WGU D102 Financial Accounting The Definitive Study and Exam Prep Guide: Comprehensive Topic Review, Realistic Practice Questions, Complete Test Bank Mastery, and Advanced Preparation Manual

A corporation reports beginning Retained Earnings of $86,000, net income of $24,000, and dividends of $9,000. What is the ending Retained Earnings balance? A. $77,000 B. $101,000 C. $110,000 D. $119,000 Correct Answer: B. $101,000 Rationale: Ending Retained Earnings is calculated as: Net income increases retained earnings, while dividends decrease retained earnings. Dividends are distributions to stockholders and are not operating expenses. Question 2 A consulting firm completes services in December but does not receive payment until January. Under accrual-basis accounting, when should the firm recognize the revenue? A. In January, when cash is collected B. In December, when the services are completed C. When the customer signs the service agreement D. When the firm deposits the customer’s payment Correct Answer: B. In December, when the services are completed Rationale: Under accrual-basis accounting, revenue is recognized when it is earned rather than when cash is received. Because the consulting services were completed in December, the firm should recognize revenue and record an Accounts Receivable balance in December. The January collection reduces Accounts Receivable and increases Cash but does not create additional revenue. Question 3 A company begins the year with $4,600 of supplies, purchases an additional $9,900, and has $2,900 remaining at year-end. What adjusting entry should be recorded? A. Debit Supplies Expense $11,600; credit Supplies $11,600 B. Debit Supplies $11,600; credit Supplies Expense $11,600 C. Debit Supplies Expense $14,500; credit Cash $14,500 D. Debit Supplies $2,900; credit Supplies Expense $2,900 Correct Answer: A. Debit Supplies Expense $11,600; credit Supplies $11,600 Rationale: Total supplies available are: The amount used is: Therefore, the company debits Supplies Expense and credits Supplies for $11,600. The remaining $2,900 remains recorded as an asset. Question 4 While preparing a bank reconciliation, an accountant identifies a $6,200 deposit that has been recorded by the company but has not yet been processed by the bank. How should the deposit in transit be treated? A. Add it to the bank statement balance B. Subtract it from the bank statement balance C. Add it to the company’s book balance D. Subtract it from the company’s book balance Correct Answer: A. Add it to the bank statement balance Rationale: A deposit in transit has already been recorded in the company’s accounting records but has not yet appeared on the bank statement. Therefore, it is added to the bank statement balance during the reconciliation. No journal entry is required because the company has already recorded the transaction. Question 5 A company provides $18,000 of services on account. Which combination correctly describes the effect of the transaction? A. Assets increase with a debit; equity increases with a credit B. Assets increase with a credit; equity increases with a debit C. Liabilities increase with a credit; equity decreases with a debit D. Assets decrease with a credit; liabilities increase with a credit Correct Answer: A. Assets increase with a debit; equity increases with a credit Rationale: Providing services on account increases Accounts Receivable, which is an asset, through a debit. Service Revenue increases stockholders’ equity and is recorded with a credit. The journal entry is: Question 6 A company makes a $1,000 credit sale on January 6 with terms 4/10, n/30. The customer pays on January 25. Which entry records the collection? A. Debit Cash $960 and Sales Discounts $40; credit Accounts Receivable $1,000 B. Debit Cash $1,000; credit Accounts Receivable $1,000 C. Debit Accounts Receivable $1,000; credit Cash $1,000 D. Debit Cash $960; credit Sales Revenue $960 Correct Answer: B. Debit Cash $1,000; credit Accounts Receivable $1,000 Rationale: The 4% discount applies only when payment is made within 10 days of January 6. Because payment occurs on January 25, the discount period has expired. The customer therefore pays the full $1,000: Question 7 On August 1, Year 1, a company pays $7,200 for 24 months of rent and initially records the payment as Prepaid Rent. What adjusting entry is required on December 31, Year 1? A. Debit Rent Expense $1,500; credit Prepaid Rent $1,500 B. Debit Prepaid Rent $1,500; credit Rent Expense $1,500 C. Debit Rent Expense $5,700; credit Prepaid Rent $5,700 D. Debit Prepaid Rent $7,200; credit Cash $7,200 Correct Answer: A. Debit Rent Expense $1,500; credit Prepaid Rent $1,500 Rationale: Monthly rent is: Five months have expired from August through December: Therefore, Rent Expense is debited and Prepaid Rent is credited for $1,500. The remaining $5,700 remains as a prepaid asset. Question 8 A bookkeeper wants to determine the ending amount owed by customers after recording several credit sales and collections. Which accounting record should be examined? A. The sales journal only B. The Accounts Receivable account in the ledger C. The chart of accounts D. The statement of cash flows Correct Answer: B. The Accounts Receivable account in the ledger Rationale: The Accounts Receivable ledger account records increases from credit sales, decreases from customer collections, and the resulting balance. A journal records transactions chronologically but does not provide the account balance as directly. The chart of accounts only lists account names, while the statement of cash flows focuses on cash activity. Question 9 A financial analyst wants an income statement that separately reports gross profit and operating income. Which format should the company use? A. Classified balance sheet B. Single-step income statement C. Multiple-step income statement D. Statement of retained earnings Correct Answer: C. Multiple-step income statement Rationale: A multiple-step income statement separates operating and nonoperating activities and reports important subtotals such as gross profit and operating income. A single-step income statement combines revenues and gains and subtracts expenses and losses without presenting these intermediate subtotals. Question 10 A customer’s $900 check was recorded as a cash receipt but was later returned by the bank for insufficient funds. Which book-side adjustment is required? A. Debit Cash $900; credit Accounts Receivable $900 B. Debit Accounts Receivable $900; credit Cash $900 C. Debit Bad Debt Expense $900; credit Cash $900 D. Debit Bank Fees Expense $900; credit Cash $900 Correct Answer: B. Debit Accounts Receivable $900; credit Cash $900 Rationale: An NSF check means the company did not actually receive valid cash. The original collection must therefore be reversed by decreasing Cash and restoring the customer’s Accounts Receivable. The customer may still pay the amount, so it is not automatically recorded as bad debt.