1) Sometimes a(n) _________ is offered to buyers as a means of encouraging them to pay before the end of the credit period.


Sometimes a(n) _________ is offered to buyers as a means of encouraging them to pay before the end of the credit period.


accounts receivable

credit card

sales discount

cash sale


In October, cash is received in advance of rendering services. Assuming that half of the services have been performed by December 31, the year-end adjustment would:


decrease Unearned Service Revenue and decrease Cash

increase Accounts Receivable and increase Service Revenue

increase Cash and increase Service Revenue

decrease Unearned Service Revenue and increase Service Revenue


Which of the following statements is true about liabilities?


Liabilities include insurance premium paid in advance

Liabilities arise when a company sells goods on account

Liabilities equal assets plus stockholders’ equity

Liabilities are the debt owed by a company


ABC Company deposited $20,000 in a bank account in return for issuing shares in the corporation. This transaction would affect which two financial statement elements?


Assets and stockholders’ equity

Assets and liabilities

Liabilities and stockholders’ equity

None of these


XYZ Co. paid $1,000 in dividends to stockholders. How does this transaction affect the accounts of XYZ?


Cash will decrease by $1,000 and retained earnings will decrease by $1,000.

Cash will decrease by $1,000 and expenses will increase $1,000

Cash will decrease by $1,000 and revenues will decrease $1,000

Net income will decrease by $1,000


The accrual basis of accounting recognizes:


revenues when cash is received and expenses when cash is paid

revenues when earned and expenses when cash is paid

revenues when cash is received and expenses when incurred

revenues when earned and expenses when incurred


When a business borrows money, it incurs a(n):





additional equity


Johnson, Inc. paid rent expense of $3,500 for the month of October. How are the accounts affected due to this transaction?


Increase in cash $3,500 and increase in retained earnings $3,500

Increase in cash $3,500 and decrease in retained earnings $3,500

Decrease in cash $3,500 and decrease in retained earnings $3,500

Decrease in cash $3,500 and increase in retained earnings $3,500


The difference between sales and cost of merchandise sold for a merchandising business is:



net sales

gross sales

gross profit


Johnson, Inc. purchased land for cash. What effect does this transaction have?


Increase in Cash and decrease in Land

Decrease in Cash and decrease in Land

Increase in Cash and increase in Land

Decrease in Cash and increase in Land


If Johnson, Inc. sold $800,000 worth of merchandise, had $100,000 returned, and then the balance paid during the 1% discount period, how much was Johnson’s net sales?







Stockholders’ equity will be increased by:


increase in revenues

increase in expense

payment of dividends

issuance of bonds


Which of the following accounts is a stockholders’ equity account?



Capital Stock

Prepaid Insurance

Accounts Payable


Shares of ownership are evidenced by issuing:


shares payable

commercial paper

shares of stock

notes payable


Rights to payments from customers are:



prepaid expenses

accounts receivable

accounts payable


For a merchandising firm, the inventory sold is shown on the income statement as:


cost of merchandise sold


purchases returns and allowances

net purchases


The unearned rent account has a balance of $60,000. If $4,000 of the $60,000 is unearned at the end of the accounting period, the amount of the adjusting entry is:







Orange Co. sells merchandise on credit to Zea Co. in the amount of $9,000. The invoice is dated on September 15 with terms of 1/15, net 45. What is the amount of the discount, and up to what date must the invoice be paid in order for the buyer to take advantage of the discount?


$180, September 30

$180, September 25

$90, September 30

$90, September 25


A sales invoice included the following information: merchandise price, $6,000; terms 2/10, n/eom. Assuming that a credit for merchandise returned of $600 is granted prior to payment, and that the invoice is paid within the discount period, what is the amount of cash received by the seller?







Accrued expenses are ordinarily reported on the balance sheet as:




fixed assets

prepaid expenses


An increase in Stockholders’ Equity from revenues earned will also result in an increase in:





none of these


A corporation is __________.


an entity that is organized according to state or federal statutes and in which ownership is divided into shares of stock

an entity that is owned by an individual

an entity which has unlimited liability to creditors for the debts of the company

an entity which has limited access to capital


Stockholders’ equity will be reduced by:


payment of dividends.

increase in revenues.

owners’ investments

issuance of bonds


BNC Company earns revenues and as a result collects cash. Which of the following financial statement elements increased?


Cash only

Stockholders’ equity only


Cash and stockholders’ equity


Fees receivable would appear on the balance sheet as a(n):




fixed asset

unearned revenue


Buying equipment for cash affects which account/ accounts?


Cash only

Retained earnings only

Equipment and retained earnings

Cash and equipment


Merchandise not sold at the end of the period is reported as:


cost of goods sold

old stock

merchandise inventory

net purchases


Which of the items below is not a business organization form?


Venture entrepreneurship





Which of the following is not reported as revenue on the income statement?


Unearned revenue

Fees revenue

Commissions revenue

Rent revenue


The balance in the office supplies account on May 1 was $6,380, supplies purchased during May were $4,740, and the supplies on hand at May 31 were $2,360. The amount to be used for the appropriate adjusting entry is:






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