be completed by entering $40,000 in the Debit column with the words “Net Income” in the Account Name column.
must have been completed in error since the two columns do not balance.

Which of the following statements about the interpretation of the financial statements is not correct?
Interpreting the financial statements can only be performed by auditors.
Interpreting the financial statements is the final step in the accounting cycle.
To interpret the financial statements means to understand and explain the meaning and importance of information in accounting reports.
All of the above statements are correct.

One purpose of closing entries is to
reduce the owner’s capital account balance to zero so that the account is ready for the next period.
transfer the results of operations to owner’s equity.
close all accounts so that the ledger is ready for the next accounting period.
adjust the ledger account balances to provide complete and accurate figures for use on financial statements.

The schedule of accounts payable is prepared from the
general journal.
receiving report.
general ledger.
accounts payable subsidiary ledger.
None of the above.

An employee whose regular hourly rate is $10 and whose overtime rate is 1.5 times the regular rate worked 44 hours in one week. In the payroll register, the employer should record an overtime premium of
$440.
$220.
$20.
$5.

On May 1, 2010, a firm purchased a 1-year insurance policy for $3,600 and paid the full premium in advance. The insurance expense associated with this policy for 2010 is
$3,600.
$2,400.
$2,100.
$1,200.

Which of the following statements is not correct?
Reversing entries are made to reverse the effect of certain adjustments.
Reversing entries provide a way to guard against oversights, eliminate the review of accounting records, and simplify the entry made in the new period.
A reversing entry is the exact opposite (the reverse) of the adjustment.
After the reversing entry is posted for the adjustment made to recognize the salaries expense at the end of the accounting period, the Salaries Expense account will have a zero balance and the Salaries Payable account will have a credit balance.

The Posting Reference column of a journal is used to
record the page number of the ledger account.
record the date on which an amount is posted to a ledger account.
record the number of the ledger account to which the information is posted.
record the source document for the transaction.

On a worksheet, the adjusting entry to account for depreciation of equipment consists of a
debit to Depreciation Expense and a credit to Equipment.
debit to Depreciation Expense and a credit to Accumulated Depreciation.
debit to Equipment and a credit to Accumulated Depreciation.
debit to Accumulated Depreciation and a credit to Equipment.