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Econ 121 Final Exam Review

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Econ 121 Final Exam Review ● Chapter 1 Quick Check: 1. Accounting is the information system that… 2. Which of the following is not an external user of a business’s financial system? 3. Generally Accepted Accounting Principles (GAAP) are currently formulated by the… 4. Which type of b...

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● Chapter 1 Quick Check:
1. Accounting is the information system that…( All of the above “D”)
2. Which of the following is not an external user of a business’s financial system?
(Employees “C”)
3. Generally Accepted Accounting Principles (GAAP) are currently formulated by the…
(FASB “A”)
4. Which type of business organization is owned by only one owner? (Sole Proprietorship
“C”)
5. Which of the following characteristics best describes a corporation? (Stockholders not
personally liable for entity’s debts “C”)
6. Which of the following requires accounting information to be complete, neutral and free
from material error? (Faithful representation concept “A”)
7. At the end of a recent year, Global Cleaning service, a full service house and office
cleaning service, had total assets of $3,630 and equity of 2,280. How much were Global
cleaning service’s liabilities? ($1350 “C” , Assets = Equity + Liabilities)
8. Consider the overall effects on GCS from selling and performing services on account for
$6,400 and paying expenses totalling $2,500. What is GCS’s net income or net loss?
(Net income of $3,900 “A”, Account - Expenses = Net income)
9. Assume that GCS performed cleaning services for a dpt story on account for $180. How
would this transaction affect GCS’s account equation? (Increase both assets and equity
by $180 “B”)
10. The balance sheet reports… (financial position on a specific date “A”)
11. Assume GCS had net income of $570 for the year. GCS’s beginning and ending total
assets were $4,520 and $4,180, respectively. Calculate GCS’s return on assets (ROA)
for the year. (13.1% “C”, ROA = net income / avg total assets)

Chapter 2 Quick Check:
1. The detailed record of the changes in a particular asset, liability or stockholders’ equity is
called.. (an account “A”)
2. Which of the following accounts is a liability? (unearned revenue “C”)
3. The left side of an account is used to record which of the following? (Debits “D”)
4. Which of the following statements is correct? (accounts payable is increased with a
credit “D”)
5. Office bought $2,500 office supplies, what is journal entry? (Office(top and $2,500 debit),
Accounts payable(bottom and 2,500 credit)
6. Bought office supplies on account which journal entry? Accounts payable(top and 800
debit), Cash(bottom and 800 credit)
7. Posting $2,500 purchase of office supplies on account (“C”)
8. Pixel Copies recorded a cash collection on account by debiting Cash and crediting
Accounts payable. What will the trial balance show for this error? (Liabilities are
overstated “B”)
9. Which sequence correctly summarizes the account process? (Journalize transactions,
post to the accounts, prepare a trial balance “A”)

, 10. Nathville Laundry reported assets of $800 and equity of $480, What is the Nathville’s
debt ratio? (40%, Debt ratio = 1 - (Assets/Equity))

Chapter 3 Quick Check:
1. Which of the following is true of accrual basis accounting and cash basis accounting?
(accrual accounting records revenue only when it is earned “A”)
2. Get Fit Now gains a client who prepays $540 for a package of six physical training
sessions. GFN collects the $540 in advance and will provide the training later. After four
training sessions, what should GFN report on its income statement assuming it uses the
accrual basis accounting method? (Service revenue of $360 “A”)
3. The revenue recognition principle requires… (revenue to be recorded only after the
business has earned it “B”)
4. Adjusting the accounts is the process of… (updating the accounts at the end of the
period “C”)
5. Which of the following is an example of a deferral (or prepaid) adjusting entry?
(recording the usage of office supplies during the period “A”)
6. The adjusted trial balance shows…(account balances after adjustment “B”)
7. A&D Window Cleaning performed $450 of services but has not yet billed customers for
the month. If A&D fails to record the adjusting entry, what is the impact on the financial
statements? (balance sheet: assets understated, equity understated | income statement:
revenues understated “D”)
8. A worksheet….(is an internal document that helps summarize data for the preparation of
financial statements “C”)

Chapter 4 Quick Check:
1. Assets are listed on the balance sheet in the order of their… (liquidity “C”)
2. Which of the following accounts would be included in the plant assets category of the
classified balance sheet? (accumulated Depreciation “B”)
3. Which situation indicates a net loss within the Income Statement section of the
worksheet? (total debits exceed total credits “B”)
4. Which of the following accounts is not closed? (accumulated depreciation “D”)
5. What do closing entries accomplish? (all of the above “D”)
6. Which of the following accounts may appear on a post-closing trial balance?(cash,
salaries payable, and retained earning “A”)
7. Which of the following steps of the accounting cycle is not completed is not completed at
the end of the period? (Journalize entries as they occur “A”)
8. Clean Water Softener Systems has Cash of $600, Accounts Receivable of $900, and
Office Supplies of $400. Clean owes $500 on Accounts Payable and has Salaries
Payable of $200. Clean’s current ratio is (2.71 “A”, Blue/Orange)
9. Which of the following statements concerning reversing entries is true? (Reversing
entries are most often used with accrual type adjustments “B”)

Chapter 5 Quick Check:

, 1. Which account does a merchandiser use that a service company does not use? (All of
the above “D”)
2. The two main inventory accounting systems are the… (perpetual and periodic “A”)
3. JC manufacturing purchased inventory for $5,300 and also paid a $260 freight bill. JCM
returned 45% of the goods to the seller and later took a 2% purchase discount. Assume
JCM uses a perpetual inventory system. What is JCM’s final cost of the inventory it
kept? ($3,117 “C”)
4. Suppose Austin Sound had sales of $300,000 and sales returns of $45,000. Cost of
goods sold was $152,000. How much gross profit did Austin Sound report? ($103,000
“B”, (Gross profit = Sales - (Cost of Goods sold + sales returns))
5. Which of the following accounts would be closed at the end of the year using the
perpetual inventory system? (cost of goods sold “A”)
6. What is the order of the subtotals that appear on a multi-step income statement? (gross
profit, operating income, total other revenues and expenses, net income “D”)
7. Assume Juniper natural dyes made net sales revenue of $90,000 and cost of goods sold
totaled $58,000. What was JND’s gross profit percentage for this period (36% “A”, (Blue
- Orange)/Blue)

Chapter 6 Quick Check:
1. Which principle or concept states that businesses should use the same accounting
methods and procedures from period to period? (consistency “C”)
2. Which inventory costing method assigns to ending merchandise inventory the newest -
the most recent - costs incurred during the period? (First in First Out “A”)
3. Which inventory costing method results in lowest net income during a period of rising
inventory costs? (Last in First Out “D”)
4. Which of the following is most closely linked to accounting conservatism? (Lower of cost
or market rule “A”)
5. At December 31,2016, Stevenson Company overstated ending inventory by $36,000.
How does this error affect cost of goods sold and net income for 2016? (Understates
cost of goods sold and overstates net income “B”)
6. Suppose Maestro’s had cost of goods sold during the year of $230,000. Beginning
merchandise inventory was $35,000 and ending merchandise inventory was $45,000.
Determine Maestro’s inventory turnover for the year. Round to the nearest hundredth.
(5.75 times per year “B” (COGS / Average merchandise inventory))

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