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Balance Sheet (Practice Quiz)

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Author:
Harold Averkamp, CPA, MBA

For multiple-choice and true/false questions, simply press or click on what you think is the correct answer. For fill-in-the-blank questions, press or click on the blank space provided.

If you have difficulty answering the following questions, learn more about this topic by reading our Balance Sheet (Explanation).


1.
Another name for the balance sheet is

Statement Of Operations

Wrong.
The statement of operations is another name for the income statement.

Statement Of Financial Position

Right!
The balance sheet is also referred to as the statement of financial position or the statement of financial condition.
2.
The balance sheet heading will specify a

Period Of Time

Wrong.
The balance sheet reflects an instant or a POINT in time.

Point In Time

Right!
The balance sheet is at an instant or point in time.
3.
Which of the following is a category, classification, or element of the balance sheet?

Expenses

Wrong.
Expenses are an element of the income statement. (However, expenses do cause a decrease in owner's/stockholders' equity on the balance sheet.)

Gains

Wrong.
Gains are an element of the income statement. (However, gains do cause an increase in owner's/stockholders' equity on the balance sheet.)

Liabilities

Right!
Liabilities are an element of the balance sheet along with assets and owner's/stockholders' equity.

Losses

Wrong.
Losses are an element of the income statement. (However, losses do cause a decrease in owner's/stockholders' equity on the balance sheet.)
4.
Which of the following is an asset account?

Accounts Payable

Wrong.
Accounts Payable is a liability account.

Prepaid Insurance

Right!
Prepaid Insurance is a current asset. Prepaid costs that have not yet expired are considered to be assets.

Unearned Revenue

Wrong.
Unearned Revenue is a liability account. It comes about when a company has received cash in advance of earning it. As a result the company has the cash, but also has the obligation/liability to perform the service, deliver the product, or return the cash.
5.
Which of the following is a contra account?

Accumulated Depreciation

Right!
Accumulated Depreciation is a contra asset account. It is located in the long-term asset section of the balance sheet under the heading of property, plant, and equipment.

Mary Smith, Capital

Wrong.
Mary Smith, Capital is an owner equity account and is not a contra account (Mary Smith, Drawing would be a contra owner equity account).
6.
What is the normal balance for an asset account?

Debit

Right!
Asset accounts normally have debit balances.

Credit

Wrong.
Asset accounts normally have debit balances.
7.
What is the normal balance for liability accounts?

Debit

Wrong.
Liability accounts normally have credit balances.

Credit

Right!
Liability accounts normally have credit balances.
8.
What is the normal balance for stockholders' equity and owner's equity accounts?

Debit

Wrong.
Owner's/stockholders' accounts normally have credit balances.

Credit

Right!
Owner's/stockholders' accounts normally have credit balances.
9.
What is the normal balance for contra asset accounts?

Debit

Wrong.
Asset accounts normally have debit balances, so a contra asset would have a credit balance.

Credit

Right!
Since asset accounts normally have debit balances, a contra asset account would have a credit balance.
10.
ABC Co. received $1,000 in December for services it will perform in the following month. ABC uses the accrual basis of accounting. In December ABC debited Cash for $1,000. What will be the other account involved in the December accounting entry prepared by ABC (and what type of account is it)?

Accounts Receivable (asset)

Wrong.
Accounts Receivable would be credited if the $1,000 received was a collection of an amount billed previously.

Prepaid Services (asset)

Wrong.
Prepaid Services is an asset account arising if ABC had paid cash to supplier/vendor in advance of receiving the service. In this case ABC is receiving cash.

Service Revenues (revenue)

Wrong.
Service Revenue would be credited if ABC was performing the services in December and was being paid immediately. In this case the service will not be provided/earned until February.

Unearned Revenues (liability)

Right!
Unearned Revenue should be credited because ABC has not earned the $1,000 and ABC has an obligation to perform the service in the future.
11.
ABC Co. performed services for Client Kay in December and billed Kay $4,000 with terms of net 30 days. ABC follows the accrual basis of accounting. In January ABC received the $4,000 from Kay. In January ABC will debit Cash, since cash was received. What account should ABC credit in the January entry?

Accounts Receivable

Right!
In January ABC is collecting an account receivable. The account receivable was established in December when ABC performed the service and earned the revenue and also established a right to receive the money in January.

Service Revenue

Wrong.
The receipt of $4,000 is not revenue, it is a collection of an account receivable. Service revenue was recognized when it was earned in December. You can only recognize revenue once.

Owner's Equity

Wrong.
Owner equity is not involved. The asset Cash is increased and the asset Accounts Receivable is decreased.
12.
ABC Co. follows the accrual basis of accounting and performs a service on account (on credit) in December. The service was billed at the agreed upon amount of $3,500. ABC Co. debited Accounts Receivable for $3,500 and credited Service Revenue for $3,500. The effect of this entry on the balance sheet of ABC is to increase assets by $3,500 and to __________.

Decrease Assets By $3,500

Wrong.
Assets were increased with the debit to Accounts Receivable. The credit to the income statement account Service Revenues has the effect of increasing owner's/stockholders' equity.

Increase Owner's (stockholders') Equity By $3,500

Right!
The credit to the income statement account Service Revenues will have the effect of increasing owner's/stockholders' equity.
13.
Which of the following is not a current asset?

Accounts Receivable

Wrong.
Accounts Receivable IS a current asset because the accounts will usually be collected in a month or two.

Land

Right!
Land is not a current asset, because land will NOT turn to cash within one year of the balance sheet date, or within the operating cycle if the operating cycle is longer than one year.

Prepaid Insurance

Wrong.
Prepaid Insurance IS a current asset, because it will usually expire within one year of the balance sheet date.

Supplies

Wrong.
Supplies IS a current asset in that supplies on hand will be used within one year of the balance sheet date.
14.
Which of the following is normally a current liability?

Note Payable Due In Two Years

Wrong.
To be a current liability a note payable must be due within one year of the balance sheet date (or within the operating cycle if the operating cycle is longer than one year).

Unearned Revenue

Right!
Unearned Revenue will most likely be earned within one year of the balance sheet date. Therefore it is a current liability. (As it is earned, it moves from the balance sheet to the income statement as revenue.)
15.
When an owner draws $5,000 from a sole proprietorship or when a corporation declares and pays a $5,000 dividend, the asset Cash decreases by $5,000. What is the other effect on the balance sheet?

Owner's/stockholders' Equity Decreases

Right!
Owner's/stockholders' equity will decrease—keeping the accounting equation and the balance sheet in balance.

None

Wrong.
16.
ABC Co. incurs cleanup expense of $500 on December 30. The supplier's invoice states that the $500 is due by January 10 and ABC will pay the invoice on January 9. ABC follows the accrual basis of accounting and its accounting year ends on December 31. What is the effect of the cleanup service on the December balance sheet of ABC?

Assets Decreased

Wrong.
Assets are unchanged until ABC pays the invoice in January.

Liabilities Increased

Right!
In December an expense and a liability are recorded. Therefore, liabilities increased and owner's equity decreased.

No Effect On Owner's Equity

Wrong.
In December an expense and a liability are recorded. Therefore, liabilities increased and owner's equity decreased.
17.
Deferred credits will appear on the balance sheet under which heading/classification?

Assets

Wrong.
Deferred credits appear with the liabilities.

Liabilities

Right!
Deferred credits appear with the liabilities.

Owner's/stockholders' Equity

Wrong.
Deferred credits appear with the liabilities. They are often positioned between the liabilities and owner's/stockholders' equity.
18.
Notes Payable could not appear as a line on the balance sheet in which classification?

Current Assets

Right!
Notes Payable cannot appear as a current asset. It is either a current liability or a long-term liability.

Current Liabilities

Wrong.
Notes Payable could be a current liability.

Long-term Liabilities

Wrong.
Notes Payable could be a long-term liability.
19.
On December 1, ABC Co. hired Juanita Perez to begin working on January 2 at a monthly salary of $4,000. ABC's balance sheet of December 31 will show a liability of what amount?

$4,000

Wrong.
There is no liability for ABC until Juanita performs work for ABC. Prior to January 2, ABC has a commitment but will not have a liability.

$48,000

Wrong.
There is no liability for ABC until Juanita performs work for ABC. Prior to January 2, ABC has a commitment but will not have a liability.

No Liability

Right!
There is no liability for ABC until Juanita performs work for ABC. Prior to January 2, ABC has a commitment but will not have a liability.
20.
ABC Co. has current assets of $50,000 and total assets of $150,000. ABC has current liabilities of $30,000 and total liabilities of $80,000. What is the amount of ABC's owner's equity?

$20,000

Wrong.
Owner's equity = total assets minus total liabilities.

$30,000

Wrong.
Owner's equity = total assets minus total liabilities.

$70,000

Right!
Total assets of $150,000 minus total liabilities of $80,000 equals owner's equity of $70,000.

$120,000

Wrong.
Owner's equity = total assets minus total liabilities.
21.
The amount reported on the balance sheet for Property, Plant and Equipment is the company's estimate of the fair market value as of the balance sheet date.

True

Wrong.
The amounts listed on the balance sheet are the costs of these long-term assets minus the amount of accumulated depreciation. Rarely, would the net of those amounts be any indication of the fair market value of those assets.

False

Right!
The amounts listed on the balance sheet are the costs of these long-term assets minus the amount of accumulated depreciation. Rarely, would the net of those amounts be any indication of the fair market value of those assets.
22.
The total amount reported for stockholders' equity is the approximate fair value or net worth of the corporation as of the balance sheet date.

True

Wrong.
The total of stockholders' equity is equal to the amounts listed on the balance sheet for assets minus the amounts listed on the balance sheet for liabilities. It is likely that the fair value of the assets is different from the cost less depreciation shown on the balance sheet. In addition the corporation's management team, customer allegiance, and many of its brands may not be listed on the balance sheet as assets.

False

Right!
The corporation's fair value is often significantly different than the stated amounts for the assets reported on the balance sheet.
23.
The book value of a corporation is the total amount of stockholders' equity reported on the balance sheet.

True

Right!

False

Wrong.
The book value of the corporation is the reported amount of stockholders' equity. Stockholders' equity is equal to the reported amounts of assets minus the reported amounts of liabilities.
24.
The third line of the balance sheet heading for the end of the year should begin with "For the Year Ended".

True

Wrong.
The balance sheet heading should NOT state a period of time. Rather, it should state a moment in time, such as the last instant of an accounting period.

False

Right!
The balance sheet reports amounts at a moment in time such as the last instant of an accounting period.
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