ACG 2021 Final Exam Questions and
100% Correct Answers
A retail shop has been operating as a sole proprietorship. The business is growing and
now the owner wants to incorporate. Which of the following is not a valid reason for this
owner to incorporate? ✅a.) The owner want to be able to more easily transfer
ownership of the business.
b.) The owner wants to raise capital for expansion.
c.) The owner wants to decrease the taxes paid by the business.
d.) All of these are good reasons to change a sole proprietorship into a corproation.
e.) The owner wants to limit his or her personal liability.
ANSWER: c.) the owner wants to decrease taxes paid by the business
which of the following is an asset? ✅a.) interest expense
b.) notes payable
c.) dividends
d.) retained earnings
e.) inventory
ANSWER: e.) inventory
the accounting equation may be expressed as ✅assets = liabilities + stockholder's
equity
The portion of the annual report that presents management's views on the company's
near-term debt paying ability and results of operations are found in the ✅a.) notes to
the financial statements
b.) president's state of the company report
c.) auditor's report
d.) management discussion and analysis
,e.) chief executive officer's ledger analysis report
ANSWER: d.) management discussion and analysis
a company has the following accounts and balances:
accounts payable 40,000
accounts receivable 70,000
accumulated depreciation 50,000
buildings 500,000
cash 100,000
common stock 690,000
equipment 120,000
inventory 200,000
investment in bonds 20,000
land 150,000
notes payable 300,000
patents 10,000
prepaid insurance 20,000
retained earnings 150,000
trademarks 40,000
the land is used as a parking lot. The bonds are expected to be held long-term. What
are its current assets and property, plant, and equipment ✅Rose's current assets
include accounts receivable, cash, inventory, and prepaid insurance; rose's property,
plant, and equipment includes buildings, equipment, and land minus accumulated
depreciation
current assets = 70,000 + 100,000 + 200,000 + 20,000
= 390,000
property, plant, and equipment = 500,000 + 120,000 + 150,000 - 50,000
= 720,000
which of the following would increase a company's current ratio? ✅a.) negotiate with a
creditor to reclassify a note payable in 3 months into a note payable due in 2 years
b.) collect outstanding accounts receivable
c.) none of these
d.) pay a dividend to shareholders
e.) use cash to buy new equipment
,ANSWER: a.) negotiate with a creditor to reclassify a note payable in 3 months into a
note payable due in 2 years
note: changing a current liability into a long-term liability will lower current liabilities;
therefore, increases current ratio
The effects of issuing a note payable in exchange for cash on the basic accounting
equation are to ✅a.) increase assets and increase liabilities.
b.) increase liabilities and increase stockholders' equity.
c.) decrease assets and decrease liabilities.
d.) increase assets and increase stockholders' equity.
e.) decrease assets and decrease stockholders' equity.
ANSWER: a.) increase assets and increase liabilities
Powell Company provided consulting services and collected $500 for the services
provided. As a result of this transaction ✅a.) assets and liabilities decreased by $500.
b.) assets and equity decreased by $500.
c.) equity remained unchanged.
d.) liabilities decreased and equity increased by $500
e.) assets and equity increased by $500.
ANSWER: e.) assets and equity increased by $500
note: performing services for cash indicates that assets increased and revenue
increased; revenue is recognized when it is earned
During its first year, a corporation earned revenues of $135,000 and incurred expenses
of $87,000. The corporation also paid cash dividends of $10,000 and purchased
$25,000 of equipment in exchange for cash during the first year. What is the balance in
the company's retained earnings account at the end of its first year? ✅ending retained
earnings = beginning retained earnings + net income - dividends
= 0 + 135,000 - 87,000 - 10,000
= 38,000
, note: retained earnings occurs when revenues exceed expenses and dividends
the accounting cycle is a series of steps and their usual sequence is ✅journalize
transactions, post transactions to the ledger, and then prepare the trial balance
In Year 1, Costello Company performed work for a customer and billed the customer
$14,000. In Year 2, the customer pays Costello Company for the services it rendered in
Year 1. In Year 1, the company incurred $6,000 of wage expense, but it did not pay the
employees until Year 2. If Costello Company uses the accrual-basis of accounting, then
it will report ✅revenue of 14,000 and expense of 6,000 in year 1
note: the accrual-basis of accounting recognizes revenues when the performance
obligation is satisfied regardless of when the customer pays; the company performs the
services in year 1 so it should be recognized; the company also incurred expenses in
year 1 so it should recognize that
Cash received before services are performed may be recorded as a debit to a Cash
account and a credit to a liability account is called ✅an unearned revenue
A company purchased office supplies costing $3,000 and debited Supplies for the full
amount. At the end of the accounting period, a physical count of office supplies revealed
$900 still on hand. The appropriate adjusting journal entry to be made at the end of the
period would be: ✅debit supplies expense 2,100
credit supplies 2,100
Accrued expenses are expenses incurred that are not yet paid or recorded. An adjusting
entry made to record an accrued expense ✅increases liabilities and decreases income
for the period
which trial balance will likely list the largest number of accounts? ✅adjusted trial
balance
note: the adjusted trial balance includes all of the accounts listed on the trial balance
A company uses a perpetual inventory system. On November 30, it purchased $10,000
of merchandise with terms of 2/10, n/30. It also must pay a $200 shipping charge. The
company paid for both the merchandise and the shipping charge nine days after their
invoice date. Which of the following is part of the journal entry the company records
when it pays the shipping charge? ✅a debit to inventory for $200
note: in a perpetual inventory system, all of the cost of acquiring merchandise (including
the cost of having inventory delivered to the purchaser) is recorded as part of the cost of
the inventory; so even though it is shipping, it should be recorded in inventory
100% Correct Answers
A retail shop has been operating as a sole proprietorship. The business is growing and
now the owner wants to incorporate. Which of the following is not a valid reason for this
owner to incorporate? ✅a.) The owner want to be able to more easily transfer
ownership of the business.
b.) The owner wants to raise capital for expansion.
c.) The owner wants to decrease the taxes paid by the business.
d.) All of these are good reasons to change a sole proprietorship into a corproation.
e.) The owner wants to limit his or her personal liability.
ANSWER: c.) the owner wants to decrease taxes paid by the business
which of the following is an asset? ✅a.) interest expense
b.) notes payable
c.) dividends
d.) retained earnings
e.) inventory
ANSWER: e.) inventory
the accounting equation may be expressed as ✅assets = liabilities + stockholder's
equity
The portion of the annual report that presents management's views on the company's
near-term debt paying ability and results of operations are found in the ✅a.) notes to
the financial statements
b.) president's state of the company report
c.) auditor's report
d.) management discussion and analysis
,e.) chief executive officer's ledger analysis report
ANSWER: d.) management discussion and analysis
a company has the following accounts and balances:
accounts payable 40,000
accounts receivable 70,000
accumulated depreciation 50,000
buildings 500,000
cash 100,000
common stock 690,000
equipment 120,000
inventory 200,000
investment in bonds 20,000
land 150,000
notes payable 300,000
patents 10,000
prepaid insurance 20,000
retained earnings 150,000
trademarks 40,000
the land is used as a parking lot. The bonds are expected to be held long-term. What
are its current assets and property, plant, and equipment ✅Rose's current assets
include accounts receivable, cash, inventory, and prepaid insurance; rose's property,
plant, and equipment includes buildings, equipment, and land minus accumulated
depreciation
current assets = 70,000 + 100,000 + 200,000 + 20,000
= 390,000
property, plant, and equipment = 500,000 + 120,000 + 150,000 - 50,000
= 720,000
which of the following would increase a company's current ratio? ✅a.) negotiate with a
creditor to reclassify a note payable in 3 months into a note payable due in 2 years
b.) collect outstanding accounts receivable
c.) none of these
d.) pay a dividend to shareholders
e.) use cash to buy new equipment
,ANSWER: a.) negotiate with a creditor to reclassify a note payable in 3 months into a
note payable due in 2 years
note: changing a current liability into a long-term liability will lower current liabilities;
therefore, increases current ratio
The effects of issuing a note payable in exchange for cash on the basic accounting
equation are to ✅a.) increase assets and increase liabilities.
b.) increase liabilities and increase stockholders' equity.
c.) decrease assets and decrease liabilities.
d.) increase assets and increase stockholders' equity.
e.) decrease assets and decrease stockholders' equity.
ANSWER: a.) increase assets and increase liabilities
Powell Company provided consulting services and collected $500 for the services
provided. As a result of this transaction ✅a.) assets and liabilities decreased by $500.
b.) assets and equity decreased by $500.
c.) equity remained unchanged.
d.) liabilities decreased and equity increased by $500
e.) assets and equity increased by $500.
ANSWER: e.) assets and equity increased by $500
note: performing services for cash indicates that assets increased and revenue
increased; revenue is recognized when it is earned
During its first year, a corporation earned revenues of $135,000 and incurred expenses
of $87,000. The corporation also paid cash dividends of $10,000 and purchased
$25,000 of equipment in exchange for cash during the first year. What is the balance in
the company's retained earnings account at the end of its first year? ✅ending retained
earnings = beginning retained earnings + net income - dividends
= 0 + 135,000 - 87,000 - 10,000
= 38,000
, note: retained earnings occurs when revenues exceed expenses and dividends
the accounting cycle is a series of steps and their usual sequence is ✅journalize
transactions, post transactions to the ledger, and then prepare the trial balance
In Year 1, Costello Company performed work for a customer and billed the customer
$14,000. In Year 2, the customer pays Costello Company for the services it rendered in
Year 1. In Year 1, the company incurred $6,000 of wage expense, but it did not pay the
employees until Year 2. If Costello Company uses the accrual-basis of accounting, then
it will report ✅revenue of 14,000 and expense of 6,000 in year 1
note: the accrual-basis of accounting recognizes revenues when the performance
obligation is satisfied regardless of when the customer pays; the company performs the
services in year 1 so it should be recognized; the company also incurred expenses in
year 1 so it should recognize that
Cash received before services are performed may be recorded as a debit to a Cash
account and a credit to a liability account is called ✅an unearned revenue
A company purchased office supplies costing $3,000 and debited Supplies for the full
amount. At the end of the accounting period, a physical count of office supplies revealed
$900 still on hand. The appropriate adjusting journal entry to be made at the end of the
period would be: ✅debit supplies expense 2,100
credit supplies 2,100
Accrued expenses are expenses incurred that are not yet paid or recorded. An adjusting
entry made to record an accrued expense ✅increases liabilities and decreases income
for the period
which trial balance will likely list the largest number of accounts? ✅adjusted trial
balance
note: the adjusted trial balance includes all of the accounts listed on the trial balance
A company uses a perpetual inventory system. On November 30, it purchased $10,000
of merchandise with terms of 2/10, n/30. It also must pay a $200 shipping charge. The
company paid for both the merchandise and the shipping charge nine days after their
invoice date. Which of the following is part of the journal entry the company records
when it pays the shipping charge? ✅a debit to inventory for $200
note: in a perpetual inventory system, all of the cost of acquiring merchandise (including
the cost of having inventory delivered to the purchaser) is recorded as part of the cost of
the inventory; so even though it is shipping, it should be recorded in inventory
