Test Bank for College Accounting A Contemporary Approach 4th Edition By David Haddock, John Ellis Pr by digitaldownload87

Chapter 01 Accounting: The Language of Business True / False Questions

1. The purpose of accounting is to provide financial information about an economic or social entity. True

False

2. An accounting system is designed to accumulate and classify data about a firm's financial affairs and summarize it in the general journal. True

False

3. In a sole proprietorship, the owner is responsible for the debts of the business if the firm is unable to pay. True

False

4. Laws passed by Congress in 1933 and 1934 gave the Securities and Exchange Commission (SEC) final say on matters of financial reporting by publicly owned corporations. True

False

1-1

5. Currently, generally accepted accounting principles are developed by the American Institute of Certified Public Accountants (AICPA).

True

False

6. The Securities and Exchange Commission (SEC) requires that publicly owned corporations submit financial statements to it each year.

True

False

7. Public accounting firms provide three major types of services: auditing, tax accounting, and management advisory services.

True

False

8. The financial statements and the auditor's report must be made available to stockholders of publicly owned corporations.

True

False

9. Anyone can invest in a closely held corporation.

True

False

10. Managerial Accounting is any activity associated with the preparation of tax returns and the audit of those returns.

True

False

11. The separate entity assumption applies only to the corporate form of business.

True

False

12. As the first step in the development of generally accepted accounting principles, the FASB writes an exposure draft, which explains the topic under consideration.

True

False

13. Public accountants work on the staff of federal, state, or local governmental units.

True

False

14. The SEC uses financial information to determine a company's tax base.

True

False

15. When a partner leaves, the partnership is dissolved and a new partnership may be formed with the remaining partners.

True

False

16. Accounting is defined as the process by which financial information about a business is recorded, classified, summarized, interpreted, and communicated to owners, managers, and other interested parties.

True

False

17. The owners and managers of a business are the only users of the financial information.

True

False

18. Most owners and managers rely heavily on the accountant's judgment and knowledge when making financial decisions.

True

False

19. Accountants provide financial information to various parties so they can make business decisions.

True

False

20. When a business is organized as a sole proprietorship, the owner should combine his/her personal financial information with the business financial information.

True

False

21. A business partnership can have only two partners.

True

False

Fill in the Blank Questions

22. Accounting is often referred to as the language of ___________________.

________________________________________

23. The results of the accounting process are summarized in periodic reports called financial ___________________.

________________________________________

24. Financial information users such as owners, managers and employees, are referred to as ___________________ users.

________________________________________

25. The three major legal forms of business entity are the sole proprietorship, the partnership, and the ___________________.

________________________________________

26. A partnership has ____________________ or more owners.

________________________________________

27. Ownership in a corporation is evidenced by shares of ___________________.

________________________________________

28. The Securities and Exchange Commission (SEC) regulates the accounting methods and financial reporting of ____________________ owned corporations.

________________________________________

29. The financial statements submitted to the SEC by a corporation must be ____________________ by an independent accountant to ensure their fairness and adherence to generally accepted accounting principles.

________________________________________

30. Accountants normally choose to practice in one of three areas: public accounting, managerial accounting, or ____________________ accounting.

________________________________________

31. A form of business entity owned by one person is called a(n) ___________________.

________________________________________

32. The people, companies, or government agencies to whom a firm owes money are called ___________________.

________________________________________

33. The process by which financial information about a business is recorded, classified, summarized, interpreted, and communicated to owners, managers, and other interested parties is called ___________________.

________________________________________

34. Tax accounting is a service offered by public accounting firms that involves tax ____________________ and tax planning.

________________________________________

35. Generally accepted accounting ____________________ are financial accounting standards that are changed and refined in response to changes in the environment in which businesses operate.

________________________________________

36. The owners of a corporation are called ___________________.

________________________________________

Multiple Choice Questions

37. Which of the following is NOT an area in which accountants usually practice?

A. Public Accounting B. Industrial Accounting C. Governmental Accounting D. Managerial (Private) Accounting

38. Managerial accountants usually do which of the following?

A. audit financial statements B. prepare tax returns and audit the returns C. establish accounting policies D. investigate companies for possible violations of law

39. Identify which of the following are considered OUTSIDE users of financial accounting information.

A. employees B. managers C. owners D. banks

40. An example of an economic entity is

A. a town. B. a business. C. a politician. D. a church.

41. The form of a business organization that is not affected by the withdrawal or death of an owner and can continue forever is

A. the sole proprietorship. B. the partnership. C. the corporation. D. the nonprofit organization.

42. Which of the following is NOT a type of information communicated by the financial statements?

A. whether or not the business is profitable B. what types of assets business owns C. how long the business has been in operation D. how much the business owes others

43. Which of the following is NOT a type of information communicated by the financial statements?

A. the equity, or value, of the business B. the amount spent on costs (expenses) of the business C. the types of products and services the business provides D. the amount of revenue earned by the business

44. The Financial Accounting Standards Board is responsible for

A. auditing financial statements. B. developing generally accepted accounting principles. C. establishing accounting systems for businesses. D. making recommendations to the Securities and Exchange Commission.

45. The government agency that has final authority over the financial reporting of publicly owned corporations is

A. the Securities and Exchange Commission. B. the Federal Trade Commission. C. the Internal Revenue Service. D. the Financial Accounting Standards Board.

46. The financial affairs of a business and the financial affairs of the owners should be

A. combined in the firm's accounting records. B. reported in different parts of the firm's accounting records. C. combined only if the owner wants them to be. D. kept totally separate.

47. All financial statements submitted to the SEC by publicly owned corporations must include an auditor's report prepared by

A. an internal auditor. B. the firm's managerial accountant. C. an independent certified public accountant. D. anyone in the accounting department.

48. The area of accounting that involves the preparation of internal reports for a firm's executives and the analysis of the data in these reports to aid in decision making is known as

A. financial accounting. B. managerial accounting. C. auditing. D. cost accounting.

49. The corporations whose stock can be bought and sold on stock exchanges and in over-thecounter markets are referred to as

A. privately owned corporations. B. closely held corporations. C. publicly owned corporations. D. sole proprietorships.

50. The group of accounting educators who offer their opinions about proposed FASB statements, after research has been done to determine the possible effects on financial reporting and the economy, is

A. the FCC. B. the AICPA. C. the SEC. D. the AAA.

51. Owners are not personally responsible for the debts of the business if the form of business organization is

A. the sole proprietorship. B. the partnership. C. the corporation. D. the nonprofit organization.

52. Identify the form of business that is considered a separate legal entity.

A. a sole proprietorship B. a corporation C. a limited liability partnership D. a partnership

53. Identify the advantages of forming a business as an S Corporation.

A. owners avoid double taxation and owners have limited liability B. treated as a separate legal entity and owners avoid double taxation C. owners have limited liability and corporation's earnings are tax free D. owner is personally responsible for debts of the business and earnings are reported directly on owner's personal tax return

54. A firm issues periodic reports called

A. financial statements. B. summaries. C. tax returns. D. audits.

55. Which of the following is NOT part of the process of accounting for financial information?

A. recording B. identifying C. communicating D. classifying

56. Which of the following is a true statement in regards to the International Accounting Standards Board?

A. The IASB deals with issues caused by the lack of uniform accounting principles existing in different countries B. The IASB was created by the American Accounting Association C. The IASB develops all accounting principles to be used in the United States D. The IASB has the authority to audit financial statements of all US corporations

57. Which of the following is NOT a service of public accounting firms?

A. auditing B. tax accounting C. management advisory services D. investment services

58. Tax accounting involves tax compliance and

A. tax evaluation. B. tax planning. C. tax configuration. D. tax obfuscation.

59. Tax planning includes

A. preparing tax returns. B. auditing tax returns. C. correcting tax returns. D. suggesting actions to reduce tax liability.

60. Managerial accounting is

A. public accounting. B. government accounting. C. private accounting. D. tax accounting.

61. The following are all government agencies except

A. SEC. B. AICPA. C. IRS. D. FBI.

62. An act passed in response to the wave of corporate accounting scandals is the

A. Saxon-Ordanly Act. B. Sarbanes-Oxley Act. C. Sardonic-Oxone Act. D. Sorbine-Oxide Act.

63. Owners and managers need financial information in order to

A. grant loans. B. issue credit. C. collect taxes. D. make decisions.

64. The Sarbanes-Oxley Act includes rules on

A. auditor retention. B. auditor reliability. C. auditor rotation. D. auditor reporting.

65. A form of the partnerships business entity is

A. LLP. B. LLC. C. INP. D. DBA.

66. Identify the statement below that represents what GAAP stands for

A. Generally Accepted Accounting Principles. B. Generally Accepted Auditing Practices. C. General Accounting Actuary Principles. D. Generally Approved Accounting Practices.

67. The review of financial statements to assess their fairness and adherence to GAAP is

A. accounting. B. preparation. C. compliance. D. auditing.

68. Management advisory services are designed to help

A. government agencies. B. clients. C. employers. D. creditors.

69. An independent accountant who provides accounting services to the public for a fee is a

A. CIA. B. CFE. C. CMA. D. CPA.

70. The Financial Accounting Standards Board has the authority to develop generally accepted accounting principles. Choose the option below that contains the steps used by the FASB in developing GAAP.

A. steps include: publishing a notice in the newspaper, seeking public opinion, and issuing a statement of principle. B. steps include: issuing a discussion memorandum, filing a legal draft, and notifying the SEC. C. steps include: filing a complaint with the SEC, issuing an internal report, and issuing a statement of principle. D. steps include: issuing a discussion memorandum, issuing an exposure draft, and issuing a statement of principle.

Short Answer Questions

71. What is the "language of business?" List three groups who use this financial information.

72. Cullen Company of country X and Shaw Industries of country Y have issued financial statements in compliance with the accounting principles of their respective countries. They would like to work together on a project and need to compare their current financial statements prior to beginning. However, the accounting principles of the two countries differ. What organization might they turn to regarding this issue? (Give both the full name of the organization and its acronym.) What is the function of this organization?

73. You have just entered college and decide to pursue a career as an accountant. What are the three areas in which an accountant can practice?

74. There are three general services public accountants offer. List and briefly describe each.

75. List at least five activities performed by managerial accountants.

76. Define the following terms: entity, economic entity, and social entity.

77. How do sole proprietorships, partnerships, and corporations differ?

78. List three individuals or groups who use financial information to make decisions about a firm. For each listed, give an example of why they would need the information.

79. List the "Big Four" public accounting firms in the United States.

80. Audited financial statements include an auditor's report. What does this auditor's report contain?

81. List at least three of the provisions of the Sarbanes-Oxley Act.

82. What determines the independence of Certified Public Accountants (CPAs)?

Chapter 01 Accounting: The Language of Business Answer Key

True / False Questions

The purpose of accounting is to provide financial information about an economic or social entity.

TRUE

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 01-01 Define accounting. Topic: What is Accounting?

An accounting system is designed to accumulate and classify data about a firm's financial affairs and summarize it in the general journal.

FALSE

In a sole proprietorship, the owner is responsible for the debts of the business if the firm is unable to pay.

TRUE

AACSB: Analytic AICPA BB: Legal AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 01-04 Compare and contrast the three types of business entities. Learning Objective: 01-06 Define the accounting terms new to this chapter. Topic: Business Entities

Laws passed by Congress in 1933 and 1934 gave the Securities and Exchange Commission (SEC) final say on matters of financial reporting by publicly owned corporations.

TRUE

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 01-03 Identify the users of financial information. Topic: What is Accounting?

Currently, generally accepted accounting principles are developed by the American Institute of Certified Public Accountants (AICPA).

FALSE

AICPA BB: Legal AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 01-05 Describe the process used to develop generally accepted accounting principles. Topic: Accounting Standards

The Securities and Exchange Commission (SEC) requires that publicly owned corporations submit financial statements to it each year.

TRUE

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 01-05 Describe the process used to develop generally accepted accounting principles. Topic: Accounting Standards

Public accounting firms provide three major types of services: auditing, tax accounting, and management advisory services.

TRUE

The financial statements and the auditor's report must be made available to stockholders of publicly owned corporations.

TRUE

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 01-05 Describe the process used to develop generally accepted accounting principles. Topic: Accounting Standards

Anyone can invest in a closely held corporation.

FALSE

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 01-04 Compare and contrast the three types of business entities. Topic: Accounting Standards

10.

Managerial Accounting is any activity associated with the preparation of tax returns and the audit of those returns.

FALSE

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 2 Medium Learning Objective: 01-02 Identify and discuss career opportunities in accounting. Topic: What is Accounting?

11.

The separate entity assumption applies only to the corporate form of business.

FALSE

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 01-04 Compare and contrast the three types of business entities. Learning Objective: 01-06 Define the accounting terms new to this chapter. Topic: Accounting Standards

12.

As the first step in the development of generally accepted accounting principles, the FASB writes an exposure draft, which explains the topic under consideration.

FALSE

AACSB: Analytic AICPA BB: Legal AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 01-05 Describe the process used to develop generally accepted accounting principles. Topic: Accounting Standards

13.

Public accountants work on the staff of federal, state, or local governmental units.

FALSE

AACSB: Analytic

AICPA BB: Industry AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 01-02 Identify and discuss career opportunities in accounting. Learning Objective: 01-06 Define the accounting terms new to this chapter. Topic: What is Accounting?

14.

The SEC uses financial information to determine a company's tax base.

FALSE

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal AICPA FN: Decision Making AICPA FN: Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 01-03 Identify the users of financial information. Topic: What is Accounting?

15.

When a partner leaves, the partnership is dissolved and a new partnership may be formed with the remaining partners.

TRUE

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 01-04 Compare and contrast the three types of business entities. Topic: Business Entities

16.

Accounting is defined as the process by which financial information about a business is recorded, classified, summarized, interpreted, and communicated to owners, managers, and other interested parties.

TRUE

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 01-01 Define accounting. Topic: What is Accounting?

17.

The owners and managers of a business are the only users of the financial information.

FALSE

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 01-03 Identify the users of financial information. Topic: What is Accounting?

18.

Most owners and managers rely heavily on the accountant's judgment and knowledge when making financial decisions.

TRUE

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 1 Easy Learning Objective: 01-01 Define accounting. Topic: What is Accounting?

19.

Accountants provide financial information to various parties so they can make business decisions.

TRUE

20.

When a business is organized as a sole proprietorship, the owner should combine his/her personal financial information with the business financial information.

FALSE

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 01-04 Compare and contrast the three types of business entities. Topic: Business Entities

21.

A business partnership can have only two partners.

FALSE

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 01-04 Compare and contrast the three types of business entities. Topic: Business Entities

Fill in the Blank Questions

22.

Accounting is often referred to as the language of ___________________.

business

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making Blooms: Remember Difficulty: 1 Easy Learning Objective: 01-01 Define accounting. Topic: What is Accounting?

23.

The results of the accounting process are summarized in periodic reports called financial ___________________.

statements

AACSB: Analytic

AICPA BB: Industry AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 01-01 Define accounting. Topic: What is Accounting?

24.

Financial information users such as owners, managers and employees, are referred to as ___________________ users.

inside or internal

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making Blooms: Remember Difficulty: 1 Easy Learning Objective: 01-03 Identify the users of financial information. Topic: Users of Accounting

25.

The three major legal forms of business entity are the sole proprietorship, the partnership, and the ___________________.

corporation

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal AICPA FN: Decision Making Blooms: Remember Difficulty: 1 Easy Learning Objective: 01-04 Compare and contrast the three types of business entities. Topic: Business Entities

26.

A partnership has ____________________ or more owners.

two

27.

Ownership in a corporation is evidenced by shares of ___________________.

stock

28.

The Securities and Exchange Commission (SEC) regulates the accounting methods and financial reporting of ____________________ owned corporations.

publicly

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 01-03 Identify the users of financial information.

Topic: Accounting Standards

29.

The financial statements submitted to the SEC by a corporation must be ____________________ by an independent accountant to ensure their fairness and adherence to generally accepted accounting principles.

audited

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal AICPA FN: Decision Making AICPA FN: Reporting Blooms: Understand Difficulty: 2 Medium Learning Objective: 01-05 Describe the process used to develop generally accepted accounting principles. Topic: Accounting Standards

30.

Accountants normally choose to practice in one of three areas: public accounting, managerial accounting, or ____________________ accounting.

governmental

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making Blooms: Remember Difficulty: 1 Easy Learning Objective: 01-02 Identify and discuss career opportunities in accounting. Topic: What is Accounting?

31.

A form of business entity owned by one person is called a(n) ___________________.

sole proprietorship

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal

AICPA FN: Decision Making Blooms: Remember Difficulty: 1 Easy Learning Objective: 01-04 Compare and contrast the three types of business entities. Learning Objective: 01-06 Define the accounting terms new to this chapter. Topic: Business Entities

32.

The people, companies, or government agencies to whom a firm owes money are called ___________________.

creditors

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making Blooms: Understand Difficulty: 1 Easy Learning Objective: 01-04 Compare and contrast the three types of business entities. Topic: Business and Accounting

33.

The process by which financial information about a business is recorded, classified, summarized, interpreted, and communicated to owners, managers, and other interested parties is called ___________________.

accounting

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making Blooms: Remember Difficulty: 1 Easy Learning Objective: 01-01 Define accounting. Learning Objective: 01-06 Define the accounting terms new to this chapter. Topic: What is Accounting?

34.

Tax accounting is a service offered by public accounting firms that involves tax ____________________ and tax planning.

compliance

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making Blooms: Understand Difficulty: 2 Medium Learning Objective: 01-02 Identify and discuss career opportunities in accounting. Learning Objective: 01-06 Define the accounting terms new to this chapter. Topic: What is Accounting?

35.

Generally accepted accounting ____________________ are financial accounting standards that are changed and refined in response to changes in the environment in which businesses operate.

principles

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 01-05 Describe the process used to develop generally accepted accounting principles. Topic: Accounting Standards

36.

The owners of a corporation are called ___________________.

stockholders or shareholders

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal AICPA FN: Decision Making Blooms: Remember

Difficulty: 1 Easy Learning Objective: 01-04 Compare and contrast the three types of business entities. Topic: Business Entities

Multiple Choice Questions

37.

Which of the following is NOT an area in which accountants usually practice?

A. Public Accounting B. Industrial Accounting C. Governmental Accounting D. Managerial (Private) Accounting

38.

Managerial accountants usually do which of the following?

A. audit financial statements B. prepare tax returns and audit the returns C. establish accounting policies D. investigate companies for possible violations of law

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making 1-35 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 01-02 Identify and discuss career opportunities in accounting. Topic: What is Accounting?

39.

Identify which of the following are considered OUTSIDE users of financial accounting information.

A. employees B. managers C. owners D. banks

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 01-03 Identify the users of financial information. Topic: Users of Financial Information

40.

An example of an economic entity is

A. a town. B. a business. C. a politician. D. a church.

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Decision Making Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 2 Medium Learning Objective: 01-04 Compare and contrast the three types of business entities. Topic: Business Entities

41.

The form of a business organization that is not affected by the withdrawal or death of an owner and can continue forever is

A. the sole proprietorship. B. the partnership. C. the corporation. D. the nonprofit organization.

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 01-04 Compare and contrast the three types of business entities. Topic: Business Entities

42.

Which of the following is NOT a type of information communicated by the financial statements?

A. whether or not the business is profitable B. what types of assets business owns C. how long the business has been in operation D. how much the business owes others

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making AICPA FN: Reporting

Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 01-01 Define accounting. Topic: What is Accounting?

43.

Which of the following is NOT a type of information communicated by the financial statements?

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 01-01 Define accounting. Topic: What is Accounting?

44.

The Financial Accounting Standards Board is responsible for

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal AICPA FN: Decision Making

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 01-05 Describe the process used to develop generally accepted accounting principles. Topic: Accounting Standards

45.

The government agency that has final authority over the financial reporting of publicly owned corporations is

A. the Securities and Exchange Commission. B. the Federal Trade Commission. C. the Internal Revenue Service. D. the Financial Accounting Standards Board.

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 01-05 Describe the process used to develop generally accepted accounting principles. Topic: Accounting Standards

46.

The financial affairs of a business and the financial affairs of the owners should be

A. combined in the firm's accounting records. B. reported in different parts of the firm's accounting records. C. combined only if the owner wants them to be. D. kept totally separate.

AACSB: Analytic AICPA BB: Industry AICPA FN: Risk Analysis Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 1 Easy Learning Objective: 01-04 Compare and contrast the three types of business entities. Topic: Accounting Standards

47.

All financial statements submitted to the SEC by publicly owned corporations must include an auditor's report prepared by

A. an internal auditor. B. the firm's managerial accountant. C. an independent certified public accountant. D. anyone in the accounting department.

48.

The area of accounting that involves the preparation of internal reports for a firm's executives and the analysis of the data in these reports to aid in decision making is known as

A. financial accounting. B. managerial accounting. C. auditing. D. cost accounting.

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making 1-40 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 01-02 Identify and discuss career opportunities in accounting. Topic: What is Accounting?

49.

The corporations whose stock can be bought and sold on stock exchanges and in overthe-counter markets are referred to as

A. privately owned corporations. B. closely held corporations. C. publicly owned corporations. D. sole proprietorships.

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 01-04 Compare and contrast the three types of business entities. Topic: Business Entities

50.

The group of accounting educators who offer their opinions about proposed FASB statements, after research has been done to determine the possible effects on financial reporting and the economy, is

A. the FCC. B. the AICPA. C. the SEC. D. the AAA.

AICPA BB: Legal AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 01-05 Describe the process used to develop generally accepted accounting principles. Topic: What is Accounting?

51.

Owners are not personally responsible for the debts of the business if the form of business organization is

A. the sole proprietorship. B. the partnership. C. the corporation. D. the nonprofit organization.

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 01-04 Compare and contrast the three types of business entities. Topic: Business Entities

52.

Identify the form of business that is considered a separate legal entity.

A. a sole proprietorship B. a corporation C. a limited liability partnership D. a partnership

AACSB: Analytic AICPA BB: Industry

AICPA BB: Legal AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 01-04 Compare and contrast the three types of business entities. Topic: Business Entities

53.

Identify the advantages of forming a business as an S Corporation.

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 01-04 Compare and contrast the three types of business entities. Topic: Business Entities

54.

A firm issues periodic reports called

A. financial statements. B. summaries. C. tax returns. D. audits.

AACSB: Analytic AICPA BB: Industry

AICPA FN: Decision Making AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 01-01 Define accounting. Topic: What is Accounting?

55.

Which of the following is NOT part of the process of accounting for financial information?

A. recording B. identifying C. communicating D. classifying

56.

Which of the following is a true statement in regards to the International Accounting Standards Board?

AACSB: Analytic

AICPA BB: Global AICPA BB: Industry AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 01-04 Compare and contrast the three types of business entities. Topic: Accounting Standards Topic: What is Accounting?

57.

Which of the following is NOT a service of public accounting firms?

A. auditing B. tax accounting C. management advisory services D. investment services

58.

Tax accounting involves tax compliance and

A. tax evaluation. B. tax planning. C. tax configuration. D. tax obfuscation.

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making 1-45 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 01-02 Identify and discuss career opportunities in accounting. Topic: What is Accounting?

59.

Tax planning includes

A. preparing tax returns. B. auditing tax returns. C. correcting tax returns. D. suggesting actions to reduce tax liability.

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 01-02 Identify and discuss career opportunities in accounting. Topic: What is Accounting?

60.

Managerial accounting is

A. public accounting. B. government accounting. C. private accounting. D. tax accounting.

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 01-02 Identify and discuss career opportunities in accounting. 1-46 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Topic: What is Accounting?

61.

The following are all government agencies except

A. SEC. B. AICPA. C. IRS. D. FBI.

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 01-02 Identify and discuss career opportunities in accounting. Topic: What is Accounting?

62.

An act passed in response to the wave of corporate accounting scandals is the

A. Saxon-Ordanly Act. B. Sarbanes-Oxley Act. C. Sardonic-Oxone Act. D. Sorbine-Oxide Act.

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 01-03 Identify the users of financial information. Topic: Accounting Standards

63.

Owners and managers need financial information in order to

A. grant loans. B. issue credit. C. collect taxes. D. make decisions.

64.

The Sarbanes-Oxley Act includes rules on

A. auditor retention. B. auditor reliability. C. auditor rotation. D. auditor reporting.

65.

A form of the partnerships business entity is

A. LLP. B. LLC. C. INP. D. DBA.

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 01-04 Compare and contrast the three types of business entities. Topic: Business Entities

66.

Identify the statement below that represents what GAAP stands for

A. Generally Accepted Accounting Principles. B. Generally Accepted Auditing Practices. C. General Accounting Actuary Principles. D. Generally Approved Accounting Practices.

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 01-04 Compare and contrast the three types of business entities. Topic: Accounting Standards

67.

The review of financial statements to assess their fairness and adherence to GAAP is

A. accounting. B. preparation. C. compliance. D. auditing.

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 01-02 Identify and discuss career opportunities in accounting. Learning Objective: 01-06 Define the accounting terms new to this chapter. Topic: What is Accounting?

68.

Management advisory services are designed to help

A. government agencies. B. clients. C. employers. D. creditors.

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 01-02 Identify and discuss career opportunities in accounting. Learning Objective: 01-06 Define the accounting terms new to this chapter. Topic: What is Accounting?

69.

An independent accountant who provides accounting services to the public for a fee is a

A. CIA. B. CFE. C. CMA. D. CPA.

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 01-02 Identify and discuss career opportunities in accounting. Learning Objective: 01-06 Define the accounting terms new to this chapter. Topic: What is Accounting?

70.

The Financial Accounting Standards Board has the authority to develop generally accepted accounting principles. Choose the option below that contains the steps used by the FASB in developing GAAP.

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal

AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 01-05 Describe the process used to develop generally accepted accounting principles. Topic: Accounting Standards

Short Answer Questions

71.

What is the "language of business?" List three groups who use this financial information.

Accounting is the language of business. The groups who use this information are owners and managers, suppliers, banks, tax authorities, regulatory agencies and investors, customers, and employees and unions.

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making Blooms: Understand Difficulty: 1 Easy Learning Objective: 01-01 Define accounting. Learning Objective: 01-03 Identify the users of financial information. Topic: What is Accounting?

72.

Cullen Company of country X and Shaw Industries of country Y have issued financial statements in compliance with the accounting principles of their respective countries. They would like to work together on a project and need to compare their current financial statements prior to beginning. However, the accounting principles of the two countries differ. What organization might they turn to regarding this issue? (Give both the full name of the organization and its acronym.) What is the function of this organization?

Organization: International Accounting Standards Board (IASB). The function of the IASB is to deal with issues caused by the lack of uniform accounting principles and make recommendations to enhance comparability.

AACSB: Analytic AICPA BB: Global AICPA BB: Industry AICPA FN: Decision Making Blooms: Apply Difficulty: 2 Medium Learning Objective: 01-05 Describe the process used to develop generally accepted accounting principles. Topic: Business and Accounting

73.

You have just entered college and decide to pursue a career as an accountant. What are the three areas in which an accountant can practice?

public accounting, managerial (private) accounting, and governmental accounting

74.

There are three general services public accountants offer. List and briefly describe each.

Auditing: the review of financial statements to assess their fairness and adherence to GAAP. Tax accounting: tax compliance-dealing with the preparation of tax returns and the audit of those returns, and tax planning-giving advice to clients on how to structure their financial affairs in order to reduce their tax liability. Management advisory services: helping clients improve their information systems or their business performance.

75.

List at least five activities performed by managerial accountants.

establishing accounting policies, managing the accounting system, preparing financial statements, interpreting financial information, providing financial advice to management, preparing tax forms, performing tax planning services, and preparing internal reports for management.

76.

Define the following terms: entity, economic entity, and social entity.

Entity-recognized as having its own separate identity. Social entity-nonprofit organizations. Economic entity-business or organization whose major purpose is to produce a profit.

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making Blooms: Understand Difficulty: 2 Medium Learning Objective: 01-04 Compare and contrast the three types of business entities. Learning Objective: 01-06 Define the accounting terms new to this chapter. Topic: Business Entities

77.

How do sole proprietorships, partnerships, and corporations differ?

Sole proprietorships-business entities owned by one person who is responsible for the business debts and taxes. The business ends when the owner dies. Partnerships-business entities owned by two or more individuals who are individually, and as a group, responsible for the partnership's debts and taxes. A partnership ends when one or more partners withdraw or die. Corporations-business entities with one or more owners which can continue indefinitely unless bankruptcy occurs or the stockholders vote to liquidate. Stockholders (owners) are not personally responsible for the corporation's debts and can only lose the amount they invested.

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal AICPA FN: Decision Making Blooms: Apply

Difficulty: 1 Easy Learning Objective: 01-04 Compare and contrast the three types of business entities. Learning Objective: 01-06 Define the accounting terms new to this chapter. Topic: Business Entities

78.

List three individuals or groups who use financial information to make decisions about a firm. For each listed, give an example of why they would need the information.

Owners and managers-to evaluate results of operations or to make decisions about the future. Suppliers-to assess the ability of the firm to pay its bills and to set credit limits. Banks-to determine whether the firm can repay the loan in a timely manner. Tax authorities-to determine the tax base of the firm. Regulatory agencies and investors-to fulfill the requirements of the law. Customers-to determine whether service on purchases will continue into the future. Employees and unions-to negotiate wages and benefits.

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making Blooms: Understand Difficulty: 1 Easy Learning Objective: 01-03 Identify the users of financial information. Topic: Users of Accounting Information Topic: What is Accounting?

79.

List the "Big Four" public accounting firms in the United States.

Deloitte & Touche, Ernst & Young, KPMG, and PricewaterhouseCoopers

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making Blooms: Remember Difficulty: 2 Medium 1-56 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Learning Objective: 01-02 Identify and discuss career opportunities in accounting. Topic: What is Accounting?

80.

Audited financial statements include an auditor's report. What does this auditor's report contain?

It contains the auditor's opinion regarding the fairness of the firm's financial statements and confirms the adherence to GAAP in those financial reports.

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making Blooms: Analyze Difficulty: 2 Medium Learning Objective: 01-05 Describe the process used to develop generally accepted accounting principles. Topic: Accounting Standards

81.

List at least three of the provisions of the Sarbanes-Oxley Act.

The act: tightens regulation of financial reporting by publicly held companies and their accountants and auditors; creates a five-member Public Company Accounting Oversight Board to oversee the accounting profession which in turn is overseen by the SEC; includes rules on consulting services, auditor rotation, criminal penalties, corporate governance, and securities regulation; requires auditors to maintain all audit or review work papers for five years; requires chief executives and chief financial officers of publicly traded corporations to certify their financial statements; requires quicker disclosure of material changes in a firm's financial position; provides protection for whistle blowers; and lengthens the time investors have to file lawsuits for securities fraud.

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal 1-57 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

AICPA FN: Decision Making Blooms: Analyze Difficulty: 2 Medium Learning Objective: 01-02 Identify and discuss career opportunities in accounting. Topic: Accounting Standards Topic: What is Accounting?

82.

What determines the independence of Certified Public Accountants (CPAs)?

They are not employees of the companies they audit and they do not have a financial interest in those companies.

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal AICPA FN: Decision Making Blooms: Analyze Difficulty: 2 Medium Learning Objective: 01-05 Describe the process used to develop generally accepted accounting principles. Topic: Accounting Standards

Chapter 02 Analyzing Business Transactions

True / False Questions

1. The entire process of analyzing, recording, and reporting business transactions is based on the fundamental accounting equation.

True

False

2. When using the fundamental accounting equation, an accountant must make sure that total assets are always equal to total liabilities and owner's equity.

True

False

3. Assets always equal debts of the business plus the financial interest of the owner.

True

False

4. When cash is paid to a creditor, the firm's liabilities decrease.

True

False

5. Al Dunn Bakery bought a new oven for $1,380. Al paid $300 as a cash down payment and will pay the balance in 30 days. Total assets increased by $1,080.

True

False

6. If the owner takes cash out of the business for personal use, the withdrawal should be recorded as an expense of the business.

True

False

7. When cash is collected from accounts receivable, the total amount of assets increases.

True

False

8. A company has assets of $56,320 and liabilities of $29,500. The owner's equity is $85,820.

True

False

9. The expenses for a period are reported on the balance sheet.

True

False

10. A double line drawn under the figures in a money column shows that the computation is complete.

True

False

11. A business transaction is a financial event that affects the resources of a business.

True

False

12. If there is an excess of expenses over revenues, the excess represents a profit.

True

False

13. A withdrawal of funds by the owner for personal use is considered a business expense.

True

False

14. The statement of owner's equity is prepared before the balance sheet so that the ending capital balance is available.

True

False

15. If assets are $8,000 and liabilities are $2,000, owner's equity is $10,000.

True

False

16. The amount of net income or net loss is needed to complete the statement of owner's equity.

True

False

17. Withdrawals by the owner are reported on the income statement.

True

False

18. The income statement is also known as the profit and loss statement.

True

False

19. The net income or net loss for the period is shown on both the income statement and the balance sheet.

True

False

Fill in the Blank Questions

20. The property that a business owns is referred to as its ___________________.

________________________________________

21. The debts or obligations of a business are known as its ___________________.

________________________________________

22. The income statement shows revenue, ___________________, and net income or net loss for a period of time.

________________________________________

23. The financial interest of the owner in a business is called owner's equity or ___________________.

________________________________________

24. The account used to record amounts that are owed for goods or services purchased on credit are known as ___________________.

________________________________________

25. When a business sells services for cash, assets increase and revenue ___________________.

________________________________________

26. The account used to record amounts that will be collected from charge account customers in the future are referred to as ___________________.

________________________________________

27. The ____________________ is the financial report that shows the assets, liabilities, and owner's equity of a business on a specific date.

________________________________________

28. If assets are $17,000 and owner's equity is $10,000, liabilities are ___________________.

________________________________________

29. When a business pays cash for salaries, assets decrease and expenses ___________________.

________________________________________

30. Funds taken from the business by the owner for personal use are called ___________________.

________________________________________

31. The statement of ____________________ reports the changes that have occurred in the owner's financial interest during the reporting period.

________________________________________

32. When revenue is greater than expenses, the result is a net ___________________.

________________________________________

33. When revenue and expenses are equal, the firm is said to ___________________.

________________________________________

34. The three-line heading of a financial statement shows who, what, and ___________________.

________________________________________

Multiple Choice Questions

35. The balance sheet shows

A. the results of business operations. B. all revenues and expenses. C. the amount of net income or loss. D. the financial position of a business at a given time.

36. Amounts that a business must pay in the future are known as

A. accounts receivable. B. accounts payable. C. capital. D. expenses.

37. Examples of assets are:

A. cash and accounts receivable. B. cash and revenue. C. cash and rent expense. D. investments by the owner and revenue.

38. Ginger Yale Ice Company receives money from a customer on account. Recording this transaction will

A. increase Accounts Receivable. B. increase G. Yale, Capital. C. decrease Accounts Payable. D. increase Cash.

39. If a business issues a check for $100 to purchase office supplies, analyze the effect on the accounting equation.

A. Financial Interest will increase B. Property will decrease C. Financial Interest will decrease D. Total Property will remain the same

40. If a business issued a check for $1,000 to pay for two months rent in advance, analyze the effect on the firms' assets, liabilities and owner's equity.

A. Cash will increase B. Accounts Payable will decrease C. Prepaid Rent will increase D. Owner's Capital will increase

41. The owner's investment or equity in a business is called

A. cash. B. drawing. C. capital. D. accounts payable.

42. At the end of the first month of operations for SloMo Delivery Service, the business had the following accounts: Accounts Receivable, $1,200; Prepaid Insurance, $500; Equipment, $36,200 and Cash, $40,650. On the same date, SloMo owed the following creditors: Simpson Supply Company, $12,000; Allen Office Equipment, $9,500. The total assets for the SloMo Delivery Service are

A. $42,350. B. $78,550. C. $76,850. D. $41,850.

43. At the end of the first month of operations for SloMo Delivery Service, the business had the following accounts: Accounts Receivable, $1,200; Prepaid Insurance, $500; Equipment, $36,200 and Cash, $40,650. On the same date, SloMo owed the following creditors: Simpson Supply Company, $12,000; Allen Office Equipment, $9,500. The total amount of Liabilities is

A. $36,200. B. $9,500. C. $21,500. D. $40,650.

44. Total assets of Douglas Fuhr Furniture Co. are $36,000 and the total liabilities are $12,000. What is the amount of the owner's equity?

A. $36,000 B. $24,000 C. $48,000 D. $6,000

45. If during the year total assets increase by $75,000 and total liabilities decrease by $16,000, by how much did owner's equity increase/decrease?

A. $91,000 increase B. $59,000 decrease C. $91,000 decrease D. $75,000 increase

46. Which financial statement is reported as of a specific date?

A. Balance Sheet B. Statement of Owner's Equity C. Income Statement D. Statement of Changes in Financial Position

47. A net loss results

A. when expenses are greater than revenue. B. when assets are greater than liabilities. C. when revenue is greater than expenses. D. when expenses are greater than assets.

48. The income statement shows

A. the financial position of a business on a specific date. B. revenue and owner's equity. C. the results of operations for a period of time. D. the total value of the business.

49. If the income statement covered a six-month period ending on November 30, 2013, the third line of the income statement heading would read

A. Month Ended November 30, 2013. B. November 30, 2013. C. Six-month Period Ended November 30, 2013. D. Month of November, 2013.

50. When the owner invests cash in a business,

A. assets and revenue increase. B. assets increase and owner's equity decreases. C. liabilities decrease and owner's equity increases. D. assets and owner's equity increase.

51. When equipment is purchased on credit,

A. assets and liabilities increase. B. assets increase and liabilities decrease. C. assets and owner's equity increase. D. assets and expenses increase.

52. When equipment is purchased for cash,

A. assets decrease and expenses increase. B. one asset increases and another asset decreases. C. assets and owner's equity increase. D. assets increase and liabilities decrease.

53. If a business receives $5,000 on account from clients who owed money for services previously billed, identify the effect on the accounting equation

54. When the owner withdraws cash for personal use,

A. assets decrease and expenses increase. B. assets decrease and owner's equity increases. C. assets decrease and owner's equity decreases. D. owner's equity decreases and revenue decreases.

55. When the owner writes a company check to pay the firm's electric bill,

A. assets and owner's equity increase. B. assets decrease and expenses increase. C. assets and liabilities decrease. D. expenses increase and owner's equity increases.

56. Identify the account below that is classified as an asset account and would appear on the left side of the accounting equation.

A. Accounts Receivable. B. Owner's Capital. C. Accounts Payable. D. Revenue.

57. Assets and liabilities are reported on

A. the balance sheet. B. the income statement. C. the statement of owner's equity. D. both the balance sheet and the income statement.

58. The financial statement that is prepared first is

A. up to the accountant. B. the income statement. C. the balance sheet. D. the statement of owner's equity.

59. The rent paid for future months is a(n)

A. asset. B. liability. C. expense. D. revenue.

60. The statement of financial position is another term for which financial statement?

A. Income Statement B. Statement of Owner's Equity C. Balance Sheet D. Trial Balance

61. Which financial statement is a representation of the accounting equation?

A. Income Statement B. Statement of Owner's Equity C. Balance Sheet D. Profit and Loss Statement

62. The Statement of Owner's Equity is calculated as follows:

A. beginning capital + net income - withdrawals + additional investments = ending capital B. beginning capital + net loss + withdrawals + additional investments = ending capital C. beginning capital + net loss - withdrawals + additional investments = ending capital D. beginning capital + net income + withdrawals + additional investments = ending capital

63. An Income Statement is all of the following except:

A. a formal report of business operations. B. a profit and loss statement. C. a statement of revenues less withdrawals and expenses. D. a statement of income and expenses.

64. At the end of the first month of operations for Jackson's Catering Service, the business had the following accounts: Cash, $19,000; Prepaid Rent, $500; Equipment, $5,000 and Accounts Payable $2,000. By the end of the month, Jackson's had earned $20,000 of Revenues, $1,000 of Utilities Expenses and $1,500 of Salaries Expenses. Calculate the net income to be reported by the company for this first month.

A. $20,000 B. $19,000 C. $17,500 D. $12,000

65. At the end of its first year of operations, Shapiro's Consulting Services reported net income of $25,000. They also had account balances of: Cash, $18,000; Office Supplies, $2,000 and Accounts Receivable $10,000. The owner's total investment for this first year was $5,000. Calculate the ending balance to be reported on the Statement of Owner's Equity in the Owner's Capital account.

A. $30,000 B. $25,000 C. $20,000 D. $5,000

66. Identify the type of accounts that would appear on a firm's income statement

A. assets and liabilities. B. revenues and expenses. C. assets and revenues. D. liabilities and expenses.

67. Owner's equity is:

A. the amount taken out of a business by the owner for personal use. B. the financial interest of the owner of a business. C. the amount the owner owes the business. D. the revenues less the expenses.

68. Given the options below, identify the correct accounting equation formula.

A. Assets = Liabilities + Owner's Equity B. Liabilities = Assets + Owner's Equity C. Assets + Liabilities = Owner's Equity D. Assets + Owner's Equity = Liabilities

69. The balance sheet shows each of the following except the:

A. net income of the business. B. amount and types of property the business owns. C. owner's interest. D. amount owed creditors.

70. The Balance Sheet heading includes each of the following except:

A. firm's name. B. firm's address. C. title of the report. D. date of the report.

71. Choose the option below that reflects the correct order in which to prepare the three financial statements

A. Balance Sheet; Income Statement; Statement of Owner's Equity. B. Income Statement; Statement of Owner's Equity; Balance Sheet. C. Income Statement; Balance Sheet; Statement of Owner's Equity. D. Statement of Owner's Equity; Balance Sheet; Income Statement.

72. An expense by definition is not:

A. an amount a business must pay in the future. B. an outflow of cash. C. the use of other assets. D. the incurring of a liability.

Short Answer Questions

73. On December 1, 2016, Geneva Jordan opened her new business with the following assets and liabilities. Complete the accounting equation for the firm.

Assets $________ = Liabilities $________ + Owner's Equity $________

74. During October, a firm had the following transactions involving revenue and expenses. Did the firm earn a net income or incur a net loss for the period? What was the amount? Paid $1,200 for rent Provided services for $2,750 in cash Paid $250 for telephone service Provided services for $1,900 on credit Paid salaries of $1,675 to employees Paid $350 for office cleaning service

75. The transactions listed below took place at the Mitchell Advertising Agency. These transactions affected the following accounts. Indicate the accounts affected and use plus and minus to show the changes caused by each transaction.

Performed services on credit

76. The transactions listed below took place at the Mitchell Advertising Agency. These transactions affected the following accounts. Indicate the accounts affected and use plus and minus to show the changes caused by each transaction.

Paid cash for utilities

77. The transactions listed below took place at the Mitchell Advertising Agency. These transactions affected the following accounts. Indicate the accounts affected and use plus and minus to show the changes caused by each transaction.

Sent a check to a creditor

78. The transactions listed below took place at the Mitchell Advertising Agency. These transactions affected the following accounts. Indicate the accounts affected and use plus and minus to show the changes caused by each transaction.

Issued checks to pay salaries

79. The transactions listed below took place at the Mitchell Advertising Agency. These transactions affected the following accounts. Indicate the accounts affected and use plus and minus to show the changes caused by each transaction.

Purchased a computer for cash

80. The transactions listed below took place at the Mitchell Advertising Agency. These transactions affected the following accounts. Indicate the accounts affected and use plus and minus to show the changes caused by each transaction.

Received cash from credit customers

81. The transactions listed below took place at the Mitchell Advertising Agency. These transactions affected the following accounts. Indicate the accounts affected and use plus and minus to show the changes caused by each transaction.

Performed services for cash

82. The transactions listed below took place at the Mitchell Advertising Agency. These transactions affected the following accounts. Indicate the accounts affected and use plus and minus to show the changes caused by each transaction.

The owner made an additional investment of cash

83. The transactions listed below took place at the Mitchell Advertising Agency. These transactions affected the following accounts. Indicate the accounts affected and use plus and minus to show the changes caused by each transaction.

Purchased furniture on credit

84. The transactions listed below took place at the Mitchell Advertising Agency. These transactions affected the following accounts. Indicate the accounts affected and use plus and minus to show the changes caused by each transaction.

Had a computer repaired; payment is due in 30 days

85. Guy McKinley started the McKinley Charter Service at the beginning of August 2016. On August 31, 2016, the accounting records of the business showed the following information. Prepare an income statement and a statement of owner's equity for the month and a balance sheet as of August 31, 2016.

86. On September 1, Shawn Dahl established Whitewater Rentals, a canoe and kayak rental business. The following transactions occurred in the month of September and affected the following accounts:

Transactions 1. Shawn Dahl invested $45,000 in cash to open the business 2. Paid $12,700 in cash for the purchase of kayak and canoe equipment 3. Paid $1,050 in cash for rent expense 4. Purchased additional kayak and canoe equipment for $3,800 on credit 5. Received $3,900 in cash for kayak rentals 6. Rented canoes and kayaks for $1,200 on account 7. Purchased office equipment for $125 in cash 8. Received $800 in cash from credit clients 9. Shawn Dahl withdrew $1,500 in cash for personal expenses Based on the information shown in transaction #4 above, indicate the accounts affected and use plus and minus to show the changes caused by the transaction.

87. On September 1, Shawn Dahl established Whitewater Rentals, a canoe and kayak rental business. The following transactions occurred in the month of September and affected the following accounts:

Transactions 1. Shawn Dahl invested $45,000 in cash to open the business 2. Paid $12,700 in cash for the purchase of kayak and canoe equipment 3. Paid $1,050 in cash for rent expense 4. Purchased additional kayak and canoe equipment for $3,800 on credit 5. Received $3,900 in cash for kayak rentals 6. Rented canoes and kayaks for $1,200 on account 7. Purchased office equipment for $125 in cash 8. Received $800 in cash from credit clients 9. Shawn Dahl withdrew $1,500 in cash for personal expenses Based on the information shown above, what is the balance of Accounts Receivable for Whitewater Rentals at the end of September?

88. On September 1, Shawn Dahl established Whitewater Rentals, a canoe and kayak rental business. The following transactions occurred in the month of September and affected the following accounts:

Transactions 1. Shawn Dahl invested $45,000 in cash to open the business 2. Paid $12,700 in cash for the purchase of kayak and canoe equipment 3. Paid $1,050 in cash for rent expense 4. Purchased additional kayak and canoe equipment for $3,800 on credit 5. Received $3,900 in cash for kayak rentals 6. Rented canoes and kayaks for $1,200 on account 7. Purchased office equipment for $125 in cash 8. Received $800 in cash from credit clients 9. Shawn Dahl withdrew $1,500 in cash for personal expenses Based on the information above, what is the fundamental accounting equation at the end of September for Whitewater Rentals?

89. On June 1, Donna Banhil established Solo Services, a voice consulting service. Enter the following transactions for June in the table below using + and - to indicate increases or decreases: Transactions 1. Donna Banhil invested $15,000 in cash to open the business 2. Paid $1,500 for June's rent 3. Paid $4,500 for rent in advance, for the next three months (July-September) 4. Purchased office supplies for $800 on credit 5. Performed voice consulting services and immediately received $1,200 from clients. 6. Gave voice lessons to charge account clients and earned $9,000 7. Paid $100 cash for the supplies purchased earlier in the month 8. Received $1,000 in cash from credit clients billed earlier in the month

90. The figure below shows the transactions for Sawyer Architecture Services during June. Greg Sawyer opened this business on June 1 with a capital investment of $72,000 (Transaction 1).

What was the net income or net loss for Sawyer Architecture Services for the month of June?

91. The figure below shows the transactions for Sawyer Architecture Services during June. Greg Sawyer opened this business on June 1 with a capital investment of $72,000 (Transaction 1).

Prepare the statement of owner's equity for Sawyer Architecture Services for the month ended June 30, 2016.

92. The figure below shows the transactions for Sawyer Architecture Services during June. Greg Sawyer opened this business on June 1 with a capital investment of $72,000 (Transaction 1).

Prepare the balance sheet for Sawyer Architecture Services as of June 30, 2016.

93. Cullen Beatty plans to start a consulting business—Cullen Consulting Services. In preparation to do this, on April 1, 2016, he invested $50,000 in cash and $19,000 in equipment, and opened an account at Office Plus by purchasing $1,500 in office supplies which is due by the end of the month. He then signed a one-year lease agreement on an office building for $6,000, paying the full amount in advance. Prepare a Balance Sheet for Cullen Consulting Services as of April 1, 2016, before he conducts any services.

94. Cullen Beatty plans to start a consulting business—Cullen Consulting Services. In preparation to do this, on April 1, 2016, he invested $50,000 in cash and $19,000 in equipment, and opened an account at Office Plus by purchasing $1,500 in office supplies which is due by the end of the month. He then signed a one-year lease agreement on an office building for $6,000, paying the full amount in advance. Cullen would like an explanation of the accounting for his business actions as of April 1, 2016. Explain the terms and interactions between the categories on a Balance Sheet.

Chapter 02 Analyzing Business Transactions Answer Key

True / False Questions

The entire process of analyzing, recording, and reporting business transactions is based on the fundamental accounting equation.

TRUE

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 02-01 Record in equation form the financial effects of a business transaction. Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets; liabilities; and owner's equity and record these effects in accounting equation form. Topic: Accounting Equation and Financial Statements

When using the fundamental accounting equation, an accountant must make sure that total assets are always equal to total liabilities and owner's equity.

TRUE

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets; liabilities; and owner's equity and record these effects in accounting equation form. Topic: Accounting Equation and Financial Statements 2-38 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Assets always equal debts of the business plus the financial interest of the owner.

TRUE

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 02-02 Define; identify; and understand the relationship between asset; liability; and owner's equity accounts. Topic: Accounts and Their Relationships

When cash is paid to a creditor, the firm's liabilities decrease.

TRUE

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 02-02 Define; identify; and understand the relationship between asset; liability; and owner's equity accounts. Topic: Accounts and Their Relationships

Al Dunn Bakery bought a new oven for $1,380. Al paid $300 as a cash down payment and will pay the balance in 30 days. Total assets increased by $1,080.

TRUE

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry

AICPA FN: Decision Making AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 2 Medium Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets; liabilities; and owner's equity and record these effects in accounting equation form. Topic: Accounting Equation and Financial Statements

If the owner takes cash out of the business for personal use, the withdrawal should be recorded as an expense of the business.

FALSE

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Decision Making AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets; liabilities; and owner's equity and record these effects in accounting equation form. Topic: Accounting Equation and Financial Statements

When cash is collected from accounts receivable, the total amount of assets increases.

FALSE

A company has assets of $56,320 and liabilities of $29,500. The owner's equity is $85,820.

FALSE Using the fundamental accounting equation, owner's equity would be $26,820 ($56, 320 = $29,500 + $26,820)

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets; liabilities; and owner's equity and record these effects in accounting equation form. Topic: Accounting Equation and Financial Statements

The expenses for a period are reported on the balance sheet.

FALSE

10.

A double line drawn under the figures in a money column shows that the computation is complete.

TRUE

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 02-04 Prepare an income statement. Learning Objective: 02-05 Prepare a statement of owner's equity and a balance sheet. Learning Objective: 02-06 Define the accounting terms new to this chapter. Topic: Accounting Equation and Financial Statements

11.

A business transaction is a financial event that affects the resources of a business.

TRUE

12.

If there is an excess of expenses over revenues, the excess represents a profit.

FALSE

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember

Difficulty: 1 Easy Learning Objective: 02-04 Prepare an income statement. Topic: Accounting Equation and Financial Statements

13.

A withdrawal of funds by the owner for personal use is considered a business expense.

FALSE

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets; liabilities; and owner's equity and record these effects in accounting equation form. Topic: Accounting Equation and Financial Statements

14.

The statement of owner's equity is prepared before the balance sheet so that the ending capital balance is available.

TRUE

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 02-05 Prepare a statement of owner's equity and a balance sheet. Topic: Accounting Equation and Financial Statements

15.

If assets are $8,000 and liabilities are $2,000, owner's equity is $10,000.

FALSE Using the fundamental accounting equation, owner's equity would be $6,000 ($8,000 = $2,000 + $6,000)

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets; liabilities; and owner's equity and record these effects in accounting equation form. Topic: Accounting Equation and Financial Statements

16.

The amount of net income or net loss is needed to complete the statement of owner's equity.

TRUE

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 02-05 Prepare a statement of owner's equity and a balance sheet. Topic: Accounting Equation and Financial Statements

17.

Withdrawals by the owner are reported on the income statement.

FALSE

AACSB: Analytic

AICPA BB: Critical Thinking AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 02-05 Prepare a statement of owner's equity and a balance sheet. Topic: Accounting Equation and Financial Statements

18.

The income statement is also known as the profit and loss statement.

TRUE

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 02-04 Prepare an income statement. Topic: Accounting Equation and Financial Statements

19.

The net income or net loss for the period is shown on both the income statement and the balance sheet.

FALSE

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 02-04 Prepare an income statement. Learning Objective: 02-05 Prepare a statement of owner's equity and a balance sheet. Topic: Accounting Equation and Financial Statements

Fill in the Blank Questions

20.

The property that a business owns is referred to as its ___________________.

assets

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement Blooms: Remember Difficulty: 1 Easy Learning Objective: 02-02 Define; identify; and understand the relationship between asset; liability; and owner's equity accounts. Topic: Accounts and Their Relationships

21.

The debts or obligations of a business are known as its ___________________.

liabilities

22.

The income statement shows revenue, ___________________, and net income or net loss for a period of time.

expenses

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting

Blooms: Remember Difficulty: 1 Easy Learning Objective: 02-04 Prepare an income statement. Topic: Accounting Equation and Financial Statements

23.

The financial interest of the owner in a business is called owner's equity or ___________________.

capital

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 02-02 Define; identify; and understand the relationship between asset; liability; and owner's equity accounts. Topic: Accounts and Their Relationships

24.

The account used to record amounts that are owed for goods or services purchased on credit are known as ___________________.

accounts payable

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 02-01 Record in equation form the financial effects of a business transaction. Topic: Accounts and Their Relationships

25.

When a business sells services for cash, assets increase and revenue ___________________.

increases

AACSB: Analytic

AICPA BB: Industry AICPA FN: Reporting Blooms: Understand Difficulty: 1 Easy Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets; liabilities; and owner's equity and record these effects in accounting equation form. Topic: Accounting Equation and Financial Statements

26.

The account used to record amounts that will be collected from charge account customers in the future are referred to as ___________________.

accounts receivable

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets; liabilities; and owner's equity and record these effects in accounting equation form. Topic: Accounting Equation and Financial Statements

27.

The ____________________ is the financial report that shows the assets, liabilities, and owner's equity of a business on a specific date.

balance sheet

28.

If assets are $17,000 and owner's equity is $10,000, liabilities are ___________________.

$7,000 Assets = Liabilities + Owner's Equity; therefore, $17,000 = $7,000 + $10,000.

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement Blooms: Apply Difficulty: 1 Easy Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets; liabilities; and owner's equity and record these effects in accounting equation form. Topic: Accounting Equation and Financial Statements

29.

When a business pays cash for salaries, assets decrease and expenses ___________________.

increase

30.

Funds taken from the business by the owner for personal use are called ___________________.

withdrawals

AACSB: Analytic

AICPA BB: Industry AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets; liabilities; and owner's equity and record these effects in accounting equation form. Topic: Accounting Equation and Financial Statements

31.

The statement of ____________________ reports the changes that have occurred in the owner's financial interest during the reporting period.

owner's equity

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 02-05 Prepare a statement of owner's equity and a balance sheet. Topic: Accounting Equation and Financial Statements

32.

When revenue is greater than expenses, the result is a net ___________________.

income

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Blooms: Understand Difficulty: 1 Easy Learning Objective: 02-04 Prepare an income statement. Topic: Accounting Equation and Financial Statements

33.

When revenue and expenses are equal, the firm is said to ___________________.

break even

AACSB: Analytic

AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 02-04 Prepare an income statement. Topic: Accounting Equation and Financial Statements

34.

The three-line heading of a financial statement shows who, what, and ___________________.

when

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 02-04 Prepare an income statement. Learning Objective: 02-05 Prepare a statement of owner's equity and a balance sheet. Topic: Accounting Equation and Financial Statements

Multiple Choice Questions

35.

The balance sheet shows

A. the results of business operations. B. all revenues and expenses. C. the amount of net income or loss. D. the financial position of a business at a given time.

AACSB: Analytic AICPA BB: Industry

AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 02-02 Define; identify; and understand the relationship between asset; liability; and owner's equity accounts. Topic: Accounting Equation and Financial Statements

36.

Amounts that a business must pay in the future are known as

A. accounts receivable. B. accounts payable. C. capital. D. expenses.

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 02-01 Record in equation form the financial effects of a business transaction. Topic: Accounts and Their Relationships

37.

Examples of assets are:

A. cash and accounts receivable. B. cash and revenue. C. cash and rent expense. D. investments by the owner and revenue.

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand 2-52 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Difficulty: 1 Easy Learning Objective: 02-02 Define; identify; and understand the relationship between asset; liability; and owner's equity accounts. Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets; liabilities; and owner's equity and record these effects in accounting equation form. Topic: Accounts and Their Financial Statements

38.

Ginger Yale Ice Company receives money from a customer on account. Recording this transaction will

A. increase Accounts Receivable. B. increase G. Yale, Capital. C. decrease Accounts Payable. D. increase Cash.

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 1 Easy Learning Objective: 02-01 Record in equation form the financial effects of a business transaction. Topic: Accounts and Their Relationships

39.

If a business issues a check for $100 to purchase office supplies, analyze the effect on the accounting equation.

A. Financial Interest will increase B. Property will decrease C. Financial Interest will decrease D. Total Property will remain the same

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making

Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 1 Easy Learning Objective: 02-01 Record in equation form the financial effects of a business transaction. Topic: Property and Financial Interest

40.

If a business issued a check for $1,000 to pay for two months rent in advance, analyze the effect on the firms' assets, liabilities and owner's equity.

A. Cash will increase B. Accounts Payable will decrease C. Prepaid Rent will increase D. Owner's Capital will increase

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 1 Easy Learning Objective: 02-01 Record in equation form the financial effects of a business transaction. Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets; liabilities; and owner's equity and record these effects in accounting equation form. Topic: Accounting Equation and Financial Statements

41.

The owner's investment or equity in a business is called

A. cash. B. drawing. C. capital. D. accounts payable.

AACSB: Analytic AICPA BB: Industry

AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 02-01 Record in equation form the financial effects of a business transaction. Topic: Accounts and Their Relationships

42.

At the end of the first month of operations for SloMo Delivery Service, the business had the following accounts: Accounts Receivable, $1,200; Prepaid Insurance, $500; Equipment, $36,200 and Cash, $40,650. On the same date, SloMo owed the following creditors: Simpson Supply Company, $12,000; Allen Office Equipment, $9,500. The total assets for the SloMo Delivery Service are

A. $42,350. B. $78,550. C. $76,850. D. $41,850. Assets = Accounts Receivable, $1,200 + Prepaid Insurance, $500 + Equipment $36,200 + Cash, $40,650 = $78,550.

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 02-05 Prepare a statement of owner's equity and a balance sheet. Topic: Accounting Equation and Financial Statements

43.

A. $36,200. B. $9,500. C. $21,500. D. $40,650. Liabilities = Simpson Supply Company, $12,000 + Allen Office Equipment, $9,500 = $21,500.

44.

Total assets of Douglas Fuhr Furniture Co. are $36,000 and the total liabilities are $12,000. What is the amount of the owner's equity?

A. $36,000 B. $24,000 C. $48,000 D. $6,000 Assets = Liabilities + Owners' Equity: $36,000 = $12,000 + $24,000

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 1 Easy Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets; liabilities; and owner's equity and record these effects in accounting equation form. Topic: Accounting Equation and Financial Statements

45.

If during the year total assets increase by $75,000 and total liabilities decrease by $16,000, by how much did owner's equity increase/decrease?

A. $91,000 increase B. $59,000 decrease C. $91,000 decrease D. $75,000 increase $75,000 = ($16,000) + $91,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry

AICPA FN: Measurement Accessibility: Keyboard Navigation Blooms: Evaluate Difficulty: 3 Hard Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets; liabilities; and owner's equity and record these effects in accounting equation form. Topic: Accounting Equation and Financial Statements

46.

Which financial statement is reported as of a specific date?

A. Balance Sheet B. Statement of Owner's Equity C. Income Statement D. Statement of Changes in Financial Position

47.

A net loss results

A. when expenses are greater than revenue. B. when assets are greater than liabilities. C. when revenue is greater than expenses. D. when expenses are greater than assets.

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Analyze 2-58 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Difficulty: 1 Easy Learning Objective: 02-04 Prepare an income statement. Topic: The Accounting Equation and Financial Statements

48.

The income statement shows

A. the financial position of a business on a specific date. B. revenue and owner's equity. C. the results of operations for a period of time. D. the total value of the business.

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 02-04 Prepare an income statement. Topic: Accounting Equation and Financial Statements

49.

If the income statement covered a six-month period ending on November 30, 2013, the third line of the income statement heading would read

A. Month Ended November 30, 2013. B. November 30, 2013. C. Six-month Period Ended November 30, 2013. D. Month of November, 2013.

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 02-04 Prepare an income statement.

Topic: Accounting Equation and Financial Statements

50.

When the owner invests cash in a business,

A. assets and revenue increase. B. assets increase and owner's equity decreases. C. liabilities decrease and owner's equity increases. D. assets and owner's equity increase.

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 1 Easy Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets; liabilities; and owner's equity and record these effects in accounting equation form. Topic: Accounting Equation and Financial Statements

51.

When equipment is purchased on credit,

A. assets and liabilities increase. B. assets increase and liabilities decrease. C. assets and owner's equity increase. D. assets and expenses increase.

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 02-01 Record in equation form the financial effects of a business transaction. Topic: Accounts and Their Relationships

52.

When equipment is purchased for cash,

A. assets decrease and expenses increase. B. one asset increases and another asset decreases. C. assets and owner's equity increase. D. assets increase and liabilities decrease.

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 02-01 Record in equation form the financial effects of a business transaction. Topic: Accounts and Their Relationships

53.

If a business receives $5,000 on account from clients who owed money for services previously billed, identify the effect on the accounting equation

A. assets decrease and liabilities increase. B. liabilities decrease and owner's equity decreases. C. assets remain the same and owner's equity remains the same. D. owner's equity increases and revenue increases. Cash is increased by $5,000 but Accounts Receivable is reduced by $5,000 so there is no change in total assets.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 2 Medium Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets; liabilities; and owner's equity

and record these effects in accounting equation form. Topic: Accounting Equation and Financial Statements

54.

When the owner withdraws cash for personal use,

A. assets decrease and expenses increase. B. assets decrease and owner's equity increases. C. assets decrease and owner's equity decreases. D. owner's equity decreases and revenue decreases.

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets; liabilities; and owner's equity and record these effects in accounting equation form. Topic: Accounting Equation and Financial Statements

55.

When the owner writes a company check to pay the firm's electric bill,

A. assets and owner's equity increase. B. assets decrease and expenses increase. C. assets and liabilities decrease. D. expenses increase and owner's equity increases.

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets; liabilities; and owner's equity and record these effects in accounting equation form. Topic: Accounting Equation and Financial Statements 2-62 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

56.

Identify the account below that is classified as an asset account and would appear on the left side of the accounting equation.

A. Accounts Receivable. B. Owner's Capital. C. Accounts Payable. D. Revenue.

57.

Assets and liabilities are reported on

A. the balance sheet. B. the income statement. C. the statement of owner's equity. D. both the balance sheet and the income statement.

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 02-02 Define; identify; and understand the relationship between asset; liability; and owner's equity accounts. Topic: Accounts and Their Relationships

58.

The financial statement that is prepared first is

A. up to the accountant. B. the income statement. C. the balance sheet. D. the statement of owner's equity.

59.

The rent paid for future months is a(n)

A. asset. B. liability. C. expense. D. revenue.

60.

The statement of financial position is another term for which financial statement?

A. Income Statement B. Statement of Owner's Equity C. Balance Sheet D. Trial Balance

61.

Which financial statement is a representation of the accounting equation?

A. Income Statement B. Statement of Owner's Equity C. Balance Sheet D. Profit and Loss Statement

62.

The Statement of Owner's Equity is calculated as follows:

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 02-05 Prepare a statement of owner's equity and a balance sheet. Topic: Accounting Equation and Financial Statements

63.

An Income Statement is all of the following except:

A. a formal report of business operations. B. a profit and loss statement. C. a statement of revenues less withdrawals and expenses. D. a statement of income and expenses.

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 02-04 Prepare an income statement. Topic: Accounting Equation and Financial Statements

64.

At the end of the first month of operations for Jackson's Catering Service, the business had the following accounts: Cash, $19,000; Prepaid Rent, $500; Equipment, $5,000 and Accounts Payable $2,000. By the end of the month, Jackson's had earned $20,000 of Revenues, $1,000 of Utilities Expenses and $1,500 of Salaries Expenses. Calculate the net income to be reported by the company for this first month.

A. $20,000 B. $19,000 C. $17,500 D. $12,000 Revenues $20,000 - Utilities Expense $1,000 - Salaries Expense $1,500 = Net Income $17,500

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 02-04 Prepare an income statement. Topic: Accounting Equation and Financial Statements

65.

At the end of its first year of operations, Shapiro's Consulting Services reported net income of $25,000. They also had account balances of: Cash, $18,000; Office Supplies, $2,000 and Accounts Receivable $10,000. The owner's total investment for this first year was $5,000. Calculate the ending balance to be reported on the Statement of Owner's Equity in the Owner's Capital account.

A. $30,000 B. $25,000 C. $20,000 D. $5,000 Investments $5,000 + Net Income $25,000 = $30,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 02-04 Prepare an income statement. Topic: Accounting Equation and Financial Statements

66.

Identify the type of accounts that would appear on a firm's income statement

A. assets and liabilities. B. revenues and expenses. C. assets and revenues. D. liabilities and expenses.

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation 2-68 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Blooms: Remember Difficulty: 2 Medium Learning Objective: 02-04 Prepare an income statement. Topic: Accounting Equation and Financial Statements

67.

Owner's equity is:

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 02-06 Define the accounting terms new to this chapter. Topic: Accounting Equation and Financial Statements

68.

Given the options below, identify the correct accounting equation formula.

A. Assets = Liabilities + Owner's Equity B. Liabilities = Assets + Owner's Equity C. Assets + Liabilities = Owner's Equity D. Assets + Owner's Equity = Liabilities

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets; liabilities; and owner's equity 2-69 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

and record these effects in accounting equation form. Topic: Accounting Equation and Financial Statements

69.

The balance sheet shows each of the following except the:

A. net income of the business. B. amount and types of property the business owns. C. owner's interest. D. amount owed creditors.

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 02-02 Define; identify; and understand the relationship between asset; liability; and owner's equity accounts. Topic: Accounting Equation and Financial Statements

70.

The Balance Sheet heading includes each of the following except:

A. firm's name. B. firm's address. C. title of the report. D. date of the report.

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 02-05 Prepare a statement of owner's equity and a balance sheet. Topic: Accounting Equation and Financial Statements

71.

Choose the option below that reflects the correct order in which to prepare the three financial statements

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 02-05 Prepare a statement of owner's equity and a balance sheet. Topic: Accounting Equation and Financial Statements

72.

An expense by definition is not:

A. an amount a business must pay in the future. B. an outflow of cash. C. the use of other assets. D. the incurring of a liability.

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 02-06 Define the accounting terms new to this chapter. Topic: Accounting Equation and Financial Statements

Short Answer Questions

73.

On December 1, 2016, Geneva Jordan opened her new business with the following assets and liabilities. Complete the accounting equation for the firm.

Assets $________ = Liabilities $________ + Owner's Equity $________

Assets $37,400 = Liabilities $16,600 + Owner's Equity $20,800

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets; liabilities; and owner's equity and record these effects in accounting equation form. Topic: Accounting Equation and Financial Statements

74.

During October, a firm had the following transactions involving revenue and expenses. Did the firm earn a net income or incur a net loss for the period? What was the amount? Paid $1,200 for rent Provided services for $2,750 in cash Paid $250 for telephone service Provided services for $1,900 on credit Paid salaries of $1,675 to employees Paid $350 for office cleaning service

Net income: $1,175 Feedback: $2,750 + 1,900 - $1,200 - $250 - $1,675 - $350 = $1,175 Net Income

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 02-04 Prepare an income statement. Topic: Accounting Equation and Financial Statements

75.

The transactions listed below took place at the Mitchell Advertising Agency. These transactions affected the following accounts. Indicate the accounts affected and use plus and minus to show the changes caused by each transaction.

Performed services on credit

plus Accounts Receivable; plus Revenue

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Analyze Difficulty: 1 Easy Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets; liabilities; and owner's equity and record these effects in accounting equation form. Topic: Accounting Equation and Financial Statements

76.

Paid cash for utilities

plus Expenses; minus Cash

77.

Sent a check to a creditor

minus Accounts Payable; minus Cash

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Analyze Difficulty: 1 Easy Learning Objective: 02-01 Record in equation form the financial effects of a business transaction. Topic: Accounting Equation and Financial Statements

78.

Issued checks to pay salaries

plus Expenses; minus Cash

79.

Purchased a computer for cash

plus Equipment; minus Cash

80.

Received cash from credit customers

plus Cash; minus Accounts Receivable

81.

Performed services for cash

plus Cash; plus Revenue

82.

The owner made an additional investment of cash

plus Cash; plus K. Mitchell, Capital

83.

Purchased furniture on credit

plus Furniture; plus Accounts Payable

84.

Had a computer repaired; payment is due in 30 days

plus Expenses; plus Accounts Payable

85.

Guy McKinley started the McKinley Charter Service at the beginning of August 2016. On August 31, 2016, the accounting records of the business showed the following information. Prepare an income statement and a statement of owner's equity for the month and a balance sheet as of August 31, 2016.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Create Difficulty: 3 Hard Learning Objective: 02-04 Prepare an income statement. Learning Objective: 02-05 Prepare a statement of owner's equity and a balance sheet. Topic: Accounting Equation and Financial Statements

86.

On September 1, Shawn Dahl established Whitewater Rentals, a canoe and kayak rental business. The following transactions occurred in the month of September and affected the following accounts:

plus Canoe and Kayak Equipment; plus Accounts Payable

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Apply Difficulty: 1 Easy Learning Objective: 02-01 Record in equation form the financial effects of a business transaction. Learning Objective: 02-02 Define; identify; and understand the relationship between asset; liability; and owner's equity accounts. Topic: Accounting Equation and Financial Statements

87.

On September 1, Shawn Dahl established Whitewater Rentals, a canoe and kayak rental business. The following transactions occurred in the month of September and affected the following accounts:

Transactions 1. Shawn Dahl invested $45,000 in cash to open the business 2. Paid $12,700 in cash for the purchase of kayak and canoe equipment 3. Paid $1,050 in cash for rent expense 4. Purchased additional kayak and canoe equipment for $3,800 on credit 5. Received $3,900 in cash for kayak rentals 6. Rented canoes and kayaks for $1,200 on account 7. Purchased office equipment for $125 in cash 8. Received $800 in cash from credit clients 9. Shawn Dahl withdrew $1,500 in cash for personal expenses Based on the information shown above, what is the balance of Accounts Receivable for Whitewater Rentals at the end of September?

The balance of Accounts Receivable at September 30 is $400. Feedback: Beginning Accounts Receivable, $0 + sales on account, $1,200 - collections on account, $800 = Ending Accounts Receivable, $400.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply

Difficulty: 1 Easy Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets; liabilities; and owner's equity and record these effects in accounting equation form. Topic: Accounting Equation and Financial Statements

88.

On September 1, Shawn Dahl established Whitewater Rentals, a canoe and kayak rental business. The following transactions occurred in the month of September and affected the following accounts:

Transactions 1. Shawn Dahl invested $45,000 in cash to open the business 2. Paid $12,700 in cash for the purchase of kayak and canoe equipment 3. Paid $1,050 in cash for rent expense 4. Purchased additional kayak and canoe equipment for $3,800 on credit 5. Received $3,900 in cash for kayak rentals 6. Rented canoes and kayaks for $1,200 on account 7. Purchased office equipment for $125 in cash 8. Received $800 in cash from credit clients 9. Shawn Dahl withdrew $1,500 in cash for personal expenses Based on the information above, what is the fundamental accounting equation at the end of September for Whitewater Rentals?

Assets $51,350 = Liabilities $3, 800 + Owner's Equity $47,550

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting

Blooms: Analyze Difficulty: 3 Hard Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets; liabilities; and owner's equity and record these effects in accounting equation form. Topic: Accounting Equation and Financial Statements

89.

On June 1, Donna Banhil established Solo Services, a voice consulting service. Enter the following transactions for June in the table below using + and - to indicate increases or decreases: Transactions 1. Donna Banhil invested $15,000 in cash to open the business 2. Paid $1,500 for June's rent 3. Paid $4,500 for rent in advance, for the next three months (July-September) 4. Purchased office supplies for $800 on credit 5. Performed voice consulting services and immediately received $1,200 from clients. 6. Gave voice lessons to charge account clients and earned $9,000 7. Paid $100 cash for the supplies purchased earlier in the month 8. Received $1,000 in cash from credit clients billed earlier in the month

AACSB: Analytic

AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 02-01 Record in equation form the financial effects of a business transaction. Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets; liabilities; and owner's equity and record these effects in accounting equation form. Topic: Business Transactions and Events

90.

The figure below shows the transactions for Sawyer Architecture Services during June. Greg Sawyer opened this business on June 1 with a capital investment of $72,000 (Transaction 1).

What was the net income or net loss for Sawyer Architecture Services for the month of June?

Net income was $1,700. Feedback: Revenue, $5,200 - Expenses, $3,500 = Net Income, $1,700.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 1 Easy

Learning Objective: 02-04 Prepare an income statement. Topic: Accounting Equation and Financial Statements

91.

The figure below shows the transactions for Sawyer Architecture Services during June. Greg Sawyer opened this business on June 1 with a capital investment of $72,000 (Transaction 1).

Prepare the statement of owner's equity for Sawyer Architecture Services for the month ended June 30, 2016.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Blooms: Create Difficulty: 2 Medium Learning Objective: 02-05 Prepare a statement of owner's equity and a balance sheet.

Topic: Accounting Equation and Financial Statements

92.

The figure below shows the transactions for Sawyer Architecture Services during June. Greg Sawyer opened this business on June 1 with a capital investment of $72,000 (Transaction 1).

Prepare the balance sheet for Sawyer Architecture Services as of June 30, 2016.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 02-05 Prepare a statement of owner's equity and a balance sheet. Topic: Accounting Equation and Financial Statements

93.

Cullen Beatty plans to start a consulting business—Cullen Consulting Services. In preparation to do this, on April 1, 2016, he invested $50,000 in cash and $19,000 in equipment, and opened an account at Office Plus by purchasing $1,500 in office supplies which is due by the end of the month. He then signed a one-year lease agreement on an office building for $6,000, paying the full amount in advance. Prepare a Balance Sheet for Cullen Consulting Services as of April 1, 2016, before he conducts any services.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Blooms: Create Difficulty: 2 Medium Learning Objective: 02-02 Define; identify; and understand the relationship between asset; liability; and owner's equity accounts. Topic: Accounting Equation and Financial Statements

94.

Cullen Beatty plans to start a consulting business—Cullen Consulting Services. In preparation to do this, on April 1, 2016, he invested $50,000 in cash and $19,000 in equipment, and opened an account at Office Plus by purchasing $1,500 in office supplies which is due by the end of the month. He then signed a one-year lease agreement on an office building for $6,000, paying the full amount in advance. Cullen would like an explanation of the accounting for his business actions as of April 1, 2016. Explain the terms and interactions between the categories on a Balance Sheet.

Answers will vary. Items that should be included are: The Balance Sheet is a format report of a business's financial condition --on a certain date --reports assets, liabilities, and owner's equity of a business --reports property owned by a business, obligations (debts) of a business --reports the financial interest (proprietorship, net worth) of the owner --total assets equals the total liabilities plus total owner's equity

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making AICPA FN: Reporting Blooms: Create Difficulty: 2 Medium Learning Objective: 02-02 Define; identify; and understand the relationship between asset; liability; and owner's equity accounts. Topic: Accounting Equation and Financial Statements

Chapter 03 Analyzing Business Transactions Using T Accounts

True / False Questions

1. When preparing the trial balance, the total debits should equal the total credits.

True

False

2. Credits increase Liabilities, Owner's Equity, and Revenue.

True

False

3. Increases in assets and expenses are both recorded with debits.

True

False

4. Increases in assets and revenue are both recorded with debits.

True

False

5. When an owner invests assets in a business, the capital account is debited.

True

False

6. If the total of the amounts on the debit side of an account is greater than the total on the credit side, the balance is recorded on the debit side.

True

False

7. Utilities Expense would be debited when a company receives a bill for utilities that it will pay later.

True

False

8. Debit entries increase asset, drawing, expense and liability accounts.

True

False

9. The normal balance side of a liability account is the debit side.

True

False

10. Increases in owner's equity are recorded with credits.

True

False

11. Revenue is a subdivision of owner's equity.

True

False

12. An increase in an expense results in an increase in owner's equity.

True

False

13. Increases in the owner's drawing account are recorded with debits.

True

False

14. After transactions for the period have been recorded, a trial balance is prepared to verify the equality of total debits and credits.

True

False

15. A business transaction affects at least two accounts.

True

False

16. The modern system of accounting is called the double-entry system because a debit to one account is balanced by a credit to another account.

True

False

17. Financial statements are prepared after the trial balance is prepared.

True

False

18. Another name for permanent accounts is real accounts.

True

False

19. Another name for temporary accounts is real accounts.

True

False

20. When developing a chart of accounts, the highest block of numbers is assigned to asset accounts.

True

False

21. An account whose balance is transferred to another account at the end of an accounting period is a temporary account.

True

False

22. An account with a balance that carries over from one accounting period to another is a nominal account.

True

False

Fill in the Blank Questions

23. Separate written records called ____________________ are kept for each asset and liability and for the owner's equity of a business.

________________________________________

24. Accountants use the term ____________________ when referring to the right side of an account.

________________________________________

25. A decrease in a liability is recorded on the ____________________ side of the account.

________________________________________

26. Revenue and expense accounts are called nominal or ____________________ accounts.

________________________________________

27. Expense accounts are increased by ____________________ the accounts.

________________________________________

28. When equipment is purchased for cash, the accountant enters an amount on the left side of the ____________________ account.

________________________________________

29. A(n) ____________________ account is used to record increases in owner's equity from the sale of goods or services.

________________________________________

30. The difference between the debit and credit side of an account is called the account ___________________.

________________________________________

31. A column of figures is added and the total is entered in small pencil figures called a(n) ___________________.

________________________________________

32. The increase side of an account represents the ____________________ balance of the account.

________________________________________

33. A statement prepared to test the accuracy of total debits and credits after transactions have been recorded is called a(n) ___________________.

________________________________________

34. A special type of owner's equity account set up to record withdrawals of assets by the owner for personal use is called a(n) ____________________ account.

________________________________________

35. The error that occurs when the number $5.00 is written as $50.00 is called a(n) ____________________ error.

________________________________________

36. The error that occurs when the number $272.00 is written as $27.20 is called a(n) ____________________ error.

________________________________________

37. An entry on the right side of an account is called a(n) ___________________.

________________________________________

38. An entry on the left side of an account is called a(n) ___________________.

________________________________________

39. Rent Revenue is increased by _________________ the account.

________________________________________

40. Another name for the profit and loss statement is the ____________________.

________________________________________

41. The account Moriah Paige, _______________ would appear on both the Statement of Owner's Equity and the Balance Sheet.

________________________________________

42. The order in which financial statements are prepared is determined by the fact that information from one is needed to prepare the next. Which statement is prepared last? ____________________.

________________________________________

43. In a Chart of Accounts, each category of accounts is given a __________ of numbers with gaps so that additional accounts can be added when needed.

________________________________________

Multiple Choice Questions

44. The classification and normal balance of the accounts receivable account is:

A. an asset with a credit balance B. a liability with a debit balance C. an asset with a debit balance D. a revenue with a debit balance

45. The classification and normal balance of the salaries expense account is:

A. an expense with a credit balance B. a liability with a debit balance C. an asset with a debit balance D. an expense with a debit balance

46. A business earns $4,000 from various charge account clients. To record this transaction, the business would:

A. Debit Accounts Receivable; Credit Cash B. Debit Accounts Receivable; Credit Revenue C. Debit Cash; Credit Accounts Receivable D. Debit Accounts Payable; Credit Revenue

47. Select the entry below that records paying employees for work performed during the pay period?

A. debit Cash and credit Salary Expense B. debit Salary Expense and credit Cash C. debit Salary Expense and credit Accounts Receivable D. debit Cash, and credit Accounts Receivable

48. A business receives a bill for utilities but decides to pay it next month. The business would record the receipt of the bill by:

A. Debiting Accounts Payable; Crediting Utilities Expense B. Debiting Utilities Expense; Crediting Accounts Receivable C. Debiting Utilities Expense; Crediting Accounts Payable D. Debiting Utilities Expense; Crediting Cash

49. A business purchases equipment costing $4,000. They pay $1,500 right away and charge the remaining amount. To record this transaction, the business would:

A. Debit Equipment $2,500; Credit Accounts Payable $2,500 B. Debit Equipment $1,500; Credit Cash $1,500 C. Debit Equipment $4,000; Credit Accounts Payable $4,000 D. Debit Equipment $4,000; Credit Cash $1,500 and Credit Accounts Payable $2,500

50. A business performed $6,000 of services. Their customer paid $1,000 of the amount owed right away but charged the remaining amount. To record this transaction, the business would:

A. Debit Cash $1,000 and Debit Accounts Receivable $5,000; Credit Fee Income $6,000 B. Debit Accounts Receivable $5,000 and; Credit Fee Income $5,000 C. Debit Cash $1,000; Credit Fee Income $1,000 D. Debit Cash $1,000; Credit Accounts Payable $5,000 and Credit Fee Income $6,000

51. Which of the following entries records the withdrawal of cash for personal use by Ty Knott, the owner of a business?

A. debit Cash and credit Ty Knott, Capital B. debit Cash and credit Salary Expense C. debit Salary Expense and credit Cash D. debit Ty Knott, Drawing, and credit Cash

52. The ending capital balance appears on which of the following statement(s)?

A. Statement of owner's equity B. Income Statement C. Statement of owner's equity and balance sheet D. Statement of owner's equity and income statement

53. On a statement of owner's equity, beginning capital is $30,000, Net Income for the year is $11,000 and Drawing for the year is $6,000, the ending capital amount would be

A. $30,000. B. $35,000. C. $47,000. D. $25,000.

54. A business purchases supplies on account. The entry to record this transaction is:

A. Debit to Cash; Credit Supplies B. Debit to Supplies; Credit Accounts Receivable C. Debit Supplies; Credit Accounts Payable D. Debit Supplies; Credit to Cash

55. Debits are used to record

A. increases in assets. B. increases in revenue. C. increases in owner's equity. D. increases in liabilities.

56. Which of the following represents the proper sequence for preparing the financial statements?

A. balance sheet, statement of owner's equity, income statement B. income statement, balance sheet, statement of owner's equity C. income statement, statement of owner's equity, balance sheet D. statement of owner's equity, income statement, balance sheet

57. Which of the following is not one of the formal financial statements that is made available to all users of the financial statements.

A. Trial Balance B. Income Statement C. Statement of Owner's Equity D. Balance Sheet

58. A business pays a creditor on account. The entry to record this transaction is:

A. Debit Accounts Payable; Credit Cash B. Debit Accounts Receivable; Credit Accounts Payable C. Debit Cash; Credit Accounts Payable D. Debit Accounts Receivable; Credit to Cash

59. Credits are used to record

A. decreases in assets and owner's equity and increases in liabilities. B. decreases in assets, liabilities, and owner's equity. C. decreases in liabilities and increases in assets and owner's equity. D. increases in liabilities and owner's equity.

60. Debits are used to record increases in

A. assets and revenue. B. revenue and owner's equity. C. assets and expenses. D. assets and liabilities.

61. A firm paid cash to apply against a debt. To record this transaction, the accountant would

A. debit Accounts Receivable and credit Cash. B. debit Accounts Payable and credit Cash. C. debit Cash and credit Accounts Payable. D. credit Cash and credit Accounts Payable.

62. When revenue is earned from charge-account sales, the accountant

A. debits a revenue account and credits the capital account. B. debits Accounts Receivable and credits a revenue account. C. debits a revenue account and credits Accounts Receivable. D. debits Cash and credits a revenue account.

63. When charge customers pay cash to apply against their accounts, the amount is recorded

A. on the left side of the Cash account and the right side of the Fees Income account. B. on the left side of the Accounts Payable account and the right side of the Cash account. C. on the left side of the Cash account and the right side of the Accounts Receivable account. D. on the left side of the Cash account and the left side of the Accounts Receivable account.

64. The total of the figures on the left side of a Cash account is $25,800. The total of the figures on the right side is $14,100. The balance of this account

A. is $11,700 and would be recorded on the right side of the account. B. is $39,900 and would be recorded on the left side of the account. C. is $39,900 and would be recorded on the right side of the account. D. is $11,700 and would be recorded on the left side of the account.

65. The account used to record increases in owner's equity from the sale of goods or services is

A. the revenue account. B. the Cash account. C. the capital account. D. the drawing account.

66. Which of the following types of accounts normally have debit balances?

A. assets and revenue B. assets, liabilities, and owner's equity C. expenses and assets D. liabilities and owner's equity

67. Which of the following groups contain only accounts that normally have credit balances?

A. Accounts Receivable and Fees Income B. Salaries Expense and Accounts Payable C. Fees Income and John Smith, Capital D. Accounts Payable and Equipment

68. If the trial balance totals are not equal, the error may have been caused by a transposition if the difference is divisible by

A. 2. B. 7. C. 9. D. 5.

69. When the trial balance totals are not equal, the error may have been caused by recording a debit as a credit if the difference is divisible by

A. 2. B. 7. C. 9. D. 5.

70. Which of the following increase owner's equity?

A. expenses B. revenue C. withdrawals D. receiving cash from customers

71. If assets are numbered from 100-199, which of the following accounts would not be given a number in the 100 series?

A. Supplies B. Accounts Payable C. Prepaid Rent D. Accounts Receivable

72. Which of the following accounts is not a permanent account?

A. Cash B. Accounts Payable C. Salaries Expense D. Thomas Bernard, Capital

73. The "Net Income" or "Net Loss" is transferred from the income statement to the

A. balance sheet. B. chart of accounts. C. statement of owner's equity. D. trial balance.

74. The normal balance of an account is the

A. increase side of the account. B. decrease side of the account. C. the left side of the account. D. the right side of the account.

75. Identify the accounts below that would ALL appear on the balance sheet.

A. Cash, Accounts Payable, Owner's Capital (ending balance) B. Accounts Receivable, Accounts Payable, Fee Income C. Utility Expense, Salary Expense, Cash D. Owner's Capital (beginning), Owner's Drawing, Supplies Expense

76. If a trial balance is not in balance (the Debit and Credit columns are not equal), a logical first step is to

A. check each account balance calculation. B. check each account balance in the general ledger to the trial balance number. C. check the addition of each column. D. divide the difference by either 9 or 2.

77. The Net Income amount from the Income Statement is transferred to which of the following statements?

A. the profit and loss statement B. the statement of owner's equity C. the balance sheet D. the trial balance

78. The ending balance of the capital account appears as a separate line item on what two statements?

A. the trial balance and the income statement B. the statement of owner's equity and the income statement C. the statement of owner's equity and the balance sheet D. the income statement and the balance sheet

79. Which of the following accounts is NOT a nominal account?

A. Salaries Expense B. Moriah Paige, Drawing C. Rent Revenue D. Office Supplies

80. An accounting system that involves recording the effects of each transaction as debits and credits is

A. completing one T account. B. the double-entry system. C. preparing financial statements. D. analyzing a business transaction.

81. Which of the following does NOT describe a transposition?

A. It is an error. B. It involves misplaced digits in a number. C. It causes the difference between the debit total and the credit total to be divisible by 2. D. It causes the trial balance to be out of balance.

82. Which of the following would result in an error when preparing the Trial Balance?

A. Placing the Withdrawal account balance in the Debit column B. Placing a Revenue account balance in the Credit column C. Placing the balance in Prepaid Rent in the Credit column D. Placing the Accounts Payable balance in the Credit column

83. Which of the following would cause the Trial Balance to be out of balance?

A. Placing the Capital account balance in the Credit column B. Placing the Equipment account balance in the Debit column C. Placing the Rent Expense account balance in the Debit column D. Placing the Accounts Receivable balance in the Credit column

84. Which of the following would cause the Debit column and the Credit column of the Trial Balance to be unequal?

A. Placing the Fees Income balance in the Credit column B. Placing the Prepaid Rent balance in the Credit column C. Placing the Rent Expense balance in the Debit column D. Placing the Office Equipment balance in the Debit column

Short Answer Questions

85. Read each of the following transactions. Determine the accounts to be debited and credited. Cash Accounts Receivable Office Equipment Office Supplies Accounts Payable Brandon Phipps, Capital Brandon Phipps, Drawing Fees Income Rent Expense Salaries Expense Utilities Expense Performed services for cash

86. Read each of the following transactions. Determine the accounts to be debited and credited. Cash Accounts Receivable Office Equipment Office Supplies Accounts Payable Brandon Phipps, Capital Brandon Phipps, Drawing Fees Income Rent Expense Salaries Expense Utilities Expense Purchased office equipment on credit

87. Read each of the following transactions. Determine the accounts to be debited and credited. Cash Accounts Receivable Office Equipment Office Supplies Accounts Payable Brandon Phipps, Capital Brandon Phipps, Drawing Fees Income Rent Expense Salaries Expense Utilities Expense Received cash from credit customers

88. Read each of the following transactions. Determine the accounts to be debited and credited. Cash Accounts Receivable Office Equipment Office Supplies Accounts Payable Brandon Phipps, Capital Brandon Phipps, Drawing Fees Income Rent Expense Salaries Expense Utilities Expense Issued a check to a creditor

89. Read each of the following transactions. Determine the accounts to be debited and credited. Cash Accounts Receivable Office Equipment Office Supplies Accounts Payable Brandon Phipps, Capital Brandon Phipps, Drawing Fees Income Rent Expense Salaries Expense Utilities Expense Performed services on credit

90. Read each of the following transactions. Determine the accounts to be debited and credited. Cash Accounts Receivable Office Equipment Office Supplies Accounts Payable Brandon Phipps, Capital Brandon Phipps, Drawing Fees Income Rent Expense Salaries Expense Utilities Expense Received a credit for damaged office equipment that was returned

91. Read each of the following transactions. Determine the accounts to be debited and credited. Cash Accounts Receivable Office Equipment Office Supplies Accounts Payable Brandon Phipps, Capital Brandon Phipps, Drawing Fees Income Rent Expense Salaries Expense Utilities Expense Issued checks to pay salaries

92. The consulting firm of Martin and Associates uses the accounts listed below. On a separate sheet of paper, set up T accounts for each of the accounts listed and record the balances on the normal balance side of the accounts.

The firm has the following transactions during the month of December 2016. Record the effects of these transactions in the T accounts. a. Paid $1,300 for one month's rent b. Collected $5,600 in cash from credit customers c. Performed services for $7,500 in cash d. Paid $4,800 for salaries e. Issued a check for $3,400 to a creditor f. Performed services for $10,200 on credit g. Purchased office equipment for $1,800 on credit h. The owner withdrew $3,500 in cash for personal expenses i. Issued a check for $650 to pay the monthly utility bill Determine the account balances after the transactions have been recorded Prepare a trial balance as of December 31, 2016.

93. The account balances from the December 31, 2016, trial balance for Haman Accounting Services are shown below. Prepare an income statement, a statement of owner's equity, and a balance sheet for the month ended December 31, 2016.

94. The accounts and balances for Paw Prints Pet Sitters on November 1 are provided below.

The following transactions occurred during the month of November. a. Collected $350 from credit customers b. Issued a check for $700 for rent c. Paid $1,900 for salaries d. The owner withdrew $500 in cash for personal expenses e. Issued a check for $200 to pay the monthly utility bill f. Received $2,845 in cash for services performed g. Purchased office equipment for $1,350 on credit Using the information shown, set up T accounts for all accounts. Determine the balance for each account after all transactions have been recorded.

95. The accounts and balances for Paw Prints Pet Sitters on November 1 are provided below.

The following transactions occurred during the month of November. a. Collected $350 from credit customers b. Issued a check for $700 for rent c. Paid $1,900 for salaries d. The owner withdrew $500 in cash for personal expenses e. Issued a check for $200 to pay the monthly utility bill f. Received $2,845 in cash for services performed g. Purchased office equipment for $1,350 on credit Using the information shown, prepare a trial balance for Paw Prints Pet Sitters at November 30, 2016.

96. The accounts and balances for Paw Prints Pet Sitters on November 1 are provided below.

The following transactions occurred during the month of November. a. Collected $350 from credit customers b. Issued a check for $700 for rent c. Paid $1,900 for salaries d. The owner withdrew $500 in cash for personal expenses e. Issued a check for $200 to pay the monthly utility bill f. Received $2,845 in cash for services performed g. Purchased office equipment for $1,350 on credit Using the information shown, prepare an income statement, statement of owner's equity, and balance sheet for Paw Prints Pet Sitters for the month ended November 30, 2016.

97. Conway Copy Shop is owned and operated by Gerald Conway. The shop's accounts are presented below. Review the transactions presented and determine the appropriate debits and credits to the affected accounts.

Purchased copier equipment for $8,500 in cash

98. Conway Copy Shop is owned and operated by Gerald Conway. The shop's accounts are presented below. Review the transactions presented and determine the appropriate debits and credits to the affected accounts.

Received $1,200 in cash for copy services

99. Conway Copy Shop is owned and operated by Gerald Conway. The shop's accounts are presented below. Review the transactions presented and determine the appropriate debits and credits to the affected accounts.

Paid $6,000 in cash for the next six months' rent

100.Conway Copy Shop is owned and operated by Gerald Conway. The shop's accounts are presented below. Review the transactions presented and determine the appropriate debits and credits to the affected accounts.

Purchased office supplies for $250 on credit

101.Conway Copy Shop is owned and operated by Gerald Conway. The shop's accounts are presented below. Review the transactions presented and determine the appropriate debits and credits to the affected accounts.

Issued a check for $3,400 to pay salaries

102.Conway Copy Shop is owned and operated by Gerald Conway. The shop's accounts are presented below. Review the transactions presented and determine the appropriate debits and credits to the affected accounts.

Issued a check for $250 to pay creditor for office supplies

103.Conway Copy Shop is owned and operated by Gerald Conway. The shop's accounts are presented below. Review the transactions presented and determine the appropriate debits and credits to the affected accounts.

Gerald Conway makes an additional investment of $2,800 in cash to his business

104.The accounts with their respective balances for Dom's Delivery Service as of June 1 are given below. All accounts have normal balances.

Dom's had the following transactions during the month of June. a. Paid rent for June, $1,000 b. Dominic Goggin withdrew $4,500 from the business for personal use c. Performed services for $4,000 in cash d. Performed services for $22,750 on credit e. Received $12,000 from credit customers on account f. Paid the administrative assistant salary of $2,000 and delivery service messenger/driver salary of $3,000 for the month by check g. Paid the electric and phone bills by check for a total of $600 h. Paid creditors $6,000 on account i. Purchased $7,500 in supplies on account j. Paid $1,800 cash for advertising in the local newspaper in June Using the information above, set up T accounts and enter transactions a-j. Foot each account as of June 30, 2016. Prepare a Trial Balance.

105.The accounts with their respective balances for Dom's Delivery Service as of June 1 are given below. All accounts have normal balances.

Dom's had the following transactions during the month of June. a. Paid rent for June, $1,000 b. Dominic Goggin withdrew $4,500 from the business for personal use c. Performed services for $4,000 in cash d. Performed services for $22,750 on credit e. Received $12,000 from credit customers on account f. Paid the administrative assistant salary of $2,000 and delivery service messenger/driver salary of $3,000 for the month by check g. Paid the electric and phone bills by check for a total of $600 h. Paid creditors $6,000 on account i. Purchased $7,500 in supplies on account j. Paid $1,800 cash for advertising in the local newspaper in June Using the information shown, create Chart of Accounts numbers for the accounts given for Dom's Delivery Service.

106.The T account balances for the accounts of Rya's Planning Services as of January 31, 2016 are listed below.

Using the information given for Rya's Planning Services, create a Trial Balance as of January 31, 2016.

107.The T account balances for the accounts of Rya's Planning Services as of January 31, 2016 are listed below.

Using the information given for Rya's Planning Services, create an Income Statement, Statement of Owner's Equity, and Balance Sheet for January 2016.

108.Required: Using the chart of accounts for Smart Consulting Services below, enter the account no. of the account being debited for each of the listed transactions.

109.The balances for the accounts listed below appear in the trial balance of Bubbles, Inc. Identify whether each balance would appear on the Income Statement (IS), the Balance Sheet (BS) or the Statement of Owner's Equity (OE), by entering the appropriate letters in the spaces below. (There is only one correct answer for each)

Chapter 03 Analyzing Business Transactions Using T Accounts Answer Key

True / False Questions

When preparing the trial balance, the total debits should equal the total credits.

TRUE

Credits increase Liabilities, Owner's Equity, and Revenue.

TRUE

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 03-01 Set up T accounts for assets; liabilities; and owner's equity. Learning Objective: 03-04 Set up T accounts for revenue and expenses. Topic: Debits and Credits

Increases in assets and expenses are both recorded with debits.

TRUE

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-01 Set up T accounts for assets; liabilities; and owner's equity. Learning Objective: 03-04 Set up T accounts for revenue and expenses. Topic: Debits and Credits

Increases in assets and revenue are both recorded with debits.

FALSE

When an owner invests assets in a business, the capital account is debited.

FALSE

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-04 Set up T accounts for revenue and expenses. 3-45 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Topic: Debits and Credits

If the total of the amounts on the debit side of an account is greater than the total on the credit side, the balance is recorded on the debit side.

TRUE

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 1 Easy Learning Objective: 03-03 Determine the balance of an account. Topic: Debits and Credits

Utilities Expense would be debited when a company receives a bill for utilities that it will pay later.

TRUE

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 03-04 Set up T accounts for revenue and expenses. Topic: Debits and Credits

Debit entries increase asset, drawing, expense and liability accounts.

FALSE

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 1 Easy Learning Objective: 03-01 Set up T accounts for assets; liabilities; and owner's equity. Learning Objective: 03-04 Set up T accounts for revenue and expenses. Topic: Debits and Credits

The normal balance side of a liability account is the debit side.

FALSE

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-03 Determine the balance of an account. Topic: Debits and Credits

10.

Increases in owner's equity are recorded with credits.

TRUE

11.

Revenue is a subdivision of owner's equity.

TRUE

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting 3-47 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-04 Set up T accounts for revenue and expenses. Topic: Assets, Liabilities, Owner's Equity, Revenue, Expense Accounts

12.

An increase in an expense results in an increase in owner's equity.

FALSE

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 1 Easy Learning Objective: 03-04 Set up T accounts for revenue and expenses. Topic: Assets, Liabilities, Owner's Equity, Revenue, Expense Accounts

13.

Increases in the owner's drawing account are recorded with debits.

TRUE

14.

After transactions for the period have been recorded, a trial balance is prepared to verify the equality of total debits and credits.

TRUE

AACSB: Analytic

AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-05 Prepare a trial balance from T accounts. Topic: Trial Balance

15.

A business transaction affects at least two accounts.

TRUE

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Topic: Business Transactions in Accounts

16.

The modern system of accounting is called the double-entry system because a debit to one account is balanced by a credit to another account.

TRUE

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-05 Prepare a trial balance from T accounts. Topic: Business Transactions in Accounts

17.

Financial statements are prepared after the trial balance is prepared.

TRUE

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-06 Prepare an income statement; a statement of owner's equity; and a balance sheet. Topic: Financial Statements

18.

Another name for permanent accounts is real accounts.

TRUE

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-07 Develop a chart of accounts. Topic: Assets, Liabilities, Owner's Equity, Revenue, Expense Accounts

19.

Another name for temporary accounts is real accounts.

FALSE

20.

When developing a chart of accounts, the highest block of numbers is assigned to asset accounts.

FALSE

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 03-07 Develop a chart of accounts. Topic: Chart of Accounts

21.

An account whose balance is transferred to another account at the end of an accounting period is a temporary account.

TRUE

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-07 Develop a chart of accounts. Learning Objective: 03-08 Define the accounting terms new to this chapter. Topic: Assets, Liabilities, Owner's Equity, Revenue, Expense Accounts

22.

An account with a balance that carries over from one accounting period to another is a nominal account.

FALSE

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-07 Develop a chart of accounts. Learning Objective: 03-08 Define the accounting terms new to this chapter. Topic: Assets, Liabilities, Owner's Equity, Revenue, Expense Accounts

Fill in the Blank Questions

23.

Separate written records called ____________________ are kept for each asset and liability and for the owner's equity of a business.

accounts

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-01 Set up T accounts for assets; liabilities; and owner's equity. Learning Objective: 03-08 Define the accounting terms new to this chapter. Topic: Assets, Liabilities, Owner's Equity, Revenue, Expense Accounts

24.

Accountants use the term ____________________ when referring to the right side of an account.

credit

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-01 Set up T accounts for assets; liabilities; and owner's equity. Topic: Debits and Credits

25.

A decrease in a liability is recorded on the ____________________ side of the account.

debit or left

26.

Revenue and expense accounts are called nominal or ____________________ accounts.

temporary

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-07 Develop a chart of accounts. Learning Objective: 03-08 Define the accounting terms new to this chapter. Topic: Assets, Liabilities, Owner's Equity, Revenue, Expense Accounts

27.

Expense accounts are increased by ____________________ the accounts.

debiting

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-04 Set up T accounts for revenue and expenses. Topic: Assets, Liabilities, Owner's Equity, Revenue, Expense Accounts

28.

When equipment is purchased for cash, the accountant enters an amount on the left side of the ____________________ account.

equipment

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Understand Difficulty: 1 Easy Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Topic: Business Transactions in Accounts

29.

A(n) ____________________ account is used to record increases in owner's equity from the sale of goods or services.

revenue

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-04 Set up T accounts for revenue and expenses. Topic: Business Transactions in Accounts

30.

The difference between the debit and credit side of an account is called the account ___________________.

balance

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Remember

Difficulty: 1 Easy Learning Objective: 03-03 Determine the balance of an account. Topic: Debits and Credits

31.

A column of figures is added and the total is entered in small pencil figures called a(n) ___________________.

footing

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-03 Determine the balance of an account. Topic: Debits and Credits

32.

The increase side of an account represents the ____________________ balance of the account.

normal

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-03 Determine the balance of an account. Topic: Debits and Credits

33.

A statement prepared to test the accuracy of total debits and credits after transactions have been recorded is called a(n) ___________________.

trial balance

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting

Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-05 Prepare a trial balance from T accounts. Topic: Trial Balance

34.

A special type of owner's equity account set up to record withdrawals of assets by the owner for personal use is called a(n) ____________________ account.

drawing

35.

The error that occurs when the number $5.00 is written as $50.00 is called a(n) ____________________ error.

slide

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-08 Define the accounting terms new to this chapter. Topic: Business Transactions in Accounts

36.

The error that occurs when the number $272.00 is written as $27.20 is called a(n) ____________________ error.

slide

AACSB: Analytic

AICPA BB: Industry AICPA FN: Measurement Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-08 Define the accounting terms new to this chapter. Topic: Business Transactions in Accounts

37.

An entry on the right side of an account is called a(n) ___________________.

credit

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-04 Set up T accounts for revenue and expenses. Learning Objective: 03-08 Define the accounting terms new to this chapter. Topic: Debits and Credits

38.

An entry on the left side of an account is called a(n) ___________________.

debit

39.

Rent Revenue is increased by _________________ the account.

crediting

AICPA FN: Measurement Blooms: Understand Difficulty: 1 Easy Learning Objective: 03-04 Set up T accounts for revenue and expenses. Topic: Debits and Credits

40.

Another name for the profit and loss statement is the ____________________.

Income Statement

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-06 Prepare an income statement; a statement of owner's equity; and a balance sheet. Topic: Financial Statements

41.

The account Moriah Paige, _______________ would appear on both the Statement of Owner's Equity and the Balance Sheet.

Capital

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 03-06 Prepare an income statement; a statement of owner's equity; and a balance sheet. Topic: Financial Statements

42.

The order in which financial statements are prepared is determined by the fact that information from one is needed to prepare the next. Which statement is prepared last? ____________________.

Balance Sheet

AACSB: Analytic

AICPA BB: Industry AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 03-06 Prepare an income statement; a statement of owner's equity; and a balance sheet. Topic: Financial Statements

43.

In a Chart of Accounts, each category of accounts is given a __________ of numbers with gaps so that additional accounts can be added when needed.

series

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Blooms: Understand Difficulty: 2 Medium Learning Objective: 03-07 Develop a chart of accounts. Topic: Chart of Accounts

Multiple Choice Questions

44.

The classification and normal balance of the accounts receivable account is:

A. an asset with a credit balance B. a liability with a debit balance C. an asset with a debit balance D. a revenue with a debit balance

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-01 Set up T accounts for assets; liabilities; and owner's equity. Topic: Assets, Liabilities, Owner's Equity, Revenue, Expense Accounts

45.

The classification and normal balance of the salaries expense account is:

A. an expense with a credit balance B. a liability with a debit balance C. an asset with a debit balance D. an expense with a debit balance

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-04 Set up T accounts for revenue and expenses. Topic: Assets, Liabilities, Owner's Equity, Revenue, Expense Accounts

46.

A business earns $4,000 from various charge account clients. To record this transaction, the business would:

A. Debit Accounts Receivable; Credit Cash B. Debit Accounts Receivable; Credit Revenue C. Debit Cash; Credit Accounts Receivable D. Debit Accounts Payable; Credit Revenue

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement Accessibility: Keyboard Navigation

Blooms: Apply Difficulty: 1 Easy Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Topic: Business Transactions in Accounts

47.

Select the entry below that records paying employees for work performed during the pay period?

A. debit Cash and credit Salary Expense B. debit Salary Expense and credit Cash C. debit Salary Expense and credit Accounts Receivable D. debit Cash, and credit Accounts Receivable

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Topic: Business Transactions in Accounts

48.

A business receives a bill for utilities but decides to pay it next month. The business would record the receipt of the bill by:

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement Accessibility: Keyboard Navigation Blooms: Apply

Difficulty: 1 Easy Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Topic: Business Transactions in Accounts

49.

A business purchases equipment costing $4,000. They pay $1,500 right away and charge the remaining amount. To record this transaction, the business would:

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Topic: Business Transactions in Accounts

50.

A business performed $6,000 of services. Their customer paid $1,000 of the amount owed right away but charged the remaining amount. To record this transaction, the business would:

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement Accessibility: Keyboard Navigation Blooms: Apply 3-62 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Difficulty: 2 Medium Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Topic: Business Transactions in Accounts

51.

Which of the following entries records the withdrawal of cash for personal use by Ty Knott, the owner of a business?

A. debit Cash and credit Ty Knott, Capital B. debit Cash and credit Salary Expense C. debit Salary Expense and credit Cash D. debit Ty Knott, Drawing, and credit Cash

AACSB: Analytic AICPA BB: Industry Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Topic: Business Transactions in Accounts

52.

The ending capital balance appears on which of the following statement(s)?

A. Statement of owner's equity B. Income Statement C. Statement of owner's equity and balance sheet D. Statement of owner's equity and income statement

Topic: Financial Statements

53.

On a statement of owner's equity, beginning capital is $30,000, Net Income for the year is $11,000 and Drawing for the year is $6,000, the ending capital amount would be

A. $30,000. B. $35,000. C. $47,000. D. $25,000. Beginning Capital, $30,000 + Net Income, $11,000 - Drawing, $6,000 = Ending Capital, $35,000.

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 03-06 Prepare an income statement; a statement of owner's equity; and a balance sheet. Topic: Financial Statements

54.

A business purchases supplies on account. The entry to record this transaction is:

A. Debit to Cash; Credit Supplies B. Debit to Supplies; Credit Accounts Receivable C. Debit Supplies; Credit Accounts Payable D. Debit Supplies; Credit to Cash

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting

Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Topic: Business Transactions in Accounts

55.

Debits are used to record

A. increases in assets. B. increases in revenue. C. increases in owner's equity. D. increases in liabilities.

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-01 Set up T accounts for assets; liabilities; and owner's equity. Learning Objective: 03-04 Set up T accounts for revenue and expenses. Topic: Debits and Credits

56.

Which of the following represents the proper sequence for preparing the financial statements?

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 1 Easy Learning Objective: 03-06 Prepare an income statement; a statement of owner's equity; and a balance sheet. Topic: Financial Statements

57.

Which of the following is not one of the formal financial statements that is made available to all users of the financial statements.

A. Trial Balance B. Income Statement C. Statement of Owner's Equity D. Balance Sheet

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-05 Prepare a trial balance from T accounts. Learning Objective: 03-06 Prepare an income statement; a statement of owner's equity; and a balance sheet. Topic: Financial Statements Topic: Trial Balance

58.

A business pays a creditor on account. The entry to record this transaction is:

A. Debit Accounts Payable; Credit Cash B. Debit Accounts Receivable; Credit Accounts Payable C. Debit Cash; Credit Accounts Payable D. Debit Accounts Receivable; Credit to Cash

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting

Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Topic: Business Transactions in Accounts

59.

Credits are used to record

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 03-01 Set up T accounts for assets; liabilities; and owner's equity. Learning Objective: 03-04 Set up T accounts for revenue and expenses. Topic: Debits and Credits

60.

Debits are used to record increases in

A. assets and revenue. B. revenue and owner's equity. C. assets and expenses. D. assets and liabilities.

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation 3-67 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

61.

A firm paid cash to apply against a debt. To record this transaction, the accountant would

A. debit Accounts Receivable and credit Cash. B. debit Accounts Payable and credit Cash. C. debit Cash and credit Accounts Payable. D. credit Cash and credit Accounts Payable.

62.

When revenue is earned from charge-account sales, the accountant

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand 3-68 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Difficulty: 1 Easy Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Topic: Business Transactions in Accounts

63.

When charge customers pay cash to apply against their accounts, the amount is recorded

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Topic: Business Transactions in Accounts

64.

The total of the figures on the left side of a Cash account is $25,800. The total of the figures on the right side is $14,100. The balance of this account

65.

The account used to record increases in owner's equity from the sale of goods or services is

A. the revenue account. B. the Cash account. C. the capital account. D. the drawing account.

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy

Learning Objective: 03-01 Set up T accounts for assets; liabilities; and owner's equity. Learning Objective: 03-04 Set up T accounts for revenue and expenses. Topic: Debits and Credits

66.

Which of the following types of accounts normally have debit balances?

A. assets and revenue B. assets, liabilities, and owner's equity C. expenses and assets D. liabilities and owner's equity

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 03-01 Set up T accounts for assets; liabilities; and owner's equity. Learning Objective: 03-04 Set up T accounts for revenue and expenses. Topic: Debits and Credits

67.

Which of the following groups contain only accounts that normally have credit balances?

A. Accounts Receivable and Fees Income B. Salaries Expense and Accounts Payable C. Fees Income and John Smith, Capital D. Accounts Payable and Equipment

Topic: Debits and Credits

68.

If the trial balance totals are not equal, the error may have been caused by a transposition if the difference is divisible by

A. 2. B. 7. C. 9. D. 5.

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-05 Prepare a trial balance from T accounts. Topic: Trial Balance

69.

When the trial balance totals are not equal, the error may have been caused by recording a debit as a credit if the difference is divisible by

A. 2. B. 7. C. 9. D. 5.

70.

Which of the following increase owner's equity?

A. expenses B. revenue C. withdrawals D. receiving cash from customers

71.

If assets are numbered from 100-199, which of the following accounts would not be given a number in the 100 series?

A. Supplies B. Accounts Payable C. Prepaid Rent D. Accounts Receivable

Topic: Trial Balance

72.

Which of the following accounts is not a permanent account?

A. Cash B. Accounts Payable C. Salaries Expense D. Thomas Bernard, Capital

73.

The "Net Income" or "Net Loss" is transferred from the income statement to the

A. balance sheet. B. chart of accounts. C. statement of owner's equity. D. trial balance.

74.

The normal balance of an account is the

A. increase side of the account. B. decrease side of the account. C. the left side of the account. D. the right side of the account.

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-03 Determine the balance of an account. Topic: Debits and Credits

75.

Identify the accounts below that would ALL appear on the balance sheet.

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 03-06 Prepare an income statement; a statement of owner's equity; and a balance sheet. Topic: Financial Statements

76.

If a trial balance is not in balance (the Debit and Credit columns are not equal), a logical first step is to

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 03-05 Prepare a trial balance from T accounts. Topic: Trial Balance

77.

The Net Income amount from the Income Statement is transferred to which of the following statements?

A. the profit and loss statement B. the statement of owner's equity C. the balance sheet D. the trial balance

78.

The ending balance of the capital account appears as a separate line item on what two statements?

79.

Which of the following accounts is NOT a nominal account?

A. Salaries Expense B. Moriah Paige, Drawing C. Rent Revenue D. Office Supplies

80.

An accounting system that involves recording the effects of each transaction as debits and credits is

A. completing one T account. B. the double-entry system. C. preparing financial statements. D. analyzing a business transaction.

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Topic: Business Transactions in Accounts

81.

Which of the following does NOT describe a transposition?

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 03-05 Prepare a trial balance from T accounts. Learning Objective: 03-08 Define the accounting terms new to this chapter. Topic: Business Transactions in Accounts Topic: Chart of Accounts

82.

Which of the following would result in an error when preparing the Trial Balance?

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 03-05 Prepare a trial balance from T accounts. Topic: Trial Balance

83.

Which of the following would cause the Trial Balance to be out of balance?

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 03-05 Prepare a trial balance from T accounts. Topic: Trial Balance

84.

Which of the following would cause the Debit column and the Credit column of the Trial Balance to be unequal?

Short Answer Questions

85.

Read each of the following transactions. Determine the accounts to be debited and credited. Cash Accounts Receivable Office Equipment Office Supplies Accounts Payable Brandon Phipps, Capital Brandon Phipps, Drawing Fees Income Rent Expense Salaries Expense Utilities Expense Performed services for cash

Debit Cash; credit Fees Income

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 1 Easy Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Topic: Business Transactions in Accounts

86.

Debit Office Equipment; credit Accounts Payable

87.

Debit Cash; credit Accounts Receivable

88.

Debit Accounts Payable; credit Cash

89.

Debit Accounts Receivable; credit Fees Income

90.

Debit Accounts Payable; credit Office Equipment

91.

Debit Salaries Expense; credit Cash

92.

The consulting firm of Martin and Associates uses the accounts listed below. On a separate sheet of paper, set up T accounts for each of the accounts listed and record the balances on the normal balance side of the accounts.

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement

AICPA FN: Reporting Blooms: Create Difficulty: 2 Medium Learning Objective: 03-01 Set up T accounts for assets; liabilities; and owner's equity. Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Learning Objective: 03-03 Determine the balance of an account. Learning Objective: 03-04 Set up T accounts for revenue and expenses. Learning Objective: 03-05 Prepare a trial balance from T accounts. Topic: Business Transactions in Accounts Topic: Trial Balance

93.

The account balances from the December 31, 2016, trial balance for Haman Accounting Services are shown below. Prepare an income statement, a statement of owner's equity, and a balance sheet for the month ended December 31, 2016.

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Create Difficulty: 3 Hard Learning Objective: 03-06 Prepare an income statement; a statement of owner's equity; and a balance sheet. Topic: Financial Statements

94. The accounts and balances for Paw Prints Pet Sitters on November 1 are provided below.

Feedback:

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 03-01 Set up T accounts for assets; liabilities; and owner's equity. Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Learning Objective: 03-03 Determine the balance of an account. Learning Objective: 03-04 Set up T accounts for revenue and expenses. Topic: Assets, Liabilities, Owner's Equity, Revenue, Expense Accounts Topic: Debits and Credits

95.

The accounts and balances for Paw Prints Pet Sitters on November 1 are provided below.

The following transactions occurred during the month of November. a. Collected $350 from credit customers b. Issued a check for $700 for rent c. Paid $1,900 for salaries d. The owner withdrew $500 in cash for personal expenses e. Issued a check for $200 to pay the monthly utility bill f. Received $2,845 in cash for services performed g. Purchased office equipment for $1,350 on credit Using the information shown, prepare a trial balance for Paw Prints Pet Sitters at November 30, 2016.

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Create Difficulty: 2 Medium Learning Objective: 03-05 Prepare a trial balance from T accounts. Topic: Trial Balance

96.

The accounts and balances for Paw Prints Pet Sitters on November 1 are provided below.

The following transactions occurred during the month of November. a. Collected $350 from credit customers b. Issued a check for $700 for rent c. Paid $1,900 for salaries d. The owner withdrew $500 in cash for personal expenses e. Issued a check for $200 to pay the monthly utility bill f. Received $2,845 in cash for services performed g. Purchased office equipment for $1,350 on credit Using the information shown, prepare an income statement, statement of owner's equity, and balance sheet for Paw Prints Pet Sitters for the month ended November 30, 2016.

97.

Conway Copy Shop is owned and operated by Gerald Conway. The shop's accounts are presented below. Review the transactions presented and determine the appropriate debits and credits to the affected accounts.

Purchased copier equipment for $8,500 in cash

Debit Copier Equipment $8,500; credit Cash $8,500

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Topic: Business Transactions in Accounts

98.

Received $1,200 in cash for copy services

Debit Cash $1,200; credit Fees Income $1,200

99.

Paid $6,000 in cash for the next six months' rent

Debit Prepaid Rent $6,000; credit Cash $6,000

100.

Purchased office supplies for $250 on credit

Debit Office Supplies $250; credit Accounts Payable $250

101.

Issued a check for $3,400 to pay salaries

Debit Salaries Expense $3,400; credit Cash $3,400

102.

Issued a check for $250 to pay creditor for office supplies

Debit Accounts Payable $250; credit Cash $250

103.

Gerald Conway makes an additional investment of $2,800 in cash to his business

Debit Cash $2,800; credit G. Conway, Capital $2,800

104.

The accounts with their respective balances for Dom's Delivery Service as of June 1 are given below. All accounts have normal balances.

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Create Difficulty: 3 Hard Learning Objective: 03-01 Set up T accounts for assets; liabilities; and owner's equity. Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Learning Objective: 03-03 Determine the balance of an account. Learning Objective: 03-04 Set up T accounts for revenue and expenses. Learning Objective: 03-05 Prepare a trial balance from T accounts. Topic: Business Transactions in Accounts Topic: Trial Balance

105.

The accounts with their respective balances for Dom's Delivery Service as of June 1 are given below. All accounts have normal balances.

Dom's had the following transactions during the month of June. a. Paid rent for June, $1,000 b. Dominic Goggin withdrew $4,500 from the business for personal use c. Performed services for $4,000 in cash d. Performed services for $22,750 on credit e. Received $12,000 from credit customers on account f. Paid the administrative assistant salary of $2,000 and delivery service messenger/driver salary of $3,000 for the month by check g. Paid the electric and phone bills by check for a total of $600 h. Paid creditors $6,000 on account i. Purchased $7,500 in supplies on account j. Paid $1,800 cash for advertising in the local newspaper in June Using the information shown, create Chart of Accounts numbers for the accounts given for Dom's Delivery Service.

Note: Student answers will vary. Look for basic numbering blocks with categories in the same block. Whether or not titles are required is at the instructor's discretion.

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Blooms: Create Difficulty: 2 Medium Learning Objective: 03-07 Develop a chart of accounts. Topic: Chart of Accounts

106.

The T account balances for the accounts of Rya's Planning Services as of January 31, 2016 are listed below.

Using the information given for Rya's Planning Services, create a Trial Balance as of January 31, 2016.

107.

The T account balances for the accounts of Rya's Planning Services as of January 31, 2016 are listed below.

Using the information given for Rya's Planning Services, create an Income Statement, Statement of Owner's Equity, and Balance Sheet for January 2016.

108.

Required: Using the chart of accounts for Smart Consulting Services below, enter the account no. of the account being debited for each of the listed transactions.

Account No. of Account debited 1. 101 2. 101 3. 110 4. 180 5. 201 6. 109 7. 105 8. 101 9. 510

10. 311

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 03-01 Set up T accounts for assets; liabilities; and owner's equity. Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Learning Objective: 03-03 Determine the balance of an account. Learning Objective: 03-04 Set up T accounts for revenue and expenses. Topic: Business Transactions in Accounts

109.

The balances for the accounts listed below appear in the trial balance of Bubbles, Inc. Identify whether each balance would appear on the Income Statement (IS), the Balance Sheet (BS) or the Statement of Owner's Equity (OE), by entering the appropriate letters in the spaces below. (There is only one correct answer for each)

(1) I/S (2) I/S (3) B/S (4) I/S (5) B/S (6) O/E (7) B/S (8) B/S (9) B/S (10) B/S

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Blooms: Understand Difficulty: 2 Medium Learning Objective: 03-06 Prepare an income statement; a statement of owner's equity; and a balance sheet. Topic: Financial Statements

Chapter 04 The General Journal and the General Ledger

True / False Questions

1. When transactions are entered in a general journal, the asset accounts are listed first, followed by the liability and owner's equity accounts. True

False

2. When a transaction is entered in a general journal, the first account title is indented about half an inch from the left margin of the Description column. True

False

3. A ledger account contains a complete record of the individual transaction activity in each account. True

False

4. Account names are written in the general journal exactly as they appear in the chart of accounts. True

False

5. Transactions are entered in the journal in chronological order. True

False

6. A journal entry can consist of no more than one account to be debited and one account to be credited. True

False

7. A ledger is sometimes referred to as a record of original entry. True

False

8. Transactions are recorded in either a journal or a ledger, but not in both. True

False

9. An amount debited to Cash in a journal entry should be posted as a credit to the Cash account in the ledger. True

False

10. The balance ledger form always shows the current balance of an account. True

False

11. Posting references are part of the audit trail. True

False

12. The revenue accounts come before the expense accounts in the general ledger. True

False

13. Posting references provide a useful cross-reference when entries must be traced and verified. True

False

14. If a journal entry that contains an error has already been posted, a correcting entry should be journalized and posted. True

False

15. If an error is discovered before the entry is posted, the incorrect amount can be erased and the correct amount recorded. True

False

Fill in the Blank Questions

16. When a transaction is entered in the general journal, the account to be _________________ is always recorded first in the Description column. ________________________________________ 17. A description should accompany each entry made in the ____________________ journal. ________________________________________ 18. A journal is referred to as a record of ____________________ entry. ________________________________________ 19. The effects of each transaction are recorded in a financial record called a(n) ____________________. ________________________________________ 20. The process of recording transactions in a journal is referred to as ____________________. ________________________________________ 21. A journal entry containing more than one debit or more than one credit is called a(n) ____________________ entry. ________________________________________

22. The ledger is referred to as the record of ____________________ entry. ________________________________________ 23. The number of the ____________________ is recorded in the Posting Reference column of the journal. ________________________________________ 24. The process of transferring data from a journal to a ledger is known as ____________________. ________________________________________ 25. Notations that allow transactions to be quickly and easily traced from the journal to the ledger or from the ledger to the journal are called ____________________ references. ________________________________________ 26. The number of the ____________________ is recorded in the Posting Reference column of the ledger account. ________________________________________ 27. A(n) ____________________ entry is recorded when there is an error in data that has been journalized and posted. ________________________________________

Multiple Choice Questions

28. Which of the following statements is NOT correct?

A. The description of a journal entry should include a reference to the source of the information contained in the entry. B. If goods are purchased on credit, the supplier's invoice number is used as the source document for the transaction. C. The credit portion of a general journal entry is always recorded first. D. A firm should be able to trace amounts through the accounting records and back to their source documents. 29. Transactions in a journal are initially recorded in

A. account number order. B. alphabetical order. C. chronological order. D. dollar amount order. 30. When an entry is made in the general journal,

A. assets should be listed first. B. accounts to be debited should be listed first. C. accounts to be increased should be listed first. D. accounts may be listed in any order.

32. The journal entry to record the sale of services on credit should include

A. a debit to Utilities Expense and a credit to Capital. B. a debit to Capital and a credit to Cash. C. a debit to Utilities Expense and a credit to Cash. D. a debit to Utilities Expense and a credit to Accounts Payable. 35. When recording a business transaction into the journal, certain steps are followed. Identify the statement below that is CORRECT regarding the journalizing process.

36. The journal entry to record the performance of services for cash would include

A. a debit to Cash and a credit to Fees Income. B. a debit to Fees Income and a credit to Cash. C. a debit to Cash and a credit to Accounts Receivable. D. a debit to Accounts Receivable and a credit to Cash. 38. The journal entry to record the withdrawal of cash by Sue Snow, the owner, to pay a personal utility bill would include

A. a debit to Sue Snow, Capital, and a credit to Cash. B. a debit to Utilities Expense and a credit to Cash. C. a debit to Sue Snow, Drawing and a credit to Cash. D. a debit to Sue Snow, Drawing and a credit to Utilities Expense. 39. The journal entry to record a payment made in January for rent for the months of February and March would include

40. The journal entry to record the payment of salaries should include

A. source document B. general ledger C. journal D. trial balance

44. Business papers, such as checks, invoices, receipts, letters, and memos, that furnish proof that a transaction has taken place are called

A. ledgers. B. source documents. C. debit entries. D. accounts. 45. The owner of the business would like to see both the debit and credit entry for a specific transaction, he would look in

A. the chart of accounts. B. the journal. C. the source document. D. the ledger. 46. A purchase of office equipment for $380 cash is journalized as:

A. Debit Office Equipment; Credit Accounts Payable B. Debit Office Equipment; Credit Cash C. Debit Equipment Expense; Credit Cash D. Debit Cash; Credit Office Equipment 47. The process of transferring the data from the journal to the general ledger is called:

A. footing B. posting C. transposing D. journalizing

48. The journal entry to record $2,450 of revenue earned and received in cash by Agatha Panthis Landscape Architect Company is:

A. Debit Fees Income; Credit Accounts Receivable B. Debit Cash; Credit Fees Income C. Debit Fees Income; Credit Cash D. Debit Accounts Receivable; Credit Fees Income 49. The journal entry to record the payment of salaries for the month is:

A. Debit Salaries; Credit Accounts Payable B. Debit Cash; Credit Salaries Expense C. Debit Salaries Expense; Credit Cash D. Debit Cash; Credit Salaries Payable 50. Anna Conda Landscaping service received a bill for the utilities used during September. The bill will be paid in October. The journal entry to record the utility bill received is:

A. Debit Utilities Expense; Credit Accounts Payable B. Debit Cash; Credit Utilities Expense C. Debit Utilities Expense; Credit Cash D. Debit Accounts Payable; Credit Cash 51. Which of the following statements is CORRECT?

52. On June 1, XYZ Inc. paid $400 to its landlord for rent for the current month. The journal entry to record this transaction is:

53. On December 5, Honor Consulting Services issued a check to purchase $800 in office supplies. The journal entry to record this transaction is:

54. The journal entry to record the purchase of equipment for a $100 cash down payment and a balance of $400 due in 30 days would include

A. a debit to Equipment for $100 and a credit to Cash for $100. B. a debit to Equipment for $500, a credit to Cash for $100, and a credit to Accounts Payable for $400. C. a debit to Equipment for $100 and a credit to Accounts Payable for $400. D. debit to Equipment for $500 and a credit to Cash for $500. 55. A company purchased equipment costing $15,000. They paid $1,000 right away and agreed to pay the balance in 30 days, the journal entry to record the purchase of equipment would include

A. a debit to Equipment for $15,000 and a credit to Cash for $15,000. B. a debit to Equipment for $1,000 and a credit to Cash for $1,000. C. a debit to Equipment for $14,000 and a credit to Accounts Payable for $14,000. D. a debit to Equipment for $15,000, a credit to Cash for $1,000 and a credit to Accounts Payable for $14,000. 56. ABC Co. performed $5,000 of consulting work. Their customer paid them $1,500 right away and agreed to pay the balance in 30 days. Select the correct journal entry from the options below to record the transaction:

57. On December 10, Yummy Catering purchased a new oven costing $10,000. They issued a check a check for $2,000 and promised to pay the balance in 30 days. The journal entry to record this transaction is:

58. When recording a business transaction into the general ledger, certain steps are followed. Identify the statement below that is NOT CORRECT regarding this process.

A. The process of transferring data from the journal to the ledger is called posting. B. All transactions are recorded first in the general journal and then they are transferred to the general ledger. C. All transactions are recorded first in the general ledger and then they are transferred to the journal. D. After posting a transaction, the new balance in an account can be seen in the general ledger. 59. The general ledger accounts are usually arranged in the following order:

60. The Accounts Payable account has a $3,000 credit balance. An entry for the payment of $1,000 on the amount owed is recorded and posted. The new balance of the Accounts Payable account is

A. a $2,000 credit balance. B. a $4,000 credit balance. C. a $2,000 debit balance. D. a $4,000 debit balance. 61. On December 1, the Accounts Receivable account had a $5,000 balance. The business received $400 during the month from its charge-account customer. After posting this transaction, the new balance in the Accounts Receivable account is

A. a $4,600 credit balance. B. a $4,600 debit balance. C. a $5,400 debit balance. D. a $5,400 credit balance. 62. The Cash account has a $15,000 debit balance. A $5,000 credit entry and a $7,000 debit entry are posted to the account. The final balance of the Cash account is

A. a $3,000 debit balance. B. a $27,000 debit balance. C. a $13,000 debit balance. D. a $17,000 debit balance. 63. The account numbers from the ledger are recorded in the Posting Reference column of the general journal

A. as the transaction is journalized. B. after each amount is posted. C. after all entries on the journal page have been posted. D. as the first amount written in the journal.

64. The Posting Reference column of a journal is used to

A. The general ledger contains the accounts that are used to prepare the financial statements. B. Some companies use the general ledger instead of a general journal. C. When entries are posted from the general journal to the general ledger, the account number is written in the Posting Reference column in the general ledger. D. When entries are posted from the general journal to the general ledger, the page number is written in the Posting Reference column in the general journal. 66. If a journal entry that contains an error has already been posted,

67. A firm purchased telephone equipment for cash. By mistake, the person who recorded the transaction debited Utilities Expense instead of Office Equipment. The error was discovered after the data posted. The correcting entry should contain

A. a debit to Office Equipment and a credit to Cash. B. a debit to Office Equipment and a credit to Utilities Expense. C. a debit to Cash and a credit to Office Equipment. D. a debit to Utilities Expense and a credit to Cash. 68. Bertrand Inc. performed services for clients in the amount of $1,350 on credit. If this transaction had been posted in error to the Cash account instead of the Accounts Receivable account, what correcting entry would be necessary?

A. Debit Accounts Receivable $1,350; credit Cash $1,350 B. Debit Cash $1,350; credit Accounts Receivable $1,350 C. Debit Accounts Receivable $1,350; credit Fees Income $1,350 D. Debit Fees Income $1,350; credit Cash $1,350 69. Bertrand Inc. purchased some shop equipment for $4,500 in cash. By mistake, the journal entry debited the Office Equipment account rather than the Shop Equipment account. What correcting entry would be necessary?

70. Which of the following statements is CORRECT?

Essay Questions

71. For each of the accounts listed below, enter the words, Increase or Decrease, in the Debit and Credit columns to indicate the effects of each on the account balance. The first row has been completed for reference.

72. For each of the accounts listed below, enter the words, Increase or Decrease, the Debit and Credit columns to indicate the effects of each on the account balance. The first row has been completed for reference.

73. For each of the accounts listed below, enter the words, Increase or Decrease, the Debit and Credit columns to indicate the effects of each on the account balance.

74. Indicate how each of the following would be reflected in the journal entry required to record the effects described by using debit or credit to indicate the increase or decrease in each affected account.

75. Indicate how each of the following would be reflected in the journal entry required to record the effects described by using debit or credit to indicate the increase or decrease in each affected account.

76. Indicate how each of the following would be reflected in the journal entry required to record the effects described by using debit or credit to indicate the increase or decrease in each affected account.

77. Determine the accounts and amounts to be debited and credited for the following transactions for Madison's Clock Repair. A. Purchased new equipment for $1,700 by issuing a check for $1,000 as a down payment with the balance due in 30 days. B. Issued checks for $2,400 to pay the employees their monthly salaries. C. Issued a check for $700 to pay a creditor on account. D. Purchased supplies for $200 cash. E. Provided services for $6,800 on credit. F. Returned damaged supplies and received a $50 cash refund. G. Issued a check for $100 to pay the monthly telephone bill.

78. Determine the accounts and amounts to be debited and credited for the following transactions for Folk Furniture Repair. A. Issued a check for $950 to pay the monthly rent. B. Purchased $130 worth of supplies on credit. C. The owner made an additional investment of $5,000 in cash. D. Sent a $75 check to the utility company to pay the monthly bill. E. Performed services for cash in the amount of $1,200. F. Provided services on credit in the amount of $800. G. Purchased new equipment for $300 and paid for it immediately by check. H. Issued a $1,000 check to pay a creditor on account. I. Collected $500 from credit customers.

79. Determine the accounts and amounts to be debited and credited for the following transactions for Monroe's Auto Repair. A. Marilyn Monroe invested $50,000 in cash to start the firm. B. Issued check for $4,000 to pay the rent for current month. C. Purchased an automobile that will be used to visit clients; issued check for $32,500 in full payment. D. Purchased supplies for $800; paid immediately by check. E. Purchased office equipment for $18,500 on credit from Denton, Inc.; received invoice, payable in 30 days. F. Performed services for $2,580 in cash. G. Returned damaged supplies for a cash refund of $50. H. Issued check for $15,600 to Denton, Inc., as payment on account. I. Paid $120 for monthly telephone bill by check. J. Withdrew $500 in cash for personal expenses.

80. The accounts with identification letters for Orly Delivery Services are listed below.

During the current month, the company completed the transactions listed below. Indicate the appropriate journal entry that needs to be recorded for each transaction by providing the account letter and amount. Some entries may need more than one debit and/or more than one credit. The first transaction is completed as an example.

81. The accounts with identification letters for Smart Delivery Services are listed below.

82. The accounts with identification letters for Sealy Delivery Services are listed below.

83. The accounts with identification letters for Able Delivery Services are listed below.

During the January, the company completed the transactions listed below. Indicate the appropriate journal entry that needs to be recorded for each transaction by providing the account letter and amount. Some entries may need more than one debit and/or more than one credit. The first transaction is completed as an example.

84. Antonio Baldez operates a delivery service. During the month of April, the firm had the following transactions. Record these transactions on page 5 of a general journal. Omit the descriptions.

85. Maria Sanchez operates a typing service. During the month of July, the first month of operations, the firm had the following transactions. Record these transactions on page 5 of a general journal. Omit the descriptions.

86. Lourdes Yabar opened a computer repair business on May 1, 2016. During the first month of operations, the firm had the following transactions. Record these transactions on page 1 of the general journal. Omit the descriptions. Set up a Cash general ledger account and post the appropriate transactions to this account, account 101.

87. Global Delivery opened for business on July 1, 2016. The company uses the general ledger accounts listed below. During the first month of business, the firm had the transactions listed below. Record the transactions on page 1 of a general journal. Omit descriptions. Set up a Cash general ledger account and post the appropriate transactions to this account, account 101.

88. The following errors in recording the transactions for June were discovered in the general journal the next month after the data had been posted to the ledger. Record the necessary correcting entries on page 2 of a general journal. Omit the descriptions.

89. The following errors in recording the transactions for December were discovered in the general journal the next month after the data had been posted to the ledger. Record the necessary correcting entries on page 12 of a general journal. Omit the descriptions.

Matching Questions

90. Match the accounting terms with the description.

1. A journal entry made to correct an

General

erroneous entry

journal ____

2. A financial record for entering all types of business transactions; a record of original entry

Posting ____ Accounting

3. Recording transactions in a journal

cycle ____

4. Organized in the order in which the events

General

occur

ledger ____

5. The record of final entry

Journalizing ____

6. A ledger account form that shows the balance of the account after each entry is posted

Balance ledger form ____ Compound

7. The record of original entry

entry ____

8. A chain of references that makes it possible to trace information, locate errors, and prevent fraud

Chronological order ____

9. A permanent, classified record of all accounts used in a firm's operation; a record of final entry

Audit trail ____

10. Transferring data from a journal to a

Correcting

ledger

entry ____

11. A series of steps performed during each accounting period to classify, record, and summarize data for a business and to produce needed financial information

Journal ____

12. A journal entry with more than one debit or credit

Ledger ____

Chapter 04 The General Journal and the General Ledger Answer Key

True / False Questions

When transactions are entered in a general journal, the asset accounts are listed first, followed by the liability and owner's equity accounts. FALSE AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 04-01 Record transactions in the general journal. Topic: Journal Entries

When a transaction is entered in a general journal, the first account title is indented about half an inch from the left margin of the Description column. FALSE AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 04-01 Record transactions in the general journal. Topic: Journal Entries

A ledger account contains a complete record of the individual transaction activity in each account. TRUE AACSB: Analytic

AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 04-03 Post journal entries to general ledger accounts. Topic: Accounting Records

Account names are written in the general journal exactly as they appear in the chart of accounts. TRUE AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 04-01 Record transactions in the general journal. Topic: Accounting Records

Transactions are entered in the journal in chronological order. TRUE AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 04-01 Record transactions in the general journal. Topic: Accounting Records

A journal entry can consist of no more than one account to be debited and one account to be credited. FALSE AACSB: Analytic AICPA BB: Industry 4-38 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 04-02 Prepare compound journal entries. Topic: Journal Entries

A ledger is sometimes referred to as a record of original entry. FALSE AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 04-03 Post journal entries to general ledger accounts. Topic: Accounting Records

Transactions are recorded in either a journal or a ledger, but not in both. FALSE AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 04-03 Post journal entries to general ledger accounts. Topic: Accounting Records

An amount debited to Cash in a journal entry should be posted as a credit to the Cash account in the ledger. FALSE AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation 4-39 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Blooms: Understand Difficulty: 1 Easy Learning Objective: 04-03 Post journal entries to general ledger accounts. Topic: Journal Entries Topic: Posting Journal Entries to General Ledger

10.

The balance ledger form always shows the current balance of an account. TRUE AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 04-03 Post journal entries to general ledger accounts. Topic: Accounting Records

11.

Posting references are part of the audit trail. TRUE AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 04-01 Record transactions in the general journal. Topic: Accounting Records

12.

The revenue accounts come before the expense accounts in the general ledger. TRUE AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium 4-40 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Learning Objective: 04-03 Post journal entries to general ledger accounts. Topic: Accounting Records

13.

Posting references provide a useful cross-reference when entries must be traced and verified. TRUE AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 04-03 Post journal entries to general ledger accounts. Topic: Accounting Records

14.

If a journal entry that contains an error has already been posted, a correcting entry should be journalized and posted. TRUE AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 04-04 Correct errors made in the journal or ledger. Topic: Correcting Errors

15.

If an error is discovered before the entry is posted, the incorrect amount can be erased and the correct amount recorded. FALSE AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making AICPA FN: Measurement AICPA FN: Reporting

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 04-04 Correct errors made in the journal or ledger. Topic: Correcting Errors

Fill in the Blank Questions

16.

When a transaction is entered in the general journal, the account to be _________________ is always recorded first in the Description column. debited AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Remember Difficulty: 2 Medium Learning Objective: 04-01 Record transactions in the general journal. Topic: Journal Entries

17.

A description should accompany each entry made in the ____________________ journal. general AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 04-01 Record transactions in the general journal. Topic: Journal Entries

18.

A journal is referred to as a record of ____________________ entry. original AACSB: Analytic

AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Remember Difficulty: 2 Medium Learning Objective: 04-01 Record transactions in the general journal. Topic: Accounting Records

19.

The effects of each transaction are recorded in a financial record called a(n) ____________________. journal AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Remember Difficulty: 2 Medium Learning Objective: 04-01 Record transactions in the general journal. Topic: Accounting Records

20.

The process of recording transactions in a journal is referred to as ____________________. journalizing AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 04-01 Record transactions in the general journal. Learning Objective: 04-05 Define the accounting terms new to this chapter. Topic: Journal Entries

21.

A journal entry containing more than one debit or more than one credit is called a(n) ____________________ entry. compound AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting 4-43 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Blooms: Remember Difficulty: 1 Easy Learning Objective: 04-02 Prepare compound journal entries. Learning Objective: 04-05 Define the accounting terms new to this chapter. Topic: Journal Entries

22.

The ledger is referred to as the record of ____________________ entry. final AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Remember Difficulty: 2 Medium Learning Objective: 04-03 Post journal entries to general ledger accounts. Learning Objective: 04-05 Define the accounting terms new to this chapter. Topic: Accounting Records

23.

The number of the ____________________ is recorded in the Posting Reference column of the journal. ledger account AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Remember Difficulty: 2 Medium Learning Objective: 04-03 Post journal entries to general ledger accounts. Topic: Accounting Records Topic: Posting Journal Entries to General Ledger

24.

The process of transferring data from a journal to a ledger is known as ____________________. posting AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Remember 4-44 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Difficulty: 1 Easy Learning Objective: 04-03 Post journal entries to general ledger accounts. Learning Objective: 04-05 Define the accounting terms new to this chapter. Topic: Accounting Records Topic: Posting Journal Entries to General Ledger

25.

Notations that allow transactions to be quickly and easily traced from the journal to the ledger or from the ledger to the journal are called ____________________ references. posting AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Remember Difficulty: 2 Medium Learning Objective: 04-03 Post journal entries to general ledger accounts. Topic: Accounting Records Topic: Posting Journal Entries to General Ledger

26.

The number of the ____________________ is recorded in the Posting Reference column of the ledger account. journal page AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Remember Difficulty: 2 Medium Learning Objective: 04-03 Post journal entries to general ledger accounts. Topic: Accounting Records Topic: Posting Journal Entries to General Ledger

27.

A(n) ____________________ entry is recorded when there is an error in data that has been journalized and posted. correcting AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement

AICPA FN: Reporting Blooms: Remember Difficulty: 2 Medium Learning Objective: 04-04 Correct errors made in the journal or ledger. Learning Objective: 04-05 Define the accounting terms new to this chapter. Topic: Correcting Errors

Multiple Choice Questions

28.

Which of the following statements is NOT correct?

A. The description of a journal entry should include a reference to the source of the information contained in the entry. B. If goods are purchased on credit, the supplier's invoice number is used as the source document for the transaction. C. The credit portion of a general journal entry is always recorded first. D. A firm should be able to trace amounts through the accounting records and back to their source documents. AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 04-01 Record transactions in the general journal. Topic: Accounting Records

29.

Transactions in a journal are initially recorded in

A. account number order. B. alphabetical order. C. chronological order. D. dollar amount order. AACSB: Analytic 4-46 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 04-01 Record transactions in the general journal. Topic: Accounting Records

30.

When an entry is made in the general journal,

A. the accounts to be credited should be indented. B. the first account entered should be indented. C. liability, capital, and revenue accounts should be indented. D. asset accounts should be indented. AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 04-01 Record transactions in the general journal. Topic: Journal Entries

31.

When an entry is made in the general journal,

A. assets should be listed first. B. accounts to be debited should be listed first. C. accounts to be increased should be listed first. D. accounts may be listed in any order. AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 04-01 Record transactions in the general journal. Topic: Journal Entries 4-47 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

32.

The journal entry to record the sale of services on credit should include

A. a debit to Accounts Receivable and a credit to Capital. B. a debit to Cash and a credit to Accounts Receivable. C. a debit to Fees Income and a credit to Accounts Receivable. D. a debit to Accounts Receivable and a credit to Fees Income. AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 04-01 Record transactions in the general journal. Topic: Journal Entries

33.

If a transaction is properly analyzed and recorded,

A. only two accounts will be used to record the transaction. B. one account balance will increase and another will decrease. C. one asset account will be debited and one liability account will be credited. D. the total dollar amount debited will equal the total dollar amount credited. AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 04-01 Record transactions in the general journal. Learning Objective: 04-02 Prepare compound journal entries. Topic: Journal Entries

34.

The journal entry to record the payment of a monthly utility bill would include

A. a debit to Utilities Expense and a credit to Capital. B. a debit to Capital and a credit to Cash. C. a debit to Utilities Expense and a credit to Cash. D. a debit to Utilities Expense and a credit to Accounts Payable. AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 04-01 Record transactions in the general journal. Topic: Journal Entries

35.

When recording a business transaction into the journal, certain steps are followed. Identify the statement below that is CORRECT regarding the journalizing process.

A. An explanation is indented and entered on the line underneath the last credit in the entry. B. All transactions are recorded first in the general ledger and then they are journalized in the journal. C. All credited accounts are listed first and then all debited accounts are indented and listed on the next lines. D. No dates are used in the journal. AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 04-01 Record transactions in the general journal. Topic: Journal Entries

36.

The journal entry to record the performance of services for cash would include

A. a debit to Cash and a credit to Fees Income. B. a debit to Fees Income and a credit to Cash. C. a debit to Cash and a credit to Accounts Receivable. D. a debit to Accounts Receivable and a credit to Cash. AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 04-01 Record transactions in the general journal. Topic: Journal Entries

37.

The journal entry to record the receipt of cash from credit clients on account would include

A. a debit to Cash and a credit to Fees Income. B. a debit to Fees Income and a credit to Cash. C. a debit to Cash and a credit to Accounts Receivable. D. a debit to Accounts Receivable and a credit to Cash. AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 04-01 Record transactions in the general journal. Topic: Journal Entries

38.

The journal entry to record the withdrawal of cash by Sue Snow, the owner, to pay a personal utility bill would include

A. a debit to Sue Snow, Capital, and a credit to Cash. B. a debit to Utilities Expense and a credit to Cash. C. a debit to Sue Snow, Drawing and a credit to Cash. D. a debit to Sue Snow, Drawing and a credit to Utilities Expense. AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 04-01 Record transactions in the general journal. Topic: Journal Entries

39.

The journal entry to record a payment made in January for rent for the months of February and March would include

A. a debit to Sue Snow, Capital, and a credit to Cash. B. a debit to Rent Expense and a credit to Cash. C. a debit to Prepaid Rent and a credit to Cash. D. a debit to Sue Snow, Drawing and a credit to Rent Expense. AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 04-01 Record transactions in the general journal. Topic: Journal Entries

40.

The journal entry to record the payment of salaries should include

A. a debit to Salaries Expense and a credit to Cash. B. a debit to Capital and a credit to Cash. C. a debit to Cash and a credit to Salaries Expense. D. a debit to Salaries Expense and a credit to Accounts Payable. AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 04-01 Record transactions in the general journal. Topic: Journal Entries

41.

Identify the entry below that records the acquisition of office supplies on account.

A. debit Office Supplies; credit Cash B. debit Office Supplies; credit Accounts Receivable C. debit Accounts Payable; credit Office Supplies D. debit Office Supplies; credit Accounts Payable AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 04-01 Record transactions in the general journal. Topic: Journal Entries

42.

On July 3, the ABC Company received $865 in cash on account from customers. The correct journal entry is

A. debit Cash, $865; credit Income from Services, $865 B. debit Cash, $865; credit Accounts Payable, $865 C. debit Accounts Receivable, $865; credit Cash, $865 D. debit Cash, $865; credit Accounts Receivable, $865 AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 04-01 Record transactions in the general journal. Topic: Journal Entries

43.

The first place a transaction is recorded is in the:

A. source document B. general ledger C. journal D. trial balance AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 04-01 Record transactions in the general journal. Topic: Accounting Records Topic: Journal Entries

44.

Business papers, such as checks, invoices, receipts, letters, and memos, that furnish proof that a transaction has taken place are called

A. ledgers. B. source documents. C. debit entries. D. accounts. AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 04-01 Record transactions in the general journal. Topic: Accounting Records

45.

The owner of the business would like to see both the debit and credit entry for a specific transaction, he would look in

A. the chart of accounts. B. the journal. C. the source document. D. the ledger. AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 04-01 Record transactions in the general journal. Topic: Accounting Records Topic: Journal Entries

46.

A purchase of office equipment for $380 cash is journalized as:

A. Debit Office Equipment; Credit Accounts Payable B. Debit Office Equipment; Credit Cash C. Debit Equipment Expense; Credit Cash D. Debit Cash; Credit Office Equipment AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 04-01 Record transactions in the general journal. Topic: Journal Entries

47.

The process of transferring the data from the journal to the general ledger is called:

A. footing B. posting C. transposing D. journalizing AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 04-03 Post journal entries to general ledger accounts. Learning Objective: 04-05 Define the accounting terms new to this chapter. Topic: Accounting Records Topic: Posting Journal Entries to General Ledger

48.

The journal entry to record $2,450 of revenue earned and received in cash by Agatha Panthis Landscape Architect Company is:

A. Debit Fees Income; Credit Accounts Receivable B. Debit Cash; Credit Fees Income C. Debit Fees Income; Credit Cash D. Debit Accounts Receivable; Credit Fees Income AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 04-01 Record transactions in the general journal. Topic: Journal Entries

49.

The journal entry to record the payment of salaries for the month is:

A. Debit Salaries; Credit Accounts Payable B. Debit Cash; Credit Salaries Expense C. Debit Salaries Expense; Credit Cash D. Debit Cash; Credit Salaries Payable AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 04-01 Record transactions in the general journal. Topic: Journal Entries

50.

Anna Conda Landscaping service received a bill for the utilities used during September. The bill will be paid in October. The journal entry to record the utility bill received is:

A. Debit Utilities Expense; Credit Accounts Payable B. Debit Cash; Credit Utilities Expense C. Debit Utilities Expense; Credit Cash D. Debit Accounts Payable; Credit Cash AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 04-01 Record transactions in the general journal. Topic: Journal Entries

51.

Which of the following statements is CORRECT?

A. All transactions require compound entries. B. Compound entries include only debits. C. Accounts being debited should always follow the accounts being credited in a compound entry. D. Compound entries affect more than one debit and/or more than one credit. AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 04-02 Prepare compound journal entries. Topic: Journal Entries

52.

On June 1, XYZ Inc. paid $400 to its landlord for rent for the current month. The journal entry to record this transaction is:

53.

On December 5, Honor Consulting Services issued a check to purchase $800 in office supplies. The journal entry to record this transaction is:

AACSB: Analytic

AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 04-01 Record transactions in the general journal. Topic: Journal Entries

54.

The journal entry to record the purchase of equipment for a $100 cash down payment and a balance of $400 due in 30 days would include

A. a debit to Equipment for $100 and a credit to Cash for $100. B. a debit to Equipment for $500, a credit to Cash for $100, and a credit to Accounts Payable for $400. C. a debit to Equipment for $100 and a credit to Accounts Payable for $400. D. debit to Equipment for $500 and a credit to Cash for $500. AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 04-02 Prepare compound journal entries. Topic: Journal Entries

55.

A company purchased equipment costing $15,000. They paid $1,000 right away and agreed to pay the balance in 30 days, the journal entry to record the purchase of equipment would include

A. a debit to Equipment for $15,000 and a credit to Cash for $15,000. B. a debit to Equipment for $1,000 and a credit to Cash for $1,000. C. a debit to Equipment for $14,000 and a credit to Accounts Payable for $14,000. D. a debit to Equipment for $15,000, a credit to Cash for $1,000 and a credit to Accounts Payable for $14,000. AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting 4-59 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 04-02 Prepare compound journal entries. Topic: Journal Entries

56.

ABC Co. performed $5,000 of consulting work. Their customer paid them $1,500 right away and agreed to pay the balance in 30 days. Select the correct journal entry from the options below to record the transaction:

A. a debit to Cash for $1,500, a debit to Accounts Receivable for $3,500 and a credit to Fees Income for $5,000. B. a debit to Cash for $1,500 and a credit to Fees Income for $1,500. C. a debit to Accounts Receivable for $3,500 and a credit to Fees Income for $3,500. D. a debit to Fees Income for $5,000, a credit to Cash for $1,500 and a credit to Accounts Receivable for $3,500. AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 04-02 Prepare compound journal entries. Topic: Journal Entries

57.

On December 10, Yummy Catering purchased a new oven costing $10,000. They issued a check a check for $2,000 and promised to pay the balance in 30 days. The journal entry to record this transaction is:

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 04-02 Prepare compound journal entries. Topic: Journal Entries

58.

When recording a business transaction into the general ledger, certain steps are followed. Identify the statement below that is NOT CORRECT regarding this process.

A. The process of transferring data from the journal to the ledger is called posting. B. All transactions are recorded first in the general journal and then they are transferred to the general ledger. C. All transactions are recorded first in the general ledger and then they are transferred to the journal. D. After posting a transaction, the new balance in an account can be seen in the general ledger. AACSB: Analytic AICPA BB: Industry 4-61 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 04-03 Post journal entries to general ledger accounts. Learning Objective: 04-05 Define the accounting terms new to this chapter. Topic: Accounting Records Topic: Posting Journal Entries to General Ledger

59.

The general ledger accounts are usually arranged in the following order:

A. first the balance sheet accounts, then the income statement accounts. B. first the accounts with debit balances, then the accounts with credit balances. C. first the temporary accounts, then the permanent accounts. D. first the accounts used most often, then those used less frequently. AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 04-03 Post journal entries to general ledger accounts. Topic: Posting Journal Entries to General Ledger

60.

The Accounts Payable account has a $3,000 credit balance. An entry for the payment of $1,000 on the amount owed is recorded and posted. The new balance of the Accounts Payable account is

A. a $2,000 credit balance. B. a $4,000 credit balance. C. a $2,000 debit balance. D. a $4,000 debit balance. $3,000 credit - $1,000 debit = $2,000 credit

AACSB: Analytic AICPA BB: Industry

AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 04-03 Post journal entries to general ledger accounts. Topic: Posting Journal Entries to General Ledger

61.

On December 1, the Accounts Receivable account had a $5,000 balance. The business received $400 during the month from its charge-account customer. After posting this transaction, the new balance in the Accounts Receivable account is

A. a $4,600 credit balance. B. a $4,600 debit balance. C. a $5,400 debit balance. D. a $5,400 credit balance. $5,000 debit - $400 credit = $4,600 debit

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 04-01 Record transactions in the general journal. Learning Objective: 04-03 Post journal entries to general ledger accounts. Topic: Posting Journal Entries to General Ledger

62.

The Cash account has a $15,000 debit balance. A $5,000 credit entry and a $7,000 debit entry are posted to the account. The final balance of the Cash account is

A. a $3,000 debit balance. B. a $27,000 debit balance. C. a $13,000 debit balance. D. a $17,000 debit balance. $15,000 debit + $7,000 debit - $5,000 credit = $17,000 debit

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 04-03 Post journal entries to general ledger accounts. Topic: Posting Journal Entries to General Ledger

63.

The account numbers from the ledger are recorded in the Posting Reference column of the general journal

A. as the transaction is journalized. B. after each amount is posted. C. after all entries on the journal page have been posted. D. as the first amount written in the journal. AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 04-03 Post journal entries to general ledger accounts. Topic: Accounting Records Topic: Posting Journal Entries to General Ledger

64.

The Posting Reference column of a journal is used to

A. record the date on which an amount is posted to a ledger account. B. record the number of the ledger account to which the information is posted. C. record the number of amounts posted to that ledger account since the beginning of the current accounting period. D. record the page number of the ledger account. AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 04-03 Post journal entries to general ledger accounts. Topic: Accounting Records Topic: Posting Journal Entries to General Ledger

65.

Which of the following statements is CORRECT?

A. The general ledger contains the accounts that are used to prepare the financial statements. B. Some companies use the general ledger instead of a general journal. C. When entries are posted from the general journal to the general ledger, the account number is written in the Posting Reference column in the general ledger. D. When entries are posted from the general journal to the general ledger, the page number is written in the Posting Reference column in the general journal. AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 04-03 Post journal entries to general ledger accounts. Topic: Posting Journal Entries to General Ledger

66.

If a journal entry that contains an error has already been posted,

A. the incorrect items should be erased and replaced with the correct data. B. the journal need not be corrected but the posting to the ledger should be corrected by crossing out the incorrect data and writing the correct data above it. C. a correcting entry should be journalized and posted. D. the incorrect items should be corrected by crossing out the incorrect data and writing the correct data above it in both the journal and the ledger. AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 04-04 Correct errors made in the journal or ledger. Topic: Correcting Errors

67.

A firm purchased telephone equipment for cash. By mistake, the person who recorded the transaction debited Utilities Expense instead of Office Equipment. The error was discovered after the data posted. The correcting entry should contain

A. a debit to Office Equipment and a credit to Cash. B. a debit to Office Equipment and a credit to Utilities Expense. C. a debit to Cash and a credit to Office Equipment. D. a debit to Utilities Expense and a credit to Cash. AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Decision Making AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 2 Medium Learning Objective: 04-04 Correct errors made in the journal or ledger. Topic: Correcting Errors Topic: Journal Entries

68.

Bertrand Inc. performed services for clients in the amount of $1,350 on credit. If this transaction had been posted in error to the Cash account instead of the Accounts Receivable account, what correcting entry would be necessary?

A. Debit Accounts Receivable $1,350; credit Cash $1,350 B. Debit Cash $1,350; credit Accounts Receivable $1,350 C. Debit Accounts Receivable $1,350; credit Fees Income $1,350 D. Debit Fees Income $1,350; credit Cash $1,350 AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Decision Making AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 04-04 Correct errors made in the journal or ledger. Topic: Correcting Errors Topic: Journal Entries

69.

Bertrand Inc. purchased some shop equipment for $4,500 in cash. By mistake, the journal entry debited the Office Equipment account rather than the Shop Equipment account. What correcting entry would be necessary?

A. Debit Office Equipment $4,500; credit Shop Equipment $4,500 B. Debit Shop Equipment $4,500; credit Office Equipment $4,500 C. Debit Cash $4,500; credit Shop Equipment $4,500 D. Debit Office Equipment $4,500; credit Cash $4,500 AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Decision Making AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 04-04 Correct errors made in the journal or ledger. 4-67 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Topic: Correcting Errors Topic: Journal Entries

70.

Which of the following statements is CORRECT?

A. All errors made in journal entries should be corrected by the preparation of a correcting journal entry. B. If an error in a journal entry is discovered before the entry is posted to the general ledger, the entry can simply be erased and replaced with the correct journal entry. C. If an error in a journal entry is discovered before the entry is posted to the general ledger, the error in the entry should be crossed out and the correct data written above it. D. If an error in a journal entry is discovered before the entry is posted to the general ledger, a journal entry should be made to correct the erroneous entry. AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Decision Making AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 04-04 Correct errors made in the journal or ledger. Topic: Correcting Errors

Essay Questions

71.

For each of the accounts listed below, enter the words, Increase or Decrease, in the Debit and Credit columns to indicate the effects of each on the account balance. The first row has been completed for reference.

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 1 Easy Learning Objective: 04-01 Record transactions in the general journal. Topic: Journal Entries

72.

For each of the accounts listed below, enter the words, Increase or Decrease, the Debit and Credit columns to indicate the effects of each on the account balance. The first row has been completed for reference.

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 1 Easy Learning Objective: 04-01 Record transactions in the general journal. Topic: Journal Entries

73.

For each of the accounts listed below, enter the words, Increase or Decrease, the Debit and Credit columns to indicate the effects of each on the account balance.

74.

Indicate how each of the following would be reflected in the journal entry required to record the effects described by using debit or credit to indicate the increase or decrease in each affected account.

75.

76.

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 04-01 Record transactions in the general journal. 4-74 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Topic: Journal Entries

77.

Determine the accounts and amounts to be debited and credited for the following transactions for Madison's Clock Repair. A. Purchased new equipment for $1,700 by issuing a check for $1,000 as a down payment with the balance due in 30 days. B. Issued checks for $2,400 to pay the employees their monthly salaries. C. Issued a check for $700 to pay a creditor on account. D. Purchased supplies for $200 cash. E. Provided services for $6,800 on credit. F. Returned damaged supplies and received a $50 cash refund. G. Issued a check for $100 to pay the monthly telephone bill.

A. Equipment (dr. $1,700); Cash (cr. $1,000) and Accounts Payable (cr. $700) B. Salaries Expense (dr. $2,400); Cash (cr. $2,400) C. Accounts Payable (dr. $700); Cash (cr. $700) D. Supplies (dr. $200); Cash (cr. $200) E. Accounts Receivable (dr. $6,800); Fees Income (cr. $6,800) F. Cash (dr. $50); Supplies (cr. $50) G. Telephone Expense (dr. $100); Cash (cr. $100)

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 04-01 Record transactions in the general journal. Learning Objective: 04-02 Prepare compound journal entries. Topic: Journal Entries

78.

Determine the accounts and amounts to be debited and credited for the following transactions for Folk Furniture Repair. A. Issued a check for $950 to pay the monthly rent. B. Purchased $130 worth of supplies on credit. C. The owner made an additional investment of $5,000 in cash. D. Sent a $75 check to the utility company to pay the monthly bill. E. Performed services for cash in the amount of $1,200. F. Provided services on credit in the amount of $800. G. Purchased new equipment for $300 and paid for it immediately by check. H. Issued a $1,000 check to pay a creditor on account. I. Collected $500 from credit customers.

A. Rent Expense (dr. $950); Cash (cr. $950) B. Supplies (dr. $130); Accounts Payable (cr. $130) C. Cash (dr. $5,000); Folk, Capital (cr. $5,000) D. Utilities Expense (dr. $75); Cash (cr. $75) E. Cash (dr. $1,200); Fees Income (cr. $1,200) F. Accounts Receivable (dr. $800); Fees Income (cr. $800) G. Equipment (dr. $300); Cash (cr. $300) H. Accounts Payable (dr. $1,000); Cash (cr. $1,000) I. Cash (dr. $500); Accounts Receivable (cr. $500)

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 04-01 Record transactions in the general journal. Learning Objective: 04-02 Prepare compound journal entries. Topic: Journal Entries

79.

Determine the accounts and amounts to be debited and credited for the following transactions for Monroe's Auto Repair. A. Marilyn Monroe invested $50,000 in cash to start the firm. B. Issued check for $4,000 to pay the rent for current month. C. Purchased an automobile that will be used to visit clients; issued check for $32,500 in full payment. D. Purchased supplies for $800; paid immediately by check. E. Purchased office equipment for $18,500 on credit from Denton, Inc.; received invoice, payable in 30 days. F. Performed services for $2,580 in cash. G. Returned damaged supplies for a cash refund of $50. H. Issued check for $15,600 to Denton, Inc., as payment on account. I. Paid $120 for monthly telephone bill by check. J. Withdrew $500 in cash for personal expenses.

A. Cash (dr. $50,000); Marilyn Monroe, Capital (cr. $50,000) B. Rent Expense (dr. $4,000); Cash (cr. $4,000) C. Automobile (dr. $32,500); Cash (cr. $32,500) D. Supplies (dr. $800); Cash (cr. $800) E. Office Equipment (dr. $18,500); Accounts Payable (cr. $18,500) F. Cash (dr. $2,580); Fees Income (cr. $2,580) G. Cash (dr. $50); Supplies (cr. $50) H. Accounts Payable (dr. $15,600); Cash (cr. $15,600) I. Telephone Expense (dr. $120); Cash (cr. $120) J. Marilyn Monroe, Drawing (dr. $500); Cash (cr. $500)

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 04-01 Record transactions in the general journal. Learning Objective: 04-02 Prepare compound journal entries. Topic: Journal Entries

80.

The accounts with identification letters for Orly Delivery Services are listed below.

81.

The accounts with identification letters for Smart Delivery Services are listed below.

82.

The accounts with identification letters for Sealy Delivery Services are listed below.

83.

The accounts with identification letters for Able Delivery Services are listed below.

84.

Antonio Baldez operates a delivery service. During the month of April, the firm had the following transactions. Record these transactions on page 5 of a general journal. Omit the descriptions.

85.

Maria Sanchez operates a typing service. During the month of July, the first month of operations, the firm had the following transactions. Record these transactions on page 5 of a general journal. Omit the descriptions.

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 04-01 Record transactions in the general journal. Learning Objective: 04-02 Prepare compound journal entries. Topic: Journal Entries

86.

Lourdes Yabar opened a computer repair business on May 1, 2016. During the first month of operations, the firm had the following transactions. Record these transactions on page 1 of the general journal. Omit the descriptions. Set up a Cash general ledger account and post the appropriate transactions to this account, account 101.

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 3 Hard Learning Objective: 04-01 Record transactions in the general journal. Learning Objective: 04-02 Prepare compound journal entries. Learning Objective: 04-03 Post journal entries to general ledger accounts. Topic: Journal Entries Topic: Posting Journal Entries to General Ledger

87.

Global Delivery opened for business on July 1, 2016. The company uses the general ledger accounts listed below. During the first month of business, the firm had the transactions listed below. Record the transactions on page 1 of a general journal. Omit descriptions. Set up a Cash general ledger account and post the appropriate transactions to this account, account 101.

88.

The following errors in recording the transactions for June were discovered in the general journal the next month after the data had been posted to the ledger. Record the necessary correcting entries on page 2 of a general journal. Omit the descriptions.

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 3 Hard Learning Objective: 04-04 Correct errors made in the journal or ledger. Topic: Journal Entries

89.

The following errors in recording the transactions for December were discovered in the general journal the next month after the data had been posted to the ledger. Record the necessary correcting entries on page 12 of a general journal. Omit the descriptions.

Matching Questions

90.

Match the accounting terms with the description.

1. A journal entry made to correct an

General

erroneous entry

journal 2

2. A financial record for entering all types of business transactions; a record of original entry

Posting 10 Accounting

3. Recording transactions in a journal

cycle 11

4. Organized in the order in which the events

General

occur

ledger 9

5. The record of final entry

Journalizing 3

6. A ledger account form that shows the balance of the account after each entry is posted

Balance ledger form 6 Compound

7. The record of original entry

entry 12

8. A chain of references that makes it possible to trace information, locate errors, and prevent fraud

Chronological order 4

9. A permanent, classified record of all accounts used in a firm's operation; a record of final entry

Audit trail 8

10. Transferring data from a journal to a

Correcting

ledger

entry 1

11. A series of steps performed during each accounting period to classify, record, and summarize data for a business and to produce needed financial information

Journal 7

12. A journal entry with more than one debit or credit

Ledger 5 AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making

Blooms: Understand Difficulty: 2 Medium Learning Objective: 04-01 Record transactions in the general journal. Learning Objective: 04-02 Prepare compound journal entries. Learning Objective: 04-03 Post journal entries to general ledger accounts. Learning Objective: 04-04 Correct errors made in the journal or ledger. Learning Objective: 04-05 Define the accounting terms new to this chapter. Topic: Accounting Records Topic: Correcting Errors Topic: Journal Entries Topic: Posting Journal Entries to General Ledger

Chapter 05 Adjustments and the Worksheet

True / False Questions

1. Prepaid expenses, such as prepaid rent and prepaid insurance, represent assets for a business until they are used. True

False

2. The cost of a long-term asset, such as equipment, is transferred to expense as it is used during its life. True

False

3. If an adjustment is not recorded for supplies used, the firm's assets will be overstated. True

False

4. If an adjustment for expired rent is not recorded, the firm's expenses will be overstated. True

False

5. The normal balance of a contra asset account is a debit. True

False

6. Letters are used to label the debit and credit parts of an adjustment on the worksheet. True

False

7. Land is a long-term asset that is not subject to depreciation. True

False

8. The balances of the revenue accounts are recorded in the Trial Balance Credit column, the Adjusted Trial Balance Credit column, and the Balance Sheet Credit column of the worksheet. True

False

9. Preparation of a worksheet eliminates the necessity of preparing an income statement and a balance sheet. True

False

10. In the Adjusted Trial Balance section of the worksheet the total debits should equal the total credits. True

False

11. The balance of the owner's drawing account is extended to the Income Statement Debit column of the worksheet. True

False

12. The balance of a liability account is extended to the Balance Sheet Credit column of the worksheet. True

False

13. The statement of owner's equity is prepared from the data in the Income Statement section of the worksheet. True

False

14. If adjustments are entered on a worksheet, it is not necessary to record them in the journal or the ledger. True

False

Fill in the Blank Questions

15. The process of allocating the cost of a long-term asset as an expense of operations during the asset's expected useful life is known as ____________________. ________________________________________ 16. The difference between the debit balance of the Equipment account and the credit balance of the Accumulated Depreciation—Equipment account is called the ____________________ of an asset. ________________________________________ 17. The Supplies account had a balance of $1,200 when a physical count indicated that supplies on hand totaled $400. This means that supplies in the amount of ____________________ were used during the accounting period. ________________________________________ 18. The process of updating accounts at the end of an accounting period for previously unrecorded items that belong to the period is referred to as making ____________________. ________________________________________ 19. The account credited in the adjusting entry made to record the expiration of a portion of prepaid rent is the ____________________ account. ________________________________________

20. An accumulated depreciation account is often referred to as a(n) ____________________ asset account. ________________________________________ 21. When the ____________________ method of depreciation is used, an equal amount of depreciation is charged to each accounting period during the asset's useful life. ________________________________________ 22. An accumulated depreciation account has a normal ____________________ balance. ________________________________________ 23. A(n) ____________________ is prepared at the end of each accounting period to organize and summarize the data needed for the preparation of the financial statements. ________________________________________ 24. On a worksheet, the adjusted balance of Supplies is extended from the Adjusted Trial Balance Debit column to the ____________________ Debit column. ________________________________________ 25. On a worksheet, the adjusted balance of Depreciation Expense is extended from the Adjusted Trial Balance Debit column to the ____________________ Debit column. ________________________________________

Multiple Choice Questions

26. Which of the following need not be completed separately if a worksheet is prepared?

A. a trial balance B. an income statement C. a balance sheet D. a statement of owner's equity 27. When a trial balance is in balance,

A. adjusting entries are not required. B. the general ledger is free of errors. C. the debit account balances equal the credit account balances. D. the company has earned a net income. 28. A total of $3,200 in supplies was purchased during the year. At the end of the year $700 of the supplies were left. The adjusting entry needed at the end of the year is:

A. debit Supplies $2,500; credit Supplies Expense $2,500 B. debit Supplies Expense $3,200; credit Supplies $3,200 C. debit Supplies Expense $700; credit Supplies $700 D. debit Supplies Expense $2,500; credit Supplies $2,500 29. A total of $4,000 in supplies was purchased during the year. By the end of the year, the company had used up $1,300 of the supplies. The adjusting entry needed at the end of the year is:

30. MacGyver Company bought equipment on January 3, 2016, for $34,000. At the time of purchase, the equipment was estimated to have a useful life of six years and a salvage value of $880. Using the straight-line method, the amount of one year's depreciation is

A. $880. B. $5,520. C. $460. D. $5,667. 31. Adjusting Entries are

A. corrections of errors. B. updating entries for previously unrecorded expenses or revenues. C. not required. D. will always affect cash. 32. Equipment costing $13,500 with an estimated salvage value of $1,020 and an estimated life of 4 years was purchased on November 1, 2016. Using the straight-line depreciation method, what is the amount of depreciation expense to be recorded at December 31, 2016?

A. $260 B. $520 C. $3,120 D. $1,020 33. Which of the following entries records the depreciation on equipment for the fiscal year-end adjustment?

34. On January 1, ABC Catering purchased an oven for $2,000. The oven was expected to last five years and have no salvage value. Select the adjusting entry made on December 31, to record the depreciation of the oven for one year.

35. On Jan. 1, 2016 Johnson Consulting purchased a truck for $12,000. The truck was expected to last 60 months and have no salvage value. Calculate the book value of the truck after two years?

A. $4,800 B. $7,200 C. $11,600 D. $12,000 36. On October 1, 2016, Jay Walker Company purchased a one-year insurance policy for $660. The correct adjusting entry on December 31, 2016, is

A. debit Insurance Expense $660; credit Prepaid Insurance $660 B. debit Insurance Expense $495; credit Prepaid Insurance $495 C. debit Prepaid Insurance $55; credit Insurance Expense $55 D. debit Insurance Expense $165; credit Prepaid Insurance $165

37. On November 1, 2016, Peaches Consulting Service paid $4,800 for 12 months of advance rent on its office space. The correct adjusting entry on December 31 to show the amount of rent that had expired would include:

A. debit Rent Expense $400; credit Prepaid Rent $400 B. debit Rent Expense $800; credit Prepaid Rent $800 C. debit Prepaid Rent $4,000; credit Rent Expense $4,000 D. debit Rent Expense $4,800; credit Prepaid Rent $4,800 38. Equipment cost $36,000 and is expected to be useful for 5 years and have no salvage value. Under the straight-line method, monthly depreciation will be

A. $600. B. $720. C. $60. D. $12. 39. J. B. Consulting purchased a machine for $6,000 on November 1, 2016. The company expects the useful life of the machine to be 5 years and have no salvage value. If the company uses the straight-line method to depreciate the machine, what will be the depreciation adjustment for the year ending December 31, 2016?

A. Debit Depreciation Expense $200 and Credit Accumulated Depreciation $200. B. Debit Depreciation Expense $1,200 and Credit Accumulated Depreciation $1,200. C. Debit Accumulated Depreciation $200 and Credit Depreciation Expense $200. D. Debit Depreciation Expense $200 and Credit Equipment $200. 40. On a worksheet, the adjusting entry to account for depreciation of equipment consists of

41. If the prepaid expenses are not adjusted, assets on the balance sheet

A. will be overstated. B. will be understated. C. will not be affected. D. may be either overstated or understated. 42. If long-term assets are not adjusted, expenses on the income statement

A. will be overstated. B. will be understated. C. will not be affected. D. may be either overstated or understated. 43. On November 25, 2016, the company paid $24,000 rent in advance for a six-month period (December 2016 through May 2017). On December 31, 2016, the adjustment for expired rent would include

A. a $4,000 debit to Prepaid Rent. B. a $4,000 credit to Rent Expense. C. a $24,000 debit to Rent Expense. D. a $4,000 credit to Prepaid Rent. 44. On March 1, 2016, the company paid $6,000 rent in advance for a 12-month period. On December 31, 2016, the company's adjustment for expired rent would include:

A. a $5,000 debit to Prepaid Rent; a $5,000 credit to Rent Expense. B. a $5,000 debit to Rent Expense; a $5,000 credit to Prepaid Rent. C. a $1,000 debit to Rent Expense; a $1,000 credit to Prepaid Rent. D. a $6,000 debit to Prepaid Rent; a $6,000 credit to Rent Expense.

45. On June 1, Sidney Consulting Services paid $18,000 for 12 months of advance rent on its office building. Select the adjusting entry made on December 31, to record the amount of rent that had expired.

46. The balance in the Prepaid Rent account before adjustment at the end of the year is $12,000, which represents six months rent paid on November 1. The adjusting entry required on December 31 to show the amount of rent that had expired is:

47. The adjusting entry to account for the use of supplies consists of

A. a debit to Supplies Expense and a credit to Supplies. B. a debit to Supplies and a credit to Supplies Expense. C. a debit to Supplies and a credit to Accumulated Depreciation. D. a debit to Accumulated Depreciation and a credit to Supplies. 48. On December 31, Treats Catering Inc.'s trial balance shows a $1,000 balance in the Supplies account. However, a physical count of the supplies determined that only $400 of supplies actually remain in the supply cabinet. Select the adjusting entry made on December 31, to record the amount of supplies that had been used during the year.

49. During its first year of business, XYZ Inc. purchased $2,400 of supplies. By the end of the year, only $500 of supplies remain in the supply cabinet. Determine the amount to be reported in the Supplies account in the Adjusted Trial Balance section of the worksheet prepared on December 31.

A. $500 B. $1,900 C. $2,400 D. $2,900

50. The adjusting entry to account for the expiration of prepaid insurance consists of

A. Generally accepted accounting principles require that the original cost of a long-term asset continue to appear in the asset account until the disposition of the asset. B. The book value of a long-term asset is reduced each year as depreciation is recorded. C. Buildings and trucks are examples of long-term assets. D. Salvage value is computed by subtracting the accumulated depreciation from the cost of a long-term asset. 53. On a worksheet, the adjusted balance of the Accumulated Depreciation account is extended to:

A. the Income Statement Debit column. B. the Income Statement Credit column. C. the Balance Sheet Debit column. D. the Balance Sheet Credit column.

54. On a worksheet, the adjusted balance of the Depreciation Expense account is extended to:

A. the Income Statement Debit column. B. the Income Statement Credit column. C. the Balance Sheet Debit column. D. the Balance Sheet Credit column. 55. On a worksheet, the adjusted balance of the Supplies account is extended to:

A. the Income Statement Debit column. B. the Income Statement Credit column. C. the Balance Sheet Debit column. D. the Balance Sheet Credit column. 56. On a worksheet, the adjusted balance of the Supplies Expense account is extended to:

A. the Income Statement Debit column. B. the Income Statement Credit column. C. the Balance Sheet Debit column. D. the Balance Sheet Credit column. 57. Which of the following statements is correct?

58. On a worksheet, the adjusted balance of the Prepaid Rent account is extended to the:

A. Income Statement Debit column. B. Income Statement Credit column. C. Balance Sheet Debit column. D. Balance Sheet Credit column. 59. On a worksheet, the adjusted balance of the revenue account Fees Income would be extended to:

A. the Income Statement Debit column. B. the Balance Sheet Credit column. C. the Balance Sheet Debit column. D. the Income Statement Credit column. 60. On the worksheet, the Balance Sheet columns should balance

A. before the net income amount is added to the Balance Sheet Debit column. B. after the net income amount is added to the Balance Sheet Debit column. C. after the net income amount is added to the Balance Sheet Credit column. D. before the net income amount is added to the Balance Sheet Credit column. 61. On a worksheet, the adjusted balance of a contra asset account would be extended to

A. the Balance Sheet Debit column. B. the Balance Sheet Credit column. C. the Income Statement Debit column. D. the Income Statement Credit column.

62. On a worksheet, a net loss is

A. recorded in the Income Statement Debit column. B. recorded in the Balance Sheet Debit column. C. recorded in the Balance Sheet Credit column. D. not recorded. 63. If a worksheet is prepared at the end of the accounting year,

A. The difference between the total of the Income Statement Debit column and the total of the Income Statement Credit column of the worksheet represents either net income or net loss. B. Net income is recorded on the worksheet in the Income Statement Debit column and the Balance Sheet Credit column. C. Only the balances of accounts that are affected by adjustments must be recalculated before they are recorded in the Adjusted Trial Balance section of the worksheet. D. If an account has a debit balance in the Trial Balance section of the worksheet and there is a credit entry in the Adjustments section, the credit amount is added when computing the balance to be shown in the Adjusted Trial Balance section of the worksheet. 65. On a balance sheet, Accumulated Depreciation—Equipment is reported

A. as a deduction from the cost of the equipment. B. as a liability. C. as an expense. D. as a deduction from the total of the assets.

66. The book value of long-term assets is reported on

A. the income statement. B. the statement of owner's equity. C. the balance sheet. D. the worksheet. 67. The balance in the account Accumulated Depreciation, Equipment will

A. be reported on the Income Statement. B. be reported on the Statement of Owner's Equity. C. will be reported on the Balance Sheet. D. not appear on any financial statement. 68. A consecutive, twelve-month accounting period is called a(n)

A. accrual year. B. fiscal year. C. accounting year. D. adjusted year. 69. Accumulated Depreciation, Equipment, is shown as:

A. a liability on the Balance Sheet B. a reduction of Capital on the Statement of Owner's Equity C. a contra asset on the Balance Sheet D. an expense on the Income Statement

70. The adjustments made on the worksheet

Essay Questions

71. For each of the accounts listed below, enter the words, Increase or Decrease, in the Debit and Credit columns to indicate the effects of each on the account balance.

72. For each of the accounts listed below, enter the words, Increase or Decrease, in the Debit and Credit columns to indicate the effects of each on the account balance.

73. Read each of the following transactions for Patel's Repair Services. Determine the accounts to be debited and credited in the necessary end-of-May adjustments. A. On May 1, 2016, Patel's Repair Services, a new firm, paid $6,600 rent in advance for a sixmonth period. The $6,600 was debited to the Prepaid Rent account. B. On May 1, 2016, the firm bought supplies for $2,000. The $2,000 was debited to the Supplies account. An inventory of supplies at the end of May showed that supplies costing $800 were on hand. C. On May 1, 2016, the firm bought equipment costing $10,000. The equipment has an expected useful life of 10 years and no salvage value. The firm will use the straight-line method of depreciation.

74. Read each of the following transactions for Pickerton Printer Repair Services. Determine the accounts to be debited and credited in the necessary end-of-April adjustments. A. On April 1, 2016, Pickerton Printer Repair Services, a new firm, bought supplies for $2,500. The $2,500 was debited to the Supplies account. An inventory of supplies at the end of June showed that supplies costing $1,500 were on hand. B. On April 1, 2016, the firm bought equipment costing $20,000. The equipment has an expected useful life of 10 years and no salvage value. The firm will use the straight-line method of depreciation. C. On April 1, 2016, the firm paid $7,200 rent in advance for a six-month period. The $7,200 was debited to the Prepaid Rent account.

75. Read each of the following transactions for Gallagher Enterprises. Determine the accounts and amounts to be debited and credited in the necessary end-of-January adjustments. A. On January 1, 2016, Gallagher Enterprises, a new firm, paid $6,000 rent in advance for a three-month period. The $6,000 was debited to the Prepaid Rent account. B. On January 1, 2016, the firm bought supplies for $3,000. The $3,000 was debited to the Supplies account. An inventory of supplies at the end of January showed that supplies costing $1,000 were on hand. C. On January 1, 2016, the firm bought equipment costing $12,000. The equipment has an expected useful life of 10 years and no salvage value. The firm will use the straight-line method of depreciation.

76. Read each of the following transactions for Enterprises Security Systems. Determine the accounts and amounts to be debited and credited in the necessary end-of-July adjustments. A. On July 1, 2016, Enterprises Security Systems, a new firm, bought supplies for $2,300. The $2,300 was debited to the Supplies account. An inventory of supplies at the end of July showed that supplies costing $900 were on hand. B. On July 1, 2016, the firm bought equipment costing $24,000. The equipment has an expected useful life of 10 years and no salvage value. The firm will use the straight-line method of depreciation. C. On July 1, 2016, the firm paid $4,500 rent in advance for a nine-month period. The $4,500 was debited to the Prepaid Rent account.

77. Read the description of following adjustments that are required at the end of the accounting period for Riley Furniture Restoration. Determine the account and amount to be debited and the account and amount to be credited. A. Purchased supplies for $1,000 on June 1, 2016. Inventory of supplies was $300 on June 30, 2016. Record the adjustment for the amount of the supplies that were used during the month of June 2016. B. Signed a 4-month contract for $1,200 of prepaid advertising on June 1, 2016. Record the adjustment for the amount of the advertising contract that expired during the month of June 2016. C. Prepaid rent for the year on June 1, 2016. Rent expired during the month of June 2016, $700. Record the adjustment on June 30, 2016. D. Depreciation is computed using the straight-line method. Equipment purchased on June 1, 2016, for $16,800 has an estimated useful life of 5 years with no salvage value. Record the adjustment on June 30, 2016.

78. Read the description of following adjustments that are required at the end of the accounting period for Hubbard Repair Services. Determine the account and amount to be debited and the account and amount to be credited. A. Purchased supplies for $2,000 on November 1, 2016. Inventory of supplies was $600 on November 30, 2016. Record the adjustment for the amount of the supplies that were used during the month of November 2016. B. Signed a 4-month contract for $2,400 of prepaid advertising on November 1, 2016. Record the adjustment for the amount of the advertising contract that expired during the month of November 2016. C. Prepaid rent for the year on November 1, 2016. Rent expired during the month of November 2016, $1,500. Record the adjustment on November 30, 2016. D. Depreciation is computed using the straight-line method. Equipment purchased on November 1, 2016, for $6,000 has an estimated useful life of 5 years with no salvage value. Record the adjustment on November 30, 2016.

79. Read the description of following adjustments that are required at the end of the accounting period for Hubbard Repair Services. Determine the account and amount to be debited and the account and amount to be credited. A. Prepaid rent for the year on April 1, 2016. Rent expired during the month of April 2016, $3,500. Record the adjustment on April 30, 2016. B. Purchased supplies for $2,000 on April 1, 2016. Inventory of supplies was $1,600 on April 30, 2016. Record the adjustment for the amount of the supplies that were used during the month of April 2016. C. Depreciation is computed using the straight-line method. Equipment purchased on April 1, 2016, for $18,000 has an estimated useful life of 5 years with no salvage value. Record the adjustment on April 30, 2016. D. Signed a 6-month contract for $2,400 of prepaid advertising on April 1, 2016. Record the adjustment for the amount of the contract that expired during the month of April 2016.

80. Read the description of following adjustments that are required at the end of the accounting period for Drake Consulting Services. Determine the account and amount to be debited and the account and amount to be credited. A. Prepaid rent for the year on January 1, 2016. Rent expired during the month of January 2016, $7,000. Record the adjustment on January 31, 2016. B. Purchased supplies for $1,600 on January 1, 2016. Inventory of supplies was $600 on January 30, 2016. Record the adjustment for the amount of the supplies that were used during the month of January 2016. C. Depreciation is computed using the straight-line method. Equipment purchased on January 1, 2016, for $36,000 has an estimated useful life of 5 years with no salvage value. Record the adjustment on January 31, 2016. D. Signed a 12-month contract for $2,400 of prepaid advertising on January 1, 2016. Record the adjustment for the amount of the advertising contract that expired during the month of January 2016.

81. Read the description of following adjustments that are required at the end of the accounting period for AAA Appliance Repair Services. Record the necessary adjusting entries on page 2 of a general journal. Omit the descriptions. A. Prepaid rent for the year on January 1, 2016. Rent expired during the month of January 2016, $2,000. B. Purchased supplies for $7,600 on January 1, 2016. Inventory of supplies was $1,600 on January 31, 2016. C. Depreciation is computed using the straight-line method. Equipment purchased on January 1, 2016, for $15,000 has an estimated useful life of 5 years with no salvage value. D. Signed a 3-month contract for $600 of prepaid advertising on January 1, 2016.

82. Read the description of following adjustments that are required at the end of the accounting period for Anise's Repair Services. Record the necessary adjusting entries on page 2 of a general journal. Omit the descriptions. A. Prepaid rent for the year on January 1, 2016. Rent expired during the month of January 2016, $1,600. B. Purchased supplies for $4,000 on January 1, 2016. Inventory of supplies was $1,200 on January 30, 2016. C. Depreciation is computed using the straight-line method. Equipment purchased on January 1, 2016, for $3,000 has an estimated useful life of 5 years with no salvage value. D. Signed a 3-month contract for $450 of prepaid advertising on January 1, 2016.

83. Read the description of following adjustments that are required at the end of the accounting period for Paulo Consulting Services. Record the necessary adjusting entries on page 2 of a general journal. Omit the descriptions. A. Equipment purchased on January 1, 2016, for $24,000 has an estimated useful life of 5 years with no salvage value. Depreciation is computed using the straight-line method. B. Signed a 3-month contract for $4,500 of prepaid advertising on January 1, 2016. C. Prepaid rent for the year on January 1, 2016. Rent expired during the month of January 2016, $1,600. D. Purchased supplies for $2,000 on January 1, 2016. Inventory of supplies was $1,200 on January 31, 2016.

84. Read the description of following adjustments that are required at the end of the accounting period for River Front Repair. Record the necessary adjusting entries on page 2 of a general journal. Omit the descriptions. A. Prepaid rent for the year on January 1, 2016. Rent expired during the month of January, $7,200. B. Equipment purchased on January 1, 2016, for $8,100 has an estimated useful life of 5 years with no salvage value. Depreciation is computed using the straight-line method. C. Purchased supplies for $650 on January 1, 2016. Inventory of supplies was $100 on January 31, 2016. D. Signed a 12-month contract for $4,800 of prepaid advertising on January 1, 2016.

85. The balances of the ledger accounts for Oleman Services on January 31, 2016, and the information needed for adjustments are shown below. Prepare the Trial Balance section, record the adjustments, and complete the worksheet.

Adjustment information: (a) The supplies were purchased on January 1, 2016. An inventory of supplies showed $600 on hand on January 31, 2016. (b) The amount of Prepaid Insurance represents a payment made January 1, 2016, for a sixmonth insurance policy. (c) The equipment, purchased January 1, 2016, has an estimated useful life of 5 years with no salvage value. The firm uses the straight-line method of depreciation.

86. The balances of the ledger accounts for Buffet Services on September 30, 2016, and the information needed for adjustments are shown below. Prepare the Trial Balance section, record the adjustments, and complete the worksheet.

Adjustment information: (a) The supplies were purchased on September 1, 2016. An inventory of supplies showed $1,200 on hand on September 30, 2016. (b) The amount of Prepaid Insurance represents a payment made September 1, 2016, for a six-month insurance policy. (c) The equipment, purchased September 1, 2016, has an estimated useful life of 5 years with no salvage value. The firm uses the straight-line method of depreciation.

87. The balances of the ledger accounts for Lance's Landscaping Design on March 31, 2016, and the information needed for adjustments are shown below. Prepare the Trial Balance section, record the adjustments, and complete the worksheet.

Adjustment information: (a) The supplies were purchased on March 1, 2016. An inventory of supplies showed $300 on hand on March 31, 2016. (b) The amount of Prepaid Insurance represents a payment made March 1, 2016, for a sixmonth insurance policy. (c) The equipment, purchased March 1, 2016, has an estimated useful life of 5 years with no salvage value. The firm uses the straight-line method of depreciation.

88. The partial worksheet for the Lorado Insurance Agency for the month ended October 31, 2016, is shown below. Using this data, prepare an income statement, a statement of owner's equity, and a balance sheet. The owner made no additional investments during the month.

89. The partial worksheet for the Marion Consulting Services for the month ended January 31, 2016, is shown below. Using this data, prepare an income statement, a statement of owner's equity, and a balance sheet. The owner made no additional investments during the month.

Matching Questions

90. Match the accounting terms with the description.

1. An asset account with a credit balance, which is contrary to the normal

Straight-line

balance of an asset account

depreciation ____

2. Allocation of the cost of a long-term asset to operations during its expected

Adjusting entries

useful life

or adjustments ____

3. A balance sheet that lists assets on the left and liabilities and owner's equity on the right

Salvage value ____

4. Expense items acquired, recorded, and

Account form

paid for in advance of their use

balance sheet ____

5. A form used to gather all data needed at the end of an accounting period to prepare financial statements

Contra account ____

6. Journal entries made to update accounts for items that were used or expired during the accounting period

Worksheet ____

7. Allocation of an asset's cost in equal amounts to each accounting period of the asset's useful life

Book value ____

8. An account with a normal balance that is opposite that of a related account

Prepaid expenses ____

9. A balance sheet that lists the asset accounts first, followed by liabilities and owner's equity 10. That portion of an asset's original cost that has not yet been depreciated

Contra asset account ____ Report form balance sheet ____

11. An estimate of the amount that could be received by selling or disposing of an asset at the end of its useful life

Depreciation ____

Chapter 05 Adjustments and the Worksheet Answer Key

True / False Questions

Prepaid expenses, such as prepaid rent and prepaid insurance, represent assets for a business until they are used. TRUE AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Topic: Assets, Liabilities, Equity

The cost of a long-term asset, such as equipment, is transferred to expense as it is used during its life. TRUE AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Topic: Assets, Liabilities, Equity

If an adjustment is not recorded for supplies used, the firm's assets will be overstated. TRUE AACSB: Analytic AICPA BB: Industry

AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Topic: Adjustments

If an adjustment for expired rent is not recorded, the firm's expenses will be overstated. FALSE AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Topic: Adjustments

The normal balance of a contra asset account is a debit. FALSE AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Topic: Assets, Liabilities, Equity

Letters are used to label the debit and credit parts of an adjustment on the worksheet. TRUE AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation 5-44 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Topic: Adjustments

Land is a long-term asset that is not subject to depreciation. TRUE AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Topic: Assets, Liabilities, Equity

The balances of the revenue accounts are recorded in the Trial Balance Credit column, the Adjusted Trial Balance Credit column, and the Balance Sheet Credit column of the worksheet. FALSE AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-03 Complete the worksheet. Topic: The Worksheet

Preparation of a worksheet eliminates the necessity of preparing an income statement and a balance sheet. FALSE AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-03 Complete the worksheet. Topic: Financial Statements Topic: The Worksheet

10.

In the Adjusted Trial Balance section of the worksheet the total debits should equal the total credits. TRUE AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-03 Complete the worksheet. Topic: The Worksheet

11.

The balance of the owner's drawing account is extended to the Income Statement Debit column of the worksheet. FALSE AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 05-03 Complete the worksheet. Topic: The Worksheet

12.

The balance of a liability account is extended to the Balance Sheet Credit column of the worksheet. TRUE AACSB: Analytic AICPA BB: Industry

AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-03 Complete the worksheet. Topic: The Worksheet

13.

The statement of owner's equity is prepared from the data in the Income Statement section of the worksheet. FALSE AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 05-04 Prepare an income statement; statement of owner's equity; and balance sheet from the completed worksheet. Topic: Financial Statements Topic: The Worksheet

14.

If adjustments are entered on a worksheet, it is not necessary to record them in the journal or the ledger. FALSE AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-05 Journalize and post the adjusting entries. Topic: Adjustments Topic: The Worksheet

Fill in the Blank Questions

15.

The process of allocating the cost of a long-term asset as an expense of operations during the asset's expected useful life is known as ____________________. depreciation AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Learning Objective: 05-06 Define the accounting terms new to this chapter. Topic: Adjustments

16.

The difference between the debit balance of the Equipment account and the credit balance of the Accumulated Depreciation—Equipment account is called the ____________________ of an asset. book value AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Remember Difficulty: 2 Medium Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Topic: Adjustments

17.

The Supplies account had a balance of $1,200 when a physical count indicated that supplies on hand totaled $400. This means that supplies in the amount of ____________________ were used during the accounting period. $800 $1,200 - $400 = $800

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Topic: Adjustments

18.

The process of updating accounts at the end of an accounting period for previously unrecorded items that belong to the period is referred to as making ____________________. adjustments or adjusting entries AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Learning Objective: 05-06 Define the accounting terms new to this chapter. Topic: Adjustments

19.

The account credited in the adjusting entry made to record the expiration of a portion of prepaid rent is the ____________________ account. Prepaid Rent AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Remember Difficulty: 2 Medium 5-49 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Topic: Adjustments

20.

An accumulated depreciation account is often referred to as a(n) ____________________ asset account. contra AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Topic: Adjustments

21.

When the ____________________ method of depreciation is used, an equal amount of depreciation is charged to each accounting period during the asset's useful life. straight-line AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Topic: Adjustments

22.

An accumulated depreciation account has a normal ____________________ balance. credit AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Topic: Adjustments

23.

A(n) ____________________ is prepared at the end of each accounting period to organize and summarize the data needed for the preparation of the financial statements. worksheet AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-03 Complete the worksheet. Topic: The Worksheet

24.

On a worksheet, the adjusted balance of Supplies is extended from the Adjusted Trial Balance Debit column to the ____________________ Debit column. Balance Sheet AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-03 Complete the worksheet. Topic: The Worksheet

25.

On a worksheet, the adjusted balance of Depreciation Expense is extended from the Adjusted Trial Balance Debit column to the ____________________ Debit column. Income Statement AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-03 Complete the worksheet. Topic: The Worksheet

Multiple Choice Questions

26.

Which of the following need not be completed separately if a worksheet is prepared?

A. a trial balance B. an income statement C. a balance sheet D. a statement of owner's equity AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-01 Complete a trial balance on a worksheet. Topic: Financial Statements Topic: The Worksheet

27.

When a trial balance is in balance,

A. adjusting entries are not required. B. the general ledger is free of errors. C. the debit account balances equal the credit account balances. D. the company has earned a net income. AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 05-01 Complete a trial balance on a worksheet. Topic: Adjustments Topic: The Worksheet

28.

A total of $3,200 in supplies was purchased during the year. At the end of the year $700 of the supplies were left. The adjusting entry needed at the end of the year is:

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Topic: Adjustments Topic: The Worksheet

29.

A total of $4,000 in supplies was purchased during the year. By the end of the year, the company had used up $1,300 of the supplies. The adjusting entry needed at the end of the year is:

A. debit Supplies $1,300; credit Supplies Expense $1,300 B. debit Supplies Expense $1,300; credit Supplies $1,300 C. debit Supplies Expense $2,700; credit Supplies $2,700 D. debit Supplies Expense $4,000; credit Supplies $4,000 Since the problem stated that $1,300 had been used up that is the amount that needs to be credited from the supplies account and recognized as an expense.

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation

Blooms: Apply Difficulty: 1 Easy Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Topic: Adjustments Topic: The Worksheet

30.

MacGyver Company bought equipment on January 3, 2016, for $34,000. At the time of purchase, the equipment was estimated to have a useful life of six years and a salvage value of $880. Using the straight-line method, the amount of one year's depreciation is

A. $880. B. $5,520. C. $460. D. $5,667. ($34,000 - $880)/6 years = $5,520 per year

31.

Adjusting Entries are

A. corrections of errors. B. updating entries for previously unrecorded expenses or revenues. C. not required. D. will always affect cash. AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Topic: Adjustments

32.

Equipment costing $13,500 with an estimated salvage value of $1,020 and an estimated life of 4 years was purchased on November 1, 2016. Using the straight-line depreciation method, what is the amount of depreciation expense to be recorded at December 31, 2016?

A. $260 B. $520 C. $3,120 D. $1,020 ($13,500 - $1,020)/48 months = $260 per month * 2 months = $520

33.

Which of the following entries records the depreciation on equipment for the fiscal yearend adjustment?

A. Debit Accumulated Depreciation; credit Depreciation Expense B. Debit Depreciation Expense; credit Equipment C. Debit Depreciation Expense; credit Accumulated Depreciation D. Debit Depreciation; credit Depreciation Expense AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting 5-55 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Topic: Adjustments

34.

On January 1, ABC Catering purchased an oven for $2,000. The oven was expected to last five years and have no salvage value. Select the adjusting entry made on December 31, to record the depreciation of the oven for one year.

$2,000/5 years = $400

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Learning Objective: 05-05 Journalize and post the adjusting entries. Topic: Adjustments

35.

On Jan. 1, 2016 Johnson Consulting purchased a truck for $12,000. The truck was expected to last 60 months and have no salvage value. Calculate the book value of the truck after two years?

A. $4,800 B. $7,200 C. $11,600 D. $12,000 $12,000/5 years = $2,400; (2 years * $2,400 = $4,800); $12,000 - $4,800 = $7,200

36.

On October 1, 2016, Jay Walker Company purchased a one-year insurance policy for $660. The correct adjusting entry on December 31, 2016, is

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. 5-57 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Topic: Adjustments

37.

On November 1, 2016, Peaches Consulting Service paid $4,800 for 12 months of advance rent on its office space. The correct adjusting entry on December 31 to show the amount of rent that had expired would include:

A. debit Rent Expense $400; credit Prepaid Rent $400 B. debit Rent Expense $800; credit Prepaid Rent $800 C. debit Prepaid Rent $4,000; credit Rent Expense $4,000 D. debit Rent Expense $4,800; credit Prepaid Rent $4,800 $4,800/12 months = $400 per month * 2 months = $800

38.

Equipment cost $36,000 and is expected to be useful for 5 years and have no salvage value. Under the straight-line method, monthly depreciation will be

A. $600. B. $720. C. $60. D. $12. ($36,000 - $0)/60 months = $600

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply 5-58 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Difficulty: 2 Medium Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Topic: Adjustments

39.

J. B. Consulting purchased a machine for $6,000 on November 1, 2016. The company expects the useful life of the machine to be 5 years and have no salvage value. If the company uses the straight-line method to depreciate the machine, what will be the depreciation adjustment for the year ending December 31, 2016?

A. Debit Depreciation Expense $200 and Credit Accumulated Depreciation $200. B. Debit Depreciation Expense $1,200 and Credit Accumulated Depreciation $1,200. C. Debit Accumulated Depreciation $200 and Credit Depreciation Expense $200. D. Debit Depreciation Expense $200 and Credit Equipment $200. ($6,000 - $0)/60 months = $100; 2 months * $100 = $200

40.

On a worksheet, the adjusting entry to account for depreciation of equipment consists of

A. a debit to Depreciation Expense and a credit to Equipment. B. a debit to Depreciation Expense and a credit to Accumulated Depreciation. C. a debit to Equipment and a credit to Accumulated Depreciation. D. a debit to Accumulated Depreciation and a credit to Equipment. AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium 5-59 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Topic: Adjustments Topic: The Worksheet

41.

If the prepaid expenses are not adjusted, assets on the balance sheet

A. will be overstated. B. will be understated. C. will not be affected. D. may be either overstated or understated. AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Topic: Adjustments Topic: Assets, Liabilities, Equity Topic: Financial Statements

42.

If long-term assets are not adjusted, expenses on the income statement

43.

On November 25, 2016, the company paid $24,000 rent in advance for a six-month period (December 2016 through May 2017). On December 31, 2016, the adjustment for expired rent would include

A. a $4,000 debit to Prepaid Rent. B. a $4,000 credit to Rent Expense. C. a $24,000 debit to Rent Expense. D. a $4,000 credit to Prepaid Rent. $24,000/6 months = $4,000 per month

44.

On March 1, 2016, the company paid $6,000 rent in advance for a 12-month period. On December 31, 2016, the company's adjustment for expired rent would include:

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. 5-61 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Topic: Adjustments

45.

On June 1, Sidney Consulting Services paid $18,000 for 12 months of advance rent on its office building. Select the adjusting entry made on December 31, to record the amount of rent that had expired.

$18,000/12 months = $1,500; ($1,500 * 7 months = $10,500)

46.

The balance in the Prepaid Rent account before adjustment at the end of the year is $12,000, which represents six months rent paid on November 1. The adjusting entry required on December 31 to show the amount of rent that had expired is:

$12,000/6 months = $2,000; ($2,000 * 2 months = $4,000)

47.

The adjusting entry to account for the use of supplies consists of

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Topic: Adjustments

48.

On December 31, Treats Catering Inc.'s trial balance shows a $1,000 balance in the

Supplies account. However, a physical count of the supplies determined that only $400 of supplies actually remain in the supply cabinet. Select the adjusting entry made on December 31, to record the amount of supplies that had been used during the year.

$1,000 - $400 = $600 of supplies had been used.

49.

During its first year of business, XYZ Inc. purchased $2,400 of supplies. By the end of the year, only $500 of supplies remain in the supply cabinet. Determine the amount to be reported in the Supplies account in the Adjusted Trial Balance section of the worksheet prepared on December 31.

A. $500 B. $1,900 C. $2,400 D. $2,900 AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 05-03 Complete the worksheet. Topic: Adjustments Topic: The Worksheet

50.

The adjusting entry to account for the expiration of prepaid insurance consists of

A. a debit to Insurance Expense and a credit to Prepaid Insurance. B. a debit to Insurance Expense and a credit to Accumulated Depreciation. C. a debit to Prepaid Insurance and a credit to Accumulated Depreciation. D. a debit to Accumulated Depreciation and a credit to Prepaid Insurance. AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Topic: Adjustments

51.

The adjusting entry to account for the expiration of prepaid advertising consists of

A. a debit to Prepaid Advertising and a credit to Advertising Expense. B. a debit to Advertising Expense and a credit to Accumulated Depreciation. C. a debit to Prepaid Advertising and a credit to Accumulated Depreciation. D. a debit to Advertising Expense and a credit to Prepaid Advertising. AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Topic: Adjustments

52.

Which of the following statements is not correct?

A. Generally accepted accounting principles require that the original cost of a long-term asset continue to appear in the asset account until the disposition of the asset. B. The book value of a long-term asset is reduced each year as depreciation is recorded. C. Buildings and trucks are examples of long-term assets. D. Salvage value is computed by subtracting the accumulated depreciation from the cost of a long-term asset. AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Topic: Adjustments Topic: Assets, Liabilities, Equity

53.

On a worksheet, the adjusted balance of the Accumulated Depreciation account is extended to:

A. the Income Statement Debit column. B. the Income Statement Credit column. C. the Balance Sheet Debit column. D. the Balance Sheet Credit column. AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-03 Complete the worksheet. Topic: The Worksheet

54.

On a worksheet, the adjusted balance of the Depreciation Expense account is extended to:

A. the Income Statement Debit column. B. the Income Statement Credit column. C. the Balance Sheet Debit column. D. the Balance Sheet Credit column. AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-03 Complete the worksheet. Topic: The Worksheet

55.

On a worksheet, the adjusted balance of the Supplies account is extended to:

A. the Income Statement Debit column. B. the Income Statement Credit column. C. the Balance Sheet Debit column. D. the Balance Sheet Credit column. AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-03 Complete the worksheet. Topic: The Worksheet

56.

On a worksheet, the adjusted balance of the Supplies Expense account is extended to:

A. the Income Statement Debit column. B. the Income Statement Credit column. C. the Balance Sheet Debit column. D. the Balance Sheet Credit column. AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-03 Complete the worksheet. Topic: The Worksheet

57.

Which of the following statements is correct?

A. The cost of supplies used is reported on the statement of owner's equity. B. The cost of supplies used represents an operating expense of the business. C. Accumulated Depreciation--Equipment is presented in the Liabilities section of a balance sheet. D. At the time of their acquisition, prepaid expenses are recorded in expense accounts. AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Learning Objective: 05-04 Prepare an income statement; statement of owner's equity; and balance sheet from the completed worksheet. Topic: Adjustments Topic: Assets, Liabilities, Equity Topic: Financial Statements

58.

On a worksheet, the adjusted balance of the Prepaid Rent account is extended to the:

A. Income Statement Debit column. B. Income Statement Credit column. C. Balance Sheet Debit column. D. Balance Sheet Credit column. AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-03 Complete the worksheet. Topic: The Worksheet

59.

On a worksheet, the adjusted balance of the revenue account Fees Income would be extended to:

A. the Income Statement Debit column. B. the Balance Sheet Credit column. C. the Balance Sheet Debit column. D. the Income Statement Credit column. AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-03 Complete the worksheet. Topic: The Worksheet

60.

On the worksheet, the Balance Sheet columns should balance

A. before the net income amount is added to the Balance Sheet Debit column. B. after the net income amount is added to the Balance Sheet Debit column. C. after the net income amount is added to the Balance Sheet Credit column. D. before the net income amount is added to the Balance Sheet Credit column. AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-03 Complete the worksheet. Topic: Financial Statements Topic: The Worksheet

61.

On a worksheet, the adjusted balance of a contra asset account would be extended to

A. the Balance Sheet Debit column. B. the Balance Sheet Credit column. C. the Income Statement Debit column. D. the Income Statement Credit column. AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 05-03 Complete the worksheet. Topic: The Worksheet

62.

On a worksheet, a net loss is

A. recorded in the Income Statement Debit column. B. recorded in the Balance Sheet Debit column. C. recorded in the Balance Sheet Credit column. D. not recorded. AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-03 Complete the worksheet. Topic: The Worksheet

63.

If a worksheet is prepared at the end of the accounting year,

A. preparation of the financial statements is not required. B. the adjusting entries do not need to be journalized. C. only a balance sheet is required. D. the financial statements are prepared using the worksheet data. AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-03 Complete the worksheet. Topic: Financial Statements Topic: The Worksheet

64.

Which of the following statements is not correct?

A. The difference between the total of the Income Statement Debit column and the total of the Income Statement Credit column of the worksheet represents either net income or net loss. B. Net income is recorded on the worksheet in the Income Statement Debit column and the Balance Sheet Credit column. C. Only the balances of accounts that are affected by adjustments must be recalculated before they are recorded in the Adjusted Trial Balance section of the worksheet. D. If an account has a debit balance in the Trial Balance section of the worksheet and there is a credit entry in the Adjustments section, the credit amount is added when computing the balance to be shown in the Adjusted Trial Balance section of the worksheet. AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-03 Complete the worksheet.

Topic: The Worksheet

65.

On a balance sheet, Accumulated Depreciation—Equipment is reported

A. as a deduction from the cost of the equipment. B. as a liability. C. as an expense. D. as a deduction from the total of the assets. AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 05-04 Prepare an income statement; statement of owner's equity; and balance sheet from the completed worksheet. Topic: Assets, Liabilities, Equity Topic: Financial Statements

66.

The book value of long-term assets is reported on

A. the income statement. B. the statement of owner's equity. C. the balance sheet. D. the worksheet. AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 05-04 Prepare an income statement; statement of owner's equity; and balance sheet from the completed worksheet. Topic: Assets, Liabilities, Equity Topic: Financial Statements

67.

The balance in the account Accumulated Depreciation, Equipment will

A. be reported on the Income Statement. B. be reported on the Statement of Owner's Equity. C. will be reported on the Balance Sheet. D. not appear on any financial statement. AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-04 Prepare an income statement; statement of owner's equity; and balance sheet from the completed worksheet. Topic: Assets, Liabilities, Equity Topic: Financial Statements

68.

A consecutive, twelve-month accounting period is called a(n)

A. accrual year. B. fiscal year. C. accounting year. D. adjusted year. AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-04 Prepare an income statement; statement of owner's equity; and balance sheet from the completed worksheet. Topic: Financial Statements

69.

Accumulated Depreciation, Equipment, is shown as:

A. a liability on the Balance Sheet B. a reduction of Capital on the Statement of Owner's Equity C. a contra asset on the Balance Sheet D. an expense on the Income Statement AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-04 Prepare an income statement; statement of owner's equity; and balance sheet from the completed worksheet. Topic: Assets, Liabilities, Equity Topic: Financial Statements

70.

The adjustments made on the worksheet

A. are posted to the ledger but are not recorded in the journal. B. are recorded in the journal but are not posted to the ledger. C. need not be entered in the journal or the ledger. D. are recorded in the journal and then posted to the general ledger accounts. AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 05-05 Journalize and post the adjusting entries. Topic: Adjustments Topic: The Worksheet

Essay Questions

71.

For each of the accounts listed below, enter the words, Increase or Decrease, in the Debit and Credit columns to indicate the effects of each on the account balance.

72.

For each of the accounts listed below, enter the words, Increase or Decrease, in the Debit and Credit columns to indicate the effects of each on the account balance.

73.

Read each of the following transactions for Patel's Repair Services. Determine the accounts to be debited and credited in the necessary end-of-May adjustments. A. On May 1, 2016, Patel's Repair Services, a new firm, paid $6,600 rent in advance for a six-month period. The $6,600 was debited to the Prepaid Rent account. B. On May 1, 2016, the firm bought supplies for $2,000. The $2,000 was debited to the Supplies account. An inventory of supplies at the end of May showed that supplies costing $800 were on hand. C. On May 1, 2016, the firm bought equipment costing $10,000. The equipment has an expected useful life of 10 years and no salvage value. The firm will use the straight-line method of depreciation.

A. Rent Expense (dr.); Prepaid Rent (cr.) B. Supplies Expense (dr.); Supplies (cr.) C. Depreciation Expense (dr.); Accumulated Depreciation (cr.)

74.

Read each of the following transactions for Pickerton Printer Repair Services. Determine the accounts to be debited and credited in the necessary end-of-April adjustments. A. On April 1, 2016, Pickerton Printer Repair Services, a new firm, bought supplies for $2,500. The $2,500 was debited to the Supplies account. An inventory of supplies at the end of June showed that supplies costing $1,500 were on hand. B. On April 1, 2016, the firm bought equipment costing $20,000. The equipment has an expected useful life of 10 years and no salvage value. The firm will use the straight-line method of depreciation. C. On April 1, 2016, the firm paid $7,200 rent in advance for a six-month period. The $7,200 was debited to the Prepaid Rent account.

A. Supplies Expense (dr.); Supplies (cr.) B. Depreciation Expense (dr.); Accumulated Depreciation (cr.) C. Rent Expense (dr.); Prepaid Rent (cr.)

75.

Read each of the following transactions for Gallagher Enterprises. Determine the accounts and amounts to be debited and credited in the necessary end-of-January adjustments. A. On January 1, 2016, Gallagher Enterprises, a new firm, paid $6,000 rent in advance for a three-month period. The $6,000 was debited to the Prepaid Rent account. B. On January 1, 2016, the firm bought supplies for $3,000. The $3,000 was debited to the Supplies account. An inventory of supplies at the end of January showed that supplies costing $1,000 were on hand. C. On January 1, 2016, the firm bought equipment costing $12,000. The equipment has an expected useful life of 10 years and no salvage value. The firm will use the straight-line method of depreciation.

A. Rent Expense (dr.) $2,000; Prepaid Rent (cr.) $2,000 B. Supplies Expense (dr.) $2,000; Supplies (cr.) $2,000 C. Depreciation Expense (dr.) $100; Accumulated Depreciation (cr.) $100 Feedback: A. $6,000/3 months = $2,000 per month B. $3,000 - $1,000 = $2,000 used C. ($12,000 - $0)/120 months = $100 per month

76.

Read each of the following transactions for Enterprises Security Systems. Determine the accounts and amounts to be debited and credited in the necessary end-of-July adjustments. A. On July 1, 2016, Enterprises Security Systems, a new firm, bought supplies for $2,300. The $2,300 was debited to the Supplies account. An inventory of supplies at the end of July showed that supplies costing $900 were on hand. B. On July 1, 2016, the firm bought equipment costing $24,000. The equipment has an expected useful life of 10 years and no salvage value. The firm will use the straight-line method of depreciation. C. On July 1, 2016, the firm paid $4,500 rent in advance for a nine-month period. The $4,500 was debited to the Prepaid Rent account.

A. Supplies Expense (dr.) $1,400; Supplies (cr.) $1,400 B. Depreciation Expense (dr.) $200; Accumulated Depreciation (cr.) $200 C. Rent Expense (dr.) $500; Prepaid Rent (cr.) $500 Feedback: A. $2,300 - $900 = $1,400 B. ($24,000 - $0)/120 months = $200 per month C. $4,500/9 = $500 per month

77.

Read the description of following adjustments that are required at the end of the accounting period for Riley Furniture Restoration. Determine the account and amount to be debited and the account and amount to be credited. A. Purchased supplies for $1,000 on June 1, 2016. Inventory of supplies was $300 on June 30, 2016. Record the adjustment for the amount of the supplies that were used during the month of June 2016. B. Signed a 4-month contract for $1,200 of prepaid advertising on June 1, 2016. Record the adjustment for the amount of the advertising contract that expired during the month of June 2016. C. Prepaid rent for the year on June 1, 2016. Rent expired during the month of June 2016, $700. Record the adjustment on June 30, 2016. D. Depreciation is computed using the straight-line method. Equipment purchased on June 1, 2016, for $16,800 has an estimated useful life of 5 years with no salvage value. Record the adjustment on June 30, 2016.

A. Debit Supplies Expense, $700; credit Supplies, $700 B. Debit Advertising Expense, $300; credit Prepaid Advertising, $300 C. Debit Rent Expense, $700; credit Prepaid Rent, $700 D. Debit Depreciation Expense--Equipment, $280; credit Accumulated Depreciation-Equipment, $280 Feedback: A. $1,000 - $300 = $700 used B. $1,200/4 = $300 per month C. $700 expired D. ($16,800/$0)/60 months = $280 per month

78.

Read the description of following adjustments that are required at the end of the accounting period for Hubbard Repair Services. Determine the account and amount to be debited and the account and amount to be credited. A. Purchased supplies for $2,000 on November 1, 2016. Inventory of supplies was $600 on November 30, 2016. Record the adjustment for the amount of the supplies that were used during the month of November 2016. B. Signed a 4-month contract for $2,400 of prepaid advertising on November 1, 2016. Record the adjustment for the amount of the advertising contract that expired during the month of November 2016. C. Prepaid rent for the year on November 1, 2016. Rent expired during the month of November 2016, $1,500. Record the adjustment on November 30, 2016. D. Depreciation is computed using the straight-line method. Equipment purchased on November 1, 2016, for $6,000 has an estimated useful life of 5 years with no salvage value. Record the adjustment on November 30, 2016.

A. Debit Supplies Expense, $1,400; credit Supplies, $1,400 B. Debit Advertising Expense, $600; credit Prepaid Advertising, $600 C. Debit Rent Expense, $1,500; credit Prepaid Rent, $1,500 D. Debit Depreciation Expense--Equipment, $100; credit Accumulated Depreciation-Equipment, $100 Feedback: A. $2,000 - $$600 = $1,400 B. $2,400/4 = $600 per month C. $1,500 expired D. ($6,000 - $0)/60 months = $100 per month

79.

Read the description of following adjustments that are required at the end of the accounting period for Hubbard Repair Services. Determine the account and amount to be debited and the account and amount to be credited. A. Prepaid rent for the year on April 1, 2016. Rent expired during the month of April 2016, $3,500. Record the adjustment on April 30, 2016. B. Purchased supplies for $2,000 on April 1, 2016. Inventory of supplies was $1,600 on April 30, 2016. Record the adjustment for the amount of the supplies that were used during the month of April 2016. C. Depreciation is computed using the straight-line method. Equipment purchased on April 1, 2016, for $18,000 has an estimated useful life of 5 years with no salvage value. Record the adjustment on April 30, 2016. D. Signed a 6-month contract for $2,400 of prepaid advertising on April 1, 2016. Record the adjustment for the amount of the contract that expired during the month of April 2016.

A. Debit Rent Expense, $3,500; credit Prepaid Rent, $3,500 B. Debit Supplies Expense, $400; credit Supplies, $400 C. Debit Depreciation Expense--Equipment, $300; credit Accumulated Depreciation-Equipment, $300 D. Debit Advertising Expense, $400; credit Prepaid Advertising, $400 Feedback: A. $3,500 expired B. $2,000 - $1,600 = $400 C. ($18,000 - $0)/60 = $300 per month D. $2,400/6 = $400

80.

Read the description of following adjustments that are required at the end of the accounting period for Drake Consulting Services. Determine the account and amount to be debited and the account and amount to be credited. A. Prepaid rent for the year on January 1, 2016. Rent expired during the month of January 2016, $7,000. Record the adjustment on January 31, 2016. B. Purchased supplies for $1,600 on January 1, 2016. Inventory of supplies was $600 on January 30, 2016. Record the adjustment for the amount of the supplies that were used during the month of January 2016. C. Depreciation is computed using the straight-line method. Equipment purchased on January 1, 2016, for $36,000 has an estimated useful life of 5 years with no salvage value. Record the adjustment on January 31, 2016. D. Signed a 12-month contract for $2,400 of prepaid advertising on January 1, 2016. Record the adjustment for the amount of the advertising contract that expired during the month of January 2016.

A. Debit Rent Expense, $7,000; credit Prepaid Rent, $7,000 B. Debit Supplies Expense, $1,000; credit Supplies, $1,000 C. Debit Depreciation Expense--Equipment, $600; credit Accumulated Depreciation-Equipment, $600 D. Debit Advertising Expense, $200; credit Prepaid Advertising, $200 Feedback: A. $7,000 expired B. $1,600 - $600 = $1,000 C. ($36,000 - $0)/60 months = $600 per month D. $2,400/12 = $200

81.

Read the description of following adjustments that are required at the end of the accounting period for AAA Appliance Repair Services. Record the necessary adjusting entries on page 2 of a general journal. Omit the descriptions. A. Prepaid rent for the year on January 1, 2016. Rent expired during the month of January 2016, $2,000. B. Purchased supplies for $7,600 on January 1, 2016. Inventory of supplies was $1,600 on January 31, 2016. C. Depreciation is computed using the straight-line method. Equipment purchased on January 1, 2016, for $15,000 has an estimated useful life of 5 years with no salvage value. D. Signed a 3-month contract for $600 of prepaid advertising on January 1, 2016.

Feedback: A. $2,000 expired B. $7,600 - $1,600 = $6,000 C. ($15,000 - $0)/60 = $250 D. $600/3 = $200

82.

Read the description of following adjustments that are required at the end of the accounting period for Anise's Repair Services. Record the necessary adjusting entries on page 2 of a general journal. Omit the descriptions. A. Prepaid rent for the year on January 1, 2016. Rent expired during the month of January 2016, $1,600. B. Purchased supplies for $4,000 on January 1, 2016. Inventory of supplies was $1,200 on January 30, 2016. C. Depreciation is computed using the straight-line method. Equipment purchased on January 1, 2016, for $3,000 has an estimated useful life of 5 years with no salvage value. D. Signed a 3-month contract for $450 of prepaid advertising on January 1, 2016.

Feedback: A. $1,600 expired B. $4,000 - $1,200 = $2,800 C. ($3,000 - $0)/60 = $50 D. $450/3 = $150

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. 5-87 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Topic: Adjustments

83.

Read the description of following adjustments that are required at the end of the accounting period for Paulo Consulting Services. Record the necessary adjusting entries on page 2 of a general journal. Omit the descriptions. A. Equipment purchased on January 1, 2016, for $24,000 has an estimated useful life of 5 years with no salvage value. Depreciation is computed using the straight-line method. B. Signed a 3-month contract for $4,500 of prepaid advertising on January 1, 2016. C. Prepaid rent for the year on January 1, 2016. Rent expired during the month of January 2016, $1,600. D. Purchased supplies for $2,000 on January 1, 2016. Inventory of supplies was $1,200 on January 31, 2016.

Feedback: A. ($24,000 - $0)/60 = $400 B. $4,500/3 = $1,500 C. $1,600 expired D. $2,000 - $1,200 = $800

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium

Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Topic: Adjustments

84.

Read the description of following adjustments that are required at the end of the accounting period for River Front Repair. Record the necessary adjusting entries on page 2 of a general journal. Omit the descriptions. A. Prepaid rent for the year on January 1, 2016. Rent expired during the month of January, $7,200. B. Equipment purchased on January 1, 2016, for $8,100 has an estimated useful life of 5 years with no salvage value. Depreciation is computed using the straight-line method. C. Purchased supplies for $650 on January 1, 2016. Inventory of supplies was $100 on January 31, 2016. D. Signed a 12-month contract for $4,800 of prepaid advertising on January 1, 2016.

Feedback: A. $7,200 expired B. ($8,100 - $0)/60 = $135 C. $650 - $100 = $550 D. $4,800/12 = $400

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply

Difficulty: 2 Medium Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Topic: Adjustments

85.

The balances of the ledger accounts for Oleman Services on January 31, 2016, and the information needed for adjustments are shown below. Prepare the Trial Balance section, record the adjustments, and complete the worksheet.

Adjustment information: (a) The supplies were purchased on January 1, 2016. An inventory of supplies showed $600 on hand on January 31, 2016. (b) The amount of Prepaid Insurance represents a payment made January 1, 2016, for a six-month insurance policy. (c) The equipment, purchased January 1, 2016, has an estimated useful life of 5 years with no salvage value. The firm uses the straight-line method of depreciation.

Feedback: A. $1,200 - $600 = $600 B. $3,000/6 = $500 C. ($7,500 - $0)/60 = $125

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Decision Making AICPA FN: Measurement AICPA FN: Reporting Blooms: Create Difficulty: 3 Hard Learning Objective: 05-01 Complete a trial balance on a worksheet. Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Learning Objective: 05-03 Complete the worksheet. Topic: Adjustments Topic: The Worksheet

86.

The balances of the ledger accounts for Buffet Services on September 30, 2016, and the information needed for adjustments are shown below. Prepare the Trial Balance section, record the adjustments, and complete the worksheet.

Feedback: A. $2,400 - $1,200 = $1,200 B. $6,000/6 = $1,000 C. ($15,000 - $0)/60 = $250

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Decision Making AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-01 Complete a trial balance on a worksheet. Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Learning Objective: 05-03 Complete the worksheet. Topic: Adjustments Topic: The Worksheet

87.

The balances of the ledger accounts for Lance's Landscaping Design on March 31, 2016, and the information needed for adjustments are shown below. Prepare the Trial Balance section, record the adjustments, and complete the worksheet.

Feedback: A. $60 - $300 = $300 B. $1,500/6 = $250 C. ($3,000 - $0)/60 = $50

88.

The partial worksheet for the Lorado Insurance Agency for the month ended October 31, 2016, is shown below. Using this data, prepare an income statement, a statement of owner's equity, and a balance sheet. The owner made no additional investments during the month.

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Decision Making AICPA FN: Measurement AICPA FN: Reporting Blooms: Create Difficulty: 2 Medium Learning Objective: 05-04 Prepare an income statement; statement of owner's equity; and balance sheet from the completed worksheet. Topic: Financial Statements

89.

The partial worksheet for the Marion Consulting Services for the month ended January 31, 2016, is shown below. Using this data, prepare an income statement, a statement of owner's equity, and a balance sheet. The owner made no additional investments during the month.

Matching Questions

90.

Match the accounting terms with the description.

1. An asset account with a credit balance, which is contrary to the normal

Straight-line

balance of an asset account

depreciation 7

2. Allocation of the cost of a long-term asset to operations during its expected

Adjusting entries

useful life

or adjustments 6

3. A balance sheet that lists assets on the left and liabilities and owner's equity on the right

Salvage value 11

4. Expense items acquired, recorded,

Account form

and paid for in advance of their use

balance sheet 3

5. A form used to gather all data needed at the end of an accounting period to prepare financial statements

Contra account 8

6. Journal entries made to update accounts for items that were used or expired during the accounting period

Worksheet 5

7. Allocation of an asset's cost in equal amounts to each accounting period of the asset's useful life

Book value 10

8. An account with a normal balance that is opposite that of a related account

Prepaid expenses 4

9. A balance sheet that lists the asset accounts first, followed by liabilities and owner's equity

Contra asset account 1

10. That portion of an asset's original

Report form

cost that has not yet been depreciated

balance sheet 9

11. An estimate of the amount that could be received by selling or disposing of an asset at the end of its useful life

Depreciation 2 AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making AICPA FN: Measurement AICPA FN: Reporting Blooms: Remember

Difficulty: 2 Medium Learning Objective: 05-01 Complete a trial balance on a worksheet. Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Learning Objective: 05-03 Complete the worksheet. Learning Objective: 05-04 Prepare an income statement; statement of owner's equity; and balance sheet from the completed worksheet. Learning Objective: 05-06 Define the accounting terms new to this chapter. Topic: Adjustments Topic: Assets, Liabilities, Equity Topic: Financial Statements Topic: The Worksheet

Chapter 06 Closing Entries and the Postclosing Trial Balance

True / False Questions

1. One of the purposes of closing entries is to transfer net income or net loss for the period to the owner's capital account. True

False

2. The owner's capital account is closed at the end of each accounting period. True

False

3. The entry to close the revenue account, Fees Income, requires a debit to that account. True

False

4. The entry to close an expense account requires a credit to the Income Summary account. True

False

5. "Closing" is written in the Description column of the individual revenue and expense accounts in the general ledger. True

False

6. A compound entry in the general journal is made to close expense accounts. True

False

7. The entry to transfer net income to the owner's capital account would include a debit to the owner's capital account. True

False

8. Withdrawals by the owner for personal use do not affect net income or net loss of the business. True

False

9. After the closing entries are posted, the balance of the owner's capital account agrees with the amount of owner's equity shown on the balance sheet for the period. True

False

10. The temporary owner's equity accounts are closed because they apply to only one accounting period. True

False

11. "Income and Expense Summary" is another name for the Income Summary account. True

False

12. The heading "Closing Entries" is usually written in the Description column of the general journal above the first closing entry. True

False

13. The postclosing trial balance contains balance sheet accounts only. True

False

Fill in the Blank Questions

14. Data for the closing entries is taken from the ____________________ section of the worksheet. ________________________________________ 15. The ____________________ entries transfer the results of operations to owner's equity. ________________________________________ 16. The balance of the Income Summary account is transferred to the ____________________ account. ________________________________________ 17. At the end of the accounting period, the balances of the revenue and expense accounts are transferred to the ____________________ account. ________________________________________ 18. If the Income Summary account has a debit balance before it is closed, the firm experienced a net ____________________ from operations. ________________________________________ 19. In the closing procedure, the ____________________ account balances are transferred to the debit side of the Income Summary account. ________________________________________ 20. The final closing entry transfers the balance of the ____________________ account to the owner's capital account. ________________________________________ 21. After all the closing entries are posted to the ledger, the Income Summary account will have a ____________________ balance. ________________________________________

22. After all the closing entries are posted, the ____________________ account reflects the results of operations for the period. ________________________________________ 23. The ____________________ entries reduce the balances of the revenue, expense, and drawing accounts to zero so that they are ready to receive data for the next period. ________________________________________ 24. The firm had net income if the entry to close the Income Summary account is recorded as a ____________________ to the owner's capital account. ________________________________________ 25. The ____________________ trial balance is prepared to make sure that the general ledger is in balance after adjusting and closing entries have been recorded and posted. ________________________________________ 26. The post-closing trial balance lists only the asset, ____________________, and owner's capital accounts. ________________________________________

Multiple Choice Questions

27. One purpose of closing entries is to give zero balances to

A. asset and liability accounts. B. liability and capital accounts. C. revenue and expense accounts. D. expense and capital accounts.

28. Use the following account balances from the adjusted trial balance of ABC Consulting

Select the correct closing entry that ABC Consulting would make to close their revenue account(s) at the end of the accounting period.

29. Use the following account balances from the adjusted trial balance of ABC Consulting

Select the correct closing entry that ABC Consulting would make to close their expense account(s) at the end of the accounting period.

30. Use the following account balances from the adjusted trial balance of ABC Consulting

Select the correct closing entry that ABC Consulting would make to close the owner's withdrawal account at the end of the accounting period.

31. Use the following account balances from the adjusted trial balance of Gees Catering

Select the correct closing entry that Gees Catering would make to close their revenue account(s) at the end of the accounting period.

32. Use the following account balances from the adjusted trial balance of Gees Catering

Select the correct closing entry that Gees Catering would make to close their Income

Summary account at the end of the accounting period.

33. Use the following account balances from the adjusted trial balance of Gees Catering

Select the correct closing entry that Gees Catering would make to close the owner's withdrawal account at the end of the accounting period.

34. After the closing entries are posted to the ledger, each expense account will have

A. a debit balance. B. a credit balance. C. a negative balance. D. a zero balance.

35. Which of the following accounts is not closed?

A. Cash B. Fees Income C. Rent Expense D. Joan Wilson, Drawing 36. The entry to close the Income Summary account may include

A. a debit to Income Summary and a credit to the owner's capital account. B. a debit to Income Summary and a credit to Cash. C. a debit to Cash and a credit to Income Summary. D. a debit to Income Summary and a credit to the owner's drawing account. 37. Which of the following accounts will not normally have a zero balance after the closing entries have been posted?

A. Income Summary B. Fees Income C. The owner's capital account D. Rent Expense 38. One purpose of closing entries is to

39. The entry to transfer a net loss to the owner's capital account would include a debit to

43. The entry to close the Depreciation Expense account would include a debit to

A. Accounts Receivable B. Accumulated Depreciation C. Supplies Expense D. Joan Wilson, Capital

47. Entries required to zero the balances of the temporary accounts at the end of the year are called

A. posting entries. B. adjusting entries. C. closing entries. D. correcting entries. 48. If a business has a net loss for a fiscal period, the journal entry to close the Income Summary account is

A. a debit to Income Summary and a credit to Fees Income. B. a debit to Income Summary and a credit to Capital. C. a debit to Capital and a credit to Income Summary. D. a debit to Capital and a credit to Drawing. 49. Which of the following entries records the closing of Penny Pincher, Drawing at the end of the accounting period?

A. Debit Penny Pincer, Drawing; credit Penny Pincher, Capital B. Debit Penny Pincher, Capital; credit Income Summary C. Debit Income Summary; credit Penny Pincher, Drawing D. Debit Penny Pincher, Capital; credit Penny Pincher, Drawing 50. Which of the following accounts would not be involved in any of the closing entries?

A. Accounts Payable B. Fred Sanford, Drawing C. Income from Services D. Advertising Expense

51. The first step in the closing process is to close

A. the drawing account. B. the capital account. C. the revenue accounts. D. the expense accounts. 52. Identify the accounts below that are ALL permanent accounts.

A. Wages Expense, Accumulated Depreciation, Fees Income B. Accounts Receivable, Depreciation Expense, Fees Income C. Owner's Drawing, Depreciation Expense, Income Summary D. Owner's Drawing, Owner's Capital, Income Summary 54. The first two closing entries to the Income Summary account indicate a debit of $53,000 and a credit of $64,000. The third closing entry would be

A. debit Capital $11,000; credit Income Summary $11,000. B. debit Income Summary $11,000; credit Capital $11,000. C. debit Revenue $64,000; credit Expenses $53,000. D. debit Income Summary $11,000; credit Drawing $11,000.

55. When done properly, how many journal entries are involved in the closing process?

A. 2 B. 3 C. 4 D. 5 56. After the closing entries are posted to the ledger, each revenue account will have

A. a zero balance. B. a debit balance. C. a credit balance. D. either a debit or a credit balance. 57. A post-closing trial balance could include all of the following except the

A. owner's capital account. B. Cash account. C. Fees Income account. D. Accounts Receivable account. 58. Which of the following accounts is a permanent account?

A. Supplies B. Supplies Expense C. Owner's drawing D. Fees Income

59. All of the following accounts will appear on the post-closing trial balance except

A. Equipment. B. Accumulated Depreciation-Equipment. C. Depreciation Expense-Equipment. D. Accounts Payable. 60. Which of the following statements is not correct?

A. If the post-closing trial balance does not balance, there are errors in the accounting records. B. The audit trial should be used to trace data through the accounting records to find and correct errors. C. The balance of the owner's capital account, as reflected on the post-closing trial balance, will match the amount reported on the income statement. D. The balance of the owner's capital account on the adjusted trial balance will usually be different than that reported on the post-closing trial balance. 62. During the closing process, Accumulated Depreciation, Equipment will

A. be closed to the income summary account. B. be closed to the capital account. C. be closed to the drawing account. D. not be used.

63. Which of the following accounts has a normal debit balance?

A. Accounts Receivable B. Accounts Payable C. Fees Income D. T. Stark, Capital 64. Which of the following accounts has a normal credit balance?

A. Accounts Receivable B. Accounts Payable C. Supplies Expense D. T. Stark, Drawing 65. Which of the following statements is correct?

67. The asset, liability, and owner's capital accounts appear on all of the following except the

A. income statement. B. balance sheet. C. post-closing trial balance. D. worksheet. 68. After the worksheet has been completed, the next step in the accounting cycle is to

A. journalize the closing entries. B. post the closing entries. C. prepare the post-closing trial balance. D. prepare the financial statements. 69. After the transactions have been posted, the next step in the accounting cycle is to

A. prepare the financial statements. B. prepare the post-closing trial balance. C. prepare the worksheet. D. journalize and post the adjusting entries. 70. Identify the item below that is NOT one of the steps in an accounting cycle.

A. prepare the financial statements B. prepare the post-closing trial balance C. journalize and post the adjusting entries D. prepare invoices for customers

71. Trial balances are prepared in a certain order. Given the choices below, which one depicts the trial balances in the correct order in which they would be prepared?

Essay Questions

72. The partial worksheet for the Jamison Company showed the following data on October 31, 2016. Record the closing entries on page 6 of a general journal.

73. The partial worksheet for the Roberts Company showed the following data on October 31, 2016. Record the closing entries on page 9 of a general journal.

74. On December 31, the ledger of Hartley Engineering Company contained the following account balances:

All the accounts have normal balances. Journalize the closing entries. Use 6 as the general journal page number.

75. On December 31, the ledger of Davis Company contained the following account balances:

All the accounts have normal balances. Journalize the closing entries. Use 11 as the general journal page number.

76. The adjusted ledger accounts of RD Consulting on December 31, 2016, appear as follows. All accounts have normal balances and adjusting entries have been made. Extend the balances to the Balance Sheet and Income Statement columns of the worksheet. Then, journalize the closing entries on page 4 of a general journal.

77. The adjusted ledger accounts of Miraldi Landscaping Design on December 31, 2016, appear as follows. All accounts have normal balances and adjusting entries have been made. Extend the balances to the Balance Sheet and Income Statement columns of the worksheet. Then, journalize the closing entries on page 12 of a general journal.

78. The Income Summary and Karen Randall, Capital accounts for Randall Printing Company at the end of its accounting period follow.

Complete the following statements. A. Total revenue for the period is ____________________. B. Total expenses for the period are ____________________. C. Net income (loss) for the period is ____________________. D. Owner's withdrawals for the period are ____________________.

79. The Income Summary and Meryl Sussman, Capital accounts for Sussman Interior Design Services at the end of its accounting period follow.

80. On December 31, the Income Summary account of Coulter Company has a credit balance of $20,000 after revenue of $89,000 and expenses of $69,000 were closed to the account. Joseph Coulter, Drawing has a debit balance of $3,000 and Joseph Coulter, Capital has a credit balance of $45,000. Record the journal entries necessary to complete closing the accounts. Use 14 as the general journal page number. Then, post the closing entries to the Joseph Coulter, Capital account.

81. On December 31 the Income Summary account of Cook Company has a debit balance of $18,000 after revenue of $49,000 and expenses of $67,000 were closed to the account. Maria Cook, Drawing has a debit balance of $23,000 and Maria Cook, Capital has a credit balance of $84,000. Record the journal entries necessary to complete closing the accounts. Use 22 as the general journal page number. Then, post the closing entries to the Maria Cook, Capital account.

82. From the following list identify the accounts that will appear on the post-closing trial balance by placing an X before those accounts. ___ A. Cash ___ B. Accounts Receivable ___ C. Supplies ___ D. Equipment ___ E. Accumulated Depreciation ___ F. Accounts Payable ___ G. Jane Nelson, Capital ___ H. Jane Nelson, Drawing ___ I. Fees Income ___ J. Depreciation Expense ___ K. Salaries Expense ___ L. Supplies Expense ___ M. Utilities Expense

83. From the following list identify the accounts that will appear on the post-closing trial balance by placing an X before those accounts. ___ A. Accounts Payable ___ B. Accounts Receivable ___ C. Accumulated Depreciation ___ D. Cash ___ E. Depreciation Expense ___ F. Equipment ___ G. Fees Income ___ H. Allie Lee, Capital ___ I. Allie Lee, Drawing ___ J. Salaries Expense ___ K. Supplies ___ L. Supplies Expense ___ M. Utilities Expense

84. Dorsey Company's partial worksheet for the month ended March 31, 2016, is shown below. Open the owner's capital account (account number 301) in the general ledger and record the March 1, 2016, balance of $32,000 shown on the worksheet. Journalize the closing entries on page 3 of a general journal. Post the closing entries to the owner's capital account. Prepare a post-closing trial balance.

85. Danos Company's partial worksheet for the month ended December 31, 2016, is shown below. Open the owner's capital account (account number 301) in the general ledger and record the December 1, 2016, balance of $64,000 shown on the worksheet. Journalize the closing entries on page 8 of a general journal. Post the closing entries to the owner's capital account. Prepare a post-closing trial balance.

86. Managers often consult financial statements for specific types of information. Indicate whether each of the following items would appear on the income statement, statement of owner's equity, or the balance sheet. Note that an item may appear on more than one statement. The first item is completed as an example.

87. Managers often consult financial statements for specific types of information. Indicate whether each of the following items would appear on the income statement, statement of owner's equity, or the balance sheet. Note that an item may appear on more than one statement. The first item is completed as an example.

88. Following are the steps in the accounting cycle. Arrange the steps in the proper sequence. A. Analyze transactions. B. Interpret the financial information. C. Journalize the transactions. D. Post the journal entries. E. Prepare a post-closing trial balance. F. Prepare financial statements. G. Prepare a worksheet. H. Record adjusting entries. I. Record closing entries. ___ 1. ___ 2. ___ 3. ___ 4. ___ 5. ___ 6. ___ 7. ___ 8. ___ 9.

Matching Questions

89. Match the accounting terms with the description.

1. To understand and explain the meaning and importance of something (such as financial statements)

Interpret ____

2. A special owner's equity account that is used only in the closing process to summarize

Closing

the results of operations

entries ____

3. A statement that is prepared to prove the equality of total debits and credits after the

Post-closing

closing process is completed

trial balance ____

4. Journal entries that transfer the results of operations (net income or net loss) to owner's

Income

equity and reduce the revenue, expense, and

Summary

drawing account balances to zero

account ____

Chapter 06 Closing Entries and the Postclosing Trial Balance Answer Key

True / False Questions

One of the purposes of closing entries is to transfer net income or net loss for the period to the owner's capital account. TRUE AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

The owner's capital account is closed at the end of each accounting period. FALSE AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

The entry to close the revenue account, Fees Income, requires a debit to that account. TRUE AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation 6-38 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Blooms: Remember Difficulty: 2 Medium Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

The entry to close an expense account requires a credit to the Income Summary account. FALSE AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

"Closing" is written in the Description column of the individual revenue and expense accounts in the general ledger. TRUE AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

A compound entry in the general journal is made to close expense accounts. TRUE AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

The entry to transfer net income to the owner's capital account would include a debit to the owner's capital account. FALSE AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

Withdrawals by the owner for personal use do not affect net income or net loss of the business. TRUE AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 06-01 Journalize and post closing entries. Topic: Financial Statements

After the closing entries are posted, the balance of the owner's capital account agrees with the amount of owner's equity shown on the balance sheet for the period. TRUE AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process Topic: Financial Statements

10.

The temporary owner's equity accounts are closed because they apply to only one accounting period. TRUE AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

11.

"Income and Expense Summary" is another name for the Income Summary account. TRUE AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

12.

The heading "Closing Entries" is usually written in the Description column of the general journal above the first closing entry. TRUE AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

13.

The postclosing trial balance contains balance sheet accounts only. TRUE AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 06-02 Prepare a postclosing trial balance. Topic: Post-Closing Trial Balance

Fill in the Blank Questions

14.

Data for the closing entries is taken from the ____________________ section of the worksheet. Income Statement AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

15.

The ____________________ entries transfer the results of operations to owner's equity. closing AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

16.

The balance of the Income Summary account is transferred to the ____________________ account. owner's capital AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

17.

At the end of the accounting period, the balances of the revenue and expense accounts are transferred to the ____________________ account. Income Summary AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

18.

If the Income Summary account has a debit balance before it is closed, the firm experienced a net ____________________ from operations. loss AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Blooms: Understand Difficulty: 2 Medium Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

19.

In the closing procedure, the ____________________ account balances are transferred to the debit side of the Income Summary account. expense AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Blooms: Remember Difficulty: 2 Medium Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

20.

The final closing entry transfers the balance of the ____________________ account to the owner's capital account. owner's drawing AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

21.

After all the closing entries are posted to the ledger, the Income Summary account will have a ____________________ balance. zero AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

22.

After all the closing entries are posted, the ____________________ account reflects the results of operations for the period. owner's capital AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Blooms: Understand Difficulty: 2 Medium Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

23.

The ____________________ entries reduce the balances of the revenue, expense, and drawing accounts to zero so that they are ready to receive data for the next period. closing AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Blooms: Understand Difficulty: 1 Easy Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

24.

The firm had net income if the entry to close the Income Summary account is recorded as a ____________________ to the owner's capital account. credit AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Blooms: Remember Difficulty: 3 Hard Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

25.

The ____________________ trial balance is prepared to make sure that the general ledger is in balance after adjusting and closing entries have been recorded and posted. post-closing AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 06-02 Prepare a postclosing trial balance. Topic: Post-Closing Trial Balance

26.

The post-closing trial balance lists only the asset, ____________________, and owner's capital accounts. liability AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 06-02 Prepare a postclosing trial balance. Topic: Financial Statements Topic: Post-Closing Trial Balance

Multiple Choice Questions

27.

One purpose of closing entries is to give zero balances to

A. asset and liability accounts. B. liability and capital accounts. C. revenue and expense accounts. D. expense and capital accounts. AACSB: Analytic AICPA BB: Industry

AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

28.

Use the following account balances from the adjusted trial balance of ABC Consulting

Select the correct closing entry that ABC Consulting would make to close their revenue account(s) at the end of the accounting period.

A. debit Fees Revenue and credit Cash for $15,000. B. debit Income Summary and credit Fees Revenue for $15,000. C. debit Fees Revenue and credit B. Conway, Capital for $15,000. D. debit Fees Revenue and credit Income Summary for $15,000. AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Blooms: Apply Difficulty: 1 Easy Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

29.

Use the following account balances from the adjusted trial balance of ABC Consulting

Select the correct closing entry that ABC Consulting would make to close their expense account(s) at the end of the accounting period.

A. debit Salary Expense $2,000; debit Rent Expense $3,000; debit Supplies Expense $4,000 and credit Income Summary $9,000. B. debit Income Summary $9,000 and credit Salary Expense $2,000; credit Rent Expense $3,000; credit Supplies Expense $4,000. C. debit Income Summary $9,000 and credit B. Conway, Capital for $9,000. D. debit B. Conway, Capital $9,000 and credit Salary Expense $2,000; credit Rent Expense $3,000; credit Supplies Expense $4,000. AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Analyze Difficulty: 2 Medium Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

30.

Use the following account balances from the adjusted trial balance of ABC Consulting

Select the correct closing entry that ABC Consulting would make to close the owner's withdrawal account at the end of the accounting period.

A. debit B. Conway, Drawing $500 and credit Income Summary for $500. B. debit Income Summary $500 and credit B. Conway, Drawing for $500. C. debit B. Conway, Capital $500 and credit B. Conway, Drawing for $500. D. debit B. Conway, Drawing $500 and credit B. Conway, Capital for $500. AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 1 Easy Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

31.

Use the following account balances from the adjusted trial balance of Gees Catering

Select the correct closing entry that Gees Catering would make to close their revenue account(s) at the end of the accounting period.

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 1 Easy Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

32.

Use the following account balances from the adjusted trial balance of Gees Catering

Select the correct closing entry that Gees Catering would make to close their Income

Summary account at the end of the accounting period.

The company had a net loss ($10,000 - $7,000 - $6,000 - $6,000) = $9,000 loss

33.

Use the following account balances from the adjusted trial balance of Gees Catering

Select the correct closing entry that Gees Catering would make to close the owner's withdrawal account at the end of the accounting period.

34.

After the closing entries are posted to the ledger, each expense account will have

A. a debit balance. B. a credit balance. C. a negative balance. D. a zero balance. AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

35.

Which of the following accounts is not closed?

A. Cash B. Fees Income C. Rent Expense D. Joan Wilson, Drawing AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

36.

The entry to close the Income Summary account may include

A. a debit to Income Summary and a credit to the owner's capital account. B. a debit to Income Summary and a credit to Cash. C. a debit to Cash and a credit to Income Summary. D. a debit to Income Summary and a credit to the owner's drawing account. AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

37.

Which of the following accounts will not normally have a zero balance after the closing entries have been posted?

A. Income Summary B. Fees Income C. The owner's capital account D. Rent Expense AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process Topic: Post-Closing Trial Balance

38.

One purpose of closing entries is to

A. transfer the results of operations to owner's equity. B. reduce the owner's capital account balance to zero so that the account is ready for the next period. C. adjust the ledger account balances to provide complete and accurate figures for use on financial statements. D. close all accounts so that the ledger is ready for the next accounting period. AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

39.

The entry to transfer a net loss to the owner's capital account would include a debit to

A. the owner's capital account and a credit to Cash. B. the owner's drawing account and a credit to the owner's capital account. C. Income Summary and a credit to the owner's capital account. D. the owner's capital account and a credit to Income Summary. AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

40.

The revenue account Fees Income is closed by debiting

A. Cash and crediting Fees Income. B. Fees Income and crediting Income Summary. C. the owner's capital account and crediting Fees Income. D. Income Summary and crediting Fees Income. AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

41.

The owner's drawing account is closed by debiting

A. the owner's drawing account and crediting the owner's capital account. B. the owner's capital account and crediting the owner's drawing account. C. Income Summary and crediting the owner's drawing account. D. the owner's drawing account and crediting Income Summary. AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

42.

Which of the following statements is not correct?

A. Before the Income Summary account is closed, its balance represents the net income or net loss for the accounting period. B. The Income Summary account is a temporary owner's equity account. C. The Income Summary account is used only at the end of an accounting period to help with the closing procedure. D. The owner's drawing account is closed to the Income Summary Statement. AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 2 Medium Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

43.

The entry to close the Depreciation Expense account would include a debit to

A. the Income Summary account and a credit to the Depreciation Expense account. B. the Income Summary and a credit to Cash. C. Cash and a credit to the Income Summary account. D. the Depreciation Expense account and a credit to the Income Summary account. AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

44.

The entry to close the owner's drawing account would include a debit to the

A. Income Summary account and a credit to the owner's drawing account. B. owner's drawing account and a credit to Cash. C. owner's capital account and a credit to the owner's drawing account. D. owner's drawing account and a credit to the Income Summary account. AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

45.

The entry to close the Depreciation Expense account may include a debit to

A. the Income Summary account and a credit to the Depreciation Expense account. B. the Depreciation Expense account and a credit to the Accumulated Depreciation account. C. the Accumulated Depreciation account and a credit to the Income Summary account. D. the Depreciation Expense account and a credit to the Income Summary account. AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

46.

Which of the following accounts would be closed?

A. Accounts Receivable B. Accumulated Depreciation C. Supplies Expense D. Joan Wilson, Capital AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 1 Easy Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

47.

Entries required to zero the balances of the temporary accounts at the end of the year are called

A. posting entries. B. adjusting entries. C. closing entries. D. correcting entries. AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

48.

If a business has a net loss for a fiscal period, the journal entry to close the Income Summary account is

A. a debit to Income Summary and a credit to Fees Income. B. a debit to Income Summary and a credit to Capital. C. a debit to Capital and a credit to Income Summary. D. a debit to Capital and a credit to Drawing. AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

49.

Which of the following entries records the closing of Penny Pincher, Drawing at the end of the accounting period?

A. Debit Penny Pincer, Drawing; credit Penny Pincher, Capital B. Debit Penny Pincher, Capital; credit Income Summary C. Debit Income Summary; credit Penny Pincher, Drawing D. Debit Penny Pincher, Capital; credit Penny Pincher, Drawing AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

50.

Which of the following accounts would not be involved in any of the closing entries?

A. Accounts Payable B. Fred Sanford, Drawing C. Income from Services D. Advertising Expense AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

51.

The first step in the closing process is to close

A. the drawing account. B. the capital account. C. the revenue accounts. D. the expense accounts. AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

52.

Identify the accounts below that are ALL permanent accounts.

A. Accounts Receivable, Accumulated Depreciation, Accounts Payable B. Accounts Receivable, Depreciation Expense, Fees Income C. Accounts Payable, Wages Expense, Income Summary D. Accounts Payable, Owner's Capital, Income Summary AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

53.

Identify the accounts below that are ALL classified as temporary accounts.

A. Wages Expense, Accumulated Depreciation, Fees Income B. Accounts Receivable, Depreciation Expense, Fees Income C. Owner's Drawing, Depreciation Expense, Income Summary D. Owner's Drawing, Owner's Capital, Income Summary AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

54.

The first two closing entries to the Income Summary account indicate a debit of $53,000 and a credit of $64,000. The third closing entry would be

55.

When done properly, how many journal entries are involved in the closing process?

A. 2 B. 3 C. 4 D. 5 AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

56.

After the closing entries are posted to the ledger, each revenue account will have

A. a zero balance. B. a debit balance. C. a credit balance. D. either a debit or a credit balance. AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 06-02 Prepare a postclosing trial balance. Topic: Closing Entries and Closing Process

57.

A post-closing trial balance could include all of the following except the

A. owner's capital account. B. Cash account. C. Fees Income account. D. Accounts Receivable account. AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 06-02 Prepare a postclosing trial balance. Topic: Post-Closing Trial Balance

58.

Which of the following accounts is a permanent account?

A. Supplies B. Supplies Expense C. Owner's drawing D. Fees Income AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 06-02 Prepare a postclosing trial balance. Topic: Closing Entries and Closing Process

59.

All of the following accounts will appear on the post-closing trial balance except

A. Equipment. B. Accumulated Depreciation-Equipment. C. Depreciation Expense-Equipment. D. Accounts Payable. AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 06-02 Prepare a postclosing trial balance. Topic: Post-Closing Trial Balance

60.

Which of the following statements is not correct?

A. After closing entries are posted, the revenue, expense, and drawing accounts will have zero balances. B. At the end of each accounting period, asset and liability account balances are reduced to zero. C. A post-closing trial balance will not contain revenue and expense account balances. D. Adjusting entries must be journalized and posted before the closing entries are journalized and posted. AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 06-01 Journalize and post closing entries. Learning Objective: 06-02 Prepare a postclosing trial balance. Topic: Closing Entries and Closing Process Topic: Post-Closing Trial Balance

61.

Which of the following statements is not correct?

A. If the post-closing trial balance does not balance, there are errors in the accounting records. B. The audit trial should be used to trace data through the accounting records to find and correct errors. C. The balance of the owner's capital account, as reflected on the post-closing trial balance, will match the amount reported on the income statement. D. The balance of the owner's capital account on the adjusted trial balance will usually be different than that reported on the post-closing trial balance. AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Analyze

Difficulty: 3 Hard Learning Objective: 06-02 Prepare a postclosing trial balance. Topic: Closing Entries and Closing Process Topic: Post-Closing Trial Balance

62.

During the closing process, Accumulated Depreciation, Equipment will

A. be closed to the income summary account. B. be closed to the capital account. C. be closed to the drawing account. D. not be used. AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 06-02 Prepare a postclosing trial balance. Topic: Closing Entries and Closing Process

63.

Which of the following accounts has a normal debit balance?

A. Accounts Receivable B. Accounts Payable C. Fees Income D. T. Stark, Capital AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 06-02 Prepare a postclosing trial balance. Topic: Closing Entries and Closing Process

64.

Which of the following accounts has a normal credit balance?

A. Accounts Receivable B. Accounts Payable C. Supplies Expense D. T. Stark, Drawing AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 06-02 Prepare a postclosing trial balance. Topic: Closing Entries and Closing Process

65.

Which of the following statements is correct?

A. The Balance Sheet section of the worksheet contains the data that is used to make closing entries. B. The balance of the owner's drawing account will appear on the post-closing trial balance. C. Closing entries are entered directly on the worksheet. D. Preparation of the post-closing trial balance is the last step in the end-of-period routine. AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 06-01 Journalize and post closing entries. Learning Objective: 06-02 Prepare a postclosing trial balance. Topic: Closing Entries and Closing Process Topic: Post-Closing Trial Balance

66.

Information in the financial statements provides answers to many questions, including:

A. How much do customers owe the business? B. What are the business' current and long term plans for expansion? C. Has the business achieved its net income goal for the year? D. Has there been a lot of employee turnover? AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 06-03 Interpret financial statements. Topic: Financial Statements

67.

The asset, liability, and owner's capital accounts appear on all of the following except the

A. income statement. B. balance sheet. C. post-closing trial balance. D. worksheet. AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 06-03 Interpret financial statements. Topic: Financial Statements Topic: Post-Closing Trial Balance

68.

After the worksheet has been completed, the next step in the accounting cycle is to

A. journalize the closing entries. B. post the closing entries. C. prepare the post-closing trial balance. D. prepare the financial statements. AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 06-04 Review the steps in the accounting cycle. Topic: Using Accounting Information

69.

After the transactions have been posted, the next step in the accounting cycle is to

A. prepare the financial statements. B. prepare the post-closing trial balance. C. prepare the worksheet. D. journalize and post the adjusting entries. AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 06-04 Review the steps in the accounting cycle. Topic: Using Accounting Information

70.

Identify the item below that is NOT one of the steps in an accounting cycle.

A. prepare the financial statements B. prepare the post-closing trial balance C. journalize and post the adjusting entries D. prepare invoices for customers AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 06-04 Review the steps in the accounting cycle. Topic: Using Accounting Information

71.

Trial balances are prepared in a certain order. Given the choices below, which one depicts the trial balances in the correct order in which they would be prepared?

A. trial balance, adjusted trial balance, post-closing trial balance. B. adjusted trial balance, trial balance, post-closing trial balance. C. post-closing trial balance, adjusted trial balance, trial balance. D. trial balance, post-closing trial balance, adjusted trial balance. AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 06-04 Review the steps in the accounting cycle. Topic: Post-Closing Trial Balance Topic: Using Accounting Information

Essay Questions

72.

The partial worksheet for the Jamison Company showed the following data on October 31, 2016. Record the closing entries on page 6 of a general journal.

AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 1 Easy Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

73.

The partial worksheet for the Roberts Company showed the following data on October 31, 2016. Record the closing entries on page 9 of a general journal.

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply 6-74 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Difficulty: 2 Medium Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

74.

On December 31, the ledger of Hartley Engineering Company contained the following account balances:

All the accounts have normal balances. Journalize the closing entries. Use 6 as the general journal page number.

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process 6-75 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

75.

On December 31, the ledger of Davis Company contained the following account balances:

All the accounts have normal balances. Journalize the closing entries. Use 11 as the general journal page number.

76.

The adjusted ledger accounts of RD Consulting on December 31, 2016, appear as follows. All accounts have normal balances and adjusting entries have been made. Extend the balances to the Balance Sheet and Income Statement columns of the worksheet. Then, journalize the closing entries on page 4 of a general journal.

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement 6-78 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

77.

The adjusted ledger accounts of Miraldi Landscaping Design on December 31, 2016, appear as follows. All accounts have normal balances and adjusting entries have been made. Extend the balances to the Balance Sheet and Income Statement columns of the worksheet. Then, journalize the closing entries on page 12 of a general journal.

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement 6-81 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

78.

The Income Summary and Karen Randall, Capital accounts for Randall Printing Company at the end of its accounting period follow.

(A) $46,500, (B) $30,300, (C) $16,200 Net Income, (D) $6,000 Feedback: (C) $46,500 revenue - $30,300 expenses = $16,200 Net Income

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Analyze Difficulty: 2 Medium Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

79.

The Income Summary and Meryl Sussman, Capital accounts for Sussman Interior Design Services at the end of its accounting period follow.

(A) $70,000, (B) $120,000, (C) $50,000 Net Loss, (D) $10,000 Feedback: $70,000 revenue - $120,000 expenses = $50,000 Net Loss

80.

On December 31, the Income Summary account of Coulter Company has a credit balance of $20,000 after revenue of $89,000 and expenses of $69,000 were closed to the account. Joseph Coulter, Drawing has a debit balance of $3,000 and Joseph Coulter, Capital has a credit balance of $45,000. Record the journal entries necessary to complete closing the accounts. Use 14 as the general journal page number. Then, post the closing entries to the Joseph Coulter, Capital account.

Feedback: $89,000 revenue - $69,000 expenses = Net Income $20,000 Net Income

81.

On December 31 the Income Summary account of Cook Company has a debit balance of $18,000 after revenue of $49,000 and expenses of $67,000 were closed to the account. Maria Cook, Drawing has a debit balance of $23,000 and Maria Cook, Capital has a credit balance of $84,000. Record the journal entries necessary to complete closing the accounts. Use 22 as the general journal page number. Then, post the closing entries to the Maria Cook, Capital account.

Feedback: $49,000 revenue - $67,000 expenses = $18,000 net loss

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Understand Difficulty: 2 Medium Learning Objective: 06-01 Journalize and post closing entries. Topic: Closing Entries and Closing Process

82.

From the following list identify the accounts that will appear on the post-closing trial balance by placing an X before those accounts. ___ A. Cash ___ B. Accounts Receivable ___ C. Supplies ___ D. Equipment ___ E. Accumulated Depreciation ___ F. Accounts Payable ___ G. Jane Nelson, Capital ___ H. Jane Nelson, Drawing ___ I. Fees Income ___ J. Depreciation Expense ___ K. Salaries Expense ___ L. Supplies Expense ___ M. Utilities Expense

A, B, C, D, E, F, G

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Blooms: Analyze Difficulty: 1 Easy Learning Objective: 06-02 Prepare a postclosing trial balance. Topic: Post-Closing Trial Balance

83.

From the following list identify the accounts that will appear on the post-closing trial balance by placing an X before those accounts. ___ A. Accounts Payable ___ B. Accounts Receivable ___ C. Accumulated Depreciation ___ D. Cash ___ E. Depreciation Expense ___ F. Equipment ___ G. Fees Income ___ H. Allie Lee, Capital ___ I. Allie Lee, Drawing ___ J. Salaries Expense ___ K. Supplies ___ L. Supplies Expense ___ M. Utilities Expense

A, B, C, D, F, H, K

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Blooms: Analyze Difficulty: 1 Easy Learning Objective: 06-02 Prepare a postclosing trial balance. Topic: Post-Closing Trial Balance

84.

Dorsey Company's partial worksheet for the month ended March 31, 2016, is shown below. Open the owner's capital account (account number 301) in the general ledger and record the March 1, 2016, balance of $32,000 shown on the worksheet. Journalize the closing entries on page 3 of a general journal. Post the closing entries to the owner's capital account. Prepare a post-closing trial balance.

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Create Difficulty: 2 Medium Learning Objective: 06-01 Journalize and post closing entries. Learning Objective: 06-02 Prepare a postclosing trial balance. Topic: Closing Entries and Closing Process Topic: Post-Closing Trial Balance

85.

Danos Company's partial worksheet for the month ended December 31, 2016, is shown below. Open the owner's capital account (account number 301) in the general ledger and record the December 1, 2016, balance of $64,000 shown on the worksheet. Journalize the closing entries on page 8 of a general journal. Post the closing entries to the owner's capital account. Prepare a post-closing trial balance.

86.

Managers often consult financial statements for specific types of information. Indicate whether each of the following items would appear on the income statement, statement of owner's equity, or the balance sheet. Note that an item may appear on more than one statement. The first item is completed as an example.

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 06-03 Interpret financial statements. Topic: Financial Statements

87.

88.

Following are the steps in the accounting cycle. Arrange the steps in the proper sequence. A. Analyze transactions. B. Interpret the financial information. C. Journalize the transactions. D. Post the journal entries. E. Prepare a post-closing trial balance. F. Prepare financial statements. G. Prepare a worksheet. H. Record adjusting entries. I. Record closing entries. ___ 1. ___ 2. ___ 3. ___ 4. ___ 5. ___ 6. ___ 7. ___ 8. ___ 9.

(1) A, (2) C, (3) D, (4) G, (5) F, (6) H, (7) I, (8) E, (9) B

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Decision Making AICPA FN: Reporting Blooms: Remember Difficulty: 2 Medium Learning Objective: 06-04 Review the steps in the accounting cycle. Topic: Using Accounting Information

Matching Questions

89.

Match the accounting terms with the description.

1. To understand and explain the meaning and importance of something (such as financial statements)

Interpret 1

2. A special owner's equity account that is used only in the closing process to summarize the

Closing

results of operations

entries 4

3. A statement that is prepared to prove the equality of total debits and credits after the

Post-closing

closing process is completed

trial balance 3

4. Journal entries that transfer the results of operations (net income or net loss) to owner's

Income

equity and reduce the revenue, expense, and

Summary

drawing account balances to zero

account 2 AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making Blooms: Remember Difficulty: 2 Medium Learning Objective: 06-01 Journalize and post closing entries. Learning Objective: 06-02 Prepare a postclosing trial balance. Learning Objective: 06-03 Interpret financial statements. Learning Objective: 06-04 Review the steps in the accounting cycle.

Learning Objective: 06-05 Define the accounting terms new to this chapter. Topic: Closing Entries and Closing Process Topic: Post-Closing Trial Balance

Chapter 07 Accounting for Sales, Accounts Receivable, and Cash Receipts

True / False Questions

1. A merchandising business sells goods that it produces. True

False

2. A subsidiary ledger is a ledger that contains accounts of a single type. True

False

3. A sales allowance is when a firm negotiates a reduction in the sales price of merchandise for paying within a predetermined number of days. True

False

4. A retail business is a manufacturer or distributor of goods that sells to retailers or large customers. True

False

5. The balance of a customer's account in the accounts receivable ledger is circled to show that it is a debit amount. True

False

6. The Sales Returns and Allowances account has a normal debit balance. True

False

7. A customer who returns goods or receives an allowance is entitled to a credit for the appropriate amount of sales tax if tax was charged on the original sale. True

False

8. The list price is also known as the established retail price. True

False

9. The balance of the Sales Returns and Allowances account is subtracted from the balance of the Accounts Receivable account in the Assets section of the balance sheet. True

False

10. After all the transactions have been posted, the totals of the balances in the accounts receivable subsidiary ledgers should equal the balance of the Accounts Receivable account in the general ledger. True

False

11. In a small business, the customer accounts are usually kept in alphabetical order. True

False

12. When a customer pays within a certain time, he is eligible to receive a trade discount. True

False

13. For a retailer, bank credit card sales are like cash sales. True

False

14. When a business makes a sale on a bank credit card, the business is responsible for collecting from the customer. True

False

15. The amount of sales tax due is required to be paid just once per year, at the end of the year, for all companies. True

False

Fill in the Blank Questions

16. When taxable goods and services are sold on credit, the sales tax is usually recorded at the ______________________________. ________________________________________ 17. A(n) ____________________ business sells goods that it purchases for resale. ________________________________________ 18. The entry to record a sale of merchandise on credit that is subject to sales tax includes a(n) ____________________ to Sales Tax Payable. ________________________________________ 19. A business that sells services directly to individual consumers is called a(n) ____________________ business. ________________________________________ 20. The stock of goods kept on hand to sell to consumers is called ________________________. ________________________________________ 21. The account used to record products returned by a buyer on the seller's books is __________________________________. ________________________________________

22. A ledger that contains accounts of a single type is called a(n) ____________________ ledger. ________________________________________ 23. Sales Tax Payable is classified as a(n) ____________________ account. ________________________________________ 24. Fees charged by the credit card company for processing sales are debited to an account called _______________________________. ________________________________________ 25. The ___________________________ ledger contains accounts for credit customers. ________________________________________ 26. The Sales Returns and Allowances account has a normal ____________________ balance. ________________________________________ 27. A(n) _________________________ is a business form that is issued to credit a customer upon acceptance of the return of damaged goods. ________________________________________ 28. A list of all unpaid balances in the accounts receivable subsidiary ledger is called a(n) ____________________ of accounts receivable. ________________________________________ 29. When an accounts receivable subsidiary ledger is used, the Accounts Receivable account in the general ledger is considered to be a(n) ____________________ account. ________________________________________

30. The reductions from list prices that many wholesale businesses offer their customers are called ____________________ discounts. ________________________________________

Multiple Choice Questions

31. All of the following are examples of the most common types of credit sales, except

A. closed-account credit cards. B. business credit cards. C. bank credit cards. D. cards issued by credit card companies. 32. If Lacy's Department Store charges 8 percent sales tax, the amount of sales tax collected on a $225 sale would be

A. $18.00. B. $180.00. C. $28.12. D. $2.81. 33. Which of the following is not one of the three basic types of businesses?

A. Service B. Merchandising C. International D. Manufacturing

34. A credit policy that is too tight results in

A. daily. B. weekly. C. monthly. D. yearly. 37. ___________ are required to collect sales tax from customers, make periodic payments to the taxing authority, and pay the taxes due when reports are filed.

A. Retailers B. Wholesalers C. Manufacturers D. Distributors

38. All of the following are situations that can affect our customers' businesses that could cause their accounts receivable on our books to become uncollectible, except

A. unexpected business developments. B. efficient business practices. C. errors of judgment. D. incorrect financial data. 39. The Sales account is classified as

A. a liability account. B. an asset account. C. a contra account. D. a revenue account. 40. A firm that sells goods that it purchases for re-sale is a

A. service business. B. merchandising business. C. manufacturing business. D. non-profit business. 41. Merchandise is sold on credit for $600 plus 5 percent sales tax. The journal entry to record the sale will include a debit to Accounts Receivable for

A. $600.00. B. $603.50. C. $605.50. D. $630.00.

42. Which of the following is a common example of the distribution channel?

A. sales invoices. B. sales drafts. C. sales vouchers. D. sales returns. 44. To find the balance due from an individual customer, the accountant would refer to

A. the general journal. B. the Sales account in the general ledger. C. the accounts receivable subsidiary ledger. D. the Accounts Receivable account in the general ledger. 45. The entry to record a return by a credit customer of defective merchandise on which no sales tax was charged includes

46. The entry to record the return of merchandise from a customer on which sales tax was charged includes

A. a debit to Accounts Receivable. B. a credit to Sales Tax Payable. C. a credit to Sales Returns and Allowances. D. a debit to Sales Tax Payable. 47. The Sales Returns and Allowances account is classified as

A. an asset account. B. a contra asset account. C. a revenue account. D. a contra revenue account. 48. The Sales Returns and Allowances account is presented

A. on the balance sheet as a deduction from Accounts Receivable. B. on the income statement as a deduction from Sales. C. on the income statement as an addition to Sales. D. on the balance sheet as a deduction from Capital. 49. If a firm had sales of $50,000 during a period and sales returns and allowances of $4,000, its net sales were

A. $54,000. B. $50,000. C. $46,000. D. $4,000.

50. After all postings have been made, the total of the schedule of accounts receivable should equal

A. the balance of the Sales account. B. the balance in the Accounts Payable account in the general ledger. C. the balance of the Accounts Receivable account in the general ledger. D. the total of all sales on account for the accounting period. 51. A wholesale business sells goods with a list price of $900 and a trade discount of 40 percent. The net price is

A. $360.00. B. $540.00. C. $900.00. D. $940.00. 52. The amount used by wholesalers to record sales in the general journal is

A. the retail price. B. the list price. C. the net price. D. the original price. 53. A retailer recorded the following in June: cash sales, $2,000; credit sales, $9,000; sales returns and allowances, $1,000. Assuming the sales tax rate is 7 percent, the entry to record the sales tax payment includes a debit to Sales Tax Payable for

A. $560. B. $630. C. $700. D. $770.

54. On Deck Sports Memorabilia store sells a Babe Ruth rookie card for $4,600 on account. If the sales tax on the sale is 8%, what is the amount debited to Accounts Receivable.

A. $4,232 B. $4,968 C. $4,600 D. $4,592 55. Which of the following describes the Sales Tax Payable account?

A. A revenue account with a normal credit balance. B. A liability account with a normal debit balance. C. A liability account with a normal credit balance. D. An asset account with a normal debit balance. 56. Hugh Snow, the buyer, returned merchandise to Farley Co., the seller. The entry on the books of Farley company to record the return of merchandise from Hugh Snow would include a:

A. Debit to Accounts Payable B. Credit to Sales Returns and Allowances C. Debit to Account Receivable D. Debit to Sales Returns and Allowances 57. Sales Returns and Allowances have the effect of

A. decreasing total revenue. B. increasing total revenue. C. increasing expenses. D. increasing assets.

58. A company that earns income by buying merchandise then reselling it to its customers in the same condition in which it was purchased is a(n)

A. manufacturing business. B. service business. C. non-for profit business. D. merchandising business. 59. Hour Place Clock Shop sold a grandfather clock for $2,250 subject to a 9% sales tax. The entry in the general journal will include a debit to Accounts Receivable for

A. $2,250.00. B. $2,092.50. C. $2,452.50. D. $2,362.00. 60. Hour Place Clock Shop sold a grandfather clock for $2,250 subject to a 9% sales tax. The entry in the general journal will include a credit to Sales for

A. $2,250.00. B. $2,092.50. C. $2,452.50. D. $2,362.00. 61. Which of the following describes the Sales Returns and Allowances account?

62. The amount of the trade discount taken by the customer is:

A. recorded as an expense. B. recorded as a revenue. C. recorded as a liability. D. not recorded as sales are recorded net of trade discounts. 63. Kay Sadia sold merchandise for $8,750 subject to a 6% sales tax. The entry in the general journal will include a debit to Accounts Receivable for:

A. $9,275.00. B. $8,225.00. C. $8,750.00. D. $8,462.00. 64. Modern Candy, a wholesaler, sold a crate of candy for $200 on account, to a customer with credit terms of 1/10, n/30. If the customer pays within the discount period, how much cash will Modern Candy receive when it is paid?

A. $220 B. $202 C. $198 D. $180 65. Lamps Unlimited, a wholesaler, sold several crates of lighting for $1,000 on account, to a customer with credit terms of 1/10, n/30. If the customer pays within the discount period, the journal entry to record the receipt of payment would include:

A. a debit to Accounts Receivable for $1,000. B. a credit to Accounts Receivable for $1,000. C. a debit to Sales Discounts for $100. D. a credit to Sales Discounts for $10.

66. On June 12, Music, Inc. sells $4,000 of goods on account to a credit customer with credit terms of 1/10, n/30. If the customer pays on June 20, select the correct entry to record the receipt of the customer's payment:

67. On October 12, Equipment Inc. sells $35,000 worth of equipment on account, to a credit customer with credit terms of 1/10, n/30. Select the correct entry to record the sale on Oct. 12.

68. On June 12, Candy Suppliers sells $5,000 of goods on account to a credit customer with credit terms 1/10, n/30. On June 15, the customer returned $500 of the goods due to defect. Assume the customer pays within the discount period, select the correct entry to record the receipt of the customer's payment:

Short Answer Questions

69. For each of the businesses listed below, classify each as a service business, merchandising business, or manufacturing business.

70. Determine the account to be debited and the account to be credited for the following transactions of Drummond Contracting: A. Sold merchandise on credit. The transaction involved sales tax. B. Accepted a return of merchandise from a credit customer. The original sale involved sales tax. C. Received a check from a credit customer on account. D. Sold merchandise on credit. The transaction did not involve sales tax. E. Gave an allowance to a credit customer for damaged merchandise. The original sale involved sales tax.

71. Determine the account and amount to be debited and the account and amount to be credited for the following transaction of Mario's Electronics. A. Gave a $300 allowance to a credit customer for damaged merchandise. The original sale involved a 10 percent sales tax. B. Accepted a return of $150 in merchandise from a credit customer. The original sale involved 5 percent sales tax. C. Sold $200 in merchandise for cash. The transaction involved 8 percent sales tax. D. Received a check for $50 from a credit customer on account. E. Sold $1,200 in merchandise on credit. The transaction did not involve sales tax.

72. The general journal for Allie's Bakery is shown below. Describe how the amounts would be posted to the accounts receivable subsidiary ledger accounts.

73. The general journal for Simon Company is shown below. Describe how the amounts would be posted to the accounts receivable subsidiary ledger accounts.

74. Bradley's Appliance Store had the following transactions during the month of May 2016. Record the transactions on page 8 of a general journal.

75. Barnett's Electronics Store had the following transactions during the month of January 2016. Record the transactions on page 1 of a general journal.

76. All That Jazz Music Store had the following transactions during the month of August 2016. Record the transactions on page 18 of a general journal.

77. One of the customer accounts from the accounts receivable ledger for Paragon Consulting Services is shown below. Explain each of the entries that have been posted to this customer's subsidiary ledger account.

78. One of the customer accounts from the accounts receivable ledger for Rogers Flooring is shown below. Explain each of the entries that have been posted to this customer's subsidiary ledger account.

79. One of the customer accounts from the accounts receivable ledger for Toulouse Company is shown below. Explain each of the entries that have been posted to this customer's subsidiary ledger account.

80. Selected balances from the general ledger of the All Star Video Rentals on July 31, 2016, are listed below. Use the appropriate data to prepare the Revenue section of the firm's income statement for the month ended July 31, 2016.

81. Selected balances from the general ledger of the Valley Video Rentals on May 31, 2016, are listed below. Use the appropriate data to prepare the Revenue section of the firm's income statement for the month ended May 31, 2016.

82. Selected balances from the general ledger of the Loren Company on March 31, 2016, are listed below. Use the appropriate data to prepare the Revenue section of the firm's income statement for the month ended March 31, 2016.

83. The accounts receivable ledger for Acme Auto Parts is shown below. Prepare a schedule of accounts receivable as of March 31, 2016.

84. A wholesale firm reported sales with the following list prices and trade discounts. Calculate the amount the firm will use to record each sale in the general journal. Show your calculation. A. List price of $900 and trade discount of 45 percent. B. List price of $500 and trade discount of 35 percent. C. List Price of $1,600 and trade discounts of 25 and 15 percent.

85. A wholesale firm made sales with the following list prices and trade discounts. Calculate the amount the firm will use to record each sale in the general journal. Show your calculation and round to the nearest dollar. A. List price of $2,300 and trade discount of 40 percent. B. List price of $3,500 and trade discounts of 25 and 15 percent.

86. The balances of selected accounts of Casper Company on February 28, 2016, were as follows: Sales $200,000 and Sales Returns and Allowances $5,000. The firm's net sales are subject to an 8 percent sales tax. Record the payment of the sales tax payable on February 28, 2016 on page 8 of a general journal.

Matching Questions

87. Match the accounting terms with the description

1. Manufacturing business

A subsidiary ledger that contains credit customer accounts ____ Sales made through the use of openaccount credit or one of various types of

2. List Price

credit cards ____ An account with a debit balance, which

3. Charge-account sales

is contrary to the normal balance for a revenue account ____ An account that links a subsidiary ledger and the general ledger since its balance summarizes the balances of the

4. Net price

accounts in the subsidiary ledger ____ A note verifying that a customer's account is being reduced by the amount of

5. Contra revenue account 6. Schedule of

a sales return or sales allowance plus any sales tax that may have been involved ____ A customer billing for merchandise

accounts receivable

bought on credit ____

7. Sales allowance

An established retail price ____

8. Merchandising business 9. Merchandise inventory

A business that sells goods that it has produced ____ The stock of goods a merchandising business keeps on hand ____ A business that sells goods purchased

10. Net Sales 11. Control account

for resale ____ The list price less all trade discounts ____ The difference between the balance in

12. Open-account

the Sales account and the balance in the

credit

Sales Returns and Allowances account ____ A system that allows the sale of

13. Service

services or goods with the understanding

business

that payment will be made at a later date ____

14. Wholesale business 15. Invoice

A business that sells directly to individual consumers ____ A reduction in the price originally ____

charged to customers for goods or services A listing of all balances of the accounts 16. Credit Memorandum

in the accounts receivable subsidiary ledger ____

17. Accounts receivable ledger

A business that sells services ____ A ledger dedicated to accounts of a single type and showing details to support

18. Retail business

a general ledger account ____ A business that manufactures goods for or distributes goods to retail

19. Subsidiary ledger

businesses or large consumers such as hotels and hospitals ____

Chapter 07 Accounting for Sales, Accounts Receivable, and Cash Receipts Answer Key

True / False Questions

A merchandising business sells goods that it produces. FALSE AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 07-01 Record sales on account; credit card sales; sales returns; and cash receipt transactions in a general journal. Topic: Understanding Merchandising Companies

A subsidiary ledger is a ledger that contains accounts of a single type. TRUE AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 07-01 Record sales on account; credit card sales; sales returns; and cash receipt transactions in a general journal. Topic: Understanding Merchandising Companies

A sales allowance is when a firm negotiates a reduction in the sales price of merchandise for paying within a predetermined number of days. TRUE AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember 7-31 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Difficulty: 2 Medium Learning Objective: 07-01 Record sales on account; credit card sales; sales returns; and cash receipt transactions in a general journal. Topic: Understanding Merchandising Companies

A retail business is a manufacturer or distributor of goods that sells to retailers or large customers. FALSE AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 07-02 Compute trade discounts. Topic: Special Topics in Merchandising

The balance of a customer's account in the accounts receivable ledger is circled to show that it is a debit amount. FALSE AACSB: Analytic AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 07-05 Prepare a schedule of accounts receivable. Topic: Special Topics in Merchandising

The Sales Returns and Allowances account has a normal debit balance. TRUE AACSB: Analytic AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 07-04 Post from the general journal to the general ledger accounts and to the subsidiary ledger. Topic: Special Topics in Merchandising

A customer who returns goods or receives an allowance is entitled to a credit for the appropriate amount of sales tax if tax was charged on the original sale. TRUE AACSB: Analytic AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 07-01 Record sales on account; credit card sales; sales returns; and cash receipt transactions in a general journal. Topic: Understanding Merchandising Companies

The list price is also known as the established retail price. TRUE AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 07-02 Compute trade discounts. Topic: Special Topics in Merchandising

The balance of the Sales Returns and Allowances account is subtracted from the balance of the Accounts Receivable account in the Assets section of the balance sheet. FALSE AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 07-05 Prepare a schedule of accounts receivable. Topic: Special Topics in Merchandising

10.

After all the transactions have been posted, the totals of the balances in the accounts receivable subsidiary ledgers should equal the balance of the Accounts Receivable account in the general ledger. TRUE AACSB: Analytic AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Evaluate Difficulty: 1 Easy Learning Objective: 07-05 Prepare a schedule of accounts receivable. Topic: Special Topics in Merchandising

11.

In a small business, the customer accounts are usually kept in alphabetical order. TRUE AACSB: Analytic AICPA BB: Industry Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 07-04 Post from the general journal to the general ledger accounts and to the subsidiary ledger. Topic: Special Topics in Merchandising

12.

When a customer pays within a certain time, he is eligible to receive a trade discount. FALSE AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 07-02 Compute trade discounts. Topic: Special Topics in Merchandising

13.

For a retailer, bank credit card sales are like cash sales. TRUE AACSB: Analytic AICPA BB: Industry 7-34 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 07-01 Record sales on account; credit card sales; sales returns; and cash receipt transactions in a general journal. Topic: Understanding Merchandising Companies

14.

When a business makes a sale on a bank credit card, the business is responsible for collecting from the customer. FALSE AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 07-01 Record sales on account; credit card sales; sales returns; and cash receipt transactions in a general journal. Topic: Understanding Merchandising Companies

15.

The amount of sales tax due is required to be paid just once per year, at the end of the year, for all companies. FALSE AACSB: Analytic AICPA BB: Industry Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 07-06 Record the payment of sales taxes. Topic: Special Topics in Merchandising

Fill in the Blank Questions

16.

When taxable goods and services are sold on credit, the sales tax is usually recorded at the ______________________________. time of sale AACSB: Analytic AICPA BB: Critical Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 07-01 Record sales on account; credit card sales; sales returns; and cash receipt transactions in a general journal. Topic: Understanding Merchandising Companies

17.

A(n) ____________________ business sells goods that it purchases for resale. merchandising AACSB: Analytic AICPA BB: Critical Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 07-01 Record sales on account; credit card sales; sales returns; and cash receipt transactions in a general journal. Topic: Understanding Merchandising Companies

18.

The entry to record a sale of merchandise on credit that is subject to sales tax includes a(n) ____________________ to Sales Tax Payable. credit AACSB: Analytic AICPA BB: Critical Thinking Blooms: Understand Difficulty: 1 Easy Learning Objective: 07-01 Record sales on account; credit card sales; sales returns; and cash receipt transactions in a general journal. Topic: Understanding Merchandising Companies

19.

A business that sells services directly to individual consumers is called a(n) ____________________ business. service AACSB: Analytic AICPA BB: Industry Blooms: Remember Difficulty: 1 Easy Learning Objective: 07-01 Record sales on account; credit card sales; sales returns; and cash receipt transactions in a general journal. Topic: Understanding Merchandising Companies

20.

The stock of goods kept on hand to sell to consumers is called ________________________. merchandise inventory AACSB: Analytic AICPA BB: Critical Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 07-01 Record sales on account; credit card sales; sales returns; and cash receipt transactions in a general journal. Topic: Understanding Merchandising Companies

21.

The account used to record products returned by a buyer on the seller's books is __________________________________. sales returns and allowances AACSB: Analytic AICPA BB: Critical Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 07-03 Compute and record cash discounts on sales. Topic: Special Topics in Merchandising

22.

A ledger that contains accounts of a single type is called a(n) ____________________ ledger. subsidiary AACSB: Analytic

AICPA BB: Industry Blooms: Remember Difficulty: 1 Easy Learning Objective: 07-01 Record sales on account; credit card sales; sales returns; and cash receipt transactions in a general journal. Topic: Understanding Merchandising Companies

23.

Sales Tax Payable is classified as a(n) ____________________ account. liability AACSB: Analytic AICPA BB: Critical Thinking Blooms: Understand Difficulty: 1 Easy Learning Objective: 07-01 Record sales on account; credit card sales; sales returns; and cash receipt transactions in a general journal. Topic: Understanding Merchandising Companies

24.

Fees charged by the credit card company for processing sales are debited to an account called _______________________________. credit card expense AACSB: Analytic AICPA BB: Critical Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 07-01 Record sales on account; credit card sales; sales returns; and cash receipt transactions in a general journal. Topic: Understanding Merchandising Companies

25.

The ___________________________ ledger contains accounts for credit customers. accounts receivable AACSB: Analytic AICPA BB: Critical Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 07-03 Compute and record cash discounts on sales. Topic: Special Topics in Merchandising

26.

The Sales Returns and Allowances account has a normal ____________________ balance. debit AACSB: Analytic AICPA BB: Critical Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 07-04 Post from the general journal to the general ledger accounts and to the subsidiary ledger. Topic: Special Topics in Merchandising

27.

A(n) _________________________ is a business form that is issued to credit a customer upon acceptance of the return of damaged goods. credit memorandum AACSB: Analytic AICPA BB: Critical Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 07-04 Post from the general journal to the general ledger accounts and to the subsidiary ledger. Topic: Special Topics in Merchandising

28.

A list of all unpaid balances in the accounts receivable subsidiary ledger is called a(n) ____________________ of accounts receivable. schedule AACSB: Analytic AICPA BB: Critical Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 07-05 Prepare a schedule of accounts receivable. Topic: Special Topics in Merchandising

29.

When an accounts receivable subsidiary ledger is used, the Accounts Receivable account in the general ledger is considered to be a(n) ____________________ account. control AACSB: Analytic AICPA FN: Reporting Blooms: Remember

Difficulty: 1 Easy Learning Objective: 07-04 Post from the general journal to the general ledger accounts and to the subsidiary ledger. Topic: Special Topics in Merchandising

30.

The reductions from list prices that many wholesale businesses offer their customers are called ____________________ discounts. trade AACSB: Analytic AICPA BB: Critical Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 07-02 Compute trade discounts. Topic: Special Topics in Merchandising

Multiple Choice Questions

31.

All of the following are examples of the most common types of credit sales, except

A. closed-account credit cards. B. business credit cards. C. bank credit cards. D. cards issued by credit card companies. AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 07-01 Record sales on account; credit card sales; sales returns; and cash receipt transactions in a general journal. Topic: Understanding Merchandising Companies

32.

If Lacy's Department Store charges 8 percent sales tax, the amount of sales tax collected on a $225 sale would be

A. $18.00. B. $180.00. C. $28.12. D. $2.81. $225 × .08 = $18

AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 07-01 Record sales on account; credit card sales; sales returns; and cash receipt transactions in a general journal. Topic: Understanding Merchandising Companies

33.

Which of the following is not one of the three basic types of businesses?

A. Service B. Merchandising C. International D. Manufacturing AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 07-01 Record sales on account; credit card sales; sales returns; and cash receipt transactions in a general journal. Topic: Understanding Merchandising Companies

34.

A credit policy that is too tight results in

A. high level of losses at the expense of decreases in sales volume. B. high level of losses at the expense of increases in sales volume. C. low level of losses at the expense of decreases in sales volume. D. low level of losses at the expense of increases in sales volume. AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 07-01 Record sales on account; credit card sales; sales returns; and cash receipt transactions in a general journal. Topic: Understanding Merchandising Companies

35.

A credit policy that is too lenient results in

A. increased sales volume accompanied by a low level of losses. B. decreased sales volume accompanied by a low level of losses. C. increased sales volume accompanied by a high level of losses. D. decreased sales volume accompanied by a high level of losses. AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 07-01 Record sales on account; credit card sales; sales returns; and cash receipt transactions in a general journal. Topic: Understanding Merchandising Companies

36.

A schedule of accounts receivable is prepared

A. daily. B. weekly. C. monthly. D. yearly. AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 07-05 Prepare a schedule of accounts receivable. Topic: Special Topics in Merchandising

37.

___________ are required to collect sales tax from customers, make periodic payments to the taxing authority, and pay the taxes due when reports are filed.

A. Retailers B. Wholesalers C. Manufacturers D. Distributors AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 07-01 Record sales on account; credit card sales; sales returns; and cash receipt transactions in a general journal. Topic: Understanding Merchandising Companies

38.

All of the following are situations that can affect our customers' businesses that could cause their accounts receivable on our books to become uncollectible, except

A. unexpected business developments. B. efficient business practices. C. errors of judgment. D. incorrect financial data. AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 07-01 Record sales on account; credit card sales; sales returns; and cash receipt transactions in a general journal. Topic: Understanding Merchandising Companies

39.

The Sales account is classified as

A. a liability account. B. an asset account. C. a contra account. D. a revenue account. AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 07-01 Record sales on account; credit card sales; sales returns; and cash receipt transactions in a general journal. Topic: Understanding Merchandising Companies

40.

A firm that sells goods that it purchases for re-sale is a

A. service business. B. merchandising business. C. manufacturing business. D. non-profit business. AACSB: Analytic AICPA BB: Industry Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 07-01 Record sales on account; credit card sales; sales returns; and cash receipt transactions in a general journal. Topic: Understanding Merchandising Companies

41.

Merchandise is sold on credit for $600 plus 5 percent sales tax. The journal entry to record the sale will include a debit to Accounts Receivable for

A. $600.00. B. $603.50. C. $605.50. D. $630.00. $600 + ($600 × .05) = $630

AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 07-01 Record sales on account; credit card sales; sales returns; and cash receipt transactions in a general journal. Topic: Understanding Merchandising Companies

42.

Which of the following is a common example of the distribution channel?

A. Manufacturer sells to Customer who sells to Wholesaler who sells to Retailer B. Manufacturer sells to Wholesaler who sells to Retailer who sells to Customer C. Manufacturer sells to Retailer who sells to Wholesaler who sells to Customer D. Customer sells to Wholesaler who sells to Retailer who sells to Manufacturer AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 07-01 Record sales on account; credit card sales; sales returns; and cash receipt transactions in a general journal. Topic: Understanding Merchandising Companies

43.

All of the following are other names for "sales slips" that are used in credit card transactions except

A. sales invoices. B. sales drafts. C. sales vouchers. D. sales returns. AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 07-01 Record sales on account; credit card sales; sales returns; and cash receipt transactions in a general journal. Topic: Understanding Merchandising Companies

44.

To find the balance due from an individual customer, the accountant would refer to

A. the general journal. B. the Sales account in the general ledger. C. the accounts receivable subsidiary ledger. D. the Accounts Receivable account in the general ledger. AACSB: Analytic AICPA BB: Industry Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 07-04 Post from the general journal to the general ledger accounts and to the subsidiary ledger. Topic: Special Topics in Merchandising

45.

The entry to record a return by a credit customer of defective merchandise on which no sales tax was charged includes

A. a debit to Sales and a credit to Accounts Receivable. B. a debit to Sales and a credit to Sales Returns and Allowances. C. a debit to Sales Returns and Allowances and a credit to Accounts Receivable. D. a debit to Accounts Receivable and a credit to Sales Returns and Allowances. AACSB: Analytic AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 2 Medium Learning Objective: 07-01 Record sales on account; credit card sales; sales returns; and cash receipt transactions in a general journal. Topic: Understanding Merchandising Companies

46.

The entry to record the return of merchandise from a customer on which sales tax was charged includes

A. a debit to Accounts Receivable. B. a credit to Sales Tax Payable. C. a credit to Sales Returns and Allowances. D. a debit to Sales Tax Payable. AACSB: Analytic AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 07-01 Record sales on account; credit card sales; sales returns; and cash receipt transactions in a general journal. Topic: Understanding Merchandising Companies

47.

The Sales Returns and Allowances account is classified as

A. an asset account. B. a contra asset account. C. a revenue account. D. a contra revenue account. AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 07-01 Record sales on account; credit card sales; sales returns; and cash receipt transactions in a general journal. Topic: Understanding Merchandising Companies

48.

The Sales Returns and Allowances account is presented

A. on the balance sheet as a deduction from Accounts Receivable. B. on the income statement as a deduction from Sales. C. on the income statement as an addition to Sales. D. on the balance sheet as a deduction from Capital. AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 07-03 Compute and record cash discounts on sales. Topic: Special Topics in Merchandising

49.

If a firm had sales of $50,000 during a period and sales returns and allowances of $4,000, its net sales were

A. $54,000. B. $50,000. C. $46,000. D. $4,000. $50,000 - $4,000 = $46,000

AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 07-03 Compute and record cash discounts on sales. Topic: Special Topics in Merchandising

50.

After all postings have been made, the total of the schedule of accounts receivable should equal

A. the balance of the Sales account. B. the balance in the Accounts Payable account in the general ledger. C. the balance of the Accounts Receivable account in the general ledger. D. the total of all sales on account for the accounting period. AACSB: Analytic AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Evaluate Difficulty: 2 Medium Learning Objective: 07-05 Prepare a schedule of accounts receivable. Topic: Special Topics in Merchandising

51.

A wholesale business sells goods with a list price of $900 and a trade discount of 40 percent. The net price is

A. $360.00. B. $540.00. C. $900.00. D. $940.00. $900 - ($900 × .4) = $540

AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 07-02 Compute trade discounts. Topic: Special Topics in Merchandising

52.

The amount used by wholesalers to record sales in the general journal is

A. the retail price. B. the list price. C. the net price. D. the original price. AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 07-02 Compute trade discounts. Topic: Special Topics in Merchandising

53.

A retailer recorded the following in June: cash sales, $2,000; credit sales, $9,000; sales returns and allowances, $1,000. Assuming the sales tax rate is 7 percent, the entry to record the sales tax payment includes a debit to Sales Tax Payable for

A. $560. B. $630. C. $700. D. $770. $2,000 + $9,000 = $11,000 - $1,000 = $10,000 × .07 = $700

AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 07-06 Record the payment of sales taxes. Topic: Special Topics in Merchandising

54.

On Deck Sports Memorabilia store sells a Babe Ruth rookie card for $4,600 on account. If the sales tax on the sale is 8%, what is the amount debited to Accounts Receivable.

A. $4,232 B. $4,968 C. $4,600 D. $4,592 $4,600 + ($4,600 × .08) = $4,968

AACSB: Analytic AICPA BB: Industry Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 07-01 Record sales on account; credit card sales; sales returns; and cash receipt transactions in a general journal. Topic: Understanding Merchandising Companies

55.

Which of the following describes the Sales Tax Payable account?

A. A revenue account with a normal credit balance. B. A liability account with a normal debit balance. C. A liability account with a normal credit balance. D. An asset account with a normal debit balance. AACSB: Analytic AICPA BB: Industry Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 07-01 Record sales on account; credit card sales; sales returns; and cash receipt transactions in a general journal. Topic: Understanding Merchandising Companies

56.

Hugh Snow, the buyer, returned merchandise to Farley Co., the seller. The entry on the books of Farley company to record the return of merchandise from Hugh Snow would include a:

A. Debit to Accounts Payable B. Credit to Sales Returns and Allowances C. Debit to Account Receivable D. Debit to Sales Returns and Allowances AACSB: Analytic AICPA BB: Industry Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 07-01 Record sales on account; credit card sales; sales returns; and cash receipt transactions in a general journal. Topic: Understanding Merchandising Companies

57.

Sales Returns and Allowances have the effect of

A. decreasing total revenue. B. increasing total revenue. C. increasing expenses. D. increasing assets. AACSB: Analytic AICPA BB: Industry Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 07-03 Compute and record cash discounts on sales. Topic: Special Topics in Merchandising

58.

A company that earns income by buying merchandise then reselling it to its customers in the same condition in which it was purchased is a(n)

A. manufacturing business. B. service business. C. non-for profit business. D. merchandising business. AACSB: Analytic AICPA BB: Industry Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 07-01 Record sales on account; credit card sales; sales returns; and cash receipt transactions in a general journal. Topic: Understanding Merchandising Companies

59.

Hour Place Clock Shop sold a grandfather clock for $2,250 subject to a 9% sales tax. The entry in the general journal will include a debit to Accounts Receivable for

A. $2,250.00. B. $2,092.50. C. $2,452.50. D. $2,362.00. $2,250 + ($2,250 × .09) = $2,452.50

AACSB: Analytic AICPA BB: Industry Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 07-01 Record sales on account; credit card sales; sales returns; and cash receipt transactions in a general journal. Topic: Understanding Merchandising Companies

60.

Hour Place Clock Shop sold a grandfather clock for $2,250 subject to a 9% sales tax. The entry in the general journal will include a credit to Sales for

A. $2,250.00. B. $2,092.50. C. $2,452.50. D. $2,362.00. Sales total $2,250

61.

Which of the following describes the Sales Returns and Allowances account?

A. A revenue account with a normal credit balance. B. An expense account with a normal debit balance. C. A contra revenue account with a normal debit balance. D. A contra expense account with a normal credit balance. AACSB: Analytic AICPA BB: Industry Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 07-01 Record sales on account; credit card sales; sales returns; and cash receipt transactions in a general journal. Topic: Understanding Merchandising Companies

62.

The amount of the trade discount taken by the customer is:

A. recorded as an expense. B. recorded as a revenue. C. recorded as a liability. D. not recorded as sales are recorded net of trade discounts. AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 07-02 Compute trade discounts. Topic: Special Topics in Merchandising

63.

Kay Sadia sold merchandise for $8,750 subject to a 6% sales tax. The entry in the general journal will include a debit to Accounts Receivable for:

A. $9,275.00. B. $8,225.00. C. $8,750.00. D. $8,462.00. $8,750.00 + ($8,750.00 × .06) = $9,275.00

64.

Modern Candy, a wholesaler, sold a crate of candy for $200 on account, to a customer with credit terms of 1/10, n/30. If the customer pays within the discount period, how much cash will Modern Candy receive when it is paid?

A. $220 B. $202 C. $198 D. $180 $200 × .01 = $2 discount. $200 - $2 = $198

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 07-03 Compute and record cash discounts on sales. Topic: Special Topics in Merchandising

65.

Lamps Unlimited, a wholesaler, sold several crates of lighting for $1,000 on account, to a customer with credit terms of 1/10, n/30. If the customer pays within the discount period, the journal entry to record the receipt of payment would include:

A. a debit to Accounts Receivable for $1,000. B. a credit to Accounts Receivable for $1,000. C. a debit to Sales Discounts for $100. D. a credit to Sales Discounts for $10. $1,000 × .01 = $10 discount. Debit Cash $990; Debit Sales Discounts $10; Credit Accounts Receivable $1,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement Accessibility: Keyboard Navigation

Blooms: Apply Difficulty: 2 Medium Learning Objective: 07-03 Compute and record cash discounts on sales. Topic: Special Topics in Merchandising

66.

On June 12, Music, Inc. sells $4,000 of goods on account to a credit customer with credit terms of 1/10, n/30. If the customer pays on June 20, select the correct entry to record the receipt of the customer's payment:

$4,000 × .01 = $40 discount. Cash received = $4,000 - $40 = $3,960

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement Blooms: Apply Difficulty: 2 Medium Learning Objective: 07-03 Compute and record cash discounts on sales. Topic: Special Topics in Merchandising

67.

On October 12, Equipment Inc. sells $35,000 worth of equipment on account, to a credit customer with credit terms of 1/10, n/30. Select the correct entry to record the sale on Oct. 12.

68.

On June 12, Candy Suppliers sells $5,000 of goods on account to a credit customer with credit terms 1/10, n/30. On June 15, the customer returned $500 of the goods due to defect. Assume the customer pays within the discount period, select the correct entry to record the receipt of the customer's payment:

$5,000 - $500 return = $4,500; $4,500 × .01 = $45 disc. Cash received = $4,500 - $45 = $4,455

Short Answer Questions

69.

For each of the businesses listed below, classify each as a service business, merchandising business, or manufacturing business.

(A) Service, (B) Retailer(Merchandising), (C) Retailer(Merchandising), (D) Service, (E) Manufacturer, (F) Service, (G) Manufacturer, (H) Service

AACSB: Analytic AICPA BB: Critical Thinking Blooms: Analyze Difficulty: 1 Easy Learning Objective: 07-01 Record sales on account; credit card sales; sales returns; and cash receipt transactions in a general journal. Topic: Understanding Merchandising Companies

70.

Determine the account to be debited and the account to be credited for the following transactions of Drummond Contracting: A. Sold merchandise on credit. The transaction involved sales tax. B. Accepted a return of merchandise from a credit customer. The original sale involved sales tax. C. Received a check from a credit customer on account. D. Sold merchandise on credit. The transaction did not involve sales tax. E. Gave an allowance to a credit customer for damaged merchandise. The original sale involved sales tax.

A. Debit Accounts Receivable; credit Sales and Sales Tax Payable B. Debit Sales Returns and Allowances and Sales Tax Payable; credit Accounts Receivable C. Debit Cash; credit Accounts Receivable D. Debit Accounts Receivable; credit Sales E. Debit Sales Returns and Allowances and Sales Tax Payable; credit Accounts Receivable

AACSB: Analytic AICPA BB: Critical Thinking Blooms: Apply Difficulty: 2 Medium Learning Objective: 07-01 Record sales on account; credit card sales; sales returns; and cash receipt transactions in a general journal. Topic: Understanding Merchandising Companies

71.

Determine the account and amount to be debited and the account and amount to be credited for the following transaction of Mario's Electronics. A. Gave a $300 allowance to a credit customer for damaged merchandise. The original sale involved a 10 percent sales tax. B. Accepted a return of $150 in merchandise from a credit customer. The original sale involved 5 percent sales tax. C. Sold $200 in merchandise for cash. The transaction involved 8 percent sales tax. D. Received a check for $50 from a credit customer on account. E. Sold $1,200 in merchandise on credit. The transaction did not involve sales tax.

A. Debit Sales Returns and Allowances $300, debit Sales Tax Payable $30; credit Accounts Receivable $330 B. Debit Sales Returns and Allowances $150, debit Sales Tax Payable $7.50; credit Accounts Receivable $157.50 C. Debit Cash $216; credit Sales $200 and credit Sales Tax Payable $16 D. Debit Cash $50; credit Accounts Receivable $50 E. Debit Accounts Receivable $1,200; credit Sales $1,200 Feedback: A. $300 + ($300 × .10) = $330 B. $150 + ($150 × .05) = $157.50 C. $200 + ($200 × .08) = $216 D. The amount includes the sales tax, which has already been recorded E. The transaction did not involve sales tax.

72.

The general journal for Allie's Bakery is shown below. Describe how the amounts would be posted to the accounts receivable subsidiary ledger accounts.

Dr. Kierra Bourges $4,325; Dr. Tamara Sanders $524; Dr. Randy Ballard $1,811; Dr. Kara Fisher $765

AACSB: Analytic AICPA BB: Critical Thinking Blooms: Apply Difficulty: 2 Medium Learning Objective: 07-04 Post from the general journal to the general ledger accounts and to the subsidiary ledger. Topic: Special Topics in Merchandising

73.

The general journal for Simon Company is shown below. Describe how the amounts would be posted to the accounts receivable subsidiary ledger accounts.

Dr. J. Doe $3,424; Dr. S. Smith $1,926; Dr. T. Trent $428

74.

Bradley's Appliance Store had the following transactions during the month of May 2016. Record the transactions on page 8 of a general journal.

75.

Barnett's Electronics Store had the following transactions during the month of January 2016. Record the transactions on page 1 of a general journal.

76.

All That Jazz Music Store had the following transactions during the month of August 2016. Record the transactions on page 18 of a general journal.

77.

One of the customer accounts from the accounts receivable ledger for Paragon Consulting Services is shown below. Explain each of the entries that have been posted to this customer's subsidiary ledger account.

Mar. 12 - Sold merchandise in the amount of $250 on credit using sales slip 301. Mar. 15 - Collected $1,500 of cash on account. Mar. 28 - Sales return or allowance in the amount of $50 issued using CM 105.

AACSB: Analytic AICPA BB: Critical Thinking Blooms: Analyze Difficulty: 2 Medium Learning Objective: 07-01 Record sales on account; credit card sales; sales returns; and cash receipt transactions in a general journal. Learning Objective: 07-04 Post from the general journal to the general ledger accounts and to the subsidiary ledger. Topic: Special Topics in Merchandising Topic: Understanding Merchandising Companies

78.

One of the customer accounts from the accounts receivable ledger for Rogers Flooring is shown below. Explain each of the entries that have been posted to this customer's subsidiary ledger account.

Sept. 8 - Sales return or allowance in the amount of $500 issued using CM 406. Sept. 10 - Sold merchandise in the amount of $250 on credit using sales slip 1001. Sept. 16 - Collected $6,250 of cash on account.

79.

One of the customer accounts from the accounts receivable ledger for Toulouse Company is shown below. Explain each of the entries that have been posted to this customer's subsidiary ledger account.

June 3 - Sold merchandise in the amount of $2,000 on credit using sales slip 1307. June 15 - Sales return or allowance in the amount of $100 issued using CM 202. June 20 - Collected $1,500 cash on account.

80.

Selected balances from the general ledger of the All Star Video Rentals on July 31, 2016, are listed below. Use the appropriate data to prepare the Revenue section of the firm's income statement for the month ended July 31, 2016.

AACSB: Analytic AICPA BB: Critical Thinking Blooms: Create Difficulty: 1 Easy Learning Objective: 07-03 Compute and record cash discounts on sales. Topic: Special Topics in Merchandising

81.

Selected balances from the general ledger of the Valley Video Rentals on May 31, 2016, are listed below. Use the appropriate data to prepare the Revenue section of the firm's income statement for the month ended May 31, 2016.

AACSB: Analytic AICPA BB: Critical Thinking Blooms: Create Difficulty: 1 Easy Learning Objective: 07-03 Compute and record cash discounts on sales. Topic: Special Topics in Merchandising

82.

Selected balances from the general ledger of the Loren Company on March 31, 2016, are listed below. Use the appropriate data to prepare the Revenue section of the firm's income statement for the month ended March 31, 2016.

AACSB: Analytic AICPA BB: Critical Thinking Blooms: Create Difficulty: 1 Easy Learning Objective: 07-03 Compute and record cash discounts on sales. Topic: Special Topics in Merchandising

83.

The accounts receivable ledger for Acme Auto Parts is shown below. Prepare a schedule of accounts receivable as of March 31, 2016.

AACSB: Analytic AICPA BB: Critical Thinking Blooms: Create Difficulty: 2 Medium Learning Objective: 07-05 Prepare a schedule of accounts receivable. Topic: Special Topics in Merchandising

84.

A wholesale firm reported sales with the following list prices and trade discounts. Calculate the amount the firm will use to record each sale in the general journal. Show your calculation. A. List price of $900 and trade discount of 45 percent. B. List price of $500 and trade discount of 35 percent. C. List Price of $1,600 and trade discounts of 25 and 15 percent.

A. $900 × .45 = $405; $900 - $405 = $495; B. $500 × .35 = $175; $500 - $175 = $325; C. $1,600 × .25 = $400; $1,600 - $400 = $1,200; $1,200 × .15 = $180; $1,200 - $180 = $1,020.

AACSB: Analytic AICPA BB: Critical Thinking Blooms: Apply Difficulty: 2 Medium Learning Objective: 07-02 Compute trade discounts. Topic: Special Topics in Merchandising

85.

A wholesale firm made sales with the following list prices and trade discounts. Calculate the amount the firm will use to record each sale in the general journal. Show your calculation and round to the nearest dollar. A. List price of $2,300 and trade discount of 40 percent. B. List price of $3,500 and trade discounts of 25 and 15 percent.

A. $2,300 × .40 = $920, $2,300 - $920 = $1,380; B. $3,500 × .25 = $875, $3,500 - $875 = $2,625; $2,625 × .15 = $394, $2,625 - $394 = $2,231.

AACSB: Analytic AICPA BB: Critical Thinking Blooms: Apply Difficulty: 2 Medium Learning Objective: 07-02 Compute trade discounts. Topic: Special Topics in Merchandising 7-79 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

86.

The balances of selected accounts of Casper Company on February 28, 2016, were as follows: Sales $200,000 and Sales Returns and Allowances $5,000. The firm's net sales are subject to an 8 percent sales tax. Record the payment of the sales tax payable on February 28, 2016 on page 8 of a general journal.

Feedback: $200,000 - $5,000 = $195,000 × .08 = $15,600

AACSB: Analytic AICPA BB: Critical Thinking Blooms: Apply Difficulty: 2 Medium Learning Objective: 07-06 Record the payment of sales taxes. Topic: Special Topics in Merchandising

Matching Questions

87.

Match the accounting terms with the description

1. Manufacturing business

A subsidiary ledger that contains credit customer accounts 17 Sales made through the use of openaccount credit or one of various types of

2. List Price

credit cards 3 An account with a debit balance, which

3. Charge-account sales

is contrary to the normal balance for a revenue account 5 An account that links a subsidiary ledger and the general ledger since its balance summarizes the balances of the

4. Net price

accounts in the subsidiary ledger 11 A note verifying that a customer's account is being reduced by the amount of a sales return or sales allowance plus

5. Contra revenue account 6. Schedule of

any sales tax that may have been involved 16 A customer billing for merchandise

accounts receivable

bought on credit 15

7. Sales allowance

An established retail price 2

8. Merchandising business 9. Merchandise inventory

A business that sells goods that it has produced 1 The stock of goods a merchandising business keeps on hand 9 A business that sells goods purchased

10. Net Sales 11. Control account

for resale 8 The list price less all trade discounts 4 The difference between the balance in

12. Open-account

the Sales account and the balance in the

credit

Sales Returns and Allowances account 10 A system that allows the sale of

13. Service

services or goods with the understanding

business

that payment will be made at a later date 12

14. Wholesale business

A business that sells directly to individual consumers 18

A reduction in the price originally charged to customers for goods or 15. Invoice

services 7 A listing of all balances of the accounts

16. Credit Memorandum

in the accounts receivable subsidiary ledger 6

17. Accounts receivable ledger

A business that sells services 13 A ledger dedicated to accounts of a single type and showing details to support

18. Retail business

a general ledger account 19 A business that manufactures goods for or distributes goods to retail

19. Subsidiary ledger

businesses or large consumers such as hotels and hospitals 14 AACSB: Analytic AICPA BB: Critical Thinking Blooms: Understand Difficulty: 2 Medium

Learning Objective: 07-01 Record sales on account; credit card sales; sales returns; and cash receipt transactions in a general journal. Learning Objective: 07-02 Compute trade discounts. Learning Objective: 07-03 Compute and record cash discounts on sales. Learning Objective: 07-04 Post from the general journal to the general ledger accounts and to the subsidiary ledger. Learning Objective: 07-05 Prepare a schedule of accounts receivable. Learning Objective: 07-07 Define the accounting terms new to this chapter. Topic: Special Topics in Merchandising Topic: Understanding Merchandising Companies

Chapter 08 Accounting for Purchases, Accounts Payable, and Cash Payments

True / False Questions

1. When a sales department needs goods, it sends the purchasing department a purchase invoice. True

False

2. A receiving report is prepared to show the quantity and condition of the goods received. True

False

3. The supplier's invoice is the source document for a purchase on credit transaction. True

False

4. Purchase discounts is a contra expense account and has a normal credit balance. True

False

5. A purchase allowance is when a business returns the goods. True

False

6. The accounts payable ledger provides information about the individual accounts for all creditors. True

False

7. When an accounts payable subsidiary ledger is used, the entry to Accounts Payable requires two posting references in the general journal. True

False

8. A firm's accounts payable ledger may include accounts for creditors who are not suppliers of merchandise. True

False

9. A balance that is circled in the accounts payable ledger is a credit balance. True

False

10. A schedule of accounts payable is a list of all balances owed to creditors. True

False

11. Assuming a periodic inventory system is used, the entry to record the return of merchandise purchased on credit includes a debit to Accounts Payable and a credit to Purchases Returns and Allowances. True

False

12. If an amount recorded in the general journal requires two postings, a diagonal line is used to separate the two posting references. True

False

13. The Purchases Returns and Allowances account has a normal debit balance. True

False

14. Assuming a periodic inventory system is used, Freight In and Purchases Returns and Allowances are deducted from Purchases to determine the net delivered cost of purchases. True

False

15. If a business uses pre-numbered purchase orders, it is not necessary to account for every purchase order. True

False

Fill in the Blank Questions

16. Whenever a sales department needs goods, it sends the purchasing department a form called a(n) ___________________. ________________________________________ 17. The discounts that are offered by suppliers to encourage quick payment of invoices by customers are known as ____________________ discounts. ________________________________________ 18. The Freight In account should have a(n) ____________________ balance. ________________________________________ 19. The ______________ is the cost to the business of the merchandise sold to customers. ________________________________________ 20. The form sent to the supplier to order goods is called a(n) ___________________. ________________________________________ 21. Since they are liability accounts, creditors' accounts in the accounts payable ledger normally have ____________________ balances. ________________________________________

22. Assuming a periodic inventory system is used, purchases returns and allowances are recorded in the general journal as a debit to Accounts Payable and a credit to _____________________. ________________________________________ 23. An allowance received from a creditor is posted to the ____________________ column of the creditor's account. ________________________________________ 24. The entry to record a return of merchandise purchased on credit includes a debit to the ____________________ account in the general ledger. ________________________________________ 25. After damaged goods are returned, the supplier issues a(n) ____________________ memorandum. ________________________________________ 26. The Purchases Returns and Allowances account is a(n) ____________________ cost of goods sold account. ________________________________________ 27. A list of creditors and the balances owed to them is called a schedule of ___________________. ________________________________________ 28. When an accounts payable subsidiary ledger is used, the Accounts Payable account in the general ledger becomes a(n) ____________________ account. ________________________________________

29. In a small firm, the creditor accounts are placed in ____________________ order in the accounts payable ledger. ________________________________________ 30. Good internal control requires a ____________________ of duties. ________________________________________

Multiple Choice Questions

31. Purchases is a temporary _______ account.

A. liability B. asset C. revenue D. expense 32. Which of the following statements is correct?

A. The purchase requisition is the form sent to a supplier to order goods. B. The Purchases account is reported as an asset on the balance sheet. C. To the customer, a supplier's invoice is a sales invoice. D. The credit terms, 2/10, n/30, allow the customer to take a 2 percent discount if payment is made within 10 days of the invoice, otherwise payment is due in full in 30 days. 33. When merchandise is needed, the purchasing department issues a form called

A. a purchase invoice. B. a purchase order. C. a sale invoice. D. a purchase requisition.

34. Assuming a periodic inventory system is used, the entry to record a purchase of merchandise on credit includes

A. a debit to Purchases and a credit to Accounts Receivable. B. a credit to Purchases and a credit to Accounts Payable. C. a debit to Accounts Payable and a credit to Purchases. D. a debit to Purchases and a credit to Accounts Payable. 35. Assuming a periodic inventory system is used, freight charges on merchandise purchases should be debited to

A. the Purchases account. B. the Accounts Payable account. C. the Freight In account. D. the creditor's account in the subsidiary ledger. 36. The Purchases account is

A. a permanent account. B. a temporary account. C. a subsidiary account. D. a liability account. 37. Freight In is a(n) _________ account.

A. revenue B. expense C. asset D. liability

38. The source document for recording a purchase of merchandise on credit is

A. the purchase order. B. the purchase invoice. C. the receiving report. D. the purchase requisition. 39. Assuming a periodic inventory system is used, purchases of supplies on credit that are to be used in the business are debited to

A. accounts receivable. B. accounts payable. C. purchases. D. supplies. 40. When the sales department needs merchandise, it sends the purchasing department a form called

A. a purchase invoice. B. a purchase order. C. a purchase requisition. D. a sales invoice. 41. When a payment is due is determined by the invoice date and

A. credit terms. B. accounting cycle. C. delivery date. D. transportation schedule.

42. The total of the individual creditor accounts in the subsidiary ledger must ________ the balance of the Accounts Payable control account.

A. be greater than B. be less than C. be equal to D. be subtracted from 43. The objective of internal control of purchases is to

A. Purchases should be made only after proper authorization has been given in writing. B. The person who ordered the goods should also authorize payment. C. Computations on an invoice are assumed to be correct if computer generated. D. Purchase requisitions do not need to be printed on pre-numbered forms. 45. Credit terms of 1/10, n/30 mean

46. Credit terms of 2/10, n/45 mean

A. daily. B. weekly. C. monthly. D. at the end of the fiscal period. 48. Which of the following statements is correct?

A. Purchases Discounts is a contra expense account and carries a credit balance. B. Purchases Discounts is an expense account and carries a debit balance. C. Purchases Discounts is an asset account and carries a credit balance. D. Purchases Discounts is an expense account and carries a credit balance. 49. Assuming a periodic inventory system is used, to record a return of merchandise purchased on credit, the accountant would

50. The total of the balances in the creditors' accounts should agree with the balance of

A. the Purchases account in the general ledger. B. the Accounts Receivable account in the general ledger. C. the Accounts Payable account in the general ledger. D. the Sales account in the general ledger. 51. Assuming a periodic inventory system is used, identify the statement below that is correct?

A. Freight In is subtracted from Purchases to arrive at delivered cost of purchases. B. Another name that may be used for the Freight In account is "Transportation In." C. Freight charges that are listed on the invoice received from a supplier are not part of the total credit to Accounts Payable to record the credit purchase. D. None of these statements are correct. 52. The amount of the purchases for a period is presented in

A. the Liabilities section of the balance sheet. B. the Revenue section of the income statement. C. the Cost of Goods Sold section of the income statement. D. the Expenses section of the income statement. 53. A firm had purchases of $16,200, freight charges of $300, and purchases returns and allowances of $1,100 during one month. Its net delivered cost of purchases was

A. $14,800. B. $17,600. C. $16,200. D. $15,400.

54. Hugh Snow, the buyer, returned merchandise to Farley Co., the seller. The entry on the books of Hugh Snow to record the return of merchandise assuming a perpetual inventory system is used, would include a:

A. Debit to Accounts Payable B. Credit to Purchase Returns and Allowances C. Debit to Account Receivable D. Debit to Sales Returns and Allowances 55. Assuming a periodic inventory system, the journal entry to record the purchase on account of $900 of merchandise with freight of $65 prepaid and added to the invoice is:

A. debit Purchases $965; credit Accounts Payable $965 B. debit Accounts Payable $965, debit Freight in $65; credit Purchases $900 C. debit Purchases $900, debit Freight In $65; credit Accounts Payable $965 D. debit Accounts Receivable $965; credit Sales $965 56. Assuming a periodic inventory system is used, the journal entry to record the purchase of merchandise on account for $2,750 with freight of $125 prepaid and added to the invoice is:

A. debit Purchases $2,750; credit Accounts Payable $2,750 B. debit Accounts Payable $2,875, credit Freight in $125; credit Purchases $2,750 C. debit Purchases $2,750, debit Freight In $125; credit Accounts Payable $2,875 D. debit Accounts Receivable $2,875; credit Sales $2,875 57. Tune Tones Instrument Tuning Company owes Mandy Lynn's Music Studio $4,856 as of November 1. During November, Tune Tones purchased merchandise from Mandy Lynn totaling $8,495 and made payments on account to Mandy Lynn in the amount of $7,250. The amount Tune Tones owes Mandy Lynn on November 30 is:

A. $6,101 B. $3,611 C. $10,889 D. $7,250

58. Nadal, Inc. owes Wozniaki Company $10,560 as of April 1. During April, Nadal, Inc. purchased $12,800 of merchandise from Wozniaki Company and made payments on account to Wozniaki Company totaling $9,200. The amount Nadal, Inc. owes Wozniaki Company on April 30 is:

A. $9,200 debit B. $6,960 credit C. $14,160 credit D. $12,800 debit 59. If a business pays $1,100 on account to a creditor, the effect of the payment is a decrease to cash and a

A. decrease to Fees Income. B. increase of capital. C. increase to accounts receivable. D. decrease to accounts payable. 60. Which of the following accounts has a normal debit balance?

A. Purchases B. Purchase Returns C. Accounts Payable D. Sales 61. During March a firm purchased $22,650 of merchandise and paid freight charges of $1,720. If the net delivered cost of purchases for the March is $21,900, what is the total purchase returns for March?

A. $0 B. $970 C. $2,470 D. $3,440

62. During the year, a firm purchased $256,200 of merchandise and paid freight charges of $41,720. If the total purchases returns and allowances were $15,790 and purchase discounts were $8,250 for the year, what is the net delivered cost of purchases?

A. $297,920 B. $273,880 C. $321,960 D. $190,440 63. During the year, a firm purchased $56,970 of merchandise and paid freight charges of $12,680. If the total purchases returns and allowances were $6,495 and purchase discounts were $2,050 for the year, what is the net delivered cost of purchases?

A. $61,105 B. $69,650 C. $72,349 D. $35,745 64. On Oct. 1, Jerry's Lighting purchased merchandise with a list price of $5,000 with credit terms of 1/10, n/30. On Oct. 3, Jerry's returns $500 of the merchandise. Assuming a perpetual inventory system is used and Jerry's pays the remaining amount owed on the purchase within the discount period, Jerry's journal entry to record the payment, would include

A. a debit to Accounts Receivable for $4,500. B. a debit to Accounts Payable for $4,500. C. a credit to Purchase Discounts for $45. D. a debit to Merchandise Inventory for $45.

65. On April 5, Fair Coffee, Inc. purchased merchandise with a list price of $1,000 and credit terms 2/10, n/30. On April 6, Fair Coffee returns $200 of the merchandise. Assuming Fair Coffee uses a perpetual inventory system, their journal entry on April 5, to record the purchase, would include

A. a debit to Purchases for $1,000. B. a debit to Accounts Payable for $1,000. C. a debit to Merchandise Inventory for $1,000. D. a credit to Merchandise Inventory for $16. 66. On April 5, Fair Coffee, Inc. purchased merchandise with a list price of $1,000 and credit terms 2/10, n/30. On April 6, Fair Coffee returns $200 of the merchandise. Assuming Fair Coffee uses a perpetual inventory system, the journal entry on April 13, to record the payment of the amount owed, would be:

A. Option A. B. Option B. C. Option C. D. Option D.

67. On April 5, Fair Coffee, Inc. purchased merchandise with a list price of $1,000 and credit terms 2/10, n/30. On April 6, Fair Coffee returns $200 of the merchandise. Assuming Fair Coffee uses a perpetual inventory system, the journal entry on April 6, to record the return, would be:

A. Option A. B. Option B. C. Option C. D. Option D.

68. On Feb. 16, Gourmet Cakes purchased $20,000 of merchandise on account from JB Baking. Credit terms of the purchase were 2/10, n/30. On Feb. 24, Gourmet Cakes pays the amount owed Assuming Gourmet Cakes uses a perpetual inventory system, the journal entry on Feb. 24, to record the payment, would be:

A. Option A. B. Option B. C. Option C. D. Option D.

69. On Jan. 3, Gourmet Cakes sold $15,000 of merchandise, on account with terms 2/10, n/30, to Jerry Hines. Assuming that the original cost of the merchandise to Gourmet Cakes was $4,000 and the perpetual inventory system is used, the journal entry on Jan. 3, to record the sale, would be:

A. Option A. B. Option B. C. Option C. D. Option D.

70. On Jan. 3, Gourmet Cakes sold $15,000 of merchandise on account to Jerry Hines. On Jan. 10, Jerry returned $2,000 of the merchandise because they bought too much. Assuming the cost of the returned merchandise to Gourmet Cakes was $500 and they use a perpetual inventory system, the journal entry on Jan. 10, to record the return of the merchandise from Jerry Hines, would be:

A. Option A. B. Option B. C. Option C. D. Option D.

Short Answer Questions

71. Explain each of the following credit terms. A) n/30 B) n/10 EOM C) 2/10, n/30 D) 1/10, n/20 E) 3/5, n/30

72. On June 1, Lulu's Performing Arts School purchased merchandise with a list price of $5,000 from Monty's Inc. with credit terms 2/10, n/30. On June 3, Lulu's returns $1,000 of the merchandise. Compute the amount owed by Lulu's if the store pays within the discount period.

73. Assuming a periodic inventory system, determine the account to be debited and the account to be credited for the following transactions of Drummond Contracting during the month. A) Purchased merchandise on terms of net 30 days. B) Returned some damaged merchandise to a supplier and received a credit memorandum. C) Issued a check to a supplier as a payment on account. D) Received an allowance for some merchandise that was slightly damaged but can be sold at a reduced price and received a credit memorandum. E) Purchased merchandise on terms of 2/10, n/30. The supplier's invoice includes a freight charge.

74. Assuming a periodic inventory system, determine the account to be debited and the account to be credited for the following transactions of Hughly Office Supplies during the month. A) Issued a check to a supplier as a payment on account. B) Purchased merchandise; the supplier's invoice, which includes a freight charge, has payment terms of 2/10, n/30. C) Returned some damaged merchandise to a supplier and received a credit memorandum. D) Received an allowance for some merchandise that was slightly damaged but can be sold at a reduced price; received a credit memorandum. E) Purchased merchandise on terms of net 30 days.

75. The Lone Cactus Nursery has the following general ledger account balances as of August.

Calculate the net delivered cost of purchases for August.

76. Ellie's Electronics has the following general ledger account balances as of December.

Calculate the net delivered cost of purchases for December.

77. Myra's Mechanics has the following general ledger account balances as of October.

Calculate the net delivered cost of purchases for October.

78. Complete the table listed below

79. The Picture Perfect Camera Shop had the following transactions for the month of August 2016. Record the transactions on page 9 of a general journal assuming the company uses the periodic inventory system to keep track of its inventory.

80. The Fast Frame Shop had the following transactions for the month of January 2016. Record the transactions on page 9 of a general journal assuming the company uses the periodic inventory system to keep track of its inventory.

81. One of the supplier accounts from the accounts payable ledger for Paragon Video is shown below. Explain each of the entries that have been posted to this supplier's subsidiary ledger account.

82. One of the supplier accounts from the accounts payable ledger for Thompson Consulting Services is shown below. Explain each of the entries that have been posted to this supplier's subsidiary ledger account.

83. One of the supplier accounts from the accounts payable ledger for Allen Company is shown below. Explain each of the entries that have been posted to this supplier's subsidiary ledger account.

84. The accounts payable ledger for Dora's Dollar Shop is shown below. Prepare a schedule of accounts payable as of March 31, 2016.

85. On June 30, 2016, the general ledger of the Shoe Closet, a retail store, showed the following balances: Purchases, $19,000; Freight In, $500; Purchases Returns and Allowances, $900. Determine the following: A) What was the delivered cost of purchases for June? B) What was the net delivered cost of purchases for June?

86. On April 30, 2016, the general ledger of the Danielle's Dress Shop showed the following balances: Purchases, $9,000; Freight In, $50; Purchases Returns and Allowances, $90. Determine the following: A) What was the delivered cost of purchases for April? B) What was the net delivered cost of purchases for April?

87. On November 30, the general ledger of Hinges and More Hardware, a retail store, showed the following balances: Purchases, $136,750; Freight In, $2,500; Purchases Returns and Allowances, $4,000. Determine the following: A) What was the delivered cost of purchases for November? B) What was the net delivered cost of purchases for November?

88. Discuss the difference between a purchase order, a purchase requisition, and a purchase invoice.

Matching Questions

89. Match the accounting terms with the description.

The cost to the business of the 1. Purchase invoice 2. Freight In account

merchandise sold to customers ____ An account showing transportation charges for items purchased ____ A price reduction from the amount

3. Sales discount

originally billed ____

4. Schedule of accounts payable

A bill received for goods purchased ____ An order to the supplier of goods specifying items needed, quantity, price,

5. Purchase order

and credit terms ____ A list sent to the purchasing department showing the items to be

6. Purchase return

ordered ____

7. Purchases account 8. Purchases discount 9. Cost of goods sold

Return of unsatisfactory goods ____ An account used to record cost of goods bought for resale during a period ____ A cash discount offered and taken for payment within a specified period ____ A form showing quantity and condition

10. Sales invoice

of goods received ____ A cash discount offered by the seller for

11. Purchase allowance

receipt of payment within a specified period ____

12. Purchase requisition

A supplier's billing document ____

13. Receiving report

A list of all balances owed to creditors ____

Chapter 08 Accounting for Purchases, Accounts Payable, and Cash Payments Answer Key

True / False Questions

When a sales department needs goods, it sends the purchasing department a purchase invoice. FALSE AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Topic: Merchandising Purchases

A receiving report is prepared to show the quantity and condition of the goods received. TRUE AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Topic: Merchandising Purchases

The supplier's invoice is the source document for a purchase on credit transaction. TRUE AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. 8-31 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Topic: Merchandising Purchases

Purchase discounts is a contra expense account and has a normal credit balance. TRUE AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Topic: Merchandising Purchases

A purchase allowance is when a business returns the goods. FALSE AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Topic: Merchandising Purchases

The accounts payable ledger provides information about the individual accounts for all creditors. FALSE AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 08-04 Post transactions to the accounts payable subsidiary ledger. Topic: Merchandising Purchases

When an accounts payable subsidiary ledger is used, the entry to Accounts Payable requires two posting references in the general journal. TRUE AACSB: Analytic AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 08-04 Post transactions to the accounts payable subsidiary ledger. Topic: Accounts Payable

A firm's accounts payable ledger may include accounts for creditors who are not suppliers of merchandise. TRUE AACSB: Analytic AICPA BB: Industry Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 08-04 Post transactions to the accounts payable subsidiary ledger. Topic: Accounts Payable

A balance that is circled in the accounts payable ledger is a credit balance. FALSE AACSB: Analytic AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 08-04 Post transactions to the accounts payable subsidiary ledger. Topic: Accounts Payable

10.

A schedule of accounts payable is a list of all balances owed to creditors. TRUE AACSB: Analytic AICPA BB: Critical Thinking 8-33 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 08-05 Prepare a schedule of accounts payable. Topic: Accounts Payable

11.

Assuming a periodic inventory system is used, the entry to record the return of merchandise purchased on credit includes a debit to Accounts Payable and a credit to Purchases Returns and Allowances. TRUE AACSB: Analytic AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Topic: Accounts Payable

12.

If an amount recorded in the general journal requires two postings, a diagonal line is used to separate the two posting references. TRUE AACSB: Analytic AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 08-04 Post transactions to the accounts payable subsidiary ledger. Topic: Accounts Payable

13.

The Purchases Returns and Allowances account has a normal debit balance. FALSE AACSB: Analytic AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Topic: Accounts Payable

14.

Assuming a periodic inventory system is used, Freight In and Purchases Returns and Allowances are deducted from Purchases to determine the net delivered cost of purchases. FALSE AACSB: Analytic AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Learning Objective: 08-02 Compute the net delivered cost of purchases. Topic: Merchandising Purchases

15.

If a business uses pre-numbered purchase orders, it is not necessary to account for every purchase order. FALSE AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 08-06 Demonstrate a knowledge of the procedures for effective internal control of purchases. Topic: Accounts Payable

Fill in the Blank Questions

16.

Whenever a sales department needs goods, it sends the purchasing department a form called a(n) ___________________. purchase requisition AACSB: Analytic AICPA BB: Critical Thinking Blooms: Remember Difficulty: 1 Easy 8-35 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Topic: Merchandising Purchases

17.

The discounts that are offered by suppliers to encourage quick payment of invoices by customers are known as ____________________ discounts. cash; purchase AACSB: Analytic AICPA BB: Critical Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Topic: Merchandising Purchases

18.

The Freight In account should have a(n) ____________________ balance. debit AACSB: Analytic AICPA BB: Critical Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Topic: Merchandising Purchases

19.

The ______________ is the cost to the business of the merchandise sold to customers. cost of goods sold AACSB: Analytic AICPA BB: Critical Thinking Blooms: Understand Difficulty: 1 Easy Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Topic: Merchandising Purchases

20.

The form sent to the supplier to order goods is called a(n) ___________________. purchase order AACSB: Analytic AICPA BB: Critical Thinking Blooms: Remember 8-36 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Difficulty: 1 Easy Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Topic: Merchandising Purchases

21.

Since they are liability accounts, creditors' accounts in the accounts payable ledger normally have ____________________ balances. credit AACSB: Analytic AICPA FN: Reporting Blooms: Understand Difficulty: 1 Easy Learning Objective: 08-04 Post transactions to the accounts payable subsidiary ledger. Topic: Accounts Payable

22.

Assuming a periodic inventory system is used, purchases returns and allowances are recorded in the general journal as a debit to Accounts Payable and a credit to _____________________. Purchases returns and allowances AACSB: Analytic AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Topic: Merchandising Purchases

23.

An allowance received from a creditor is posted to the ____________________ column of the creditor's account. debit AACSB: Analytic AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Topic: Merchandising Purchases

24.

The entry to record a return of merchandise purchased on credit includes a debit to the ____________________ account in the general ledger. Accounts Payable AACSB: Analytic AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Topic: Merchandising Purchases

25.

After damaged goods are returned, the supplier issues a(n) ____________________ memorandum. credit AACSB: Analytic AICPA BB: Critical Thinking Blooms: Understand Difficulty: 1 Easy Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Topic: Merchandising Purchases

26.

The Purchases Returns and Allowances account is a(n) ____________________ cost of goods sold account. contra AACSB: Analytic AICPA BB: Critical Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Topic: Merchandising Purchases

27.

A list of creditors and the balances owed to them is called a schedule of ___________________. accounts payable AACSB: Analytic AICPA BB: Critical Thinking 8-38 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Blooms: Remember Difficulty: 1 Easy Learning Objective: 08-05 Prepare a schedule of accounts payable. Topic: Accounts Payable

28.

When an accounts payable subsidiary ledger is used, the Accounts Payable account in the general ledger becomes a(n) ____________________ account. control AACSB: Analytic AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 08-04 Post transactions to the accounts payable subsidiary ledger. Topic: Accounts Payable

29.

In a small firm, the creditor accounts are placed in ____________________ order in the accounts payable ledger. alphabetical AACSB: Analytic AICPA BB: Industry Blooms: Remember Difficulty: 1 Easy Learning Objective: 08-04 Post transactions to the accounts payable subsidiary ledger. Topic: Accounts Payable

30.

Good internal control requires a ____________________ of duties. separation AACSB: Analytic AICPA BB: Critical Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 08-06 Demonstrate a knowledge of the procedures for effective internal control of purchases. Topic: Accounts Payable

Multiple Choice Questions

31.

Purchases is a temporary _______ account.

A. liability B. asset C. revenue D. expense AACSB: Analytic AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Topic: Merchandising Purchases

32.

Which of the following statements is correct?

A. The purchase requisition is the form sent to a supplier to order goods. B. The Purchases account is reported as an asset on the balance sheet. C. To the customer, a supplier's invoice is a sales invoice. D. The credit terms, 2/10, n/30, allow the customer to take a 2 percent discount if payment is made within 10 days of the invoice, otherwise payment is due in full in 30 days. AACSB: Analytic AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Topic: Merchandising Purchases

33.

When merchandise is needed, the purchasing department issues a form called

A. a purchase invoice. B. a purchase order. C. a sale invoice. D. a purchase requisition. AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Topic: Merchandising Purchases

34.

Assuming a periodic inventory system is used, the entry to record a purchase of merchandise on credit includes

A. a debit to Purchases and a credit to Accounts Receivable. B. a credit to Purchases and a credit to Accounts Payable. C. a debit to Accounts Payable and a credit to Purchases. D. a debit to Purchases and a credit to Accounts Payable. AACSB: Analytic AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Topic: Merchandising Purchases

35.

Assuming a periodic inventory system is used, freight charges on merchandise purchases should be debited to

A. the Purchases account. B. the Accounts Payable account. C. the Freight In account. D. the creditor's account in the subsidiary ledger. AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Topic: Merchandising Purchases

36.

The Purchases account is

A. a permanent account. B. a temporary account. C. a subsidiary account. D. a liability account. AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Topic: Merchandising Purchases

37.

Freight In is a(n) _________ account.

A. revenue B. expense C. asset D. liability AACSB: Analytic 8-42 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Topic: Merchandising Purchases

38.

The source document for recording a purchase of merchandise on credit is

A. the purchase order. B. the purchase invoice. C. the receiving report. D. the purchase requisition. AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Topic: Merchandising Purchases

39.

Assuming a periodic inventory system is used, purchases of supplies on credit that are to be used in the business are debited to

A. accounts receivable. B. accounts payable. C. purchases. D. supplies. AACSB: Analytic AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Topic: Merchandising Purchases

40.

When the sales department needs merchandise, it sends the purchasing department a form called

A. a purchase invoice. B. a purchase order. C. a purchase requisition. D. a sales invoice. AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Topic: Merchandising Purchases

41.

When a payment is due is determined by the invoice date and

A. credit terms. B. accounting cycle. C. delivery date. D. transportation schedule. AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Topic: Merchandising Purchases

42.

The total of the individual creditor accounts in the subsidiary ledger must ________ the balance of the Accounts Payable control account.

A. be greater than B. be less than C. be equal to D. be subtracted from AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 08-05 Prepare a schedule of accounts payable. Topic: Accounts Payable

43.

The objective of internal control of purchases is to

A. create written proof that purchases and payments are authorized. B. create a disciplined work environment. C. make the sales process more complex. D. create more organized invoices. AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 08-06 Demonstrate a knowledge of the procedures for effective internal control of purchases. Topic: Accounts Payable

44.

Which of the following statements is correct?

AICPA BB: Industry Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Learning Objective: 08-06 Demonstrate a knowledge of the procedures for effective internal control of purchases. Topic: Accounts Payable Topic: Merchandising Purchases

45.

Credit terms of 1/10, n/30 mean

A. only that payment in full is due 10 days after date of the invoice. B. only that payment in full is due 30 days after date of the invoice. C. if the invoice is paid within 10 days of its date, a 1% discount may be taken; otherwise the total amount is due in 20 days. D. if the invoice is paid within 10 days of its date, a 1% discount may be taken; otherwise the total amount is due in 30 days. AACSB: Analytic AICPA BB: Industry Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Topic: Merchandising Purchases

46.

Credit terms of 2/10, n/45 mean

A. payment in full is due 2 days after date of the invoice. B. if the invoice is paid within 10 days of its date, a 2% discount may be taken; otherwise the total amount is due in 45 days. C. if the invoice is paid within 10 days of its date, a 2% discount may be taken; otherwise the total amount is due in 35 days. D. only that payment in full is due 45 days after date of the invoice. AACSB: Analytic AICPA BB: Industry Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. 8-46 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Topic: Merchandising Purchases

47.

Postings to the accounts payable ledger should be made

A. daily. B. weekly. C. monthly. D. at the end of the fiscal period. AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 08-04 Post transactions to the accounts payable subsidiary ledger. Topic: Accounts Payable

48.

Which of the following statements is correct?

A. Purchases Discounts is a contra expense account and carries a credit balance. B. Purchases Discounts is an expense account and carries a debit balance. C. Purchases Discounts is an asset account and carries a credit balance. D. Purchases Discounts is an expense account and carries a credit balance. AACSB: Analytic AICPA BB: Industry Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Topic: Merchandising Purchases

49.

Assuming a periodic inventory system is used, to record a return of merchandise purchased on credit, the accountant would

A. debit Purchases Returns and Allowances and credit Accounts Receivable. B. debit Purchases Returns and Allowances and credit Purchases. C. debit Accounts Payable and credit Purchases Returns and Allowances. D. debit Purchases and credit Purchases Returns and Allowances. AACSB: Analytic AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Topic: Merchandising Purchases

50.

The total of the balances in the creditors' accounts should agree with the balance of

A. the Purchases account in the general ledger. B. the Accounts Receivable account in the general ledger. C. the Accounts Payable account in the general ledger. D. the Sales account in the general ledger. AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 08-05 Prepare a schedule of accounts payable. Topic: Accounts Payable

51.

Assuming a periodic inventory system is used, identify the statement below that is correct?

A. Freight In is subtracted from Purchases to arrive at delivered cost of purchases. B. Another name that may be used for the Freight In account is "Transportation In." C. Freight charges that are listed on the invoice received from a supplier are not part of the total credit to Accounts Payable to record the credit purchase. D. None of these statements are correct. AACSB: Analytic AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Topic: Merchandising Purchases

52.

The amount of the purchases for a period is presented in

A. the Liabilities section of the balance sheet. B. the Revenue section of the income statement. C. the Cost of Goods Sold section of the income statement. D. the Expenses section of the income statement. AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 08-02 Compute the net delivered cost of purchases. Topic: Merchandising Purchases

53.

A firm had purchases of $16,200, freight charges of $300, and purchases returns and allowances of $1,100 during one month. Its net delivered cost of purchases was

A. $14,800. B. $17,600. C. $16,200. D. $15,400. $16,200 + $300 - $1,100 = $15,400

AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 08-02 Compute the net delivered cost of purchases. Topic: Merchandising Purchases

54.

Hugh Snow, the buyer, returned merchandise to Farley Co., the seller. The entry on the books of Hugh Snow to record the return of merchandise assuming a perpetual inventory system is used, would include a:

A. Debit to Accounts Payable B. Credit to Purchase Returns and Allowances C. Debit to Account Receivable D. Debit to Sales Returns and Allowances AACSB: Analytic AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 08-07 Record purchases; sales; returns; cash payments; and cash receipts using the perpetual inventory system. Topic: Accounts Payable

55.

Assuming a periodic inventory system, the journal entry to record the purchase on account of $900 of merchandise with freight of $65 prepaid and added to the invoice is:

56.

Assuming a periodic inventory system is used, the journal entry to record the purchase of merchandise on account for $2,750 with freight of $125 prepaid and added to the invoice is:

57.

Tune Tones Instrument Tuning Company owes Mandy Lynn's Music Studio $4,856 as of November 1. During November, Tune Tones purchased merchandise from Mandy Lynn totaling $8,495 and made payments on account to Mandy Lynn in the amount of $7,250. The amount Tune Tones owes Mandy Lynn on November 30 is:

A. $6,101 B. $3,611 C. $10,889 D. $7,250 $4,856 + $8,495 - $7,250 = $6,101

AACSB: Analytic AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Learning Objective: 08-04 Post transactions to the accounts payable subsidiary ledger. Topic: Accounts Payable Topic: Merchandising Purchases

58.

Nadal, Inc. owes Wozniaki Company $10,560 as of April 1. During April, Nadal, Inc. purchased $12,800 of merchandise from Wozniaki Company and made payments on account to Wozniaki Company totaling $9,200. The amount Nadal, Inc. owes Wozniaki Company on April 30 is:

A. $9,200 debit B. $6,960 credit C. $14,160 credit D. $12,800 debit $10,560 + $12,800 - $9,200 = $14,160

AACSB: Analytic AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Apply 8-52 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Difficulty: 2 Medium Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Learning Objective: 08-04 Post transactions to the accounts payable subsidiary ledger. Topic: Accounts Payable Topic: Merchandising Purchases

59.

If a business pays $1,100 on account to a creditor, the effect of the payment is a decrease to cash and a

A. decrease to Fees Income. B. increase of capital. C. increase to accounts receivable. D. decrease to accounts payable. AACSB: Analytic AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Topic: Merchandising Purchases

60.

Which of the following accounts has a normal debit balance?

A. Purchases B. Purchase Returns C. Accounts Payable D. Sales AACSB: Analytic AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Topic: Merchandising Purchases

61.

During March a firm purchased $22,650 of merchandise and paid freight charges of $1,720. If the net delivered cost of purchases for the March is $21,900, what is the total purchase returns for March?

A. $0 B. $970 C. $2,470 D. $3,440 $22,650 + $1,720 - $21,900 = $2,470

AACSB: Analytic AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 08-02 Compute the net delivered cost of purchases. Topic: Merchandising Purchases

62.

During the year, a firm purchased $256,200 of merchandise and paid freight charges of $41,720. If the total purchases returns and allowances were $15,790 and purchase discounts were $8,250 for the year, what is the net delivered cost of purchases?

A. $297,920 B. $273,880 C. $321,960 D. $190,440 $256,200 + $41,720 - $15,790 - 8,250 = $273,880

AACSB: Analytic AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 08-02 Compute the net delivered cost of purchases. Topic: Merchandising Purchases

63.

During the year, a firm purchased $56,970 of merchandise and paid freight charges of $12,680. If the total purchases returns and allowances were $6,495 and purchase discounts were $2,050 for the year, what is the net delivered cost of purchases?

A. $61,105 B. $69,650 C. $72,349 D. $35,745 $56,970 + $12,680 - $6,495 - $2,050 = $61,105

64.

On Oct. 1, Jerry's Lighting purchased merchandise with a list price of $5,000 with credit terms of 1/10, n/30. On Oct. 3, Jerry's returns $500 of the merchandise. Assuming a

perpetual inventory system is used and Jerry's pays the remaining amount owed on the purchase within the discount period, Jerry's journal entry to record the payment, would include

A. a debit to Accounts Receivable for $4,500. B. a debit to Accounts Payable for $4,500. C. a credit to Purchase Discounts for $45. D. a debit to Merchandise Inventory for $45. $5,000 - $500 = $4,500; $4,500 × .01 = $45 disc.; $4,500 - $45 = $4,455 cash payment

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement Accessibility: Keyboard Navigation Blooms: Apply 8-55 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Difficulty: 2 Medium Learning Objective: 08-07 Record purchases; sales; returns; cash payments; and cash receipts using the perpetual inventory system. Topic: Accounts Payable

65.

On April 5, Fair Coffee, Inc. purchased merchandise with a list price of $1,000 and credit terms 2/10, n/30. On April 6, Fair Coffee returns $200 of the merchandise. Assuming Fair Coffee uses a perpetual inventory system, their journal entry on April 5, to record the purchase, would include

A. a debit to Purchases for $1,000. B. a debit to Accounts Payable for $1,000. C. a debit to Merchandise Inventory for $1,000. D. a credit to Merchandise Inventory for $16. AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 08-07 Record purchases; sales; returns; cash payments; and cash receipts using the perpetual inventory system. Topic: Accounts Payable

66.

On April 5, Fair Coffee, Inc. purchased merchandise with a list price of $1,000 and credit terms 2/10, n/30. On April 6, Fair Coffee returns $200 of the merchandise. Assuming Fair Coffee uses a perpetual inventory system, the journal entry on April 13, to record the payment of the amount owed, would be:

A. Option A. B. Option B. C. Option C. D. Option D. AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Decision Making Blooms: Apply Difficulty: 2 Medium Learning Objective: 08-07 Record purchases; sales; returns; cash payments; and cash receipts using the perpetual inventory system. Topic: Accounts Payable

67.

On April 5, Fair Coffee, Inc. purchased merchandise with a list price of $1,000 and credit terms 2/10, n/30. On April 6, Fair Coffee returns $200 of the merchandise. Assuming Fair Coffee uses a perpetual inventory system, the journal entry on April 6, to record the return, would be:

68.

On Feb. 16, Gourmet Cakes purchased $20,000 of merchandise on account from JB Baking. Credit terms of the purchase were 2/10, n/30. On Feb. 24, Gourmet Cakes pays the amount owed Assuming Gourmet Cakes uses a perpetual inventory system, the journal entry on Feb. 24, to record the payment, would be:

A. Option A. B. Option B. C. Option C. D. Option D. ($20,000 × .02 = $400 disc.) $20,000 - $400 = $19,600 pmt.

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Decision Making Blooms: Apply Difficulty: 2 Medium Learning Objective: 08-07 Record purchases; sales; returns; cash payments; and cash receipts using the perpetual inventory system. Topic: Accounts Payable

69.

On Jan. 3, Gourmet Cakes sold $15,000 of merchandise, on account with terms 2/10, n/30, to Jerry Hines. Assuming that the original cost of the merchandise to Gourmet Cakes was $4,000 and the perpetual inventory system is used, the journal entry on Jan. 3, to record the sale, would be:

70.

On Jan. 3, Gourmet Cakes sold $15,000 of merchandise on account to Jerry Hines. On Jan. 10, Jerry returned $2,000 of the merchandise because they bought too much. Assuming the cost of the returned merchandise to Gourmet Cakes was $500 and they use a

perpetual inventory system, the journal entry on Jan. 10, to record the return of the merchandise from Jerry Hines, would be:

Short Answer Questions

71.

Explain each of the following credit terms. A) n/30 B) n/10 EOM C) 2/10, n/30 D) 1/10, n/20 E) 3/5, n/30

A) Net amount of the invoice is due 30 days after the date of the invoice. B) The amount of the invoice is due 10 days after the end of the month in which the invoice is issued. C) If the invoice is paid within 10 days of its date, a 2% discount may be taken; otherwise, the total amount is due in 30 days. D) If the invoice is paid within 10 days of its date, a 1% discount may be taken; otherwise the total amount is due in 20 days. E) If payment is made within 5 days of its date, a 3% discount may be taken; otherwise the total amount is due in 30 days.

AACSB: Analytic AICPA BB: Critical Thinking Blooms: Analyze Difficulty: 1 Easy Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Topic: Merchandising Purchases

72.

On June 1, Lulu's Performing Arts School purchased merchandise with a list price of $5,000 from Monty's Inc. with credit terms 2/10, n/30. On June 3, Lulu's returns $1,000 of the merchandise. Compute the amount owed by Lulu's if the store pays within the discount period.

AACSB: Analytic AICPA FN: Decision Making Blooms: Analyze Difficulty: 2 Medium Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Topic: Merchandising Purchases

73.

Assuming a periodic inventory system, determine the account to be debited and the account to be credited for the following transactions of Drummond Contracting during the month. A) Purchased merchandise on terms of net 30 days. B) Returned some damaged merchandise to a supplier and received a credit memorandum. C) Issued a check to a supplier as a payment on account. D) Received an allowance for some merchandise that was slightly damaged but can be sold at a reduced price and received a credit memorandum. E) Purchased merchandise on terms of 2/10, n/30. The supplier's invoice includes a freight charge.

A) Debit Purchases; credit Accounts Payable B) Debit Accounts Payable; credit Purchases Returns and Allowances C) Debit Accounts Payable; credit Cash D) Debit Accounts Payable; credit Purchases Returns and Allowances E) Debit Purchases and Freight In; credit Accounts Payable

AACSB: Analytic AICPA FN: Decision Making Blooms: Analyze Difficulty: 2 Medium Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Topic: Merchandising Purchases

74.

Assuming a periodic inventory system, determine the account to be debited and the account to be credited for the following transactions of Hughly Office Supplies during the month. A) Issued a check to a supplier as a payment on account. B) Purchased merchandise; the supplier's invoice, which includes a freight charge, has payment terms of 2/10, n/30. C) Returned some damaged merchandise to a supplier and received a credit memorandum. D) Received an allowance for some merchandise that was slightly damaged but can be sold at a reduced price; received a credit memorandum. E) Purchased merchandise on terms of net 30 days.

A) Debit Accounts Payable; credit Cash B) Debit Purchases and Freight In; credit Accounts Payable C) Debit Accounts Payable; credit Purchases Returns and Allowances D) Debit Accounts Payable; credit Purchases Returns and Allowances E) Debit Purchases; credit Accounts Payable

AACSB: Analytic AICPA FN: Decision Making Blooms: Analyze Difficulty: 2 Medium Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Topic: Merchandising Purchases

75.

The Lone Cactus Nursery has the following general ledger account balances as of August.

Calculate the net delivered cost of purchases for August.

Feedback: $56,211 + $3,000 - $500 - $300 = $58,411

AACSB: Analytic AICPA BB: Critical Thinking Blooms: Apply Difficulty: 2 Medium Learning Objective: 08-02 Compute the net delivered cost of purchases. Topic: Merchandising Purchases

76.

Ellie's Electronics has the following general ledger account balances as of December.

Calculate the net delivered cost of purchases for December.

Feedback: $24,500 + $1,125 - $375 - $245 = $25,005

AACSB: Analytic AICPA BB: Critical Thinking Blooms: Apply Difficulty: 2 Medium Learning Objective: 08-02 Compute the net delivered cost of purchases. Topic: Merchandising Purchases

77.

Myra's Mechanics has the following general ledger account balances as of October.

Calculate the net delivered cost of purchases for October.

Feedback: $18,000 + $1,200 - $360 - $350 = $18,490

AACSB: Analytic AICPA BB: Critical Thinking Blooms: Apply Difficulty: 2 Medium Learning Objective: 08-02 Compute the net delivered cost of purchases. Topic: Merchandising Purchases

78.

Complete the table listed below

AACSB: Analytic AICPA BB: Critical Thinking Blooms: Apply Difficulty: 2 Medium Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Topic: Merchandising Purchases

79.

The Picture Perfect Camera Shop had the following transactions for the month of August 2016. Record the transactions on page 9 of a general journal assuming the company uses the periodic inventory system to keep track of its inventory.

AACSB: Analytic AICPA BB: Critical Thinking Blooms: Apply Difficulty: 2 Medium Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Topic: Merchandising Purchases

80.

The Fast Frame Shop had the following transactions for the month of January 2016. Record the transactions on page 9 of a general journal assuming the company uses the periodic inventory system to keep track of its inventory.

AICPA BB: Critical Thinking Blooms: Apply Difficulty: 2 Medium Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Topic: Merchandising Purchases

81.

One of the supplier accounts from the accounts payable ledger for Paragon Video is shown below. Explain each of the entries that have been posted to this supplier's subsidiary ledger account.

Mar. 12 - Purchased merchandise in the amount of $250 on credit. Mar. 15 - Paid $1,500 in cash on account. Mar. 28 - Purchase return or allowance in the amount of $50 as per CM 105 received from vendor.

AACSB: Analytic AICPA BB: Critical Thinking Blooms: Evaluate Difficulty: 2 Medium Learning Objective: 08-04 Post transactions to the accounts payable subsidiary ledger. Topic: Accounts Payable

82.

One of the supplier accounts from the accounts payable ledger for Thompson Consulting Services is shown below. Explain each of the entries that have been posted to this supplier's subsidiary ledger account.

Feb. 2 - Purchased merchandise in the amount of $1,250 on credit. Feb. 5 - Purchase return or allowance in the amount of $200 as per CM 1103 received from vendor. Feb. 7 - Paid $550 in cash on account.

AACSB: Analytic AICPA BB: Critical Thinking Blooms: Evaluate Difficulty: 2 Medium Learning Objective: 08-04 Post transactions to the accounts payable subsidiary ledger. Topic: Accounts Payable

83.

One of the supplier accounts from the accounts payable ledger for Allen Company is shown below. Explain each of the entries that have been posted to this supplier's subsidiary ledger account.

Dec. 10 - Purchased merchandise in the amount of $3,000 on credit. Dec. 15 - Purchase return or allowance in the amount of $400 as per CM 810 received from vendor. Dec. 20 - Paid $7,100 of cash on account.

AACSB: Analytic AICPA BB: Critical Thinking Blooms: Evaluate Difficulty: 2 Medium Learning Objective: 08-04 Post transactions to the accounts payable subsidiary ledger. Topic: Accounts Payable

84.

The accounts payable ledger for Dora's Dollar Shop is shown below. Prepare a schedule of accounts payable as of March 31, 2016.

AACSB: Analytic AICPA BB: Critical Thinking Blooms: Create Difficulty: 2 Medium Learning Objective: 08-05 Prepare a schedule of accounts payable. Topic: Accounts Payable

85.

On June 30, 2016, the general ledger of the Shoe Closet, a retail store, showed the following balances: Purchases, $19,000; Freight In, $500; Purchases Returns and Allowances, $900. Determine the following: A) What was the delivered cost of purchases for June? B) What was the net delivered cost of purchases for June?

A) $19,500 B) $18,600 Feedback: A. $19,000 + $500 = $19,500 B. $19,500 - $900 = $18,600

AACSB: Analytic AICPA BB: Critical Thinking Blooms: Apply Difficulty: 2 Medium Learning Objective: 08-02 Compute the net delivered cost of purchases. Topic: Merchandising Purchases

86.

On April 30, 2016, the general ledger of the Danielle's Dress Shop showed the following balances: Purchases, $9,000; Freight In, $50; Purchases Returns and Allowances, $90. Determine the following: A) What was the delivered cost of purchases for April? B) What was the net delivered cost of purchases for April?

A) $9,050 B) $8,960 Feedback: A. $9,000 + $50 = $9,050 B. $9,050 - $90 = $8,960

AACSB: Analytic AICPA BB: Critical Thinking 8-77 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Blooms: Apply Difficulty: 2 Medium Learning Objective: 08-02 Compute the net delivered cost of purchases. Topic: Merchandising Purchases

87.

On November 30, the general ledger of Hinges and More Hardware, a retail store, showed the following balances: Purchases, $136,750; Freight In, $2,500; Purchases Returns and Allowances, $4,000. Determine the following: A) What was the delivered cost of purchases for November? B) What was the net delivered cost of purchases for November?

A) $139,250 B) $135,250 Feedback: A. $136,750 + $2,500 = $139,250 B. $139,250 - $4,000 = $135,250

AACSB: Analytic AICPA BB: Critical Thinking Blooms: Apply Difficulty: 2 Medium Learning Objective: 08-02 Compute the net delivered cost of purchases. Topic: Merchandising Purchases

88.

Discuss the difference between a purchase order, a purchase requisition, and a purchase invoice.

Purchase order: An order to the supplier of goods specifying items needed, quantity, price, and credit terms Purchase requisition: A list sent to the purchasing department showing the items to be ordered Purchase invoice: A bill received for goods purchased

AACSB: Analytic

AICPA BB: Critical Thinking Blooms: Remember Difficulty: 2 Medium Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Topic: Merchandising Purchases

Matching Questions

89.

Match the accounting terms with the description.

The cost to the business of the 1. Purchase invoice 2. Freight In

merchandise sold to customers 9 An account showing transportation

account

charges for items purchased 2 A price reduction from the amount

3. Sales discount

originally billed 11

4. Schedule of accounts payable

A bill received for goods purchased

An order to the supplier of goods specifying items needed, quantity, price, 5. Purchase order

and credit terms 5 A list sent to the purchasing department showing the items to be

6. Purchase return

ordered 12

7. Purchases account 8. Purchases discount 9. Cost of goods sold

Return of unsatisfactory goods 6 An account used to record cost of goods bought for resale during a period 7 A cash discount offered and taken for payment within a specified period

A form showing quantity and condition 10. Sales invoice

of goods received 13 A cash discount offered by the seller

11. Purchase allowance

for receipt of payment within a specified period 3

12. Purchase requisition

A supplier's billing document 10

13. Receiving report

A list of all balances owed to creditors 4 AACSB: Analytic AICPA BB: Critical Thinking Blooms: Remember Difficulty: 2 Medium Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Learning Objective: 08-04 Post transactions to the accounts payable subsidiary ledger. Learning Objective: 08-05 Prepare a schedule of accounts payable.

Learning Objective: 08-06 Demonstrate a knowledge of the procedures for effective internal control of purchases. Topic: Accounts Payable Topic: Merchandising Purchases

Chapter 09 Cash

True / False Questions

1. Cash Short or Over is an expense account when it has a debit balance. True

False

2. Most cash transactions involve checks. True

False

3. As a part of internal controls, petty cash funds should be kept in a safe, locked cash box, or a locked drawer. True

False

4. Transactions completed with a debit card appear on a statement separate from other banking transactions. True

False

5. Endorsements are placed on the front of a check. True

False

6. The safest endorsement on a check is a full endorsement. True

False

7. Usually a bank provides pre-printed deposit slips. True

False

8. Outstanding checks are checks that are recorded in the journal but have not been paid by the bank. True

False

9. Service charges and other deductions listed on the bank statement have already been recorded in the business records. True

False

10. The entry to replenish petty cash includes a debit to Petty Cash Fund and a credit to Cash. True

False

11. In a firm that has a good system of internal control, cash receipts are deposited often. True

False

12. The monthly bank statement should be received and reconciled by the employee who deposits cash receipts and writes the checks. True

False

13. A strong system of internal control requires that all payments be made by check except those made from a carefully controlled cash fund such as a petty cash fund. True

False

14. A check that has a full endorsement can be further endorsed by any bearer and therefore, is not as safe as a check with a blank endorsement. True

False

15. To arrive at the accurate balance on a bank reconciliation statement, it is necessary to deduct an NSF check from the bank statement balance. True

False

Fill in the Blank Questions

16. A(n) ____________________ is a written promise to pay a specified amount of money at a specified time. ________________________________________ 17. If the amount of cash available for deposit is ____________________ than the amount listed on the audit tape taken from the cash register, the Cash Short or Over account is debited. ________________________________________ 18. The entry to record the receipt of a check in settlement of an interest-bearing promissory note includes a credit to Notes Receivable, a credit to ____________________, and a debit to Cash. ________________________________________ 19. _________ is the process by which employees are investigated by an insurance company that will insure the business against losses through employee theft or mishandling of funds. ________________________________________ 20. The Petty Cash fund account has a(n) ____________________ balance. ________________________________________

21. The person or firm that issues a check is called the ____________________, or payor, of the check. ________________________________________ 22. If a payee indicates, as part of the endorsement, the name of the person, firm, or bank to whom the check is to be payable, the payee has made a(n) ____________________ endorsement. ________________________________________ 23. To transfer ownership of a check from one party to another, it is necessary to ____________________ the check. ________________________________________ 24. A(n) ____________________ is a form received from the bank showing all transactions recorded in the depositor's account during the month. ________________________________________ 25. When a bank deducts any amount other than a paid check from a depositor's account, it issues a form called a(n) ____________________ memorandum. ________________________________________ 26. Checks issued by a firm and entered in its records that have not been paid by the bank are called ____________________ checks. ________________________________________ 27. The process of determining why a difference exists between a firm's records and the bank's records and bringing the two sets of records into balance is known as ____________________ the bank statement. ________________________________________

28. Checks issued by a firm that were paid by the bank and returned to the firm with the bank statement are called ____________________ checks. ________________________________________ 29. A(n) ____________________ check is a check dated some time in the future. ________________________________________ 30. If a firm's bank reconciliation statement shows a bank statement balance of $12,000, total deposits in transit of $1,500, and total outstanding checks of $1,000, the adjusted bank balance is ____________________. ________________________________________

Multiple Choice Questions

31. Which of the following statements is not correct?

A. In accounting, the term "cash" includes checks, money orders, and funds on deposit in a bank as well as currency and coins. B. The cash register proof is used to enter the cash sales and sales tax in the journal. C. In a well managed business, most bills are paid by cash. D. The petty cash account balance is usually listed separately from the Cash account on the Balance Sheet. 32. Which of the following is not a reason why the book balance of cash may not agree with the balance on the bank statement?

A. Deposit in transit B. Outstanding checks C. Service charges and other deductions D. End of the month

33. Upon collection of the amount due on an interest-bearing promissory note from a customer, the accountant would debit Cash, credit Notes Receivable, and

A. debit Interest Expense. B. credit Interest Income. C. credit Interest Expense. D. debit Interest Income. 34. Most businesses use the petty cash fund to pay for

A. small expenditures. B. accounts payable. C. internal expenses. D. merchandise purchases. 35. Which of the following statements is correct?

37. On April 1, Java Brewers created a petty cash fund starting with $100. On April 30, there was only $5 remaining in the petty cash box. The custodian of the fund presented the following vouchers to the company accountant: Supplies of $55 and Delivery Expenses of $40. The journal entry on April 30, to replenish the fund, would be:

A. Option A. B. Option B. C. Option C. D. Option D.

38. George's Grocers keeps a $100 change fund in its cash register. The cash sales per the cash register tape on January 30 were $405. The cash count was $502. Identify the correct journal entry below to record the sales and cash overage (or shortage) for January 30.

A. Option A. B. Option B. C. Option C. D. Option D.

39. ABC Office Suppliers keeps a $200 change fund in its cash register. The cash sales per the cash register tape on May 30 were $700. The cash count was $908. Identify the correct journal entry below to record the sales and cash overage (or shortage) for May 30.

A. Option A. B. Option B. C. Option C. D. Option D.

40. On August 3, Marley's Sporting Goods accepted a six-month promissory note from J. J. Brown, who owed $490 on account. (J. J. had needed more time to pay his balance.) The promissory note had an annual 10 percent interest rate. The journal entry on August 3 to record the transaction would be:

A. Option A. B. Option B. C. Option C. D. Option D. 41. The most appropriate form of endorsement of a check for business purposes is

A. the blank endorsement. B. the restrictive endorsement. C. the full endorsement. D. no endorsement. 42. On a bank reconciliation statement, you would find all of the following except

A. a list of canceled checks. B. a list of NSF checks. C. a list of outstanding checks. D. the bank service charge.

43. A firm's bank reconciliation statement shows a book balance of $15,820, an NSF check of $400, and a service charge of $20. Its adjusted book balance is

A. $16,240. B. $15,400. C. $15,440. D. $16,200. 44. A firm's bank reconciliation statement shows a book balance of $31,640, an NSF check of $800, and a service charge of $40. Its adjusted book balance is

A. $32,480. B. $30,800. C. $30,880. D. $32,400.

45. On March 30, a firm's bank reconciliation statement shows a book balance of $31,640, an NSF check of $800, and a service charge of $40. The journal entry on March 30 to record these items would be:

A. Option A. B. Option B. C. Option C. D. Option D. 46. To arrive at an accurate balance on a bank reconciliation statement, outstanding checks should be

A. added to the bank statement balance. B. added to the book balance. C. deducted from the bank statement balance. D. deducted from the book balance.

47. To arrive at an accurate balance on a bank reconciliation statement, a credit memorandum from the bank for the collection of a note and interest should be

A. added to the bank statement balance. B. added to the book balance. C. deducted from the bank statement balance. D. deducted from the book balance. 48. To arrive at an accurate balance on a bank reconciliation statement, a service charge should be

A. added to the bank statement balance. B. added to the book balance. C. deducted from the bank statement balance. D. deducted from the book balance. 49. To arrive at an accurate balance on a bank reconciliation statement, a debit memorandum for a customer check marked NSF should be

A. added to the bank statement balance. B. added to the book balance. C. deducted from the bank statement balance. D. deducted from the book balance. 50. To arrive at an accurate balance on a bank reconciliation statement, an error made by the bank in which the bank deducted a check issued by another business from the balance of the company's bank account should be

A. added to the bank statement balance. B. added to the book balance. C. deducted from the bank statement balance. D. deducted from the book balance.

51. A check issued for $890 to pay a vendor on account was recorded in the firm's records as $980; the canceled check was properly listed on the bank statement at $890. To arrive at an accurate balance on a bank reconciliation statement, the error should be

A. added to the bank statement balance. B. added to the book balance. C. deducted from the bank statement balance. D. deducted from the book balance. 52. A check issued for $1,980 to pay a vendor on account was recorded in the firm's records as $1,890; the canceled check was properly listed on the bank statement at $1,980. To arrive at an accurate balance on a bank reconciliation statement, the error should be

A. added to the bank statement balance. B. added to the book balance. C. deducted from the bank statement balance. D. deducted from the book balance. 53. To arrive at an accurate balance on a bank reconciliation statement, deposits in transit should be

A. added to the bank statement balance. B. added to the book balance. C. deducted from the bank statement balance. D. deducted from the book balance. 54. A firm appropriately wrote a check for $78 but entered the amount as payment of $87 in its records. On a bank reconciliation statement this error would be shown as

A. a deduction of $9 from the book balance. B. an addition of $9 to the book balance. C. a deduction of $9 from the bank statement balance. D. an addition of $9 to the bank statement balance.

55. Which of the following would not be shown as an adjustment to the book balance on a bank reconciliation statement?

A. Bank service charges B. NSF checks C. Deposits in transit D. A charge for printing new checks 56. Included with its bank statement a firm may receive a credit memorandum, which could indicate

A. a bank service charge deducted from the firm's account balance. B. the bank's return of a dishonored (NSF) check that was issued by a credit customer of the firm. C. a fee for printing new business checks. D. an addition to the firm's account balance because the bank collected the amount due on a promissory note from a customer of the firm. 57. If a check written by a firm is not canceled by the bank and returned with the month's bank statement, the firm should

A. consider this check as outstanding when preparing the bank reconciliation. B. immediately notify the bank requesting that it correct its records. C. adjust the balance in the firm's checkbook to reflect the data that appears in the bank's records. D. make no adjustment when preparing the bank reconciliation. 58. Identify the items below that would all appear as an addition or subtraction from the Book

Balance side of a bank reconciliation statement.

A. Outstanding checks, customer NSF check. B. Deposits in transit, bank service charges. C. Bank service charges, customer NSF check. D. Outstanding checks, deposits in transit.

59. After a bank reconciliation statement is completed, a firm may have to make an entry in its accounting records for

A. outstanding checks. B. deposits in transit. C. the bank statement balance. D. NSF checks. 60. The entry in a firm's accounting records for a credit customer's check that was returned by the bank marked "NSF" would include

A. a debit to Miscellaneous Expense and a credit to Cash. B. a debit to Accounts Receivable and a credit to Accounts Payable. C. a debit to Accounts Receivable and a credit to Cash. D. a debit to Cash and a credit to Accounts Receivable. 61. Of the four categories listed in a bank reconciliation, which one(s) require a journal entry(ies) in the firm's records?

A. Bank Statement Balance Additions and Bank Statement Balance Deductions B. Bank Statement Balance Additions and Book Balance of Cash Additions C. Bank Statement Balance Deductions and Book Balance of Cash Deductions D. Book Balance of Cash Additions and Book Balance of Cash Deductions 62. During the month a company paid $54.75 for office supplies and $63.22 for miscellaneous expenses from the petty cash fund. The entry to replenish the petty cash fund at the end of the month would include

A. a debit to Petty Cash for $117.97. B. a debit to Cash for $117.97. C. a credit to Cash for $117.97. D. a credit to Office Supplies for $54.75.

Short Answer Questions

63. BANK RECONCILIATION: Indicate in which section of the Bank Reconciliation Statement the following reconciling items would appear.

A check written by the company for $168 but recorded in the company's records as $186.

64. BANK RECONCILIATION: Indicate in which section of the Bank Reconciliation Statement the following reconciling items would appear.

An NSF check from a customer.

65. BANK RECONCILIATION: Indicate in which section of the Bank Reconciliation Statement the following reconciling items would appear.

A canceled check for $147 erroneously listed on bank statement as $74.

66. BANK RECONCILIATION: Indicate in which section of the Bank Reconciliation Statement the following reconciling items would appear.

A deposit in transit.

67. BANK RECONCILIATION: Indicate in which section of the Bank Reconciliation Statement the following reconciling items would appear.

A service charge charged by the bank.

68. Read each of the following transactions. Determine the accounts to be debited and credited. A) Issued a check for $2,500 to Jaime Gomez, the owner, as a cash withdrawal for personal use. B) Issued a check for $75 to establish a petty cash fund. C) Issued a check for $50 to replenish the petty cash fund. An analysis of the payments from the fund showed the following totals: Supplies, $25; Delivery Expense, $10; Miscellaneous Expense, $15.

69. Read each of the following transactions. Determine the accounts to be debited and credited. A) Sold merchandise for $500 on credit plus sales tax of $42. B) Collected $3,400 from credit customers on account. C) Sold merchandise for $3,500 in cash plus sales tax of $175. There was a cash overage of $25.

70. Read each of the following transactions. Determine the accounts to be debited and credited. A) Issued a check for $750 to Adriana Taylor, the owner, as a cash withdrawal for personal use. B) Issued a check for $50 to establish a petty cash fund. C) Issued a check for $50 to replenish the petty cash fund. An analysis of the payments from the fund showed the following totals: Equipment, $225; Telephone Expense, $20; Miscellaneous Expense, $50.

71. Read each of the following transactions. Determine the accounts to be debited and credited. A) The cash sales per a register tape were $4,400. The cash count is $4,300. B) The cash sales per a register tape were $4,400. The cash count is $4,500.

72. Read each of the following transactions. Determine the accounts and amounts to be debited and credited. A) The cash sales per a register tape were $550. The cash count is $575. B) The cash sales per a register tape were $8,500. The cash count is $8,100.

73. Read each of the following transactions. Determine the accounts and amounts to be debited and credited. A) Sold merchandise for $100 on credit plus sales tax of $10. B) Collected $2,500 from credit customers on account. C) Sold merchandise for $800 on credit plus sales tax of $56.

74. Read each of the following transactions. Determine the accounts and amounts to be debited and credited. A) Issued a check for $100 to establish a petty cash account B) Collected $2,200 from credit customers on account C) Sold merchandise for $500 in cash plus sales tax of $30. There was a cash overage of $25 D) Issued a check for $250 to Savannah, the owner, as a cash withdrawal for personal use

75. Read the following transactions. Calculate the amount over or short. Lourdes LLC. keeps a $100 change fund in its cash register. At the end of the day, cash sales per the register tape were $3,100. The cash count was $3,500.

76. Read the following transactions. Calculate the amount over or short. Bianca's Creperie does not keep a change fund in its cash register. At the end of the day, cash sales per the register tape were $500. The cash count was $550.

77. Read the following transactions. Calculate the amount over or short. Johannes and Associates keeps a $500 change fund in the Office Manager's desk. At the end of the day, cash sales transactions totaled $800. The cash count was $1,285.

78. Read the following transactions. Calculate the amount over or short. Miss Tracey's Dance Studio keeps a $25 change fund in its cash register. At the end of the day, cash sales per the register tape were $250. The cash count was $273.

79. In a business it is important to maintain control of cash payments. Discuss (4) of the essential cash payment controls.

80. Why is it important to closely control cash and cash receipts?

81. List and explain 3 types of endorsement.

82. Discuss the difference between a debit memorandum and a credit memorandum as listed on the bank statement.

83. Discuss 3 bank errors that may occur resulting in a difference between a bank balance and a book balance.

84. On March 31, 2016, Home Decorating Pavilion received a bank statement containing a balance of $9,750. The balance in the firm's checkbook and Cash account on the same date was $10,290. The difference between the two balances is caused by the items listed below. a. A $2,875 deposit made on March 30 does not appear on the bank statement. b. Check 358 for $485 issued on March 29 and Check 359 for $1,650 issued on March 30 have not yet been paid by the bank. c. A credit memorandum shows that the bank has collected a $1,100 note receivable and interest of $110 for the firm. d. A service charge of $25 appears on the bank statement. e. A debit memorandum shows an NSF check for $525. (The check was issued by Dane Smithey, a credit customer.) f. The firm's records indicate that Check 341 of March 1 was issued for $900 to pay the month's rent. However, the canceled check and the listing on the bank statement show that the actual amount of the check was $800. g. The bank made an error by deducting a check for $560 issued by another business from the balance of Home Decorating Pavilion's account. Instructions: 1. Prepare a bank reconciliation statement for the firm as of March 31, 2016. 2. Record entries for any items on the bank reconciliation statement that must be journalized. Date the entries March 31, 2016. Use page 4 of a general journal.

85. On December 31, 2016, Designer's Warehouse received a bank statement containing a balance of $19,500. The balance in the firm's checkbook and Cash account on the same date was $20,580. The difference between the two balances is caused by the items listed below. a. A $5,750 deposit made on December 30 does not appear on the bank statement. b. Check 1312 for $970 issued on November 29 and Check 1375 for $3,300 issued on December 30 have not yet been paid by the bank. c. A credit memorandum shows that the bank has collected a $2,200 note receivable and interest of $220 for the firm. d. A service charge of $50 appears on the bank statement. e. A debit memorandum shows an NSF check for $1,050. (The check was issued by R. Donnelley, a credit customer.) f. The firm's records indicate that Check 1316 of December 1 was issued for $1,800 to pay the month's rent. However, the canceled check and the listing on the bank statement show that the actual amount of the check was $1,600. g. The bank made an error by deducting a check for $1,120 issued by another business from the balance of the account of Designer's Warehouse. Instructions: 1. Prepare a bank reconciliation statement for the firm as of December 31, 2016. 2. Record entries for any items on the bank reconciliation statement that must be journalized. Date the entries December 31, 2016. Use page 19 of a general journal.

Matching Questions

86. Match the accounting terms with the description.

A statement that accounts for all differences between the balance on the bank statement and 1. Canceled check

the book balance of cash ____ A signature of the payee written on the back of the check that transfers ownership of the

2. Blank endorsement

check without specifying to whom or for what purpose ____ The process by which employees are investigated by an insurance company that will insure the business against losses through

3. Bonding

employee theft or mishandling of funds ____ A check paid by the bank on which it was

4. Full endorsement 5. Debit memorandum

drawn ____ In accounting, currency, coins, checks, money orders, and funds on deposit in a bank ____ A verification that the amount of currency and coins in a cash register agrees with the amount

6. Cash

shown on the cash register audit tape ____ An account used to record any discrepancies between the amount of currency and coins in the cash register and the amount shown on the audit

7. Service charge

tape ____ A written order signed by an authorized

8. Petty cash voucher

person instructing a bank to pay a specific sum of money to a designated person or business ____ A form that explains any addition, other than a

9. Dishonored check

deposit, to a checking account ____ A form that explains any deduction, other than

10. Payee

a check, from a checking account ____ A deposit that is recorded in the cash receipts journal but that reaches the bank too late to be

11. Drawer 12. Outstanding checks 13. Bank reconciliation statement 14. Endorsement 15. Check 16. Deposit slip

shown on the monthly bank statement ____ A form prepared to record the deposit of cash or checks to a bank account ____ A check returned to the depositor unpaid because of insufficient funds in the drawer's account; also called an NSF check ____ The bank on which a check is written ____ The person or firm issuing a check ____ A written authorization that transfers ____

ownership of a check 17. Restrictive endorsement

A signature transferring a check to a specific person, firm, or bank ____

18. Deposit in

A financial instrument whose ownership can

transit

be transferred to another person or business ____ Checks that have been recorded in the cash

19. Cash register proof

payments journal but have not yet been paid by the bank ____ The person or firm to whom a check is

20. Postdated check 21. Petty cash analysis sheet

payable ____ A form used to record transactions involving petty cash ____ A form used to record the payments made

22. Drawee 23. Promissory note 24. Credit memorandum

from a petty cash fund ____ A check dated some time in the future ____ A written promise to pay a specified amount of money on a specific date ____ A signature that transfers a check to a specific

25. Negotiable

party for a stated purpose ____

26. Cash Short or

A fee charged by a bank to cover the costs of

Over account

maintaining accounts and providing services ____ A form sent to a firm's customers showing

27. Statement of account

transactions during the month and the balance owed ____

Chapter 09 Cash Answer Key

True / False Questions

Cash Short or Over is an expense account when it has a debit balance. TRUE AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 09-01 Account for cash short or over. Topic: Cash Receipts

Most cash transactions involve checks. TRUE AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 09-01 Account for cash short or over. Topic: Cash Receipts

As a part of internal controls, petty cash funds should be kept in a safe, locked cash box, or a locked drawer. TRUE AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 09-02 Demonstrate a knowledge of procedures for a petty cash fund. Topic: Petty Cash and Internal Controls for Cash

Transactions completed with a debit card appear on a statement separate from other banking transactions. FALSE AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy

Learning Objective: 09-04 Write a check; endorse checks; prepare a bank deposit slip; and maintain a checkbook balance. Topic: Banking Procedures

Endorsements are placed on the front of a check. FALSE AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy

Learning Objective: 09-04 Write a check; endorse checks; prepare a bank deposit slip; and maintain a checkbook balance. Topic: Banking Procedures

The safest endorsement on a check is a full endorsement. FALSE AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy

Learning Objective: 09-04 Write a check; endorse checks; prepare a bank deposit slip; and maintain a checkbook balance. Topic: Banking Procedures

Usually a bank provides pre-printed deposit slips. TRUE AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation 9-32 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Blooms: Understand Difficulty: 1 Easy Learning Objective: 09-04 Write a check; endorse checks; prepare a bank deposit slip; and maintain a checkbook balance. Topic: Banking Procedures

Outstanding checks are checks that are recorded in the journal but have not been paid by the bank. TRUE AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 09-05 Reconcile the monthly bank statement. Topic: Banking Procedures

Service charges and other deductions listed on the bank statement have already been recorded in the business records. FALSE AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 09-05 Reconcile the monthly bank statement. Topic: Banking Procedures

10.

The entry to replenish petty cash includes a debit to Petty Cash Fund and a credit to Cash. FALSE AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 09-02 Demonstrate a knowledge of procedures for a petty cash fund. Topic: Petty Cash and Internal Controls for Cash

11.

In a firm that has a good system of internal control, cash receipts are deposited often. TRUE AACSB: Analytic AICPA BB: Industry Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 09-03 Demonstrate a knowledge of internal control routines for cash. Topic: Petty Cash and Internal Controls for Cash

12.

The monthly bank statement should be received and reconciled by the employee who deposits cash receipts and writes the checks. FALSE AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 09-03 Demonstrate a knowledge of internal control routines for cash. Topic: Petty Cash and Internal Controls for Cash

13.

A strong system of internal control requires that all payments be made by check except those made from a carefully controlled cash fund such as a petty cash fund. TRUE AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 09-02 Demonstrate a knowledge of procedures for a petty cash fund. Learning Objective: 09-03 Demonstrate a knowledge of internal control routines for cash. Topic: Petty Cash and Internal Controls for Cash

14.

A check that has a full endorsement can be further endorsed by any bearer and therefore, is not as safe as a check with a blank endorsement. FALSE AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium

Learning Objective: 09-04 Write a check; endorse checks; prepare a bank deposit slip; and maintain a checkbook balance. Topic: Banking Procedures

15.

To arrive at the accurate balance on a bank reconciliation statement, it is necessary to deduct an NSF check from the bank statement balance. FALSE AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 09-05 Reconcile the monthly bank statement. Topic: Banking Procedures

Fill in the Blank Questions

16.

A(n) ____________________ is a written promise to pay a specified amount of money at a specified time. promissory note AACSB: Analytic AICPA BB: Critical Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 09-01 Account for cash short or over. Topic: Cash Receipts

17.

If the amount of cash available for deposit is ____________________ than the amount listed on the audit tape taken from the cash register, the Cash Short or Over account is debited. less AACSB: Analytic AICPA BB: Critical Thinking Blooms: Analyze Difficulty: 1 Easy Learning Objective: 09-01 Account for cash short or over. Topic: Cash Receipts

18.

The entry to record the receipt of a check in settlement of an interest-bearing promissory note includes a credit to Notes Receivable, a credit to ____________________, and a debit to Cash. Interest Income AACSB: Analytic AICPA BB: Critical Thinking Blooms: Apply Difficulty: 1 Easy Learning Objective: 09-01 Account for cash short or over. Topic: Cash Receipts

19.

_________ is the process by which employees are investigated by an insurance company that will insure the business against losses through employee theft or mishandling of funds. Bonding AACSB: Analytic AICPA BB: Critical Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 09-03 Demonstrate a knowledge of internal control routines for cash. Topic: Petty Cash and Internal Controls for Cash

20.

The Petty Cash fund account has a(n) ____________________ balance. debit AACSB: Analytic 9-36 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

AICPA BB: Critical Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 09-02 Demonstrate a knowledge of procedures for a petty cash fund. Topic: Petty Cash and Internal Controls for Cash

21.

The person or firm that issues a check is called the ____________________, or payor, of the check. drawer AACSB: Analytic AICPA BB: Critical Thinking Blooms: Remember Difficulty: 1 Easy

Learning Objective: 09-04 Write a check; endorse checks; prepare a bank deposit slip; and maintain a checkbook balance. Topic: Banking Procedures

22.

If a payee indicates, as part of the endorsement, the name of the person, firm, or bank to whom the check is to be payable, the payee has made a(n) ____________________ endorsement. full AACSB: Analytic AICPA BB: Critical Thinking Blooms: Remember Difficulty: 1 Easy

Learning Objective: 09-04 Write a check; endorse checks; prepare a bank deposit slip; and maintain a checkbook balance. Topic: Banking Procedures

23.

To transfer ownership of a check from one party to another, it is necessary to ____________________ the check. endorse AACSB: Analytic AICPA BB: Critical Thinking Blooms: Remember Difficulty: 1 Easy

Learning Objective: 09-04 Write a check; endorse checks; prepare a bank deposit slip; and maintain a checkbook balance. Topic: Banking Procedures

24.

A(n) ____________________ is a form received from the bank showing all transactions recorded in the depositor's account during the month. bank statement AACSB: Analytic AICPA BB: Critical Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 09-05 Reconcile the monthly bank statement. Topic: Banking Procedures

25.

When a bank deducts any amount other than a paid check from a depositor's account, it issues a form called a(n) ____________________ memorandum. debit AACSB: Analytic AICPA BB: Critical Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 09-05 Reconcile the monthly bank statement. Topic: Banking Procedures

26.

Checks issued by a firm and entered in its records that have not been paid by the bank are called ____________________ checks. outstanding AACSB: Analytic AICPA BB: Critical Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 09-05 Reconcile the monthly bank statement. Topic: Banking Procedures

27.

The process of determining why a difference exists between a firm's records and the bank's records and bringing the two sets of records into balance is known as ____________________ the bank statement. reconciling AACSB: Analytic 9-38 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

AICPA BB: Critical Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 09-05 Reconcile the monthly bank statement. Topic: Banking Procedures

28.

Checks issued by a firm that were paid by the bank and returned to the firm with the bank statement are called ____________________ checks. canceled AACSB: Analytic AICPA BB: Critical Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 09-05 Reconcile the monthly bank statement. Topic: Banking Procedures

29.

A(n) ____________________ check is a check dated some time in the future. postdated AACSB: Analytic AICPA BB: Critical Thinking Blooms: Remember Difficulty: 1 Easy

Learning Objective: 09-04 Write a check; endorse checks; prepare a bank deposit slip; and maintain a checkbook balance. Topic: Banking Procedures

30.

If a firm's bank reconciliation statement shows a bank statement balance of $12,000, total deposits in transit of $1,500, and total outstanding checks of $1,000, the adjusted bank balance is ____________________. $12,500 $12,000 + $1,500 - $1,000 = $12,500

AACSB: Analytic AICPA BB: Critical Thinking Blooms: Apply Difficulty: 1 Easy Learning Objective: 09-05 Reconcile the monthly bank statement. Topic: Banking Procedures 9-39 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Multiple Choice Questions

31.

Which of the following statements is not correct?

A. In accounting, the term "cash" includes checks, money orders, and funds on deposit in a bank as well as currency and coins. B. The cash register proof is used to enter the cash sales and sales tax in the journal. C. In a well managed business, most bills are paid by cash. D. The petty cash account balance is usually listed separately from the Cash account on the Balance Sheet. AACSB: Analytic AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 2 Medium Learning Objective: 09-01 Account for cash short or over. Learning Objective: 09-02 Demonstrate a knowledge of procedures for a petty cash fund. Topic: Cash Receipts Topic: Petty Cash and Internal Controls for Cash

32.

Which of the following is not a reason why the book balance of cash may not agree with the balance on the bank statement?

A. Deposit in transit B. Outstanding checks C. Service charges and other deductions D. End of the month AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 09-05 Reconcile the monthly bank statement. Topic: Banking Procedures 9-40 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

33.

Upon collection of the amount due on an interest-bearing promissory note from a customer, the accountant would debit Cash, credit Notes Receivable, and

A. debit Interest Expense. B. credit Interest Income. C. credit Interest Expense. D. debit Interest Income. AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 09-01 Account for cash short or over. Topic: Cash Receipts

34.

Most businesses use the petty cash fund to pay for

A. small expenditures. B. accounts payable. C. internal expenses. D. merchandise purchases. AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 09-02 Demonstrate a knowledge of procedures for a petty cash fund. Topic: Petty Cash and Internal Controls for Cash

35.

Which of the following statements is correct?

A. If a check is negotiable, it means that ownership cannot be transferred. B. An endorsement is a written authorization that transfers ownership of a check. C. A check is a written order signed by an authorized person, the drawee. D. Most businesses make one monthly deposit of cash receipts in order to maintain better control over their cash. AACSB: Analytic AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 2 Medium Learning Objective: 09-04 Write a check; endorse checks; prepare a bank deposit slip; and maintain a checkbook balance. Topic: Banking Procedures

36.

The entry to replenish a petty cash fund includes

A. a debit to Cash and a credit to Petty Cash. B. a debit to Petty Cash Fund and a credit to Cash. C. debits to various expense accounts and a credit to Petty Cash Fund. D. debits to various expense accounts and a credit to Cash. AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 09-02 Demonstrate a knowledge of procedures for a petty cash fund. Topic: Petty Cash and Internal Controls for Cash

37.

On April 1, Java Brewers created a petty cash fund starting with $100. On April 30, there was only $5 remaining in the petty cash box. The custodian of the fund presented the following vouchers to the company accountant: Supplies of $55 and Delivery Expenses of $40. The journal entry on April 30, to replenish the fund, would be:

A. Option A. B. Option B. C. Option C. D. Option D. AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry Blooms: Apply Difficulty: 2 Medium Learning Objective: 09-02 Demonstrate a knowledge of procedures for a petty cash fund. Topic: Cash Receipts

38.

George's Grocers keeps a $100 change fund in its cash register. The cash sales per the cash register tape on January 30 were $405. The cash count was $502. Identify the correct journal entry below to record the sales and cash overage (or shortage) for January 30.

A. Option A. B. Option B. C. Option C. D. Option D. AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry Blooms: Apply Difficulty: 2 Medium Learning Objective: 09-01 Account for cash short or over. Topic: Cash Receipts

39.

ABC Office Suppliers keeps a $200 change fund in its cash register. The cash sales per the cash register tape on May 30 were $700. The cash count was $908. Identify the correct journal entry below to record the sales and cash overage (or shortage) for May 30.

40.

On August 3, Marley's Sporting Goods accepted a six-month promissory note from J. J. Brown, who owed $490 on account. (J. J. had needed more time to pay his balance.) The promissory note had an annual 10 percent interest rate. The journal entry on August 3 to record the transaction would be:

41.

The most appropriate form of endorsement of a check for business purposes is

A. the blank endorsement. B. the restrictive endorsement. C. the full endorsement. D. no endorsement. AACSB: Analytic AICPA BB: Critical Thinking 9-46 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 09-04 Write a check; endorse checks; prepare a bank deposit slip; and maintain a checkbook balance. Topic: Banking Procedures

42.

On a bank reconciliation statement, you would find all of the following except

A. a list of canceled checks. B. a list of NSF checks. C. a list of outstanding checks. D. the bank service charge. AACSB: Analytic AICPA BB: Industry Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 2 Medium Learning Objective: 09-05 Reconcile the monthly bank statement. Topic: Banking Procedures

43.

A firm's bank reconciliation statement shows a book balance of $15,820, an NSF check of $400, and a service charge of $20. Its adjusted book balance is

A. $16,240. B. $15,400. C. $15,440. D. $16,200. $15,820 - $400 - $20 = $15,400

AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 09-05 Reconcile the monthly bank statement. Topic: Banking Procedures

44.

A firm's bank reconciliation statement shows a book balance of $31,640, an NSF check of $800, and a service charge of $40. Its adjusted book balance is

A. $32,480. B. $30,800. C. $30,880. D. $32,400. $31,640 - $800 - $40 = $30,800

45.

On March 30, a firm's bank reconciliation statement shows a book balance of $31,640, an NSF check of $800, and a service charge of $40. The journal entry on March 30 to record these items would be:

A. Option A. B. Option B. C. Option C. D. Option D. AACSB: Analytic AICPA BB: Critical Thinking Blooms: Apply Difficulty: 2 Medium Learning Objective: 09-05 Reconcile the monthly bank statement. Topic: Banking Procedures

46.

To arrive at an accurate balance on a bank reconciliation statement, outstanding checks should be

A. added to the bank statement balance. B. added to the book balance. C. deducted from the bank statement balance. D. deducted from the book balance. AACSB: Analytic AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 09-05 Reconcile the monthly bank statement. Topic: Banking Procedures

47.

To arrive at an accurate balance on a bank reconciliation statement, a credit memorandum from the bank for the collection of a note and interest should be

A. added to the bank statement balance. B. added to the book balance. C. deducted from the bank statement balance. D. deducted from the book balance. AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 09-05 Reconcile the monthly bank statement. Topic: Banking Procedures

48.

To arrive at an accurate balance on a bank reconciliation statement, a service charge should be

49.

To arrive at an accurate balance on a bank reconciliation statement, a debit memorandum for a customer check marked NSF should be

50.

To arrive at an accurate balance on a bank reconciliation statement, an error made by the bank in which the bank deducted a check issued by another business from the balance of the company's bank account should be

A. added to the bank statement balance. B. added to the book balance. C. deducted from the bank statement balance. D. deducted from the book balance. AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 09-05 Reconcile the monthly bank statement. Topic: Banking Procedures

51.

A check issued for $890 to pay a vendor on account was recorded in the firm's records as $980; the canceled check was properly listed on the bank statement at $890. To arrive at an accurate balance on a bank reconciliation statement, the error should be

A. added to the bank statement balance. B. added to the book balance. C. deducted from the bank statement balance. D. deducted from the book balance. AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 2 Medium Learning Objective: 09-05 Reconcile the monthly bank statement. Topic: Banking Procedures

52.

A check issued for $1,980 to pay a vendor on account was recorded in the firm's records as $1,890; the canceled check was properly listed on the bank statement at $1,980. To arrive at an accurate balance on a bank reconciliation statement, the error should be

A. added to the bank statement balance. B. added to the book balance. C. deducted from the bank statement balance. D. deducted from the book balance. AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 2 Medium Learning Objective: 09-05 Reconcile the monthly bank statement. Topic: Banking Procedures

53.

To arrive at an accurate balance on a bank reconciliation statement, deposits in transit should be

54.

A firm appropriately wrote a check for $78 but entered the amount as payment of $87 in its records. On a bank reconciliation statement this error would be shown as

A. a deduction of $9 from the book balance. B. an addition of $9 to the book balance. C. a deduction of $9 from the bank statement balance. D. an addition of $9 to the bank statement balance. AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 09-05 Reconcile the monthly bank statement. Topic: Banking Procedures

55.

Which of the following would not be shown as an adjustment to the book balance on a bank reconciliation statement?

A. Bank service charges B. NSF checks C. Deposits in transit D. A charge for printing new checks AACSB: Analytic AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 1 Easy Learning Objective: 09-05 Reconcile the monthly bank statement. Topic: Banking Procedures

56.

Included with its bank statement a firm may receive a credit memorandum, which could indicate

A. a bank service charge deducted from the firm's account balance. B. the bank's return of a dishonored (NSF) check that was issued by a credit customer of the firm. C. a fee for printing new business checks. D. an addition to the firm's account balance because the bank collected the amount due on a promissory note from a customer of the firm. AACSB: Analytic AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Evaluate Difficulty: 2 Medium Learning Objective: 09-05 Reconcile the monthly bank statement. Topic: Banking Procedures

57.

If a check written by a firm is not canceled by the bank and returned with the month's bank statement, the firm should

A. consider this check as outstanding when preparing the bank reconciliation. B. immediately notify the bank requesting that it correct its records. C. adjust the balance in the firm's checkbook to reflect the data that appears in the bank's records. D. make no adjustment when preparing the bank reconciliation. AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 09-05 Reconcile the monthly bank statement. Topic: Banking Procedures

58.

Identify the items below that would all appear as an addition or subtraction from the Book

Balance side of a bank reconciliation statement.

A. Outstanding checks, customer NSF check. B. Deposits in transit, bank service charges. C. Bank service charges, customer NSF check. D. Outstanding checks, deposits in transit. AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 09-05 Reconcile the monthly bank statement. Topic: Banking Procedures

59.

After a bank reconciliation statement is completed, a firm may have to make an entry in its accounting records for

A. outstanding checks. B. deposits in transit. C. the bank statement balance. D. NSF checks. AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 09-06 Record any adjusting entries required from the bank reconciliation. Topic: Banking Procedures

60.

The entry in a firm's accounting records for a credit customer's check that was returned by the bank marked "NSF" would include

A. a debit to Miscellaneous Expense and a credit to Cash. B. a debit to Accounts Receivable and a credit to Accounts Payable. C. a debit to Accounts Receivable and a credit to Cash. D. a debit to Cash and a credit to Accounts Receivable. AACSB: Analytic AICPA BB: Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 09-06 Record any adjusting entries required from the bank reconciliation. Topic: Banking Procedures

61.

Of the four categories listed in a bank reconciliation, which one(s) require a journal entry(ies) in the firm's records?

A. Bank Statement Balance Additions and Bank Statement Balance Deductions B. Bank Statement Balance Additions and Book Balance of Cash Additions C. Bank Statement Balance Deductions and Book Balance of Cash Deductions D. Book Balance of Cash Additions and Book Balance of Cash Deductions AACSB: Analytic AICPA BB: Industry Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 09-06 Record any adjusting entries required from the bank reconciliation. Topic: Banking Procedures

62.

During the month a company paid $54.75 for office supplies and $63.22 for miscellaneous expenses from the petty cash fund. The entry to replenish the petty cash fund at the end of the month would include

A. a debit to Petty Cash for $117.97. B. a debit to Cash for $117.97. C. a credit to Cash for $117.97. D. a credit to Office Supplies for $54.75. $54.75 + $63.22 = $117.97

AACSB: Analytic AICPA BB: Industry Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 09-02 Demonstrate a knowledge of procedures for a petty cash fund. Topic: Petty Cash and Internal Controls for Cash

Short Answer Questions

63.

BANK RECONCILIATION: Indicate in which section of the Bank Reconciliation Statement the following reconciling items would appear.

A check written by the company for $168 but recorded in the company's records as $186.

C Feedback: Check was overstated in its recording so the error must be added back to the Book balance.

AACSB: Analytic AICPA BB: Industry Blooms: Apply Difficulty: 2 Medium Learning Objective: 09-05 Reconcile the monthly bank statement. Topic: Banking Procedures

64.

BANK RECONCILIATION: Indicate in which section of the Bank Reconciliation Statement the following reconciling items would appear.

An NSF check from a customer.

AICPA BB: Industry Blooms: Apply Difficulty: 1 Easy Learning Objective: 09-05 Reconcile the monthly bank statement. Topic: Banking Procedures

65.

BANK RECONCILIATION: Indicate in which section of the Bank Reconciliation Statement the following reconciling items would appear.

A canceled check for $147 erroneously listed on bank statement as $74.

AACSB: Analytic AICPA BB: Industry Blooms: Apply Difficulty: 2 Medium Learning Objective: 09-05 Reconcile the monthly bank statement. Topic: Banking Procedures

66.

BANK RECONCILIATION: Indicate in which section of the Bank Reconciliation Statement the following reconciling items would appear.

A deposit in transit.

AACSB: Analytic AICPA BB: Industry Blooms: Apply Difficulty: 1 Easy Learning Objective: 09-05 Reconcile the monthly bank statement. Topic: Banking Procedures

67.

BANK RECONCILIATION: Indicate in which section of the Bank Reconciliation Statement the following reconciling items would appear.

A service charge charged by the bank.

AACSB: Analytic AICPA BB: Industry Blooms: Apply Difficulty: 1 Easy

Learning Objective: 09-05 Reconcile the monthly bank statement. Topic: Banking Procedures

68.

Read each of the following transactions. Determine the accounts to be debited and credited. A) Issued a check for $2,500 to Jaime Gomez, the owner, as a cash withdrawal for personal use. B) Issued a check for $75 to establish a petty cash fund. C) Issued a check for $50 to replenish the petty cash fund. An analysis of the payments from the fund showed the following totals: Supplies, $25; Delivery Expense, $10; Miscellaneous Expense, $15.

A) Debit Jaime Gomez, Drawing; credit Cash B) Debit Petty Cash Fund; credit Cash C) Debit Supplies, Delivery Expense, and Miscellaneous Expense; credit Cash

AACSB: Analytic AICPA BB: Critical Thinking Blooms: Apply Difficulty: 2 Medium Learning Objective: 09-02 Demonstrate a knowledge of procedures for a petty cash fund. Topic: Petty Cash and Internal Controls for Cash

69.

Read each of the following transactions. Determine the accounts to be debited and credited. A) Sold merchandise for $500 on credit plus sales tax of $42. B) Collected $3,400 from credit customers on account. C) Sold merchandise for $3,500 in cash plus sales tax of $175. There was a cash overage of $25.

A) Debit Accounts Receivable; credit Sales and Sales Tax Payable B) Debit Cash; credit Accounts Receivable C) Debit Cash; credit Sales, Sales Tax Payable and Cash Short or Over

AACSB: Analytic AICPA BB: Critical Thinking Blooms: Apply Difficulty: 2 Medium Learning Objective: 09-01 Account for cash short or over. Topic: Cash Receipts

70.

Read each of the following transactions. Determine the accounts to be debited and credited. A) Issued a check for $750 to Adriana Taylor, the owner, as a cash withdrawal for personal use. B) Issued a check for $50 to establish a petty cash fund. C) Issued a check for $50 to replenish the petty cash fund. An analysis of the payments from the fund showed the following totals: Equipment, $225; Telephone Expense, $20; Miscellaneous Expense, $50.

A) Debit Adriana Taylor, Drawing; credit Cash B) Debit Petty Cash Fund; credit Cash C) Debit Equipment, Telephone Expense, and Miscellaneous Expense; credit Cash

AACSB: Analytic AICPA BB: Critical Thinking Blooms: Apply

Difficulty: 2 Medium Learning Objective: 09-01 Account for cash short or over. Topic: Cash Receipts

71.

Read each of the following transactions. Determine the accounts to be debited and credited. A) The cash sales per a register tape were $4,400. The cash count is $4,300. B) The cash sales per a register tape were $4,400. The cash count is $4,500.

A) Debit Cash; debit Cash Short and Over; credit Sales B) Debit Cash; credit Cash Short and Over; credit Sales

AACSB: Analytic AICPA BB: Critical Thinking Blooms: Apply Difficulty: 2 Medium Learning Objective: 09-01 Account for cash short or over. Topic: Cash Receipts

72.

Read each of the following transactions. Determine the accounts and amounts to be debited and credited. A) The cash sales per a register tape were $550. The cash count is $575. B) The cash sales per a register tape were $8,500. The cash count is $8,100.

A) Debit Cash $575; credit Cash Short and Over $25; credit Sales $550 B) Debit Cash $8,100; debit Cash Short and Over $400; credit Sales $8,500 Feedback: A. $575 - $550 = $25 over B. $8,100 - $8,500 = $400 short

AACSB: Analytic AICPA BB: Critical Thinking Blooms: Apply Difficulty: 2 Medium Learning Objective: 09-01 Account for cash short or over. Topic: Cash Receipts 9-64 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

73.

Read each of the following transactions. Determine the accounts and amounts to be debited and credited. A) Sold merchandise for $100 on credit plus sales tax of $10. B) Collected $2,500 from credit customers on account. C) Sold merchandise for $800 on credit plus sales tax of $56.

A) Debit Accounts Receivable $110; credit Sales $100 and Sales Tax Payable $10 B) Debit Cash $2,500; credit Accounts Receivable $2,500 C) Debit Accounts Receivable $856; credit Sales $800 and Sales Tax Payable $56

AACSB: Analytic AICPA BB: Critical Thinking Blooms: Apply Difficulty: 2 Medium Learning Objective: 09-01 Account for cash short or over. Topic: Cash Receipts

74.

Read each of the following transactions. Determine the accounts and amounts to be debited and credited. A) Issued a check for $100 to establish a petty cash account B) Collected $2,200 from credit customers on account C) Sold merchandise for $500 in cash plus sales tax of $30. There was a cash overage of $25 D) Issued a check for $250 to Savannah, the owner, as a cash withdrawal for personal use

A) Debit Petty Cash $100; credit Cash $100 B) Debit Cash $2,200; credit Accounts Receivable $2,200 C) Debit Cash $555; credit Sales $500, Sales Tax Payable $30 and Cash Short or Over $25 D) Debit Savannah, Drawing $250; credit Cash $250

AACSB: Analytic AICPA BB: Critical Thinking Blooms: Apply Difficulty: 2 Medium 9-65 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Learning Objective: 09-01 Account for cash short or over. Learning Objective: 09-02 Demonstrate a knowledge of procedures for a petty cash fund. Topic: Cash Receipts Topic: Petty Cash and Internal Controls for Cash

75.

Read the following transactions. Calculate the amount over or short. Lourdes LLC. keeps a $100 change fund in its cash register. At the end of the day, cash sales per the register tape were $3,100. The cash count was $3,500.

AACSB: Analytic AICPA BB: Critical Thinking Blooms: Apply Difficulty: 2 Medium Learning Objective: 09-01 Account for cash short or over. Topic: Cash Receipts

76.

Read the following transactions. Calculate the amount over or short. Bianca's Creperie does not keep a change fund in its cash register. At the end of the day, cash sales per the register tape were $500. The cash count was $550.

AACSB: Analytic AICPA BB: Critical Thinking Blooms: Apply Difficulty: 1 Easy Learning Objective: 09-01 Account for cash short or over. Topic: Cash Receipts

77.

Read the following transactions. Calculate the amount over or short. Johannes and Associates keeps a $500 change fund in the Office Manager's desk. At the end of the day, cash sales transactions totaled $800. The cash count was $1,285.

AACSB: Analytic AICPA BB: Critical Thinking Blooms: Apply Difficulty: 2 Medium Learning Objective: 09-01 Account for cash short or over. Topic: Cash Receipts

78.

Read the following transactions. Calculate the amount over or short. Miss Tracey's Dance Studio keeps a $25 change fund in its cash register. At the end of the day, cash sales per the register tape were $250. The cash count was $273.

AACSB: Analytic AICPA BB: Critical Thinking Blooms: Apply Difficulty: 2 Medium Learning Objective: 09-01 Account for cash short or over. Topic: Cash Receipts

79.

In a business it is important to maintain control of cash payments. Discuss (4) of the essential cash payment controls.

Students' answers may vary. A) Make all payments by check B) Issue checks only with an approved document C) Have only designated personnel approve invoices D) Have checks recorded by someone other the person who approves payments E) Have another person sign and mail checks to creditors F) During reconciliation, compare canceled checks to the checkbook G) Enter all cash payment transactions promptly H) Use pre-numbered check forms

AACSB: Analytic AICPA BB: Critical Thinking Blooms: Analyze Difficulty: 2 Medium Learning Objective: 09-03 Demonstrate a knowledge of internal control routines for cash. Topic: Petty Cash and Internal Controls for Cash

80.

Why is it important to closely control cash and cash receipts?

It is the asset that is most easily stolen, lost, or mishandled.

AACSB: Analytic AICPA BB: Critical Thinking Blooms: Apply Difficulty: 1 Easy Learning Objective: 09-03 Demonstrate a knowledge of internal control routines for cash. Topic: Petty Cash and Internal Controls for Cash

81.

List and explain 3 types of endorsement.

a. Blank Endorsement: Signature of the payee that transfers ownership of the check without specifying to whom or for what purpose b. Full Endorsement: Signature transferring a check to a specific person, business or bank c. Restrictive Endorsement: Signature that transfers the check to a specific party for a specific purpose

AACSB: Analytic AICPA BB: Critical Thinking Blooms: Apply Difficulty: 2 Medium Learning Objective: 09-04 Write a check; endorse checks; prepare a bank deposit slip; and maintain a checkbook balance. Topic: Banking Procedures

82.

Discuss the difference between a debit memorandum and a credit memorandum as listed on the bank statement.

A credit memorandum explains additions other than deposits to a checking account. Example: Collection on a notes receivable. A debit memorandum explains deductions other than a check to a checking account. Example: Service charges and dishonored checks.

AACSB: Analytic AICPA BB: Critical Thinking Blooms: Apply Difficulty: 1 Easy Learning Objective: 09-05 Reconcile the monthly bank statement. Topic: Banking Procedures

83.

Discuss 3 bank errors that may occur resulting in a difference between a bank balance and a book balance.

a. Arithmetic error b. Give credit to the wrong depositor c. Charge a check against the wrong account

AACSB: Analytic AICPA BB: Critical Thinking Blooms: Apply Difficulty: 1 Easy Learning Objective: 09-05 Reconcile the monthly bank statement. Topic: Banking Procedures

84.

On March 31, 2016, Home Decorating Pavilion received a bank statement containing a balance of $9,750. The balance in the firm's checkbook and Cash account on the same date was $10,290. The difference between the two balances is caused by the items listed below. a. A $2,875 deposit made on March 30 does not appear on the bank statement. b. Check 358 for $485 issued on March 29 and Check 359 for $1,650 issued on March 30 have not yet been paid by the bank. c. A credit memorandum shows that the bank has collected a $1,100 note receivable and interest of $110 for the firm. d. A service charge of $25 appears on the bank statement. e. A debit memorandum shows an NSF check for $525. (The check was issued by Dane Smithey, a credit customer.) f. The firm's records indicate that Check 341 of March 1 was issued for $900 to pay the month's rent. However, the canceled check and the listing on the bank statement show that the actual amount of the check was $800. g. The bank made an error by deducting a check for $560 issued by another business from the balance of Home Decorating Pavilion's account. Instructions: 1. Prepare a bank reconciliation statement for the firm as of March 31, 2016. 2. Record entries for any items on the bank reconciliation statement that must be journalized. Date the entries March 31, 2016. Use page 4 of a general journal.

AACSB: Analytic AICPA BB: Critical Thinking Blooms: Create Difficulty: 3 Hard Learning Objective: 09-05 Reconcile the monthly bank statement. Topic: Banking Procedures

85.

On December 31, 2016, Designer's Warehouse received a bank statement containing a balance of $19,500. The balance in the firm's checkbook and Cash account on the same date was $20,580. The difference between the two balances is caused by the items listed below. a. A $5,750 deposit made on December 30 does not appear on the bank statement. b. Check 1312 for $970 issued on November 29 and Check 1375 for $3,300 issued on December 30 have not yet been paid by the bank. c. A credit memorandum shows that the bank has collected a $2,200 note receivable and interest of $220 for the firm. d. A service charge of $50 appears on the bank statement. e. A debit memorandum shows an NSF check for $1,050. (The check was issued by R. Donnelley, a credit customer.) f. The firm's records indicate that Check 1316 of December 1 was issued for $1,800 to pay the month's rent. However, the canceled check and the listing on the bank statement show that the actual amount of the check was $1,600. g. The bank made an error by deducting a check for $1,120 issued by another business from the balance of the account of Designer's Warehouse. Instructions: 1. Prepare a bank reconciliation statement for the firm as of December 31, 2016. 2. Record entries for any items on the bank reconciliation statement that must be journalized. Date the entries December 31, 2016. Use page 19 of a general journal.

AACSB: Analytic AICPA BB: Critical Thinking Blooms: Create Difficulty: 2 Medium Learning Objective: 09-05 Reconcile the monthly bank statement. Topic: Banking Procedures

Matching Questions

86.

Match the accounting terms with the description.

A statement that accounts for all differences between the balance on the bank statement and the book balance of 1. Canceled check

cash 13 A signature of the payee written on the back of the check that transfers

2. Blank endorsement

ownership of the check without specifying to whom or for what purpose 2 The process by which employees are investigated by an insurance company that will insure the business against losses through employee theft or

3. Bonding

mishandling of funds 3 A check paid by the bank on which it

4. Full endorsement

was drawn 1 In accounting, currency, coins, checks,

5. Debit memorandum

money orders, and funds on deposit in a bank 6 A verification that the amount of currency and coins in a cash register agrees with the amount shown on the

6. Cash

cash register audit tape 19 An account used to record any discrepancies between the amount of currency and coins in the cash register

7. Service charge

and the amount shown on the audit tape 26 A written order signed by an authorized person instructing a bank to pay a specific

8. Petty cash voucher

sum of money to a designated person or business 15

9. Dishonored

A form that explains any addition, other

check

than a deposit, to a checking account 24 A form that explains any deduction, other than a check, from a checking

10. Payee

account 5

A deposit that is recorded in the cash receipts journal but that reaches the bank too late to be shown on the monthly bank 11. Drawer

statement 18

12. Outstanding

A form prepared to record the deposit

checks

of cash or checks to a bank account 16 A check returned to the depositor

13. Bank reconciliation statement 14. Endorsement 15. Check

unpaid because of insufficient funds in the drawer's account; also called an NSF check 9 The bank on which a check is written 22 The person or firm issuing a check 11 A written authorization that transfers

16. Deposit slip 17. Restrictive endorsement

ownership of a check 14 A signature transferring a check to a specific person, firm, or bank 4 A financial instrument whose

18. Deposit in transit

ownership can be transferred to another person or business 25 Checks that have been recorded in the

19. Cash register proof 20. Postdated check 21. Petty cash analysis sheet

cash payments journal but have not yet been paid by the bank 12 The person or firm to whom a check is payable 10 A form used to record transactions involving petty cash 21 A form used to record the payments

22. Drawee 23. Promissory note

made from a petty cash fund 8 A check dated some time in the future 20

24. Credit

A written promise to pay a specified

memorandum

amount of money on a specific date 23 A signature that transfers a check to a

25. Negotiable

specific party for a stated purpose 17 A fee charged by a bank to cover the

26. Cash Short or Over account 27. Statement of account

costs of maintaining accounts and providing services 7 A form sent to a firm's customers showing transactions during the month 27

and the balance owed AACSB: Analytic AICPA BB: Critical Thinking Blooms: Remember Difficulty: 2 Medium Learning Objective: 09-01 Account for cash short or over. Learning Objective: 09-02 Demonstrate a knowledge of procedures for a petty cash fund. Learning Objective: 09-03 Demonstrate a knowledge of internal control routines for cash. Learning Objective: 09-04 Write a check; endorse checks; prepare a bank deposit slip; and maintain a checkbook balance. Learning Objective: 09-05 Reconcile the monthly bank statement. Learning Objective: 09-06 Record any adjusting entries required from the bank reconciliation. Learning Objective: 09-07 Understand how businesses use online banking to manage cash activities. Topic: Banking Procedures Topic: Cash Receipts Topic: Petty Cash and Internal Controls for Cash

Chapter 10 Payroll Computations, Records, and Payment

True / False Questions

1. The Medicare tax is levied to provide medical care for the employee and the employee's spouse after they reach age 65.

True

False

2. The maximum base for the social security tax is the same as that for the Medicare tax.

True

False

3. The overtime rate is one and one-half times the regular hourly rate.

True

False

4. Time sheets or time cards are used to keep a record of hours worked each day by each employee paid on an hourly basis.

True

False

5. If an employee whose regular hourly rate is $9 and whose overtime rate is 1.5 times the regular rate works 42 hours in one week, the employee's gross pay is $378.

True

False

6. If an employee works for more than one employer during the year, the social security tax is deducted and matched by only one employer.

True

False

7. Employees submit Form W-4 to their employers to show the number of withholding allowances they claim for federal income tax withholding purposes.

True

False

8. Publication 15, Circular E contains federal income tax withholding tables.

True

False

9. The employee's marital status is one factor that determines the amount of federal income tax withheld by the employer.

True

False

10. Withholding for federal income taxes places employees on a pay-as-you-go basis.

True

False

11. When a firm records its payroll, the amount of federal income tax withheld from employees is entered as a liability.

True

False

12. The net amount due employees for their wages is recorded as a debit to Salaries and Wages Payable.

True

False

Fill in the Blank Questions

13. Employees of firms engaged in interstate commerce must receive an overtime rate of at least 1.5 times the regular hourly rate of pay for time worked in excess of ____________________ hours per week.

________________________________________

14. FICA tax is commonly referred to as ____________________ tax.

________________________________________

15. One who is hired by an employer and who is under the control and direction of the employer is called a(n) ___________________.

________________________________________

16. An independent ____________________ is paid by the company to carry out a specific task or job but is not under the direct supervision, control, and direction of the company.

________________________________________

17. Employers are required to pay workers' ____________________ insurance that will reimburse employees for losses suffered from job-related injuries.

________________________________________

18. An employee whose regular hourly rate is $12 and whose overtime rate is 1.5 times the regular rate worked 45 hours in one week. The employer should record an overtime premium of ____________________ in the payroll register.

________________________________________

19. Because salaried employees who hold supervisory or managerial positions generally are not subject to wage and hour laws, they are known as ____________________ employees.

________________________________________

20. A worker who is paid an agreed amount for each week or month or year is said to be paid on a(n) ____________________ basis.

________________________________________

21. After payroll computations are made, the hours worked, rates, earnings, and deductions are entered into a record called a(n) ___________________.

________________________________________

22. To compute ____________________ pay, it is necessary to subtract the total of an employee's deductions from the employee's gross pay.

________________________________________

23. The employer records the amount of federal income taxes withheld from employees in the Employee Income Tax ____________________ account.

________________________________________

24. The amount of employees' ____________________ pay is recorded in the Wages Expense account.

________________________________________

Multiple Choice Questions

25. Which of the following statements is not correct?

A. The amount of social security tax withheld depends on an employee's gross earnings, marital status, and number of withholding allowances. B. Federal law requires that social security, Medicare, and federal income taxes be deducted from the gross pay of most employees. C. Medicare taxes are levied in an equal amount on both employers and employees. D. Once an employee's year-to-date wages reach a certain amount prescribed by law, social security tax is no longer withheld.

26. Identify the statement below that is not true regarding social security tax.

A. Both the employee and the employer pay an equal amount of social security tax on the employee's wages. B. The social security tax provides benefits for retirement as well as worker disability. C. Social security is sometimes called FICA. D. In any given year, there is no limit on the amount of wages subject to social security tax.

27. Which of the following statements is correct?

A. A company is required to withhold various employee taxes from amounts paid independent contractors. B. The accountant who performs the independent audit for a company is an employee of the company. C. All employees must be paid at the minimum wage rate set by the Fair Labor Standards Act. D. Disability benefits for the worker and the worker's dependents are provided by the Federal Insurance Contributions Act.

28. Which of the following statements is not correct?

A. The FUTA tax provides benefits for employees who become unemployed. B. The federal unemployment tax rate can be reduced by the rate charged by state for the state unemployment tax. C. The earnings base for the federal and state unemployment taxes are the same, the first $7,000 of an employee's earnings for the year. D. The SUTA tax protects employees against losses from job-related injuries or illnesses.

29. The employer records the amount of federal income tax withheld from employees as

A. Income Tax Expense. B. Employee Federal Income Tax Payable. C. Social Security Tax Expense. D. Social Security Tax Payable.

30. Federal law requires that the employer withhold _________ from the employee's pay.

A. federal income tax, social security tax, Medicare tax, and FUTA B. federal income tax, social security tax, and Medicare tax C. federal income tax, social security tax, Medicare tax, and state and local taxes D. Federal and state income tax, social security tax, Medicare tax, and FUTA

31. An employee whose regular hourly rate is $10 and whose overtime rate is 1.5 times the regular rate worked 44 hours in one week. In the payroll register, the employer should record an overtime premium of

A. $440. B. $220. C. $20. D. $5.

32. An employee whose regular hourly rate is $20 and whose overtime rate is 1.5 times the regular rate worked 44 hours in one week. In the payroll register, the employer should record an overtime premium of

A. $880. B. $440. C. $120. D. $40.

33. An employee whose regular hourly rate is $10 and whose overtime rate is 1.5 times the regular rate worked 48 hours in one week. In the payroll register, the employer should record an overtime premium of

A. $480. B. $240. C. $80. D. $40.

34. Salespeople who are paid a percentage of net sales are paid on a(n)

A. commission basis. B. salary basis. C. hourly-rate basis. D. piece-rate basis.

35. An employee whose regular hourly rate is $9 and whose overtime rate is 1.5 times the regular rate worked 44 hours one week. The employee's gross pay was

A. $378. B. $396. C. $414. D. $594.

36. An employee whose regular hourly rate is $18 and whose overtime rate is 1.5 times the regular rate worked 44 hours one week. The employee's gross pay was

A. $1,188. B. $828. C. $792. D. $756.

37. Which of the following is a factor in the determination of the amount of social security tax to withhold from an employee's pay?

A. hours worked during the pay period B. marital status C. withholding allowances claimed on Form W-4 D. gross wages

38. Michael Miller had total gross earnings as of 10/15 of $113,000. His gross earnings for the period ending 10/30 were $2,000. If social security taxes are 6.2% on a maximum earnings of $113,700 per year and Medicare tax is 1.45% on all earnings, how much social security tax will be paid by Michael and how much will be paid by his employer for the period ending 10/30?

A. Michael will pay $43.40 and his employer is not required to pay any social security tax. B. Michael will pay $43.40 and his employer will also pay $43.40. C. Michael will pay $124 and his employer will also pay $124. D. Michael will pay $124 and his employer is not required to pay any social security tax.

39. Assuming a Medicare tax rate of 1.45% and monthly gross wages of $2,500, the amount recorded in Medicare Tax Payable for one quarter for the employee's payroll deduction is

A. a debit for $36.25. B. a credit for $36.25. C. a debit for $108.75. D. a credit for $108.75.

40. Assuming a Medicare tax rate of 1.45% and monthly gross wages of $5,000, the amount recorded in Medicare Tax Payable for one quarter for the employee's payroll deduction is

A. a debit for $217.50. B. a credit for $217.50. C. a debit for $72.50. D. a credit for $72.50.

41. Publication 15, Circular E contains withholding information

A. for social security and Medicare taxes only. B. for federal income taxes only. C. for social security, Medicare, and federal income tax taxes. D. for federal and state income taxes.

42. Lisa Ramos has a regular hourly rate of $10.75. In a week when she worked 40 hours and had deductions of $55 for federal income tax, $26.75 for social security tax, and $6.25 for Medicare tax, her net pay was

A. $430. B. $342. C. $375. D. $397.

43. Lacy Crawford has a regular hourly rate of $21.50. In a week when she worked 40 hours and had deductions of $110 for federal income tax, $53.50 for social security tax, and $12.50 for Medicare tax, her net pay was

A. $860. B. $684. C. $750. D. $794.

44. Jason McCurdy has a regular hourly rate of $10.75. During a two week period, he worked 80 hours and had deductions of $110 for federal income tax, $53.50 for social security tax, and $12.50 for Medicare tax. His net pay was

A. $860. B. $684. C. $750. D. $794.

45. Lila Harrison's is the sole employee of ABC Grocers. Her gross pay for the week was $400. She had deductions of $50 for federal income tax, $25 for social security tax, and $5.80 for Medicare tax. The journal entry to record her salary would include:

A. a debit to Salaries Expense for $319.20 B. a debit to Salaries Expense for $400 C. a debit to Salaries Payable for $319.20 D. a credit to Salaries Payable for $400

46. Ramon Gonzalez's gross pay for the week was $700. He had deductions of $85 for federal income tax, $43.40 for social security tax, $10.15 for Medicare tax as well as $5 for union dues. The journal entry to record his salary would include:

A. a debit to Employee Income Tax Payable for $85 B. a credit to Employee Income Tax Payable for $85 C. a debit to Salaries Payable for $700 D. a debit to Salaries Expense for $556.45

47. The Social Security Tax Payable account will normally have a(n)

A. debit balance. B. credit balance. C. debit or credit balance depending on the timing of payments. D. zero balance.

48. ABC Grocers uses a separate checking account to pay their employees. The gross pay for the period was $850. However, after deductions were taken out, the net pay for the period was $790. The journal entry to record the issuance of payroll checks to their employees would include:

A. a debit to Salaries Expense for $790 B. a debit to Salaries Payable for $850 C. a debit to Salaries Payable for $790 D. a credit to Salaries Payable for $850

49. Junkman Autos uses a separate checking account to pay their employees. The gross pay for the period was $1000. However, after deductions were taken out, the net pay for the period was $820. The journal entry to record the issuance of payroll checks to their employees is:

50. Identify the list of accounts below that would normally all have a debit balance.

A. Salaries Expense, Salaries Payable, Cash B. Salaries Payable, Medicare Tax Payable, Office Salaries Expense C. Cash, Salaries Expense, Insurance Expense D. Employee Income Tax Payable, Social Security Tax Payable, Wages Expense

51. Identify the list of accounts below that would normally all have a credit balance.

A. Salaries Payable, Employee Income Tax Payable, Owner's Capital B. Salaries Payable, Prepaid Insurance, Medicare Tax Payable C. Wages Expense, Salaries Payable, Equipment D. Employee Income Tax Payable, Social Security Tax Payable, Salaries Expense

52. The column totals in a payroll register

A. are used in the journal entry to record the payroll. B. are posted directly to the general ledger accounts. C. are unnecessary. D. are used at the end of the year to record payroll taxes owed to the IRS.

53. The amount debited to Wages Expense when a payroll is recorded is the

A. regular gross earnings. B. earnings after taxes. C. net earnings. D. total gross earnings.

54. When checks are issued to employees after the entry to record the payroll has been made, the accountant would

A. debit Salaries Expense, debit Wages Expense, and credit Cash. B. debit Salaries and Wages Payable, debit Social Security Tax Payable, debit Medicare Tax Payable, debit Employee Income Tax Payable, and credit Cash. C. debit Salaries and Wages Payable and credit Cash. D. debit Salaries and Wages Payable and credit Salaries Expense and Wages Expense.

55. Each type of deduction made from the employees' earnings is recorded in a separate

A. asset account. B. expense account. C. liability account. D. revenue account.

56. It is best not to pay wages and salaries by

A. cash. B. a check from the regular cash account. C. the direct-deposit method. D. a check from the payroll cash account.

57. All details related to an employee's earnings, deductions, and net pay throughout the year would be found in

A. the payroll register. B. the individual earnings record. C. the general journal. D. the Wages Expense account in the general ledger.

58. Sabrina Duncan had gross earnings for the pay period ending 10/15/16 of $5,785. Her total gross earnings as of 9/30/16 were $111,400. If Social Security taxes are 6.2% on a maximum earnings of $113,700 per year, Sabrina's Social Security withheld from her 10/15/16 paycheck would be:

A. $358.67 B. $142.60 C. $216.07 D. $198.88

59. Abe Carter had gross earnings of $6,000 for the pay period ending 11/30. His total gross earnings as of 11/15 were $112,000. If Social Security taxes are 6.2% on a maximum earnings of $113,700 per year and Medicare tax is 1.45% on all earnings, the journal entry to record his earnings for the period ending 11/30 would include:

A. a credit to Salaries Expense for $6,000 B. a credit to Medicare Tax Payable for $870.00 C. a credit to Social Security Tax Payable for $87.00 D. a credit to Medicare Tax Payable for $87.00

60. For which of the following taxes is there no limit on the amount of annual earnings subject to the tax?

A. Federal unemployment tax B. Social Security tax C. Federal income tax D. State unemployment tax

61. Jill Monroe earns $25 per hour. She worked 48 hours this pay period and receives time-anda-half for any hours worked over 40 hours per week. Jill's gross earnings are:

A. $1,200 B. $1,300 C. $1,100 D. $1,920

62. Which of the following is NOT typically an employee payroll withholding?

A. federal income taxes B. state unemployment taxes C. union dues D. medical insurance

63. The employer records the amount of federal income tax withheld as:

A. an asset. B. a payroll tax expense. C. a liability. D. an expense.

64. Social Security taxes are paid by:

A. employees only. B. the employer and federal government. C. both the employee and employer. D. solely by the employer.

65. Rick O'Shea, the only employee of Hunter Furniture Company, makes $30,000 per year and is paid once a month. For the month of July, his federal income taxes withheld are $180, state income taxes withheld are $37, social security is 6.2%, Medicare tax is 1.45%, State Unemployment Tax is 4%, and Federal Unemployment tax is .8%. What is Rick's net pay for July?

A. $2,500.00 B. $2,283.00 C. $2,308.75 D. $2,091.75

66. The total amount earned by the employee is called the

A. gross pay. B. take home pay. C. net pay. D. payroll.

Short Answer Questions

67. During one week, three employees of the Snowshoe Lodge worked the number of hours shown below. All these employees receive overtime pay at one and a half times their regular hourly rate for any hours worked beyond 40 in a week. Compute the regular earnings, overtime earnings, and gross pay for each employee.

68. During one week, three employees of the Tea Leaf Cafe worked the number of hours shown below. All these employees receive overtime pay at one and a half times their regular hourly rate for any hours worked beyond 40 in a week. Compute the regular earnings, overtime earnings, and gross pay for each employee.

69. During one week, three employees of the Pampered Pooch Pet Salon worked the number of hours shown below. All these employees receive overtime pay at one and a half times their regular hourly rate for any hours worked beyond 40 in a week. Compute the regular earnings, overtime earnings, and gross pay for each employee.

70. During one week, three employees of the Siesta Inn worked the number of hours shown below. All these employees receive overtime pay at one and a half times their regular hourly rate for any hours worked beyond 40 in a week. Compute the regular earnings, overtime earnings, and gross pay for each employee.

71. The monthly salaries for December and the year-to-date earnings as of November 30 for the three employees of the Lakeview Medical Center are listed below. Compute the amount of social security tax and Medicare tax to be withheld from each of the employee's gross pay for December. Assume a 6.2 percent social security tax rate and a base of $113,700 for the calendar year. Assume a 1.45 percent Medicare tax rate.

72. The monthly salaries for December and the year-to-date earnings as of November 30 for the three employees of the Design Warehouse are listed below. Compute the amount of social security tax and Medicare tax to be withheld from each of the employee's gross pay for December. Assume a 6.2 percent social security tax rate and a base of $113,700 for the calendar year. Assume a 1.45 percent Medicare tax rate.

73. The monthly salaries for December and the year-to-date earnings as of November 30 for the three employees of the Barbara's Bookstore, Inc. are listed below. Compute the amount of social security tax and Medicare tax to be withheld from each of the employee's gross pay for December. Assume a 6.2 percent social security tax rate and a base of $113,700 for the calendar year. Assume a 1.45 percent Medicare tax rate.

74. The monthly salaries for December and the year-to-date earnings as of November 30 for the three employees of Heather's Hair Salon are listed below. Compute the amount of social security tax and Medicare tax to be withheld from each of the employee's gross pay for December. Assume a 6.2 percent social security tax rate and a base of $113,700 for the calendar year. Assume a 1.45 percent Medicare tax rate.

75. During the week ended May 15, 2016, Scott Fairchild worked 40 hours. His regular hourly rate is $14. Assume that his earnings are subject to social security tax at a rate of 6.2 percent and Medicare tax at a rate of 1.45 percent. He also has deductions of $31 for federal income tax and $21 for health insurance. A) What is his gross pay for the week? B) What is the total of his deductions for the week? C) What is his net pay for the week?

76. During the week ended January 11, 2016, Darlene Marcussen worked 40 hours. Her regular hourly rate is $18. Assume that her earnings are subject to social security tax at a rate of 6.2 percent and Medicare tax at a rate of 1.45 percent. She also has deductions of $40 for federal income tax and $21 for health insurance. A) What is his gross pay for the week? B) What is the total of his deductions for the week? C) What is his net pay for the week?

77. During the week ended February 8, 2016, Stuart Wayne worked 40 hours. His regular hourly rate is $10. Assume that his earnings are subject to social security tax at a rate of 6.2 percent and Medicare tax at a rate of 1.45 percent. He also has deductions of $31 for federal income tax and $21 for health insurance. A) What is his gross pay for the week? B) What is the total of his deductions for the week? C) What is his net pay for the week?

78. During the week ended April 26, 2016, Andy Tyler worked 40 hours. His regular hourly rate is $15. Assume that his earnings are subject to social security tax at a rate of 6.2 percent and Medicare tax at a rate of 1.45 percent. He also has deductions of $31 for federal income tax and $21 for health insurance. A) What is his gross pay for the week? B) What is the total of his deductions for the week? C) What is his net pay for the week?

79. The Rollins Company has office employees and shipping employees. A summary of their earnings and deductions for the week ended June 14, 2016, is shown below. On page 6 of a general journal, record the June 14 payroll and the entry to summarize the effect of the checks written to pay the payroll.

80. The Royal Company has office employees and sales employees. A summary of their earnings and deductions for the week ended April 26, 2016, is shown below. On page 18 of a general journal, record the April 26 payroll and the entry to summarize the effect of the checks written to pay the payroll.

81. The Burns Company has two office employees and two shipping employees. A summary of their earnings and deductions for the week ended August 23, 2016, is shown below. On page 10 of a general journal, record the August 23 payroll and the entry to summarize the effect of the checks written to pay the payroll.

82. The Santa Fe Company has office employees and shipping employees. A summary of their earnings and deductions for the week ended July 12, 2016, is shown below. On page 16 of a general journal, record the July 12 payroll and the entry to summarize the effect of the checks written to pay the payroll.

Matching Questions

83. Match the accounting terms with the description.

A method of paying employees according to a percentage of net 1. Time and a half

sales ____

2. Workers' compensation insurance

Another name for individual earnings record ____ A person who is hired by and works under the control and direction of the

3. Hourly rate basis

employer ____ A form used to claim exemption

4. Piece-rate basis

(withholding) allowances ____ Salaried employees who hold supervisory or managerial positions who are not subject to the maximum

5. Wage-bracket table method

hour and overtime pay provisions of the Wage and Hour Law ____ Taxes levied by the federal government against employers to

6. Social Security Act

benefit unemployed workers ____ A method of paying employees

7. Medicare tax

according to a stated rate per hour ____ One who is paid by a company to

8. Employee's withholding allowance certificate (Form W-4)

carry out a specific task or job but is not under the direct supervision or control of the company ____ An employee record that contains information needed to compute

9. Tax-exempt wages

earnings and complete tax reports ____ A tax levied on employees and

10. Payroll register

employers to provide medical care for ____

the employee and the employee's spouse after each has reached age 65 A record of payroll information for 11. Employee

each employee for the pay period ____ A method of paying employees

12. Social Security (FICA) Tax

according to the number of units produced ____ A method of paying employees

13. Independent contractor

according to an agreed-upon amount for each week or month ____ A federal act providing certain benefits for employees and their families; officially the Federal

14. Salary basis

Insurance Contributions Act ____ A tax imposed by the Federal Insurance Contributions Act and collected on employee earnings to

15. Individual earnings record

provide retirement and disability benefits ____ Taxes levied by a state government against employers to benefit

16. Exempt employees 17. Compensation record

unemployed workers ____ Earnings in excess of the base amount set by the Social Security Act ____ Rate of pay for an employee's work

18. Commission basis

in excess of 40 hours a week ____ A simple method to determine the amount of federal income tax to be

19. State unemployment withheld using a table provided by the taxes 20. Federal unemployment taxes

government ____ Insurance that protects employees against losses from job-related ____

injuries or illnesses, or compensates their families if death occurs in the course of the employment

Chapter 10 Payroll Computations, Records, and Payment Answer Key

True / False Questions

The Medicare tax is levied to provide medical care for the employee and the employee's spouse after they reach age 65.

TRUE

AACSB: Analytic AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 10-01 Explain the major federal laws relating to employee earnings and withholding. Topic: Payroll Laws and Taxes

The maximum base for the social security tax is the same as that for the Medicare tax.

FALSE

AACSB: Analytic AICPA BB: Legal AICPA FN: Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 10-01 Explain the major federal laws relating to employee earnings and withholding. Topic: Payroll Laws and Taxes

The overtime rate is one and one-half times the regular hourly rate.

TRUE

Time sheets or time cards are used to keep a record of hours worked each day by each employee paid on an hourly basis.

TRUE

AACSB: Analytic AICPA BB: Legal AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 10-02 Compute gross earnings of employees. Topic: Calculating Earnings and Taxes

If an employee whose regular hourly rate is $9 and whose overtime rate is 1.5 times the regular rate works 42 hours in one week, the employee's gross pay is $378.

FALSE $9 * 40 hours = $360 $9 * 1.5 = $13.50 * 2 hours = $27 $360 + $27 = $387

AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 10-02 Compute gross earnings of employees. Topic: Calculating Earnings and Taxes

If an employee works for more than one employer during the year, the social security tax is deducted and matched by only one employer.

FALSE

AACSB: Analytic AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 10-03 Determine employee deductions for social security tax. Topic: Calculating Earnings and Taxes

Employees submit Form W-4 to their employers to show the number of withholding allowances they claim for federal income tax withholding purposes.

TRUE

AACSB: Analytic AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 10-05 Determine employee deductions for income tax. Topic: Calculating Earnings and Taxes

Publication 15, Circular E contains federal income tax withholding tables.

TRUE

AACSB: Analytic AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 10-05 Determine employee deductions for income tax. Topic: Calculating Earnings and Taxes

The employee's marital status is one factor that determines the amount of federal income tax withheld by the employer.

TRUE

AACSB: Analytic AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 10-05 Determine employee deductions for income tax. Topic: Calculating Earnings and Taxes

10.

Withholding for federal income taxes places employees on a pay-as-you-go basis.

TRUE

AACSB: Analytic AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 2 Medium Learning Objective: 10-05 Determine employee deductions for income tax. Topic: Calculating Earnings and Taxes

11.

When a firm records its payroll, the amount of federal income tax withheld from employees is entered as a liability.

TRUE

AACSB: Analytic AICPA BB: Legal AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 10-07 Journalize payroll transactions in the general journal. Topic: Recording Payroll Information

12.

The net amount due employees for their wages is recorded as a debit to Salaries and Wages Payable.

FALSE

Fill in the Blank Questions

13.

Employees of firms engaged in interstate commerce must receive an overtime rate of at least 1.5 times the regular hourly rate of pay for time worked in excess of ____________________ hours per week.

AACSB: Analytic AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 10-01 Explain the major federal laws relating to employee earnings and withholding. Topic: Payroll Laws and Taxes

14.

FICA tax is commonly referred to as ____________________ tax.

social security

AACSB: Analytic AICPA BB: Legal AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 10-01 Explain the major federal laws relating to employee earnings and withholding. Topic: Payroll Laws and Taxes

15.

One who is hired by an employer and who is under the control and direction of the employer is called a(n) ___________________.

employee

AACSB: Analytic AICPA BB: Resource Management AICPA FN: Decision Making Blooms: Remember Difficulty: 1 Easy Learning Objective: 10-01 Explain the major federal laws relating to employee earnings and withholding.

Topic: Payroll Laws and Taxes

16.

An independent ____________________ is paid by the company to carry out a specific task or job but is not under the direct supervision, control, and direction of the company.

contractor

17.

Employers are required to pay workers' ____________________ insurance that will reimburse employees for losses suffered from job-related injuries.

compensation

AACSB: Analytic AICPA BB: Legal AICPA FN: Decision Making Blooms: Remember Difficulty: 1 Easy Learning Objective: 10-01 Explain the major federal laws relating to employee earnings and withholding. Topic: Payroll Laws and Taxes

18.

An employee whose regular hourly rate is $12 and whose overtime rate is 1.5 times the regular rate worked 45 hours in one week. The employer should record an overtime premium of ____________________ in the payroll register.

$30 $12 * .5 = $6 * 5 hours = $30

AICPA BB: Resource Management AICPA FN: Measurement Blooms: Apply Difficulty: 1 Easy Learning Objective: 10-02 Compute gross earnings of employees. Topic: Calculating Earnings and Taxes

19.

Because salaried employees who hold supervisory or managerial positions generally are not subject to wage and hour laws, they are known as ____________________ employees.

exempt

AACSB: Analytic AICPA BB: Legal AICPA FN: Decision Making Blooms: Remember Difficulty: 1 Easy Learning Objective: 10-05 Determine employee deductions for income tax. Topic: Calculating Earnings and Taxes

20.

A worker who is paid an agreed amount for each week or month or year is said to be paid on a(n) ____________________ basis.

salary

AACSB: Analytic AICPA BB: Resource Management AICPA FN: Decision Making Blooms: Remember Difficulty: 1 Easy Learning Objective: 10-05 Determine employee deductions for income tax. Topic: Calculating Earnings and Taxes

21.

After payroll computations are made, the hours worked, rates, earnings, and deductions are entered into a record called a(n) ___________________.

payroll register

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 10-06 Enter gross earnings; deductions; and net pay in the payroll register. Topic: Calculating Earnings and Taxes

22.

To compute ____________________ pay, it is necessary to subtract the total of an employee's deductions from the employee's gross pay.

net

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Understand Difficulty: 1 Easy Learning Objective: 10-06 Enter gross earnings; deductions; and net pay in the payroll register. Topic: Calculating Earnings and Taxes

23.

The employer records the amount of federal income taxes withheld from employees in the Employee Income Tax ____________________ account.

Payable

AACSB: Analytic AICPA BB: Legal AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 10-07 Journalize payroll transactions in the general journal. Topic: Recording Payroll Information

24.

The amount of employees' ____________________ pay is recorded in the Wages Expense account.

gross

AACSB: Analytic AICPA BB: Resource Management AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 10-07 Journalize payroll transactions in the general journal. Topic: Recording Payroll Information

Multiple Choice Questions

25.

Which of the following statements is not correct?

AACSB: Analytic AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 2 Medium 10-45 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Learning Objective: 10-01 Explain the major federal laws relating to employee earnings and withholding. Topic: Payroll Laws and Taxes

26.

Identify the statement below that is not true regarding social security tax.

AACSB: Analytic AICPA BB: Legal AICPA FN: Decision Making AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 10-01 Explain the major federal laws relating to employee earnings and withholding. Topic: Payroll Laws and Taxes

27.

Which of the following statements is correct?

AACSB: Analytic

AICPA BB: Resource Management AICPA FN: Decision Making AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 10-01 Explain the major federal laws relating to employee earnings and withholding. Topic: Payroll Laws and Taxes

28.

Which of the following statements is not correct?

AACSB: Analytic AICPA BB: Legal AICPA FN: Decision Making AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 2 Medium Learning Objective: 10-01 Explain the major federal laws relating to employee earnings and withholding. Topic: Payroll Laws and Taxes

29.

The employer records the amount of federal income tax withheld from employees as

A. Income Tax Expense. B. Employee Federal Income Tax Payable. C. Social Security Tax Expense. D. Social Security Tax Payable.

AACSB: Analytic AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 10-07 Journalize payroll transactions in the general journal. Topic: Recording Payroll Information

30.

Federal law requires that the employer withhold _________ from the employee's pay.

AACSB: Analytic AICPA BB: Legal AICPA FN: Decision Making AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 10-01 Explain the major federal laws relating to employee earnings and withholding. Topic: Payroll Laws and Taxes

31.

An employee whose regular hourly rate is $10 and whose overtime rate is 1.5 times the regular rate worked 44 hours in one week. In the payroll register, the employer should record an overtime premium of

A. $440. B. $220. C. $20. D. $5. $10 * .5 = $5 * 4 = $20

AACSB: Analytic AICPA BB: Resource Management AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 10-02 Compute gross earnings of employees. Topic: Calculating Earnings and Taxes

32.

An employee whose regular hourly rate is $20 and whose overtime rate is 1.5 times the regular rate worked 44 hours in one week. In the payroll register, the employer should record an overtime premium of

A. $880. B. $440. C. $120. D. $40. $20 * .5 = $10 * 4 = $40

AICPA BB: Resource Management AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 10-02 Compute gross earnings of employees. Topic: Calculating Earnings and Taxes

33.

An employee whose regular hourly rate is $10 and whose overtime rate is 1.5 times the regular rate worked 48 hours in one week. In the payroll register, the employer should record an overtime premium of

A. $480. B. $240. C. $80. D. $40. $10 * .5 = $5 * 8 = $40

34.

Salespeople who are paid a percentage of net sales are paid on a(n)

A. commission basis. B. salary basis. C. hourly-rate basis. D. piece-rate basis.

AACSB: Analytic AICPA BB: Resource Management AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 10-02 Compute gross earnings of employees. Topic: Calculating Earnings and Taxes

35.

An employee whose regular hourly rate is $9 and whose overtime rate is 1.5 times the regular rate worked 44 hours one week. The employee's gross pay was

A. $378. B. $396. C. $414. D. $594. $9 * 40 hours = $360.00 $9 * 1.5 = $13.50 * 4 = $54 + $360.00 = $414.00

AACSB: Analytic AICPA BB: Resource Management AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy

Learning Objective: 10-02 Compute gross earnings of employees. Topic: Calculating Earnings and Taxes

36.

An employee whose regular hourly rate is $18 and whose overtime rate is 1.5 times the regular rate worked 44 hours one week. The employee's gross pay was

A. $1,188. B. $828. C. $792. D. $756. $18 * 40 hours = $720.00 $18 * 1.5 = $27.00 * 4 = $108 + $720.00 = $828.00

AACSB: Analytic AICPA BB: Resource Management AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 10-02 Compute gross earnings of employees. Topic: Calculating Earnings and Taxes

37.

Which of the following is a factor in the determination of the amount of social security tax to withhold from an employee's pay?

A. hours worked during the pay period B. marital status C. withholding allowances claimed on Form W-4 D. gross wages

AACSB: Analytic AICPA BB: Legal

AICPA FN: Decision Making AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 2 Medium Learning Objective: 10-03 Determine employee deductions for social security tax. Topic: Calculating Earnings and Taxes

38.

Michael Miller had total gross earnings as of 10/15 of $113,000. His gross earnings for the period ending 10/30 were $2,000. If social security taxes are 6.2% on a maximum earnings of $113,700 per year and Medicare tax is 1.45% on all earnings, how much social security tax will be paid by Michael and how much will be paid by his employer for the period ending 10/30?

AACSB: Analytic AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 10-01 Explain the major federal laws relating to employee earnings and withholding. Topic: Payroll Laws and Taxes

39.

Assuming a Medicare tax rate of 1.45% and monthly gross wages of $2,500, the amount recorded in Medicare Tax Payable for one quarter for the employee's payroll deduction is

A. a debit for $36.25. B. a credit for $36.25. C. a debit for $108.75. D. a credit for $108.75. $2,500 * .0145 = $36.25 * 3 months = $108.75

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 10-07 Journalize payroll transactions in the general journal. Topic: Recording Payroll Information

40.

Assuming a Medicare tax rate of 1.45% and monthly gross wages of $5,000, the amount recorded in Medicare Tax Payable for one quarter for the employee's payroll deduction is

A. a debit for $217.50. B. a credit for $217.50. C. a debit for $72.50. D. a credit for $72.50. $5,000 * .0045 = $72.50 * 3 months = $217.50

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement

AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 10-07 Journalize payroll transactions in the general journal. Topic: Recording Payroll Information

41.

Publication 15, Circular E contains withholding information

A. for social security and Medicare taxes only. B. for federal income taxes only. C. for social security, Medicare, and federal income tax taxes. D. for federal and state income taxes.

AACSB: Analytic AICPA BB: Legal AICPA FN: Decision Making AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 10-05 Determine employee deductions for income tax. Topic: Calculating Earnings and Taxes

42.

Lisa Ramos has a regular hourly rate of $10.75. In a week when she worked 40 hours and had deductions of $55 for federal income tax, $26.75 for social security tax, and $6.25 for Medicare tax, her net pay was

A. $430. B. $342. C. $375. D. $397. $10.75 * 40 hours = $430.00 - $55 - $26.75 - $6.25 = $342.00

AACSB: Analytic AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 10-06 Enter gross earnings; deductions; and net pay in the payroll register. Topic: Calculating Earnings and Taxes

43.

Lacy Crawford has a regular hourly rate of $21.50. In a week when she worked 40 hours and had deductions of $110 for federal income tax, $53.50 for social security tax, and $12.50 for Medicare tax, her net pay was

A. $860. B. $684. C. $750. D. $794. $21.50 * 40 hours = $860.00 - $110 - $53.50 - $12.50 = $684.00

AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 10-06 Enter gross earnings; deductions; and net pay in the payroll register. Topic: Calculating Earnings and Taxes

44.

Jason McCurdy has a regular hourly rate of $10.75. During a two week period, he worked 80 hours and had deductions of $110 for federal income tax, $53.50 for social security tax, and $12.50 for Medicare tax. His net pay was

A. $860. B. $684. C. $750. D. $794. $10.75 * 80 hours = $860.00 - $110 - $53.50 - $12.50 = $684.00

45.

Lila Harrison's is the sole employee of ABC Grocers. Her gross pay for the week was $400. She had deductions of $50 for federal income tax, $25 for social security tax, and $5.80 for Medicare tax. The journal entry to record her salary would include:

A. a debit to Salaries Expense for $319.20 B. a debit to Salaries Expense for $400 C. a debit to Salaries Payable for $319.20 D. a credit to Salaries Payable for $400 $400 - 50 - 25 - 5.80 = $319.20

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 10-07 Journalize payroll transactions in the general journal. Topic: Recording Payroll Information

46.

Ramon Gonzalez's gross pay for the week was $700. He had deductions of $85 for federal income tax, $43.40 for social security tax, $10.15 for Medicare tax as well as $5 for union dues. The journal entry to record his salary would include:

A. a debit to Employee Income Tax Payable for $85 B. a credit to Employee Income Tax Payable for $85 C. a debit to Salaries Payable for $700 D. a debit to Salaries Expense for $556.45

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting 10-58 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 10-07 Journalize payroll transactions in the general journal. Topic: Recording Payroll Information

47.

The Social Security Tax Payable account will normally have a(n)

A. debit balance. B. credit balance. C. debit or credit balance depending on the timing of payments. D. zero balance.

48.

ABC Grocers uses a separate checking account to pay their employees. The gross pay for the period was $850. However, after deductions were taken out, the net pay for the period was $790. The journal entry to record the issuance of payroll checks to their employees would include:

A. a debit to Salaries Expense for $790 B. a debit to Salaries Payable for $850 C. a debit to Salaries Payable for $790 D. a credit to Salaries Payable for $850

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement 10-59 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

49.

Junkman Autos uses a separate checking account to pay their employees. The gross pay for the period was $1000. However, after deductions were taken out, the net pay for the period was $820. The journal entry to record the issuance of payroll checks to their employees is:

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 10-07 Journalize payroll transactions in the general journal. Topic: Recording Payroll Information

50.

Identify the list of accounts below that would normally all have a debit balance.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 10-07 Journalize payroll transactions in the general journal. Topic: Recording Payroll Information

51.

Identify the list of accounts below that would normally all have a credit balance.

52.

The column totals in a payroll register

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 10-07 Journalize payroll transactions in the general journal. Topic: Recording Payroll Information

53.

The amount debited to Wages Expense when a payroll is recorded is the

A. regular gross earnings. B. earnings after taxes. C. net earnings. D. total gross earnings.

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 10-07 Journalize payroll transactions in the general journal. Topic: Recording Payroll Information

54.

When checks are issued to employees after the entry to record the payroll has been made, the accountant would

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 10-07 Journalize payroll transactions in the general journal. Topic: Recording Payroll Information

55.

Each type of deduction made from the employees' earnings is recorded in a separate

A. asset account. B. expense account. C. liability account. D. revenue account.

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 10-07 Journalize payroll transactions in the general journal. Topic: Recording Payroll Information

56.

It is best not to pay wages and salaries by

A. cash. B. a check from the regular cash account. C. the direct-deposit method. D. a check from the payroll cash account.

57.

All details related to an employee's earnings, deductions, and net pay throughout the year would be found in

A. the payroll register. B. the individual earnings record. C. the general journal. D. the Wages Expense account in the general ledger.

AACSB: Analytic AICPA BB: Resource Management AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 10-08 Maintain an earnings record for each employee. Topic: Recording Payroll Information

58.

Sabrina Duncan had gross earnings for the pay period ending 10/15/16 of $5,785. Her total gross earnings as of 9/30/16 were $111,400. If Social Security taxes are 6.2% on a maximum earnings of $113,700 per year, Sabrina's Social Security withheld from her 10/15/16 paycheck would be:

A. $358.67 B. $142.60 C. $216.07 D. $198.88 $113,700 - $111,400 = $2,300 * .062 = $142.60

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 10-03 Determine employee deductions for social security tax. Topic: Calculating Earnings and Taxes

59.

Abe Carter had gross earnings of $6,000 for the pay period ending 11/30. His total gross earnings as of 11/15 were $112,000. If Social Security taxes are 6.2% on a maximum earnings of $113,700 per year and Medicare tax is 1.45% on all earnings, the journal entry to record his earnings for the period ending 11/30 would include:

A. a credit to Salaries Expense for $6,000 B. a credit to Medicare Tax Payable for $870.00 C. a credit to Social Security Tax Payable for $87.00 D. a credit to Medicare Tax Payable for $87.00 $6,000 * .0145 = $87

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 10-04 Determine employee deductions for Medicare tax. Learning Objective: 10-07 Journalize payroll transactions in the general journal. Topic: Recording Payroll Information

60.

For which of the following taxes is there no limit on the amount of annual earnings subject to the tax?

A. Federal unemployment tax B. Social Security tax C. Federal income tax D. State unemployment tax

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement 10-66 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 10-01 Explain the major federal laws relating to employee earnings and withholding. Learning Objective: 10-02 Compute gross earnings of employees. Learning Objective: 10-03 Determine employee deductions for social security tax. Learning Objective: 10-04 Determine employee deductions for Medicare tax. Topic: Payroll Laws and Taxes

61.

Jill Monroe earns $25 per hour. She worked 48 hours this pay period and receives timeand-a-half for any hours worked over 40 hours per week. Jill's gross earnings are:

A. $1,200 B. $1,300 C. $1,100 D. $1,920 $25 * 40 hours = $1,000 $25 * 1.5 = $37.50 * 8 = $300 + $1,000 = $1,300

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 10-02 Compute gross earnings of employees. Topic: Calculating Earnings and Taxes

62.

Which of the following is NOT typically an employee payroll withholding?

A. federal income taxes B. state unemployment taxes C. union dues D. medical insurance

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 10-01 Explain the major federal laws relating to employee earnings and withholding. Learning Objective: 10-02 Compute gross earnings of employees. Learning Objective: 10-03 Determine employee deductions for social security tax. Learning Objective: 10-04 Determine employee deductions for Medicare tax. Topic: Payroll Laws and Taxes

63.

The employer records the amount of federal income tax withheld as:

A. an asset. B. a payroll tax expense. C. a liability. D. an expense.

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 10-07 Journalize payroll transactions in the general journal. Topic: Recording Payroll Information

64.

Social Security taxes are paid by:

A. employees only. B. the employer and federal government. C. both the employee and employer. D. solely by the employer.

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 10-03 Determine employee deductions for social security tax. Learning Objective: 10-04 Determine employee deductions for Medicare tax. Topic: Calculating Earnings and Taxes

65.

Rick O'Shea, the only employee of Hunter Furniture Company, makes $30,000 per year and is paid once a month. For the month of July, his federal income taxes withheld are $180, state income taxes withheld are $37, social security is 6.2%, Medicare tax is 1.45%, State Unemployment Tax is 4%, and Federal Unemployment tax is .8%. What is Rick's net pay for July?

A. $2,500.00 B. $2,283.00 C. $2,308.75 D. $2,091.75 $30,000/12 = $2,500 - $180 - $37 - $191.25 ($2,500 * .0765) = $2,091.75

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement 10-69 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 10-06 Enter gross earnings; deductions; and net pay in the payroll register. Topic: Calculating Earnings and Taxes

66.

The total amount earned by the employee is called the

A. gross pay. B. take home pay. C. net pay. D. payroll.

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 10-06 Enter gross earnings; deductions; and net pay in the payroll register. Topic: Calculating Earnings and Taxes

Short Answer Questions

67.

During one week, three employees of the Snowshoe Lodge worked the number of hours shown below. All these employees receive overtime pay at one and a half times their regular hourly rate for any hours worked beyond 40 in a week. Compute the regular earnings, overtime earnings, and gross pay for each employee.

Employee No. 1: Reg. Earn., $480.00; OT Earnings., $108.00; Gross, $588.00 Employee No. 2: Reg. Earn., $360.00; OT Earnings., $54.00; Gross, $414.00 Employee No. 3: Reg. Earn., $340.00; OT Earnings., $63.75; Gross, $403.75 Feedback: Employee No. 1: $12 * 40 hours = $480; $18($12 * 1.5) * 6 = $108; $480 + $108 = $588 Employee No. 2: $9 * 40 hours = $360; $13.50($9 * 1.5) * 4 = $54; $360 + $54 = $414 Employee No. 3: $8.50 * 40 hours = $340; $12.75($8.50 * 1.5) * 5 = $63.75; $340 + $63.75 = $403.75

AACSB: Analytic AICPA BB: Resource Management AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 1 Easy Learning Objective: 10-02 Compute gross earnings of employees. Topic: Calculating Earnings and Taxes

68.

During one week, three employees of the Tea Leaf Cafe worked the number of hours shown below. All these employees receive overtime pay at one and a half times their regular hourly rate for any hours worked beyond 40 in a week. Compute the regular earnings, overtime earnings, and gross pay for each employee.

Employee No. 1: Reg. Earn., $520.00; OT Earnings., $117.00; Gross, $637.00 Employee No. 2: Reg. Earn., $440.00; OT Earnings., $66.00; Gross, $506.00 Employee No. 3: Reg. Earn., $360.00; OT Earnings., $67.50; Gross, $427.50 Feedback: Employee No. 1: $13 * 40 hours = $520; $19.50($13 * 1.5) * 6 = $117; $520 + $117 = $637 Employee No. 2: $11 * 40 hours = $440; $16.50($11 * 1.5) * 4 = $66; $440 + $66 = $506 Employee No. 3: $9 * 40 hours = $360; $13.50($9 * 1.5) * 5 = $67.50; $360 + $67.50 = $427.50

69.

During one week, three employees of the Pampered Pooch Pet Salon worked the number of hours shown below. All these employees receive overtime pay at one and a half times their regular hourly rate for any hours worked beyond 40 in a week. Compute the regular earnings, overtime earnings, and gross pay for each employee.

Employee No. 1: Reg. Earn., $960.00; OT Earnings., $216.00; Gross, $1,176.00 Employee No. 2: Reg. Earn., $720.00; OT Earnings., $108.00; Gross, $828.00 Employee No. 3: Reg. Earn., $680.00; OT Earnings., $127.50; Gross, $807.50 Feedback: Employee No. 1: $24 * 40 hours = $960; $36($24 * 1.5) * 6 = $216; $960 + $216 = $1,176 Employee No. 2: $18 * 40 hours = $720; $27($18 * 1.5) * 4 = $108; $720 + $108 = $828 Employee No. 3: $17 * 40 hours = $680; $25.50($17.50 * 1.5) * 5 = $127.50; $680 + $127.50 = $807.50

70.

During one week, three employees of the Siesta Inn worked the number of hours shown below. All these employees receive overtime pay at one and a half times their regular hourly rate for any hours worked beyond 40 in a week. Compute the regular earnings, overtime earnings, and gross pay for each employee.

Employee No. 1: Reg. Earn., $560.00; OT Earnings., $126.00; Gross, $686.00 Employee No. 2: Reg. Earn., $480.00; OT Earnings., $72.00; Gross, $552.00 Employee No. 3: Reg. Earn., $400.00; OT Earnings., $75.00; Gross, $475.00 Feedback: Employee No. 1: $14 * 40 hours = $560; $21($14 * 1.5) * 6 = $126; $560 + $126 = $686 Employee No. 2: $12 * 40 hours = $480; $18($12 * 1.5) * 4 = $72; $480 + $72 = $552 Employee No. 3: $10 * 40 hours = $400; $15($10 * 1.5) * 5 = $75; $400 + $75 = $475

71.

The monthly salaries for December and the year-to-date earnings as of November 30 for the three employees of the Lakeview Medical Center are listed below. Compute the amount of social security tax and Medicare tax to be withheld from each of the employee's gross pay for December. Assume a 6.2 percent social security tax rate and a base of $113,700 for the calendar year. Assume a 1.45 percent Medicare tax rate.

Employee No. 1: Soc. Sec. Tax, $465.00; Medicare Tax, $108.75 Employee No. 2: Soc. Sec. Tax, zero; Medicare Tax, $130.05 Employee No. 3: Soc. Sec. Tax, $328.60; Medicare Tax, $123.25 Feedback: Employee No. 1: $7,500 * .062 = $465; $7,500 * .0145 = $108.75 Employee No. 2: $0 (maximum reached); $9,000 * .0145 = $130.05 Employee No. 3: ($113,700 - $108,400) * .062 = $328.60; $8,500 * .0145 = $123.25

AACSB: Analytic AICPA BB: Resource Management AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 10-03 Determine employee deductions for social security tax. Learning Objective: 10-04 Determine employee deductions for Medicare tax. Topic: Calculating Earnings and Taxes

72.

The monthly salaries for December and the year-to-date earnings as of November 30 for the three employees of the Design Warehouse are listed below. Compute the amount of social security tax and Medicare tax to be withheld from each of the employee's gross pay for December. Assume a 6.2 percent social security tax rate and a base of $113,700 for the calendar year. Assume a 1.45 percent Medicare tax rate.

Employee No. 1: Soc. Sec. Tax, $582.80; Medicare Tax, $136.30 Employee No. 2: Soc. Sec. Tax, zero; Medicare Tax, $145.00 Employee No. 3: Soc. Sec. Tax, $248.00; Medicare Tax, $137.75 Feedback: Employee No. 1: $9,400 * .062 = $582.80; $9,400 * .0145 = $136.30 Employee No. 2: $0 (maximum reached); $10,000 * .0145 = $145 Employee No. 3: ($113,700 - $109,700) * .062 = $248; $9,500 * .0145 = $137.75

73.

The monthly salaries for December and the year-to-date earnings as of November 30 for the three employees of the Barbara's Bookstore, Inc. are listed below. Compute the amount of social security tax and Medicare tax to be withheld from each of the employee's gross pay for December. Assume a 6.2 percent social security tax rate and a base of $113,700 for the calendar year. Assume a 1.45 percent Medicare tax rate.

Employee No. 1: Soc. Sec. Tax, $142.60; Medicare Tax, $114.55 Employee No. 2: Soc. Sec. Tax, $496.00; Medicare Tax, $116.00 Employee No. 3: Soc. Sec. Tax, zero; Medicare Tax, $143.55 Feedback: Employee No. 1: $ ($113,700 - $111,400) * .062 = $142.60; $7,900 * .0145 = $114.55 Employee No. 2: $8,000 * .062 = $496; $8,000 * .0145 = $116 Employee No. 3: $0 (maximum reached); $9,900 * .0145 = $143.55

74.

The monthly salaries for December and the year-to-date earnings as of November 30 for the three employees of Heather's Hair Salon are listed below. Compute the amount of social security tax and Medicare tax to be withheld from each of the employee's gross pay for December. Assume a 6.2 percent social security tax rate and a base of $113,700 for the calendar year. Assume a 1.45 percent Medicare tax rate.

Employee No. 1: Soc. Sec. Tax, $111.60; Medicare Tax, $130.50 Employee No. 2: Soc. Sec. Tax, zero; Medicare Tax, $133.40 Employee No. 3: Soc. Sec. Tax, $545.60; Medicare Tax, $127.60 Feedback: Employee No. 1: $ ($113,700 - $111,900) * .062 = $111.60; $9,000 * .0145 = $130.50 Employee No. 2: $0 (maximum reached); $9,200 * .0145 = $133.40 Employee No. 3: $8,800 * .062 = $545.60; $8,800 * .0145 = $127.60

75.

During the week ended May 15, 2016, Scott Fairchild worked 40 hours. His regular hourly rate is $14. Assume that his earnings are subject to social security tax at a rate of 6.2 percent and Medicare tax at a rate of 1.45 percent. He also has deductions of $31 for federal income tax and $21 for health insurance. A) What is his gross pay for the week? B) What is the total of his deductions for the week? C) What is his net pay for the week?

A) $560.00 B) $94.84 ($34.72 + $8.12 + $31.00 + $21.00) C) $465.16 Feedback: A. $14 * 40 hours = $560 B. $34.72 ($560 * .062) + $8.12 ($560 * .0145) + $31 + $21 = $94.84 C. $560.00 - $94.84 = $465.16

AACSB: Analytic AICPA BB: Resource Management AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 10-02 Compute gross earnings of employees. Learning Objective: 10-03 Determine employee deductions for social security tax. Learning Objective: 10-04 Determine employee deductions for Medicare tax. Learning Objective: 10-06 Enter gross earnings; deductions; and net pay in the payroll register. Topic: Calculating Earnings and Taxes

76.

During the week ended January 11, 2016, Darlene Marcussen worked 40 hours. Her regular hourly rate is $18. Assume that her earnings are subject to social security tax at a rate of 6.2 percent and Medicare tax at a rate of 1.45 percent. She also has deductions of $40 for federal income tax and $21 for health insurance. A) What is his gross pay for the week? B) What is the total of his deductions for the week? C) What is his net pay for the week?

A) $720.00 B) $116.08 ($44.64 + $10.44 + $40.00 + $21.00) C) $603.92 Feedback: A. $18 * 40 hours = $720 B. $44.64 ($720 * .062) + $10.44 ($720 * .0145) + $40 + $21 = $116.08 C. $720 - $116.08 = $603.92

77.

During the week ended February 8, 2016, Stuart Wayne worked 40 hours. His regular hourly rate is $10. Assume that his earnings are subject to social security tax at a rate of 6.2 percent and Medicare tax at a rate of 1.45 percent. He also has deductions of $31 for federal income tax and $21 for health insurance. A) What is his gross pay for the week? B) What is the total of his deductions for the week? C) What is his net pay for the week?

A) $400.00 B) $82.60 ($24.80 + $5.80 + $31.00 + $21.00) C) $317.40 Feedback: A. $1 * 40 hours = $400 B. $24.80 ($400 * .062) + $5.80 ($400 * .0145) + $31 + $21 = $82.60 C. $400.00 - $82.60 = $317.40

78.

During the week ended April 26, 2016, Andy Tyler worked 40 hours. His regular hourly rate is $15. Assume that his earnings are subject to social security tax at a rate of 6.2 percent and Medicare tax at a rate of 1.45 percent. He also has deductions of $31 for federal income tax and $21 for health insurance. A) What is his gross pay for the week? B) What is the total of his deductions for the week? C) What is his net pay for the week?

A) $600.00 B) $97.90 ($37.20 + $8.70 + $31.00 + $21.00) C) $502.10 Feedback: A. $15 * 40 hours = $600 B. $37.20 ($600 * .062) + $8.70 ($600 * .0145) + $31 + $21 = $97.90 C. $600.00 - $97.90 = $502.10

AACSB: Analytic AICPA BB: Resource Management AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 10-07 Journalize payroll transactions in the general journal. Topic: Recording Payroll Information

79.

The Rollins Company has office employees and shipping employees. A summary of their earnings and deductions for the week ended June 14, 2016, is shown below. On page 6 of a general journal, record the June 14 payroll and the entry to summarize the effect of the checks written to pay the payroll.

AACSB: Analytic AICPA BB: Resource Management AICPA FN: Measurement AICPA FN: Reporting Blooms: Evaluate Difficulty: 2 Medium Learning Objective: 10-07 Journalize payroll transactions in the general journal. Topic: Recording Payroll Information

80.

The Royal Company has office employees and sales employees. A summary of their earnings and deductions for the week ended April 26, 2016, is shown below. On page 18 of a general journal, record the April 26 payroll and the entry to summarize the effect of the checks written to pay the payroll.

81.

The Burns Company has two office employees and two shipping employees. A summary of their earnings and deductions for the week ended August 23, 2016, is shown below. On page 10 of a general journal, record the August 23 payroll and the entry to summarize the effect of the checks written to pay the payroll.

82.

The Santa Fe Company has office employees and shipping employees. A summary of their earnings and deductions for the week ended July 12, 2016, is shown below. On page 16 of a general journal, record the July 12 payroll and the entry to summarize the effect of the checks written to pay the payroll.

Matching Questions

83.

Match the accounting terms with the description.

A method of paying employees according to a percentage of net 1. Time and a half

sales 18

2. Workers' compensation insurance

Another name for individual earnings record 17 A person who is hired by and works under the control and direction

3. Hourly rate basis

of the employer 11 A form used to claim exemption

4. Piece-rate basis

(withholding) allowances 8 Salaried employees who hold supervisory or managerial positions who are not subject to the maximum

5. Wage-bracket table method

hour and overtime pay provisions of the Wage and Hour Law 16 Taxes levied by the federal government against employers to

6. Social Security Act

benefit unemployed workers 20 A method of paying employees

7. Medicare tax

according to a stated rate per hour 3 One who is paid by a company to

8. Employee's withholding allowance certificate (Form W-4)

carry out a specific task or job but is not under the direct supervision or control of the company 13 An employee record that contains information needed to compute

9. Tax-exempt wages

earnings and complete tax reports 15 A tax levied on employees and

10. Payroll register

employers to provide medical care for 7

the employee and the employee's spouse after each has reached age 65 A record of payroll information for 11. Employee

each employee for the pay period 10 A method of paying employees

12. Social Security (FICA) Tax

according to the number of units produced 4 A method of paying employees

13. Independent contractor

according to an agreed-upon amount for each week or month 14 A federal act providing certain benefits for employees and their families; officially the Federal

14. Salary basis

Insurance Contributions Act 6 A tax imposed by the Federal Insurance Contributions Act and collected on employee earnings to

15. Individual earnings record

provide retirement and disability benefits 12 Taxes levied by a state government against employers to

16. Exempt employees

benefit unemployed workers 19

17. Compensation

Earnings in excess of the base

record

amount set by the Social Security Act 9 Rate of pay for an employee's work

18. Commission basis

in excess of 40 hours a week 1 A simple method to determine the amount of federal income tax to be

19. State unemployment withheld using a table provided by the taxes 20. Federal unemployment taxes

government 5 Insurance that protects employees against losses from job-related 2

injuries or illnesses, or compensates their families if death occurs in the course of the employment

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making AICPA FN: Reporting Blooms: Remember Difficulty: 2 Medium Learning Objective: 10-01 Explain the major federal laws relating to employee earnings and withholding. Learning Objective: 10-02 Compute gross earnings of employees. Learning Objective: 10-03 Determine employee deductions for social security tax. Learning Objective: 10-04 Determine employee deductions for Medicare tax. Learning Objective: 10-05 Determine employee deductions for income tax. Learning Objective: 10-06 Enter gross earnings; deductions; and net pay in the payroll register. Learning Objective: 10-07 Journalize payroll transactions in the general journal. Learning Objective: 10-08 Maintain an earnings record for each employee. Learning Objective: 10-09 Define the accounting terms new to this chapter. Topic: Calculating Earnings and Taxes Topic: Payroll Laws and Taxes Topic: Recording Payroll Information

Chapter 11 Payroll Taxes, Deposits, and Reports

True / False Questions

1. The frequency of deposits of federal income taxes withheld and social security and Medicare taxes is determined by the amount owed.

True

False

2. For the purpose of internal control, only the person who prepares payroll checks should distribute them.

True

False

3. To achieve internal control over payroll operations, no changes in employee pay rates should be made without written authorization from management.

True

False

4. A business pays the social security tax at the same rate and on the same taxable wages as its employees.

True

False

5. The entry to record the Social security and Medicare taxes levied on a business includes a debit to Payroll Taxes Expense.

True

False

6. The entry to record the employer's payroll taxes would include a debit to an expense account and a credit to one or more liability accounts.

True

False

7. At the end of each quarter, the individual earnings records are totaled.

True

False

8. If an employee leaves the firm before the end of the year, the employee may ask for and receive Form W-2 within 30 days after the request or after the final wage payment.

True

False

9. The information for preparing Form W-2 is obtained from the employees' individual earnings records.

True

False

10. FUTA tax, like social security tax, is levied on both the employer and the employee and, therefore, is withheld from employee's pay.

True

False

11. The unemployment compensation tax program is often called the unemployment insurance program.

True

False

12. Form 940, which is used to report the employer's federal unemployment tax, must be filed quarterly.

True

False

Fill in the Blank Questions

13. A business pays ____________________ and Medicare taxes at the same rate and on the same taxable wages as its employees.

________________________________________

14. The entry to record the deposit of federal income taxes withheld includes a ____________________ to the Employee Income Tax Payable account.

________________________________________

15. Form 941 is used to report federal income taxes withheld, social security taxes, and ____________________ taxes.

________________________________________

16. A firm must issue a Form ____________________ to each employee by January 31 of the year following the year during which the wages were earned.

________________________________________

17. Form ____________________ is often referred to as a withholding statement.

________________________________________

18. The entry to record a payroll tax on the employer would include a debit to a(n) ____________________ account.

________________________________________

19. State Unemployment Tax Payable is ____________________ when the tax is paid to the state.

________________________________________

20. Form 940 is used to report ____________________ taxes.

________________________________________

21. Form 940 must be filed ____________________ time(s) a year.

________________________________________

22. The premium rate on workers' compensation insurance is determined by the ____________________ involved in the work performed.

________________________________________

Multiple Choice Questions

23. Which of the following statements is NOT correct?

A. The accountant obtains information about wages subject to payroll taxes from the payroll register. B. Most commercial banks are authorized to accept the employee's tax deposits for federal income taxes withheld and the employer's and employees' shares of social security taxes. C. Payroll tax deposits can be made electronically or using a Federal Tax Deposit Coupon,

Form 8109. D. The "lookback period", in regard to payroll taxes, is defined as the previous month.

24. Employees' payments for federal income taxes withheld and social security and Medicare taxes are periodically

A. sent directly to the Internal Revenue Service. B. deposited in a special-purpose bank account, controlled by the company, until year-end when the funds are sent to the U.S. Treasury Department. C. sent to the local office of the Internal Revenue Service. D. deposited in a government-authorized financial institution.

25. The frequency of deposits of federal income taxes withheld and social security and Medicare taxes is most dependent on

A. the amount owed. B. the number of payroll periods a firm has. C. the profit reported by the firm. D. the number of employees on the payroll.

26. Both the employer and the employee are responsible for paying

A. social security and Medicare taxes. B. FUTA taxes. C. social security, Medicare, and FUTA taxes. D. SUTA taxes.

27. Only the employer is responsible for paying

A. social security and Medicare taxes. B. FUTA taxes. C. social security, Medicare, and FUTA taxes. D. federal income taxes.

28. To record a deposit of federal income taxes withheld and social security and Medicare taxes, the accountant would

A. debit an expense account and credit one or more liability accounts. B. debit an asset account and credit an expense account. C. debit one or more liability accounts and credit an asset account. D. debit one or more expense accounts and credit one or more liability accounts.

29. During the week ended June 15, Wiley Automotive's employees earned $2,000 of gross wages and had $300 of federal income tax withheld. All of their employees had already earned over $7,000 of gross wages for the year so none of their wages were subject to FUTA or SUTA tax. However, all of their wages were still subject to Social Security tax of 6.2% and Medicare tax of 1.45%. The journal entry to record Payroll Tax Expense for the pay period would be:

30. On Form 941, the Employer's Quarterly Federal Tax Return , a firm calculates its liability for the quarter for

A. federal income taxes withheld, social security and Medicare taxes, and FUTA taxes. B. federal income taxes withheld and social security and Medicare taxes. C. social security and Medicare taxes and FUTA taxes. D. federal and state income taxes withheld.

31. Form 941 is filed

A. monthly. B. quarterly. C. annually. D. each payroll period.

32. Which of the following statements is correct?

A. Form 941 is often referred to as a withholding statement. B. An employee must attach one copy of Form W-2 to his or her personal federal income tax return. C. The employer sends one copy of the Form 941 for each employee to the Internal Revenue Service. D. An employee must attach one copy of Form W-4 to his or her personal federal income tax return.

33. Which of the following forms is submitted with a copy of the Form W-2 for each employee to the Social Security Administration?

A. Form W-3 B. Form W-4 C. Form 940 D. Form 941

34. Each employee of a firm will receive several copies of Form W-2, the Wage and Tax

Statement, from the

A. employer with each paycheck. B. employer once a year. C. federal government once a year. D. employer once a quarter.

35. A copy of the Form W-2 for each employee is submitted to the Social Security Administration along with

A. Form 940. B. Form 941. C. Form 8109. D. Form W-3.

36. Which of the following statements is not correct?

A. A few states levy an unemployment tax on the employee that must be withheld from the employee's pay. B. One of the purposes of the unemployment insurance program is to stabilize employment and reduce unemployment. C. The reduction of state unemployment taxes because of favorable experience ratings reduces the credit allowable against the federal unemployment tax. D. The unemployment insurance program is a federal program.

37. Which of the following taxes is not withheld from an employee's pay?

A. Federal income tax B. Social security tax C. FUTA tax D. Medicare tax

38. All of the following taxes are withheld from an employee's pay except

A. Federal income tax. B. SUTA tax. C. Medicare tax. D. Social security tax.

39. To record the deposit of FUTA tax, the accountant would

A. debit Payroll Taxes Expense and credit Federal Unemployment Tax Payable. B. debit Payroll Taxes Expense and credit Cash. C. debit Federal Unemployment Tax Payable and credit Cash. D. debit Social Security Taxes Payable and credit Cash.

40. Jackson Autos has one employee. As of March 30, their employee had already earned $6,300. For the pay period ending April 15, their employee earned an additional $4,000 of gross wages. Only the first $7,000 of annual earnings are subject to FUTA of .6% and SUTA of 5.4%. The journal entry to record the employer's unemployment payroll taxes for the period ending April 15, would be:

41. To record the payment of SUTA tax, the accountant would

A. debit Payroll Taxes Expense and credit State Unemployment Tax Payable. B. debit Payroll Taxes Expense and credit Cash. C. debit Social Security Taxes Payable and credit Cash. D. debit State Unemployment Tax Payable and credit Cash.

42. Employers usually record unemployment taxes at the end of each

A. payroll. B. month. C. quarter. D. year.

43. Most states require that the employer file the state return for unemployment taxes

A. monthly. B. quarterly. C. annually. D. each payroll period.

44. Tax returns for the federal unemployment tax are due

A. weekly. B. monthly. C. quarterly. D. annually.

45. This preprinted government form is used to report federal unemployment taxes.

A. Form 940 B. Form 941 C. Form 8109 D. Form W-2

46. All of the following are internal control procedures that are recommended to protect payroll operations except

A. assign new employees to work in payroll operations. B. keep payroll records in locked files. C. make voluntary deductions from employee earnings based only on a signed authorization from the employee. D. retain all Forms W-4.

47. Generally, the base earnings subject to state unemployment taxes is

A. smaller than the base for social security. B. the same as the base for social security. C. larger than the base for social security. D. the amount of total earnings.

48. If at the end of the year the firm owes a balance for workers' compensation insurance, the adjusting entry includes a

A. debit to Workers' Compensation Insurance Payable a credit to Workers' Compensation Insurance Expense. B. a debit to Workers' Compensation Refund Receivable and a credit to Workers' Compensation Insurance Expense. C. a debit to Workers' Compensation Insurance Expense and a credit to Workers' Compensation Insurance Payable. D. a debit to Payroll Taxes Expense and a credit to cash.

49. Mr. Zee worked 48 hours during the week ended January 18, 2016. He is paid $10 per hour, and is paid time and a half for all hours over 40 in a week. He had $100 withheld from his pay for federal income taxes, and $20 withheld for health insurance. The combined social security and Medicare tax rate is 7.65%, and the federal and state unemployment tax rates are .6% and 3.8%, respectively. All earnings are taxable. What is the total employer payroll tax expense for Mr. Zee's current paycheck.

A. $62.66 B. $57.84 C. $82.66 D. $182.66

50. Alfred Spindle earned gross wages of $1,620 for the week ended June 21, 2016. His gross wages year to date, prior to his June 21 paycheck, were $38,556. He had $88 withheld from his pay for federal income taxes, and $16 for health insurance. Social Security and is 6.2% and Medicare tax is 1.45%; the federal unemployment tax rate is .6% and the state unemployment tax rate is 4.2%, both on a maximum of $7,000 per each employee's annual earnings. What is the total employer payroll tax expense associated with Alfred's June 21, 2016, paycheck?

A. $201.69 B. $123.93 C. $81.00 D. $0

51. ABC Consulting had two employees with the following earnings information:

Use the table above and calculate the employer payroll income taxes associated with Poppy's December 15 paycheck given the following tax rates: Social Security tax of 6.2% is levied on the first $113,700 of annual wages and the Medicare tax rate is 1.45% on all earnings. State unemployment tax of 5.4% and federal unemployment tax of .6% are both levied on only the first $7,000 of each employee's annual earnings.

A. $622.65 B. $68.25 C. $56.25 D. $23.45

52. ABC Consulting had two employees with the following earnings information:

Use the table above and calculate the employer payroll income taxes associated with Henry's December 15 paycheck given the following tax rates: Social Security tax of 6.2% is levied on the first $113,700 of annual wages and the Medicare tax rate is 1.45% on all earnings. State unemployment tax of 5.4% and federal unemployment tax of .6% are both levied on only the first $7,000 of each employee's annual earnings.

A. $194.40 B. $306.00 C. $546.00 D. $842.00

53. George's Gameroom had two employees with the following earnings information:

Use the table above and calculate how much of Barbara's December 15 paycheck is still subject to state unemployment tax given that the rate is 4% and federal unemployment tax is .6% and both taxes are levied on only the first $7,000 of each employee's annual earnings.

A. $700 B. $5,900 C. $1,800 D. $1,100

54. George's Gameroom had two employees with the following earnings information:

Use the table above and calculate how much of Hillary's December 15 paycheck is still subject to Social Security tax given that the tax is levied on the first $113,700 of annual wages and the Medicare tax rate is 1.45% on all earnings.

A. $2,500 B. $2,800 C. $3,200 D. $6,000

55. Jerry Little's gross wages as of October 31 were $110,000. He earned gross wages of $4,000 for the pay period ended November 15, 2016. Deducted from his paycheck this period, were federal income taxes of $400, state income taxes of $150, social security of 6.2% on the first $113,700 and Medicare tax of 1.45%. State Unemployment Tax is 4%, and Federal Unemployment tax is .6% on the first $7,000 of annual earnings. Calculate the employer payroll income taxes associated with Jerry's November 15 paycheck.

A. $1,048.00 B. $498.00 C. $306.00 D. $287.40

56. Rick O'Shea, the only employee of Hunter Furniture Company, makes $30,000 per year and is paid once a month. For the month of January, his federal income taxes withheld are $180, state income taxes withheld are $37, social security is 6.2% on a maximum wages of $113,700, Medicare tax is 1.45%, State Unemployment Tax is 4.2%, and Federal Unemployment tax is .6%, both on a maximum wages of $7,000 per employee. What is the employer's payroll tax expense associated with Rick's paycheck?

A. $120.00 B. $191.25 C. $311.25 D. $150.00

57. Samantha Rodriguez had gross earnings for the pay period ending 10/15/16 of $4,785. Her total gross earnings as of 9/30/16 were $111,400. Social Security taxes are 6.2% on a maximum earnings of $113,700 per year. The Social Security tax due by her employer from her 10/15/16 paychecks is:

A. $297.67 B. $142.60 C. $154.07 D. $192.75

58. Which of the following is not an employer payroll tax:

A. federal unemployment tax B. federal income tax C. state unemployment tax D. FICA (Social Security and Medicare)

59. Roy DeSoto earns a regular hourly salary of $24.50. He is paid time-and-a-half for all hours in excess of 40 in the week. For the week ended March 8, 2016, he worked a total of 50 hours. His gross wages year to date prior to his March 8 paycheck are $11,980. Social Security Tax is 6.2%, Medicare Tax is 1.45%, federal unemployment tax is .6% and state unemployment tax is 4.2%, both on a maximum of $7,000 of gross wages per year. What is the employer's payroll tax expense for Roy for the week ended March 8, 2016?

A. $154.96 B. $123.97 C. $170.47 D. $103.08

60. Kristy Casey earns $39,000 per year and is paid once a month. For January, she had $188 withheld from her pay for federal income taxes, and $52 withheld for health insurance. Social Security and is 6.2% and Medicare tax is 1.45%; the federal unemployment tax rate is .6% and state unemployment tax rates is 4.2%. What is the total employer payroll tax expense for Kristy's January paycheck?

A. $385.13 B. $162.50 C. $248.63 D. $404.63

61. Mary Gonzalez had total cumulative gross earnings of $4,500 as of 1/30. Her gross earnings for the pay period ending 2/15 were $3,000. If federal unemployment taxes are .6% on a maximum earnings of $7,000 per year, how much federal unemployment tax will be paid by Mary and how much will be paid by her employer for her earnings of 2/15?

A. Mary will pay $0 and her employer will pay $15. B. Mary will pay $0 and her employer will pay $18. C. Mary will pay $15 and her employer will also pay $15. D. Mary will pay $0 and her employer will pay $3.

62. Identify the list of accounts below that would normally all have a credit balance.

A. Payroll Taxes Expense, State Unemployment Tax Payable, Wages Payable B. Worker's Compensation Insurance Expense, Prepaid Insurance, Medicare Tax Payable C. Worker's Compensation Insurance Payable, Salaries Payable, Salaries Expense D. Social Security Tax Payable, Medicare Tax Payable, Employee Income Tax Payable

63. Which of the following payroll taxes is not paid by the employee?

A. federal unemployment tax B. federal income tax C. state income tax D. FICA (Social Security and Medicare)

64. For which of the following is there no limit to the amount of wages subject to the tax?

A. federal unemployment tax B. Medicare tax C. state unemployment tax D. Social Security tax

65. Which of the following payroll taxes is not paid by the employee?

A. federal unemployment tax B. federal income tax C. state income tax D. FICA (Social Security and Medicare)

Essay Questions

66. After the JPR Corporation paid its employees on May 15, 2016, and recorded the corporation's share of payroll taxes for the payroll paid that date, the firm's general ledger showed a balance of $1,730 in the Social Security Tax Payable account, a balance of $356 in the Medicare Tax Payable account, and a balance of $1,972 in the Employee Income Tax Payable account. On May 16, 2016, the business issued a check to deposit the taxes owed in the local bank. Record this transaction on page 7 of a general journal.

67. After the ABC Corporation paid its employees on June 15, 2016, and recorded the corporation's share of payroll taxes for the payroll paid that date, the firm's general ledger showed a balance of $1,620 in the Social Security Tax Payable account, a balance of $401 in the Medicare Tax Payable account, and a balance of $1,851 in the Employee Income Tax Payable account. On June 16, 2016, the business issued a check to deposit the taxes owed in the local bank. Record this transaction on page 15 of a general journal.

68. After the Mansley Company paid its employees on July 15, 2016, and recorded the corporation's share of payroll taxes for the payroll paid that date, the firm's general ledger showed a balance of $1,695 in the Social Security Tax Payable account, a balance of $321 in the Medicare Tax Payable account, and a balance of $1,968 in the Employee Income Tax Payable account. On July 16, 2016, the business issued a check to deposit the taxes owed in the local bank. Record this transaction on page 23 of a general journal.

69. After the Marion Corporation paid its employees on November 15, 2016, and recorded the corporation's share of payroll taxes for the payroll paid that date, the firm's general ledger showed a balance of $1,925 in the Social Security Tax Payable account, a balance of $519 in the Medicare Tax Payable account, and a balance of $2,105 in the Employee Income Tax Payable account. On November 16, 2016, the business issued a check to deposit the taxes owed in the local bank. Record this transaction on page 5 of a general journal.

70. The payroll register of the Fox Manufacturing Company showed total employee earnings of $28,000 for the week ended April 19, 2016. Compute each of the employer's payroll taxes for the period. Use a rate of 6.2 percent for the employer's share of the social security tax, 1.45 percent for Medicare tax, 0.6 percent for FUTA tax, and 5.4 percent for SUTA tax. Assume all earnings are taxable.

71. The payroll register of the Hound Manufacturing Company showed total employee earnings of $36,000 for the week ended September 20, 2016. Compute each of the employer's payroll taxes for the period. Use a rate of 6.2 percent for the employer's share of the social security tax, 1.45 percent for Medicare tax, 0.6 percent for FUTA tax, and 5.4 percent for SUTA tax. Assume all earnings are taxable.

72. The payroll register of the Retro Manufacturing Company showed total employee earnings of $25,000 for the week ended January 18, 2016. Compute the employer's payroll taxes for the period. Use a rate of 6.2 percent for the employer's share of the social security tax, 1.45 percent for Medicare tax, 0.6 percent for FUTA tax, and 5.4 percent for SUTA tax. Assume all earnings are taxable.

73. The payroll register of Rapid Repairs showed total employee earnings of $1,870 for the week ended April 5, 2016. Compute the employer's payroll taxes for the period. The tax rates are: Social security tax, 6.2 percent; Medicare tax, 1.45 percent; FUTA tax, 0.6 percent; SUTA tax, 2.2 percent. All earnings are taxable. Record the employer's payroll taxes for the period on page 4 of a general journal.

74. The payroll register of Reynolds Company showed total employee earnings of $2,320 for the week ended May 10, 2016. Compute the employer's payroll taxes for the period. The tax rates are: Social security tax, 6.2 percent; Medicare tax, 1.45 percent; FUTA tax, 0.6 percent; SUTA tax, 2.2 percent. All earnings are taxable. Record the employer's payroll taxes for the period on page 4 of a general journal.

75. The payroll register of Burdick Travel Agency showed total employee earnings of $1,450 for the week ended June 7, 2016. Compute the employer's payroll taxes for the period. The tax rates are: Social security tax, 6.2 percent; Medicare tax, 1.45 percent; FUTA tax, 0.6 percent; SUTA tax, 2.2 percent. All earnings are taxable. Record the employer's payroll taxes for the period on page 4 of a general journal.

76. The payroll register of Vtech Enterprises showed total employee earnings of $2,100 for the week ended August 2, 2016. Compute the employer's payroll taxes for the period. The tax rates are: Social security tax, 6.2 percent; Medicare tax, 1.45 percent; FUTA tax, 0.6 percent; SUTA tax, 2.2 percent. All earnings are taxable. Record the employer's payroll taxes for the period on page 4 of a general journal.

77. Wharfside Manufacturing estimates that its office employees will earn $50,000 next year and its factory employees will earn $260,000. The firm pays the following rates for workers' compensation insurance: $0.37 per $100 of wages for the office employees and $4.00 per $100 of wages for the factory employees. Compute the estimated premiums for the office and factory employees.

78. Beachside Manufacturing estimates that its office employees will earn $54,000 next year and its factory employees will earn $280,000. The firm pays the following rates for workers' compensation insurance: $0.40 per $100 of wages for the office employees and $4.10 per $100 of wages for the factory employees. Compute the estimated premiums for the office and factory employees.

79. Orleans Manufacturing estimates that its office employees will earn $75,000 next year and its factory employees will earn $200,000. The firm pays the following rates for workers' compensation insurance: $0.55 per $100 of wages for the office employees and $4.75 per $100 of wages for the factory employees. Compute the estimated premiums for the office and factory employees.

80. Compute and record workers' compensation insurance premiums for Fairlawn Manufacturing as follows: 1. The firm estimates that its office employees will earn $46,000 next year and its factory employees will earn $162,000. The firm pays the following rates for workers' compensation insurance: $0.40 per $100 of wages for the office employees and $3.50 per $100 of wages for the factory employees. Compute the estimated premiums for 2016. On page 9 of a general journal, record the payment of the estimated premium. Date the entry January 12, 2016. 2. On January 3, 2017, an audit of the firm's payroll records for 2016 showed that the firm had actually paid wages of $48,000 to its office employees and $165,000 to its factory employees. Compute the actual premium for the year and the balance due the insurance company or the credit due the firm. In the general journal, record the entry to adjust the Workers' Compensation Insurance Expense as of the end of 2016. Date the entry December 31, 2016.

81. Compute and record workers' compensation insurance premiums for Evergreen Manufacturing as follows: 1. The firm estimates that its office employees will earn $49,000 next year and its factory employees will earn $150,000. The firm pays the following rates for workers' compensation insurance: $0.40 per $100 of wages for the office employees and $3.50 per $100 of wages for the factory employees. Compute the estimated premiums for 2016. On page 54 of a general journal, record the payment of the estimated premium. Date the entry January 12, 2016. 2. On January 4, 2017, an audit of the firm's payroll records for 2016 showed that the firm had actually paid wages of $53,000 to its office employees and $161,000 to its factory employees. Compute the actual premium for the year and the balance due the insurance company or the credit due the firm. In the general journal, record the entry to adjust the Workers' Compensation Insurance Expense as of the end of 2016. Date the entry December 31, 2016.

82. Compute and record workers' compensation insurance premiums for Beverly Manufacturing as follows: 1. The firm estimates that its office employees will earn $40,000 next year and its factory employees will earn $172,000. The firm pays the following rates for workers' compensation insurance: $0.40 per $100 of wages for the office employees and $3.50 per $100 of wages for the factory employees. Compute the estimated premiums for 2016. On page 9 of a general journal, record the payment of the estimated premium. Date the entry January 12, 2016. 2. On January 3, 2017, an audit of the firm's payroll records for 2016 showed that the firm had actually paid wages of $48,000 to its office employees and $165,000 to its factory employees. Compute the actual premium for the year and the balance due the insurance company or the credit due the firm. In the general journal, record the entry to adjust the Workers' Compensation Insurance Expense as of the end of 2016. Date the entry December 31, 2016.

Check All That Apply Questions

83. A firm prepares copies of the Wage and Tax Statement, Form W-2, for which of the following?

____ One copy for the employee's records. ____ One copy for the employer's records. ____ One copy for the supervisor's records. ____ One copy for city or county income tax. ____ One copy for the employee to attach to the state income tax return. ____ One copy for the employee to attach to the federal income tax return. ____ One copy for the employer to send to the Social Security Administration ____ One copy for the employee to send to the Social Security Administration

Matching Questions

84. Match the accounting terms with the description.

Transmittal of Wage 1. Another term for Wage and Tax

Statement, Form W-2

and Tax Statements, Form W-3 ____

2. A system that rewards an employer for maintaining steady employment conditions by reducing the firm's state unemployment tax rate

Experience rating system ____

3. Preprinted government form submitted with Forms W-2 to the Social Security Administration

Wage and Tax Statement, Form W-2 ____

4. Preprinted government form that contains information about an employee's earnings and tax withholdings for the year

Unemployment insurance program ____

Employer's Quarterly 5. Another term for Experience rating system 6. A program that provides

Federal Tax Return, Form 941 ____ Employer's Annual

unemployment compensation through

Federal Unemployment

a tax levied on employers

Tax Return, Form 940 ____

7. Preprinted government form used by the employer to report unemployment taxes for the calendar

Withholding

year

statement ____

8. Preprinted government form used by the employer to report payroll tax information relating to social security, Medicare, and employee income tax withholding to the Internal Revenue Service

Merit rating system ____

Chapter 11 Payroll Taxes, Deposits, and Reports Answer Key

True / False Questions

The frequency of deposits of federal income taxes withheld and social security and Medicare taxes is determined by the amount owed.

TRUE

For the purpose of internal control, only the person who prepares payroll checks should distribute them.

FALSE

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 11-08 Compute and record workers' compensation insurance premiums. Topic: Internal Control

To achieve internal control over payroll operations, no changes in employee pay rates should be made without written authorization from management.

TRUE

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 11-08 Compute and record workers' compensation insurance premiums. Topic: Internal Control

A business pays the social security tax at the same rate and on the same taxable wages as its employees.

TRUE

The entry to record the Social security and Medicare taxes levied on a business includes a debit to Payroll Taxes Expense.

TRUE

AACSB: Analytic AICPA BB: Industry

AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes. Topic: Social Security and Medicare Taxes

The entry to record the employer's payroll taxes would include a debit to an expense account and a credit to one or more liability accounts.

TRUE

At the end of each quarter, the individual earnings records are totaled.

TRUE

If an employee leaves the firm before the end of the year, the employee may ask for and receive Form W-2 within 30 days after the request or after the final wage payment.

TRUE

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 11-05 Prepare Wage and Tax Statement (Form W-2) and Annual Transmittal of Wage and Tax Statements (Form W-3). Topic: Payroll Records and Forms Topic: Tax Forms and Returns

The information for preparing Form W-2 is obtained from the employees' individual earnings records.

TRUE

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 11-05 Prepare Wage and Tax Statement (Form W-2) and Annual Transmittal of Wage and Tax Statements (Form W-3). Topic: Payroll Records and Forms Topic: Tax Forms and Returns

10.

FUTA tax, like social security tax, is levied on both the employer and the employee and, therefore, is withheld from employee's pay.

FALSE

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Topic: Unemployment Taxes

11.

The unemployment compensation tax program is often called the unemployment insurance program.

TRUE

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Topic: Unemployment Taxes

12.

Form 940, which is used to report the employer's federal unemployment tax, must be filed quarterly.

FALSE

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 11-07 Prepare an Employer's Federal Unemployment Tax Return; Form 940. Topic: Tax Forms and Returns

Fill in the Blank Questions

13.

A business pays ____________________ and Medicare taxes at the same rate and on the same taxable wages as its employees.

social security

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes. Topic: Social Security and Medicare Taxes

14.

The entry to record the deposit of federal income taxes withheld includes a ____________________ to the Employee Income Tax Payable account.

debit

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 11-03 Record deposit of social security; Medicare; and employee income taxes. Topic: Federal Income Taxes

15.

Form 941 is used to report federal income taxes withheld, social security taxes, and ____________________ taxes.

Medicare

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 11-04 Prepare an Employer's Quarterly Federal Tax Return; Form 941. Topic: Payroll Records and Forms Topic: Tax Forms and Returns

16.

A firm must issue a Form ____________________ to each employee by January 31 of the year following the year during which the wages were earned.

W-2

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal

AICPA FN: Measurement AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 11-05 Prepare Wage and Tax Statement (Form W-2) and Annual Transmittal of Wage and Tax Statements (Form W-3). Topic: Payroll Records and Forms Topic: Tax Forms and Returns

17.

Form ____________________ is often referred to as a withholding statement.

W-2

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 11-05 Prepare Wage and Tax Statement (Form W-2) and Annual Transmittal of Wage and Tax Statements (Form W-3). Topic: Payroll Records and Forms Topic: Tax Forms and Returns

18.

The entry to record a payroll tax on the employer would include a debit to a(n) ____________________ account.

expense

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Understand Difficulty: 1 Easy Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes. Learning Objective: 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes.

Topic: Payroll Taxes

19.

State Unemployment Tax Payable is ____________________ when the tax is paid to the state.

debited

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Understand Difficulty: 1 Easy Learning Objective: 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Topic: Unemployment Taxes

20.

Form 940 is used to report ____________________ taxes.

FUTA

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 11-07 Prepare an Employer's Federal Unemployment Tax Return; Form 940. Topic: Tax Forms and Returns Topic: Unemployment Taxes

21.

Form 940 must be filed ____________________ time(s) a year.

one

AACSB: Analytic AICPA BB: Industry

AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 11-07 Prepare an Employer's Federal Unemployment Tax Return; Form 940. Topic: Tax Forms and Returns Topic: Unemployment Taxes

22.

The premium rate on workers' compensation insurance is determined by the ____________________ involved in the work performed.

risk

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 11-08 Compute and record workers' compensation insurance premiums. Topic: Workers' Compensation

Multiple Choice Questions

23.

Which of the following statements is NOT correct?

Form 8109. D. The "lookback period", in regard to payroll taxes, is defined as the previous month.

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 11-01 Explain how and when payroll taxes are paid to the government. Topic: Payroll Records and Forms Topic: Payroll Taxes Topic: Tax Forms and Returns

24.

Employees' payments for federal income taxes withheld and social security and Medicare taxes are periodically

A. sent directly to the Internal Revenue Service. B. deposited in a special-purpose bank account, controlled by the company, until yearend when the funds are sent to the U.S. Treasury Department. C. sent to the local office of the Internal Revenue Service. D. deposited in a government-authorized financial institution.

AACSB: Analytic

AICPA BB: Industry AICPA BB: Legal AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 11-01 Explain how and when payroll taxes are paid to the government. Topic: Federal Income Taxes Topic: Payroll Taxes Topic: Social Security and Medicare Taxes

25.

The frequency of deposits of federal income taxes withheld and social security and Medicare taxes is most dependent on

A. the amount owed. B. the number of payroll periods a firm has. C. the profit reported by the firm. D. the number of employees on the payroll.

26.

Both the employer and the employee are responsible for paying

A. social security and Medicare taxes. B. FUTA taxes. C. social security, Medicare, and FUTA taxes. D. SUTA taxes.

27.

Only the employer is responsible for paying

A. social security and Medicare taxes. B. FUTA taxes. C. social security, Medicare, and FUTA taxes. D. federal income taxes.

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes. Topic: Federal Income Taxes Topic: Social Security and Medicare Taxes 11-46 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Topic: Unemployment Taxes

28.

To record a deposit of federal income taxes withheld and social security and Medicare taxes, the accountant would

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 11-03 Record deposit of social security; Medicare; and employee income taxes. Topic: Federal Income Taxes Topic: Social Security and Medicare Taxes

29.

During the week ended June 15, Wiley Automotive's employees earned $2,000 of gross wages and had $300 of federal income tax withheld. All of their employees had already earned over $7,000 of gross wages for the year so none of their wages were subject to FUTA or SUTA tax. However, all of their wages were still subject to Social Security tax of 6.2% and Medicare tax of 1.45%. The journal entry to record Payroll Tax Expense for the pay period would be:

(Medicare $2,000 * .0145 = $29) + (Social Security $2,000 * .062 = $124) $124 + 29 = $153 total

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 1 Easy

Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes. Learning Objective: 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Topic: Payroll Taxes Topic: Social Security and Medicare Taxes

30.

On Form 941, the Employer's Quarterly Federal Tax Return , a firm calculates its liability for the quarter for

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 11-04 Prepare an Employer's Quarterly Federal Tax Return; Form 941. Topic: Payroll Records and Forms Topic: Tax Forms and Returns

31.

Form 941 is filed

A. monthly. B. quarterly. C. annually. D. each payroll period.

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal

AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 11-04 Prepare an Employer's Quarterly Federal Tax Return; Form 941. Topic: Tax Forms and Returns

32.

Which of the following statements is correct?

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 11-05 Prepare Wage and Tax Statement (Form W-2) and Annual Transmittal of Wage and Tax Statements (Form W-3). Topic: Payroll Records and Forms Topic: Tax Forms and Returns

33.

Which of the following forms is submitted with a copy of the Form W-2 for each employee to the Social Security Administration?

A. Form W-3 B. Form W-4 C. Form 940 D. Form 941

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 11-05 Prepare Wage and Tax Statement (Form W-2) and Annual Transmittal of Wage and Tax Statements (Form W-3). Topic: Payroll Records and Forms Topic: Tax Forms and Returns

34.

Each employee of a firm will receive several copies of Form W-2, the Wage and Tax

Statement, from the

A. employer with each paycheck. B. employer once a year. C. federal government once a year. D. employer once a quarter.

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy

Learning Objective: 11-05 Prepare Wage and Tax Statement (Form W-2) and Annual Transmittal of Wage and Tax Statements (Form W-3). Topic: Payroll Records and Forms Topic: Tax Forms and Returns

35.

A copy of the Form W-2 for each employee is submitted to the Social Security Administration along with

A. Form 940. B. Form 941. C. Form 8109. D. Form W-3.

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 11-05 Prepare Wage and Tax Statement (Form W-2) and Annual Transmittal of Wage and Tax Statements (Form W-3). Topic: Payroll Records and Forms Topic: Tax Forms and Returns

36.

Which of the following statements is not correct?

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Topic: Unemployment Taxes

37.

Which of the following taxes is not withheld from an employee's pay?

A. Federal income tax B. Social security tax C. FUTA tax D. Medicare tax

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation 11-53 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Blooms: Understand Difficulty: 1 Easy Learning Objective: 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Topic: Federal Income Taxes Topic: Payroll Taxes Topic: Social Security and Medicare Taxes Topic: Unemployment Taxes

38.

All of the following taxes are withheld from an employee's pay except

A. Federal income tax. B. SUTA tax. C. Medicare tax. D. Social security tax.

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Topic: Federal Income Taxes Topic: Payroll Taxes Topic: Social Security and Medicare Taxes Topic: Unemployment Taxes

39.

To record the deposit of FUTA tax, the accountant would

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Topic: Payroll Records and Forms Topic: Unemployment Taxes

40.

Jackson Autos has one employee. As of March 30, their employee had already earned $6,300. For the pay period ending April 15, their employee earned an additional $4,000 of gross wages. Only the first $7,000 of annual earnings are subject to FUTA of .6% and SUTA of 5.4%. The journal entry to record the employer's unemployment payroll taxes for the period ending April 15, would be:

(FUTA $7,000 - $6,300 = $700 * .006 = $4.20) + (SUTA $700 * .054 = $37.80) $4.20 + 37.80 = $42.00 total

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 1 Easy Learning Objective: 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Topic: Payroll Records and Forms 11-56 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Topic: Payroll Taxes Topic: Unemployment Taxes

41.

To record the payment of SUTA tax, the accountant would

42.

Employers usually record unemployment taxes at the end of each

A. payroll. B. month. C. quarter. D. year.

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy 11-57 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Learning Objective: 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Topic: Payroll Records and Forms Topic: Unemployment Taxes

43.

Most states require that the employer file the state return for unemployment taxes

A. monthly. B. quarterly. C. annually. D. each payroll period.

44.

Tax returns for the federal unemployment tax are due

A. weekly. B. monthly. C. quarterly. D. annually.

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal AICPA FN: Measurement 11-58 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 11-07 Prepare an Employer's Federal Unemployment Tax Return; Form 940. Topic: Payroll Records and Forms Topic: Unemployment Taxes

45.

This preprinted government form is used to report federal unemployment taxes.

A. Form 940 B. Form 941 C. Form 8109 D. Form W-2

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 11-07 Prepare an Employer's Federal Unemployment Tax Return; Form 940. Topic: Payroll Records and Forms Topic: Tax Forms and Returns Topic: Unemployment Taxes

46.

All of the following are internal control procedures that are recommended to protect payroll operations except

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 11-08 Compute and record workers' compensation insurance premiums. Topic: Internal Control Topic: Payroll Records and Forms

47.

Generally, the base earnings subject to state unemployment taxes is

A. smaller than the base for social security. B. the same as the base for social security. C. larger than the base for social security. D. the amount of total earnings.

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand

Difficulty: 1 Easy Learning Objective: 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Topic: Social Security and Medicare Taxes Topic: Unemployment Taxes

48.

If at the end of the year the firm owes a balance for workers' compensation insurance, the adjusting entry includes a

AACSB: Analytic AICPA BB: Industry AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 11-08 Compute and record workers' compensation insurance premiums. Topic: Payroll Records and Forms Topic: Workers' Compensation

49.

Mr. Zee worked 48 hours during the week ended January 18, 2016. He is paid $10 per hour, and is paid time and a half for all hours over 40 in a week. He had $100 withheld from his pay for federal income taxes, and $20 withheld for health insurance. The combined social security and Medicare tax rate is 7.65%, and the federal and state unemployment tax rates are .6% and 3.8%, respectively. All earnings are taxable. What is the total employer payroll tax expense for Mr. Zee's current paycheck.

A. $62.66 B. $57.84 C. $82.66 D. $182.66 $10 * 40 hours = $400; ($10 * 1.5) * 8 = $120; $400 + $120 = $520 $39.78 ($520 * .0765) + $3.12 ($520 * .006) + $19.76 ($520 * .038)

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes. Learning Objective: 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Topic: Federal Income Taxes Topic: Payroll Taxes Topic: Social Security and Medicare Taxes Topic: Unemployment Taxes

50.

Alfred Spindle earned gross wages of $1,620 for the week ended June 21, 2016. His gross wages year to date, prior to his June 21 paycheck, were $38,556. He had $88 withheld from his pay for federal income taxes, and $16 for health insurance. Social Security and is 6.2% and Medicare tax is 1.45%; the federal unemployment tax rate is .6% and the state unemployment tax rate is 4.2%, both on a maximum of $7,000 per each employee's annual earnings. What is the total employer payroll tax expense associated with Alfred's June 21, 2016, paycheck?

A. $201.69 B. $123.93 C. $81.00 D. $0 $100.44 ($1,620 * .062) + $23.49 ($1,620 * .0145). No federal or state unemployment tax is calculated because Alfred had already earned over the wage base maximum of $7,000.

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes. Learning Objective: 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Topic: Federal Income Taxes Topic: Payroll Taxes Topic: Social Security and Medicare Taxes Topic: Unemployment Taxes

51.

ABC Consulting had two employees with the following earnings information:

A. $622.65 B. $68.25 C. $56.25 D. $23.45 Social Security $500 * 6.2% = $31 + Medicare $500 * .0145 = $7.25 + SUTA ($7,000 6,700 = $300 * .054) = $16.20 + FUTA ($7,000 - 6,700 = $300 * .006) = $1.80 (Total = 31 + 7.25 + 16.20 + 2.40 = $56.85)

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 3 Hard Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes. Learning Objective: 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Topic: Payroll Taxes Topic: Social Security and Medicare Taxes Topic: Unemployment Taxes

52.

ABC Consulting had two employees with the following earnings information:

A. $194.40 B. $306.00 C. $546.00 D. $842.00 Social Security $113,700 - 111,500 = 2,200 * 6.2% = $136.40 + Medicare $4,000 * .0145 = $58 + SUTA $0 + FUTA $0; (Total = 136.40 + 58 = $194.40) No federal or state unemployment tax is calculated because Henry had already earned over the wage base maximum of $7,000.

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 3 Hard Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes. Learning Objective: 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Topic: Payroll Taxes 11-65 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Topic: Social Security and Medicare Taxes Topic: Unemployment Taxes

53.

George's Gameroom had two employees with the following earnings information:

A. $700 B. $5,900 C. $1,800 D. $1,100 SUTA ($7,000 - 5,900 = $1,100)

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 1 Easy Learning Objective: 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Topic: Unemployment Taxes

54.

George's Gameroom had two employees with the following earnings information:

A. $2,500 B. $2,800 C. $3,200 D. $6,000 Social Security $113,700 - $110,500 = $3,200

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 1 Easy Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes. Topic: Payroll Taxes Topic: Social Security and Medicare Taxes

55.

Jerry Little's gross wages as of October 31 were $110,000. He earned gross wages of $4,000 for the pay period ended November 15, 2016. Deducted from his paycheck this period, were federal income taxes of $400, state income taxes of $150, social security of 6.2% on the first $113,700 and Medicare tax of 1.45%. State Unemployment Tax is 4%, and Federal Unemployment tax is .6% on the first $7,000 of annual earnings. Calculate the employer payroll income taxes associated with Jerry's November 15 paycheck.

A. $1,048.00 B. $498.00 C. $306.00 D. $287.40 Social Security $113,700 - 110,000 = $3,700 * .062 = $229.40 + Medicare $4,000 * .0145 = $58 + SUTA $0 + FUTA $0 = $287.40. No federal or state unemployment tax is calculated because Jerry had already earned over the wage base maximum of $7,000.

56.

Rick O'Shea, the only employee of Hunter Furniture Company, makes $30,000 per year and is paid once a month. For the month of January, his federal income taxes withheld are $180, state income taxes withheld are $37, social security is 6.2% on a maximum wages of $113,700, Medicare tax is 1.45%, State Unemployment Tax is 4.2%, and Federal Unemployment tax is .6%, both on a maximum wages of $7,000 per employee. What is the employer's payroll tax expense associated with Rick's paycheck?

A. $120.00 B. $191.25 C. $311.25 D. $150.00 $30,000/12 = $2,500 $155.00 ($2,500 * .062) + 36.25 ($2,500 * .0145) + 105.00 ($2,500 * .042) + $15.00 ($2,500 * .006) = Total $155.00 + $36.25 + $105.00 + $15.00 = $311.25

57.

Samantha Rodriguez had gross earnings for the pay period ending 10/15/16 of $4,785. Her total gross earnings as of 9/30/16 were $111,400. Social Security taxes are 6.2% on a maximum earnings of $113,700 per year. The Social Security tax due by her employer from her 10/15/16 paychecks is:

A. $297.67 B. $142.60 C. $154.07 D. $192.75 ($113,700 - $111,400) * .062 = $142.60

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes. Learning Objective: 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Topic: Payroll Taxes Topic: Social Security and Medicare Taxes

58.

Which of the following is not an employer payroll tax:

A. federal unemployment tax B. federal income tax C. state unemployment tax D. FICA (Social Security and Medicare)

AACSB: Analytic

AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes. Learning Objective: 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Topic: Federal Income Taxes Topic: Payroll Taxes Topic: Social Security and Medicare Taxes Topic: Unemployment Taxes

59.

Roy DeSoto earns a regular hourly salary of $24.50. He is paid time-and-a-half for all hours in excess of 40 in the week. For the week ended March 8, 2016, he worked a total of 50 hours. His gross wages year to date prior to his March 8 paycheck are $11,980. Social Security Tax is 6.2%, Medicare Tax is 1.45%, federal unemployment tax is .6% and state unemployment tax is 4.2%, both on a maximum of $7,000 of gross wages per year. What is the employer's payroll tax expense for Roy for the week ended March 8, 2016?

A. $154.96 B. $123.97 C. $170.47 D. $103.08 $980.00 (24.50 * 40 hours) + $367.50 (($24.50 * 1.5) * 10) = $1,347.50 $83.55 ($1,347.50 * .062) + $19.54 ($1,347.50 * .0145) = $103.08 No federal or state unemployment tax is calculated because Alfred had already earned over the wage base maximum of $7,000.

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement 11-71 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes. Learning Objective: 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Topic: Federal Income Taxes Topic: Payroll Taxes Topic: Social Security and Medicare Taxes Topic: Unemployment Taxes

60.

Kristy Casey earns $39,000 per year and is paid once a month. For January, she had $188 withheld from her pay for federal income taxes, and $52 withheld for health insurance. Social Security and is 6.2% and Medicare tax is 1.45%; the federal unemployment tax rate is .6% and state unemployment tax rates is 4.2%. What is the total employer payroll tax expense for Kristy's January paycheck?

A. $385.13 B. $162.50 C. $248.63 D. $404.63 $39,000/12 = $3,250; $201.50 ($3,250 * .062) + $47.13 ($3,250 * .0145) + $19.50 ($3,250 * .006) + $136.50 ($3,250 * .042) = $404.63

the taxes. Topic: Federal Income Taxes Topic: Payroll Taxes Topic: Social Security and Medicare Taxes Topic: Unemployment Taxes

61.

Mary Gonzalez had total cumulative gross earnings of $4,500 as of 1/30. Her gross earnings for the pay period ending 2/15 were $3,000. If federal unemployment taxes are .6% on a maximum earnings of $7,000 per year, how much federal unemployment tax will be paid by Mary and how much will be paid by her employer for her earnings of 2/15?

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Topic: Unemployment Taxes

62.

Identify the list of accounts below that would normally all have a credit balance.

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes. Learning Objective: 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Topic: Payroll Taxes Topic: Social Security and Medicare Taxes Topic: Unemployment Taxes Topic: Workers' Compensation

63.

Which of the following payroll taxes is not paid by the employee?

A. federal unemployment tax B. federal income tax C. state income tax D. FICA (Social Security and Medicare)

AACSB: Analytic AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes. 11-74 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Learning Objective: 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Topic: Federal Income Taxes Topic: Payroll Taxes Topic: Social Security and Medicare Taxes Topic: Unemployment Taxes

64.

For which of the following is there no limit to the amount of wages subject to the tax?

A. federal unemployment tax B. Medicare tax C. state unemployment tax D. Social Security tax

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes. Learning Objective: 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Topic: Payroll Taxes Topic: Social Security and Medicare Taxes Topic: Unemployment Taxes

65.

Which of the following payroll taxes is not paid by the employee?

A. federal unemployment tax B. federal income tax C. state income tax D. FICA (Social Security and Medicare)

Essay Questions

66.

After the JPR Corporation paid its employees on May 15, 2016, and recorded the corporation's share of payroll taxes for the payroll paid that date, the firm's general ledger showed a balance of $1,730 in the Social Security Tax Payable account, a balance of $356 in the Medicare Tax Payable account, and a balance of $1,972 in the Employee Income Tax Payable account. On May 16, 2016, the business issued a check to deposit the taxes owed in the local bank. Record this transaction on page 7 of a general journal.

AACSB: Analytic

AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 11-03 Record deposit of social security; Medicare; and employee income taxes. Topic: Federal Income Taxes Topic: Payroll Taxes Topic: Social Security and Medicare Taxes

67.

After the ABC Corporation paid its employees on June 15, 2016, and recorded the corporation's share of payroll taxes for the payroll paid that date, the firm's general ledger showed a balance of $1,620 in the Social Security Tax Payable account, a balance of $401 in the Medicare Tax Payable account, and a balance of $1,851 in the Employee Income Tax Payable account. On June 16, 2016, the business issued a check to deposit the taxes owed in the local bank. Record this transaction on page 15 of a general journal.

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 11-03 Record deposit of social security; Medicare; and employee income taxes. Topic: Federal Income Taxes Topic: Payroll Taxes Topic: Social Security and Medicare Taxes

68.

After the Mansley Company paid its employees on July 15, 2016, and recorded the corporation's share of payroll taxes for the payroll paid that date, the firm's general ledger showed a balance of $1,695 in the Social Security Tax Payable account, a balance of $321 in the Medicare Tax Payable account, and a balance of $1,968 in the Employee Income Tax Payable account. On July 16, 2016, the business issued a check to deposit the taxes owed in the local bank. Record this transaction on page 23 of a general journal.

69.

After the Marion Corporation paid its employees on November 15, 2016, and recorded the corporation's share of payroll taxes for the payroll paid that date, the firm's general ledger showed a balance of $1,925 in the Social Security Tax Payable account, a balance of $519 in the Medicare Tax Payable account, and a balance of $2,105 in the Employee Income Tax Payable account. On November 16, 2016, the business issued a check to deposit the taxes owed in the local bank. Record this transaction on page 5 of a general journal.

70.

The payroll register of the Fox Manufacturing Company showed total employee earnings of $28,000 for the week ended April 19, 2016. Compute each of the employer's payroll taxes for the period. Use a rate of 6.2 percent for the employer's share of the social security tax, 1.45 percent for Medicare tax, 0.6 percent for FUTA tax, and 5.4 percent for SUTA tax. Assume all earnings are taxable.

Social security tax, $1,736; Medicare tax, $406; FUTA tax, $168; SUTA, $1,512 Feedback: $28,000 * .062 = $1,736; $28,000 * .0145 = $406; $28,000 * .006 = $168; $28,000 * .054 = $1,512

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes. Learning Objective: 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Topic: Social Security and Medicare Taxes Topic: Unemployment Taxes

71.

The payroll register of the Hound Manufacturing Company showed total employee earnings of $36,000 for the week ended September 20, 2016. Compute each of the employer's payroll taxes for the period. Use a rate of 6.2 percent for the employer's share of the social security tax, 1.45 percent for Medicare tax, 0.6 percent for FUTA tax, and 5.4 percent for SUTA tax. Assume all earnings are taxable.

Social security tax, $2,232; Medicare tax, $522; FUTA tax, $216; SUTA, $1,944 Feedback: $36,000 * .062 = $2,232; $36,000 * .0145 = $522; $36,000 * .006 = $216; $36,000 * .054 = $1,944

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes. Learning Objective: 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Topic: Payroll Taxes Topic: Social Security and Medicare Taxes Topic: Unemployment Taxes

72.

The payroll register of the Retro Manufacturing Company showed total employee earnings of $25,000 for the week ended January 18, 2016. Compute the employer's payroll taxes for the period. Use a rate of 6.2 percent for the employer's share of the social security tax, 1.45 percent for Medicare tax, 0.6 percent for FUTA tax, and 5.4 percent for SUTA tax. Assume all earnings are taxable.

Social security tax, $1,550; Medicare tax, $362.50; FUTA tax, $150; SUTA, $1,350 Feedback: $25,000 * .062 = $1,550; $25,000 * .0145 = $362.50; $25,000 * .006 = $150; $25,000 * .054 = $1,350

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes. Learning Objective: 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Topic: Payroll Taxes Topic: Social Security and Medicare Taxes Topic: Unemployment Taxes

73.

The payroll register of Rapid Repairs showed total employee earnings of $1,870 for the week ended April 5, 2016. Compute the employer's payroll taxes for the period. The tax rates are: Social security tax, 6.2 percent; Medicare tax, 1.45 percent; FUTA tax, 0.6 percent; SUTA tax, 2.2 percent. All earnings are taxable. Record the employer's payroll taxes for the period on page 4 of a general journal.

Feedback: $1,870 * .062 = $115.94; $1,870 * .0145 = $27.12; $1,870 * .006 = $11.22; $1,870 * .022 = $41.14

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes. Learning Objective: 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Topic: Payroll Taxes Topic: Social Security and Medicare Taxes Topic: Unemployment Taxes

74.

The payroll register of Reynolds Company showed total employee earnings of $2,320 for the week ended May 10, 2016. Compute the employer's payroll taxes for the period. The tax rates are: Social security tax, 6.2 percent; Medicare tax, 1.45 percent; FUTA tax, 0.6 percent; SUTA tax, 2.2 percent. All earnings are taxable. Record the employer's payroll taxes for the period on page 4 of a general journal.

Feedback: $2,320 * .062 = $143.84; $2,320 * .0145 = $33.64; $2,320 * .006 = $13.92; $2,320 * .022 = $51.04

75.

The payroll register of Burdick Travel Agency showed total employee earnings of $1,450 for the week ended June 7, 2016. Compute the employer's payroll taxes for the period. The tax rates are: Social security tax, 6.2 percent; Medicare tax, 1.45 percent; FUTA tax, 0.6 percent; SUTA tax, 2.2 percent. All earnings are taxable. Record the employer's payroll taxes for the period on page 4 of a general journal.

Feedback: $1,450 * .062 = $89.90; $1,450 * .0145 = $21.03; $1,450 * .006 = $8.70; $1,450 * .022 = $31.90

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes. Learning Objective: 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Topic: Payroll Taxes Topic: Social Security and Medicare Taxes Topic: Unemployment Taxes

76.

The payroll register of Vtech Enterprises showed total employee earnings of $2,100 for the week ended August 2, 2016. Compute the employer's payroll taxes for the period. The tax rates are: Social security tax, 6.2 percent; Medicare tax, 1.45 percent; FUTA tax, 0.6 percent; SUTA tax, 2.2 percent. All earnings are taxable. Record the employer's payroll taxes for the period on page 4 of a general journal.

Feedback: $2,100 * .062 = $130.20; $2,100 * .0145 = $30.45; $2,100 * .006 = $12.60; $2,100 * .022 = $46.20

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes. Learning Objective: 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Topic: Payroll Taxes Topic: Social Security and Medicare Taxes Topic: Unemployment Taxes

77.

Wharfside Manufacturing estimates that its office employees will earn $50,000 next year and its factory employees will earn $260,000. The firm pays the following rates for workers' compensation insurance: $0.37 per $100 of wages for the office employees and $4.00 per $100 of wages for the factory employees. Compute the estimated premiums for the office and factory employees.

Office employees, $185; factory employees, $10,400 Feedback: $50,000/$100 = $500 * $0.37 = $185.00; $260,000/$100 = $2,600 * $4.00 = $10,400

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 11-08 Compute and record workers' compensation insurance premiums. Topic: Workers' Compensation

78.

Beachside Manufacturing estimates that its office employees will earn $54,000 next year and its factory employees will earn $280,000. The firm pays the following rates for workers' compensation insurance: $0.40 per $100 of wages for the office employees and $4.10 per $100 of wages for the factory employees. Compute the estimated premiums for the office and factory employees.

Office employees, $216; factory employees, $11,480 Feedback: $54,000/$100 = $540 * $0.40 = $216.00; $280,000/$100 = $2,800 * $4.10 = $11,480

79.

Orleans Manufacturing estimates that its office employees will earn $75,000 next year and its factory employees will earn $200,000. The firm pays the following rates for workers' compensation insurance: $0.55 per $100 of wages for the office employees and $4.75 per $100 of wages for the factory employees. Compute the estimated premiums for the office and factory employees.

Office employees, $412.50; factory employees, $9,500 Feedback: $75,000/$100 = $750 * $0.55 = $412.50; $200,000/$100 = $2,000 * $4.75 = $9,500

80.

Compute and record workers' compensation insurance premiums for Fairlawn Manufacturing as follows: 1. The firm estimates that its office employees will earn $46,000 next year and its factory employees will earn $162,000. The firm pays the following rates for workers' compensation insurance: $0.40 per $100 of wages for the office employees and $3.50 per $100 of wages for the factory employees. Compute the estimated premiums for 2016. On page 9 of a general journal, record the payment of the estimated premium. Date the entry January 12, 2016. 2. On January 3, 2017, an audit of the firm's payroll records for 2016 showed that the firm had actually paid wages of $48,000 to its office employees and $165,000 to its factory employees. Compute the actual premium for the year and the balance due the insurance company or the credit due the firm. In the general journal, record the entry to adjust the Workers' Compensation Insurance Expense as of the end of 2016. Date the entry December 31, 2016.

Feedback: $46,000/$100 = $460 * $0.40 = $184; $162,000/$100 = $1,620 * $3.50 = $5,670; $184 + $5,670 = $5,854 $48,000/$100 = $480 * $0.40 = $192; $165,000/$100 = $1,650 * $3.50 = $5,775; $5,967 ($5,775 + $192) - $5,854 = $113

AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 11-08 Compute and record workers' compensation insurance premiums. Topic: Payroll Taxes Topic: Workers' Compensation

81.

Compute and record workers' compensation insurance premiums for Evergreen Manufacturing as follows: 1. The firm estimates that its office employees will earn $49,000 next year and its factory employees will earn $150,000. The firm pays the following rates for workers' compensation insurance: $0.40 per $100 of wages for the office employees and $3.50 per $100 of wages for the factory employees. Compute the estimated premiums for 2016. On page 54 of a general journal, record the payment of the estimated premium. Date the entry January 12, 2016. 2. On January 4, 2017, an audit of the firm's payroll records for 2016 showed that the firm had actually paid wages of $53,000 to its office employees and $161,000 to its factory employees. Compute the actual premium for the year and the balance due the insurance company or the credit due the firm. In the general journal, record the entry to adjust the Workers' Compensation Insurance Expense as of the end of 2016. Date the entry December 31, 2016.

Feedback: $49,000/$100 = $490 * $0.40 = $196; $150,000/$100 = $1,500 * $3.50 = $5,250; $196 + $5,250 = $5,446 $53,000/$100 = $530 * $0.40 = $212; $161,000/$100 = $1,610 * $3.50 = $5,635; $5,847 ($5,635 + $212) - $5,446 = $401

82.

Compute and record workers' compensation insurance premiums for Beverly Manufacturing as follows: 1. The firm estimates that its office employees will earn $40,000 next year and its factory employees will earn $172,000. The firm pays the following rates for workers' compensation insurance: $0.40 per $100 of wages for the office employees and $3.50 per $100 of wages for the factory employees. Compute the estimated premiums for 2016. On page 9 of a general journal, record the payment of the estimated premium. Date the entry January 12, 2016. 2. On January 3, 2017, an audit of the firm's payroll records for 2016 showed that the firm had actually paid wages of $48,000 to its office employees and $165,000 to its factory employees. Compute the actual premium for the year and the balance due the insurance company or the credit due the firm. In the general journal, record the entry to adjust the Workers' Compensation Insurance Expense as of the end of 2016. Date the entry December 31, 2016.

Feedback: $40,000/$100 = $400 * $0.40 = $160; $172,000/$100 = $1,720 * $3.50 = $6,020; $160 + $6,020 = $6,180 $48,000/$100 = $480 * $0.40 = $192; $165,000/$100 = $1,650 * $3.50 = $5,775; $5,967 ($5,775 + $192) - $6,180 = ($213)

Check All That Apply Questions

83.

A firm prepares copies of the Wage and Tax Statement, Form W-2, for which of the following?

One copy for the employee's records.

One copy for the employer's records.

One copy for the supervisor's records.

One copy for city or county income tax.

One copy for the employee to attach to the state income tax return.

One copy for the employee to attach to the federal income tax return.

One copy for the employer to send to the Social Security Administration

One copy for the employee to send to the Social Security Administration

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 11-05 Prepare Wage and Tax Statement (Form W-2) and Annual Transmittal of Wage and Tax Statements (Form W-3). Topic: Payroll Records and Forms Topic: Tax Forms and Returns

Matching Questions

84.

Match the accounting terms with the description.

Transmittal of Wage 1. Another term for Wage and Tax

Statement, Form W-2

and Tax Statements, Form W-3 3

2. A system that rewards an employer for maintaining steady employment conditions by reducing the firm's state unemployment tax rate

Experience rating system 2

3. Preprinted government form submitted with Forms W-2 to the Social Security Administration

Wage and Tax Statement, Form W-2 4

4. Preprinted government form that contains information about an employee's earnings and tax withholdings for the year

Unemployment insurance program 6

Employer's Quarterly 5. Another term for Experience rating system 6. A program that provides

Federal Tax Return, Form 941 8 Employer's Annual

unemployment compensation through

Federal Unemployment

a tax levied on employers

Tax Return, Form 940 7

7. Preprinted government form used by the employer to report unemployment

Withholding

taxes for the calendar year

statement 1

8. Preprinted government form used by the employer to report payroll tax information relating to social security, Medicare, and employee income tax withholding to the Internal Revenue Service

Merit rating system 5

AICPA BB: Industry AICPA FN: Decision Making Blooms: Analyze Difficulty: 2 Medium Learning Objective: 11-01 Explain how and when payroll taxes are paid to the government. Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes. Learning Objective: 11-03 Record deposit of social security; Medicare; and employee income taxes. Learning Objective: 11-04 Prepare an Employer's Quarterly Federal Tax Return; Form 941. Learning Objective: 11-05 Prepare Wage and Tax Statement (Form W-2) and Annual Transmittal of Wage and Tax Statements (Form W-3). Learning Objective: 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Learning Objective: 11-07 Prepare an Employer's Federal Unemployment Tax Return; Form 940. Learning Objective: 11-08 Compute and record workers' compensation insurance premiums. Learning Objective: 11-09 Define the accounting terms new to this chapter. Topic: Payroll Records and Forms Topic: Payroll Taxes Topic: Social Security and Medicare Taxes Topic: Tax Forms and Returns Topic: Unemployment Taxes

Chapter 12 Accruals, Deferrals, and the Worksheet

True / False Questions

1. When the accrual basis of accounting is used, expenses are recognized only in the period during which they are paid.

True

False

2. The balance of the Merchandise Inventory account that appears in the Trial Balance section of the worksheet represents the stock of goods on hand at the beginning of the current period.

True

False

3. The Merchandise Inventory account is debited when goods are purchased for resale and credited when goods are sold and delivered to customers.

True

False

4. Merchandise inventory is adjusted in two steps because both the beginning and ending inventory figures are needed to prepare the income statement.

True

False

5. To remove the beginning inventory from the books, the Income Summary account is credited for the amount of the beginning inventory.

True

False

6. Under the accrual basis of accounting, the expense for uncollectible accounts is estimated and recorded before specific accounts are actually written off.

True

False

7. A debit to Interest Receivable and a credit to Interest Income are needed to record interest that has been earned but not yet received.

True

False

8. Under the accrual basis of accounting, only income that has been earned appears on the income statement.

True

False

9. The objective of matching revenues and expenses to specific fiscal periods is most nearly attained when revenues and expenses are recognized in the period during which cash related to the transactions is received or paid.

True

False

10. The balance of the Merchandise Inventory account shown in the Adjusted Trial balance section of the worksheet is extended to the Balance Sheet Debit column of the worksheet.

True

False

11. The debit and credit amounts for the Income Summary account are combined into one number in the Income Statement section of the worksheet.

True

False

Fill in the Blank Questions

12. The stock of goods that a business has on hand for sale to customers is called ___________________.

________________________________________

13. The adjustment for merchandise inventory is made in ____________________ steps.

________________________________________

14. The beginning merchandise inventory is removed from the books by closing the Merchandise Inventory account into the ____________________ account.

________________________________________

15. The entry to record the ending merchandise inventory in the books includes a ____________________ to the Merchandise Inventory account.

________________________________________

16. Property, plant, and equipment are ____________________ assets that require end-of-period adjustments for depreciation.

________________________________________

17. To determine the amount of yearly depreciation, the ____________________ is divided by the number of years in the asset's useful life.

________________________________________

18. When an adjusting entry is made for supplies used, the Supplies Expense account is increased and the ____________________ account is decreased.

________________________________________

19. Uncollectible Accounts Expense is a(n) ____________________ account.

________________________________________

20. The procedure that most nearly attains the objective of matching revenues and expenses to specific accounting periods is called the ____________________ basis of accounting.

________________________________________

21. The adjusting entry to record accrued interest on a note receivable increases the Interest Receivable account and ____________________ the Interest Income account.

________________________________________

22. If an account has a debit balance in the Trial Balance section and a debit entry in the Adjustments section, _______________ the two amounts.

________________________________________

23. Net income is recorded on the net income line in the ___________________ column of the Balance Sheet section of the worksheet.

________________________________________

Multiple Choice Questions

24. If a company uses the periodic inventory system, purchases of merchandise are

A. debited to Merchandise Inventory. B. credited to Merchandise Inventory. C. debited to Purchases. D. credited to Sales.

25. On the financial statements prepared at the end of an accounting period, the merchandise inventory is shown as

A. a liability on the balance sheet. B. revenue on the income statement. C. an asset on the balance sheet. D. an addition to capital on the statement of owner's equity.

26. Identify the statement below that is true regarding the Allowance for Doubtful Accounts account.

A. The account has a normal credit balance and is reported on the balance sheet. B. The account has a normal debit balance and is reported on the balance sheet. C. The account has a normal credit balance and is reported on the income statement. D. The account has a normal debit balance and is reported on the income statement.

27. Allowance for Doubtful Accounts is

A. subtracted from Accounts Receivable in the Assets section of the balance sheet. B. deducted from Sales in the Revenue section of the income statement. C. listed in the Operating Expenses section of the income statement. D. listed in the Liabilities section of the balance sheet.

28. The adjusting entry for uncollectible accounts requires a debit to

A. Allowance for Doubtful Accounts and a credit to Accounts Receivable. B. Uncollectible Accounts Expense and a credit to Allowance for Doubtful Accounts. C. Uncollectible Accounts Expense and a credit to Accounts Receivable. D. Allowance for Doubtful Accounts and a credit to Uncollectible Accounts Expense.

29. During the year, Spirit Fun had net credit sales of $500,000. Past experience shows that 1.5 percent of the firm's net credit sales result in uncollectible accounts. Determine the adjusting entry needed to recognize the estimated expense for these uncollectible accounts.

A. debit Allowance for Doubtful Accounts $7,500 and credit Accounts Receivable $7,500. B. debit Uncollectible Accounts Expense $7,500 and credit Accounts Receivable $7,500. C. debit Uncollectible Accounts Expense $7,500 and credit Allowance for Doubtful Accounts $7,500. D. debit Uncollectible Accounts Expense $75,000 and credit Allowance for Doubtful Accounts $75,000.

30. Which of the following statements is not correct?

A. Uncollectible Accounts Expense is a contra asset account. B. The cost less the salvage value equals the depreciable base of a long-term asset. C. Each adjustment for an accrued expense includes a credit to a liability account. D. If a firm records prepaid expense items in an expense account when they pay for them, their adjustment at the end of the period to record the unexpired portion would include a debit to an asset account and a credit to an expense account.

31. The adjusting entry to record accrued interest on a note payable requires a debit to

A. Interest Income and a credit to Notes Payable. B. Interest Payable and a credit to Interest Expense. C. Interest Expense and a credit to Cash. D. Interest Expense and a credit to Interest Payable.

32. On June 1, 2016, Mighty Fast Flooring issued a 10-month, 9 percent note for $4,000. The note was recorded in the Notes Payable-Trade account. The adjusting entry on December 31 to record the interest accrued (owed) on the note is:

A. a debit to Interest Expense for $210 and a credit to Interest Payable for $210. B. a debit to Interest Income for $210 and a credit to Interest Receivable for $210. C. a debit to Interest Expense for $360 and a credit to Interest Payable for $360. D. a debit to Interest Expense for $210 and a credit to Notes Payable-Trade for $210.

33. Allowance for Doubtful Accounts is reported in the

A. Assets section of the balance sheet. B. Operating Expenses section of the income statement. C. Liabilities section of the balance sheet. D. Cost of Goods Sold section of the income statement.

34. On July 1, 2016, a firm purchased a 1-year insurance policy for $1,800 and paid the full premium in advance. The insurance expense associated with this policy for the year ending December 31, 2016, is

A. $600. B. $1,050. C. $900. D. $1,800.

35. On May 1, 2016, a firm purchased a 1-year insurance policy for $3,600 and paid the full premium in advance. The insurance expense associated with this policy for the year ending December 31, 2016, is

A. $3,600. B. $2,400. C. $2,100. D. $1,200.

36. On Oct 1, 2016, a firm purchased a 1-year insurance policy for $2,400 and paid the full premium in advance. The adjustment needed on December 31, 2016, to report the amount of insurance that had expired, would be:

A. a debit to Prepaid Insurance for $600 and a credit to Insurance Expense for $600. B. a debit to Insurance Expense for $600 and a credit to Prepaid Insurance for $600. C. a debit to Insurance Expense for $2,400 and a credit to Cash for $2,400. D. a debit to Insurance Expense for $1,800 and a credit to Prepaid Insurance for $1,800.

37. On January 2, 2016, a firm purchased equipment for $8,500. Depreciation expense for the year ending December 31, 2016, given the straight-line method, a 5-year useful life, and a salvage value of $1,500, is

A. $1,500. B. $1,700. C. $1,200. D. $1,400.

38. On January 1, 2016, a firm purchased machinery for $17,000. Depreciation expense for the year ending December 31, 2016, given the straight-line method, a 5-year useful life, and a salvage value of $3,000, is

A. $3,000. B. $3,400. C. $2,800. D. $2,400.

39. Accrued expenses are

A. paid for in one period but not fully used until a later period. B. used in one period but not paid for until a later period. C. paid for, recorded, and used in one period. D. budgeted but not paid for or used during the period.

40. An adjusting entry is usually not required for a revenue item when it is

A. budgeted, paid for, and partially earned in one period but not fully earned until a later period. B. paid for by the customer, recorded, and earned in one period. C. paid for by the customer and recorded in one period but not fully earned until a later period. D. earned in one period but not paid for by the customer or recorded until a later period.

41. Which of the following statements is correct?

A. Income that has been earned but not yet received is called accrued income. B. Unearned Subscription Income is a liability account. C. Under the accrual basis of accounting, revenue is recognized and recorded in the period when it is earned regardless of when cash related to the transaction is received. D. All of these statements are correct.

42. On November 1, 2016, a firm accepted a 4-month, 10 percent note for $900 from a customer with an overdue balance. The accrued interest recorded for this note for the year ended December 31, 2016, is

A. $90. B. $75. C. $30. D. $15.

43. On December 1, 2016, a firm accepted a 6-month, 12 percent note for $5,000 from a customer. The adjusting entry on December 31 to record the interest earned on the note is:

A. a debit to Interest Receivable for $600 and a credit to Interest Income for $600. B. a debit to Interest Income for $600 and a credit to Interest Receivable for $600. C. a debit to Interest Receivable for $60 and a credit to Interest Income for $60. D. a debit to Interest Receivable for $300 and a credit to Interest Income for $300.

44. On April 1, 2016, a firm accepted a 3-month, 10 percent note for $1,800 from a customer with an overdue balance. The accrued interest recorded for this note for the year ended May 31, 2016, is

A. $30. B. $60. C. $150. D. $180.

45. With the accrual basis of accounting, it is appropriate to recognize revenue from a credit sale

A. on the date of the sale. B. on the date the account is collected in full. C. each time a payment on an account balance is received. D. either on the date of the sale or when the amount of the sale is collected.

46. Accrued income is income that has been

A. received but not earned. B. earned but not received. C. earned and received. D. budgeted for the fiscal period.

47. Which of the following statements is correct?

A. On the worksheet, the amount of the ending merchandise inventory is shown in the Income Statement Credit column in the account Income Summary and the Balance Sheet Debit column in the account Merchandise Inventory. B. On the worksheet, the totals of the Income Statement columns should equal the totals of the Balance Sheet columns. C. On the worksheet, if debits exceed credits in the Adjusted Trial Balance section, the difference represents a net loss. D. All of these statements are correct.

48. If an account has a debit balance of $700 in the Trial Balance section of a worksheet and there is a credit entry of $200 in the Adjustments section, the account balance in the Adjusted Trial Balance section of the worksheet is a

A. $900 debit. B. $500 debit. C. $500 credit. D. $900 credit.

49. If an account has a credit balance of $700 in the Trial Balance section of a worksheet and there is a credit entry of $200 in the Adjustments section, the account balance in the Adjusted Trial Balance section of the worksheet is

A. $900 debit. B. $500 debit. C. $500 credit. D. $900 credit.

50. If an account has a debit balance of $700 in the Trial Balance section of a worksheet and there is a debit entry of $200 in the Adjustments section, the account balance in the Adjusted Trial Balance section of the worksheet is a

A. $900 debit. B. $500 debit. C. $500 credit. D. $900 credit.

51. The net income for an accounting period appears on the worksheet in the

A. Income Statement Debit column only. B. Income Statement Credit column only. C. Income Statement Credit and the Balance Sheet Debit columns. D. Income Statement Debit and the Balance Sheet Credit columns.

52. The net income for an accounting period can be determined using the worksheet by comparing the balances and determining the difference between the balances in the two

A. only the Income Statement columns. B. Income Statement or Balance Sheet columns. C. Balance Sheet and Income Statement Debit columns. D. Balance Sheet and Income Statement Credit columns.

53. The ending merchandise inventory is recorded on the worksheet in the

A. Income Statement Credit and the Balance Sheet Debit columns. B. Income Statement Credit column only. C. Balance Sheet Debit column only. D. Income Statement Debit column only.

54. On November 1, 2016, Paige Turner Publishing received $50,400 in cash for subscriptions covering one year, recording the entry as a debit to Cash and a credit to Unearned Subscriptions. The correct adjusting entry at December 31, 2016, is

A. Debit Subscriptions Income $8,400; credit Unearned Subscriptions $8,400. B. Debit Unearned Subscriptions $8,400; credit Subscriptions Income $8,400. C. Debit Unearned Subscriptions $4,200; credit Subscriptions Income $4,200. D. Debit Unearned Subscriptions $50,400; credit Subscriptions Income $50,400.

55. The Supplies account has a trial balance of $3,136. A year-end inventory shows $1,734 worth of supplies left at the end of the year. The correct adjusting entry is:

A. debit Supplies Expense $1,734; credit Prepaid Supplies $1,734 B. debit Supplies $1,402; credit Supplies Expense $1,402 C. debit Supplies Expense $3,136; credit Supplies $3,136 D. debit Supplies Expense $1,402; credit Supplies $1,402

56. Hugh Morris Company pays weekly wages of $10,000 every Friday for a five day week ending on that day. If the last day of the year is on Wednesday, the adjusting entry to record the accrued wages is:

A. debit Wages Expense $6,000; credit Cash $6,000 B. debit Wages Expense $4,000; credit Cash $4,000 C. debit Wages Expense $6,000; credit Wages Payable $6,000 D. debit Wages Expense $6,000; credit Drawing $6,000

57. Robin Banks, Inc. owns an armored truck which was purchased for $80,000. The Accumulated Depreciation on the truck is $55,000. The book value of the armored truck is

A. $25,000. B. $80,000. C. $55,000. D. $135,000.

58. After both of the entries for the inventory adjustment have been posted, the debit in the Income Summary account represents:

A. Net Income B. Ending Inventory C. Beginning Inventory D. Cost of Goods Sold

59. The trial balance of Premier Lighting Co. shows Merchandise Inventory of $35,000. Based on a count taken on December 31, merchandise inventory at the end of the year actually totaled $28,000. The adjusting entry to remove the old merchandise inventory balance would be:

A. a debit to Income Summary of $28,000 and a credit to Merchandise Inventory for $28,000. B. a debit to Merchandise Inventory of $28,000 and a credit to Income Summary for $28,000. C. a debit to Purchases of $35,000 and a credit to Merchandise Inventory for $35,000. D. a debit to Income Summary of $35,000 and a credit to Merchandise Inventory for $35,000.

60. The trial balance of Marley Motorcycles shows Merchandise Inventory of $80,000. Based on a count taken on December 31, merchandise inventory at the end of the year actually totaled $92,000. The adjusting entry to place on the books, the new merchandise inventory balance would be:

A. a debit to Merchandise Inventory of $12,000 and a credit to Purchases for $12,000. B. a debit to Merchandise Inventory of $92,000 and a credit to Income Summary for $92,000. C. a debit to Purchases of $92,000 and a credit to Income Summary for $92,000. D. a debit to Merchandise Inventory of 80,000 and a credit to Income Summary for $80,000.

61. Rose Bush Nursery purchased a delivery truck for $27,000. The truck is expected to have a useful life of 4 years and a residual value of $1,080. If the truck was purchased on June 1, 2016, what is the amount of depreciation expense for the truck for the year ended December 31, 2016?

A. $3,780 B. $1,080 C. $6,480 D. $3,240

62. Stan Still Stationery Store's employees are paid every Friday for a five day work week and are paid a total of $1,250 per day. If December 31, 2016, is on a Monday, the amount of the adjusting entry for accrued wages is:

A. $1,250 B. $5,000 C. $6,250 D. $3,750

63. Millie's Bakery employees earn $450 a week for a five-day work week and are paid every Friday. If December 31 falls on a Wednesday, calculate the amount that is owed and select the adjusting entry needed to record the owed but unpaid salaries as of December 31.

A. a debit to Income Summary for $180 and a credit to Salaries Payable for $180. B. a debit to Salaries Expense for $450 and a credit to Salaries Payable for $450. C. a debit to Salaries Expense for $270 and a credit to Salaries Payable for $270. D. a debit to Salaries Payable for $270 and a credit to Salaries Expense for $270.

64. On October 1, 2016, a firm accepted a 4-month, 8% note for $12,000 from a customer with an overdue account balance. The accrued interest recorded for this note on December 31, 2016, is

A. $960.00. B. $80.00. C. $240.00. D. No accrual is necessary.

65. Prepaid Advertising has a debit balance in the Trial Balance section of the worksheet of $1,500 and a credit entry of $500 in the adjustments section of the worksheet, the balance of Prepaid Advertising in the Adjusted Trial Balance section of the worksheet is a

A. $1,000 credit. B. $500 debit. C. $1,000 debit. D. $1,500 debit.

66. Abe & Anna Split Ice Cream Parlour paid $1,800 cash for a 6-month advertising contract on September 30, 2013. The amount of advertising expense reported on the Income Statement for the year ending December 31, 2016, for this advertising contract is

A. $900. B. $300. C. $1,800. D. $1,200.

Short Answer Questions

67. Determine the account and amount to be debited and the account and amount to be credited for the following adjustment. The beginning inventory for a merchandising business was $73,000, and the ending inventory is $66,000.

68. Determine the account and amount to be debited and the account and amount to be credited for the following adjustment. The beginning inventory for a merchandising business was $32,000, and the ending inventory is $45,000.

69. Determine the account and amount to be debited and the account and amount to be credited for the following adjustment. During the year, the firm had net credit sales of $490,000. Past experience shows that 1.2 percent of the firm's net credit sales result in uncollectible accounts.

70. Determine the account and amount to be debited and the account and amount to be credited for the following adjustment. During the year, the firm had net credit sales of $980,000. Past experience shows that 1.2 percent of the firm's net credit sales result in uncollectible accounts.

71. Determine the account and amount to be debited and the account and amount to be credited for the following adjustment. Equipment purchased for $52,000 on January 3, 2016, has an estimated life of 5 years and an estimated salvage value of $4,500. The firm uses the straight-line method of depreciation. Determine the adjustment for the month ended January 31, 2016.

72. Determine the account and amount to be debited and the account and amount to be credited for the following adjustment. Equipment purchased for $104,000 on January 3, 2016, has an estimated life of 5 years and an estimated salvage value of $9,000. The firm uses the straight-line method of depreciation. Determine the adjustment for the month ended January 31, 2016.

73. Determine the account and amount to be debited and the account and amount to be credited for the following adjustment. On December 31, 2016, the firm owed wages totaling $4,300.

74. Determine the account and amount to be debited and the account and amount to be credited for the following adjustment. On December 31, 2016, the firm owed wages totaling $3,900.

75. Determine the account and amount to be debited and the account and amount to be credited for the following adjustment. On December 31, 2016, the Notes Payable account had a balance of $6,000. This represented a 3-month, 9 percent note issued on December 1, 2016.

76. Determine the account and amount to be debited and the account and amount to be credited for the following adjustment. On December 31, 2016, the Notes Payable account had a balance of $12,000. This represented a 3-month, 9 percent note issued on December 1, 2016.

77. Determine the account and amount to be debited and the account and amount to be credited for the following adjustment. The Supplies account has a balance of $1,300. On December 31, 2016, an inventory of supplies showed that items costing $550 were on hand.

78. Determine the account and amount to be debited and the account and amount to be credited for the following adjustment. The Supplies account has a balance of $1,400. On December 31, 2016, an inventory of supplies showed that items costing $500 were on hand.

79. Determine the account and amount to be debited and the account and amount to be credited for the following adjustment. On October 1, 2016, the firm paid a premium of $2,800 in cash for a 1-year insurance policy. On December 31, 2016, coverage for a period of three months had expired.

80. Determine the account and amount to be debited and the account and amount to be credited for the following adjustment. On October 1, 2016, the firm paid a premium of $5,600 in cash for a 1-year insurance policy. On December 31, 2016, coverage for a period of three months had expired.

81. Determine the account and amount to be debited and the account and amount to be credited for the following adjustment. During December, the firm received $6,000 in fees in advance and properly recorded the amount as Unearned Fees. An analysis shows that $2,000 applies to services provided in December.

82. Determine the account and amount to be debited and the account and amount to be credited for the following adjustment. During December, the firm received $12,000 in fees in advance and properly recorded the amount as Unearned Fees. An analysis shows that $4,000 applies to services provided in December.

83. On July 31, 2016, after one month of operation, the general ledger of Dakota Consulting contained the following accounts and balances. The firm adjusts losses from uncollectible accounts only at the end of the fiscal year. Monthly adjustments are listed below. Prepare the Trial Balance, Adjustments, and Adjusted Trial Balance sections of a worksheet.

84. Design Home Furnishings is a retail store. On December 31, 2016, the firm's general ledger contained the following accounts and balances. Adjustments are shown below. Prepare the Trial Balance section, record the adjustments in the Adjustments section, and complete the worksheet for the year ended December 31, 2016. Round to the nearest whole dollar.

85. Complete the table below in accordance with the rules that must be followed to combine amounts in the Adjusted Trial Balance Section of the worksheet. Enter the new balance and whether it is entered as a debit or a credit.

Matching Questions

86. Match the accounting terms with the description.

A system of accounting by which all revenues and expenses are matched and reported on financial statements for the 1. Accrual basis

applicable period, regardless of when the cash related to the transaction is received or paid ____ Expense items that relate to the current

2. Net income or Net loss

period but have not yet been paid and do not yet appear in the accounting records ____

3. Updated account balances

Income that has been earned but not yet received and recorded ____

4. Deferred income

Another term for prepaid expenses ____

5. Prepaid expenses 6. Unearned income

Another term for unearned income ____ A form used to list the volume and type of goods a firm has in stock ____ The difference between the debit and credit columns of the Income Statement and the

7. Inventory sheet

debit and credit columns of the Balance Sheet on the worksheet. ____ Expenses that are paid for and recorded

8. Deferred expenses

before they are used, such as rent or insurance ____ Long-term assets that are used in the

9. Property, plant, and equipment

operation of a business and that are subject to depreciation (except for land, which is not depreciated) ____

10. Accrued income

Income received before it is earned ____

11. Accrued expenses

The amounts entered in the Adjusted Trial Balance section of the worksheet ____

Chapter 12 Accruals, Deferrals, and the Worksheet Answer Key

True / False Questions

When the accrual basis of accounting is used, expenses are recognized only in the period during which they are paid.

FALSE

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 12-01 Determine the adjustment for merchandise inventory; and enter the adjustment on the worksheet. Topic: Calculating and Recording Adjustments

The balance of the Merchandise Inventory account that appears in the Trial Balance section of the worksheet represents the stock of goods on hand at the beginning of the current period.

TRUE

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 12-01 Determine the adjustment for merchandise inventory; and enter the adjustment on the worksheet.

Topic: Calculating and Recording Adjustments

The Merchandise Inventory account is debited when goods are purchased for resale and credited when goods are sold and delivered to customers.

FALSE

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 12-01 Determine the adjustment for merchandise inventory; and enter the adjustment on the worksheet. Topic: Calculating and Recording Adjustments

Merchandise inventory is adjusted in two steps because both the beginning and ending inventory figures are needed to prepare the income statement.

TRUE

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 12-01 Determine the adjustment for merchandise inventory; and enter the adjustment on the worksheet. Topic: Calculating and Recording Adjustments

To remove the beginning inventory from the books, the Income Summary account is credited for the amount of the beginning inventory.

FALSE

AACSB: Analytic

AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 12-01 Determine the adjustment for merchandise inventory; and enter the adjustment on the worksheet. Topic: Calculating and Recording Adjustments

Under the accrual basis of accounting, the expense for uncollectible accounts is estimated and recorded before specific accounts are actually written off.

TRUE

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items; and enter the adjustments on the worksheet. Topic: Calculating and Recording Adjustments

A debit to Interest Receivable and a credit to Interest Income are needed to record interest that has been earned but not yet received.

TRUE

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 12-03 Compute adjustments for accrued and deferred income items; and enter the adjustments on the worksheet. Topic: Calculating and Recording Adjustments

Under the accrual basis of accounting, only income that has been earned appears on the income statement.

TRUE

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 12-01 Determine the adjustment for merchandise inventory; and enter the adjustment on the worksheet. Learning Objective: 12-03 Compute adjustments for accrued and deferred income items; and enter the adjustments on the worksheet. Topic: Calculating and Recording Adjustments

The objective of matching revenues and expenses to specific fiscal periods is most nearly attained when revenues and expenses are recognized in the period during which cash related to the transactions is received or paid.

FALSE

10.

The balance of the Merchandise Inventory account shown in the Adjusted Trial balance section of the worksheet is extended to the Balance Sheet Debit column of the worksheet.

TRUE

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 12-04 Complete a 10-column worksheet. Topic: Completing the Worksheet

11.

The debit and credit amounts for the Income Summary account are combined into one number in the Income Statement section of the worksheet.

FALSE

Fill in the Blank Questions

12.

The stock of goods that a business has on hand for sale to customers is called ___________________.

merchandise inventory

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 12-01 Determine the adjustment for merchandise inventory; and enter the adjustment on the worksheet. Topic: Calculating and Recording Adjustments

13.

The adjustment for merchandise inventory is made in ____________________ steps.

two

14.

The beginning merchandise inventory is removed from the books by closing the Merchandise Inventory account into the ____________________ account.

Income Summary

worksheet. Topic: Calculating and Recording Adjustments

15.

The entry to record the ending merchandise inventory in the books includes a ____________________ to the Merchandise Inventory account.

debit

16.

Property, plant, and equipment are ____________________ assets that require end-ofperiod adjustments for depreciation.

long-term

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items; and enter the adjustments on the worksheet. Topic: Calculating and Recording Adjustments

17.

To determine the amount of yearly depreciation, the ____________________ is divided by the number of years in the asset's useful life.

depreciable base

AACSB: Analytic AICPA BB: Industry

AICPA FN: Measurement Blooms: Remember Difficulty: 1 Easy Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items; and enter the adjustments on the worksheet. Topic: Calculating and Recording Adjustments

18.

When an adjusting entry is made for supplies used, the Supplies Expense account is increased and the ____________________ account is decreased.

Supplies

19.

Uncollectible Accounts Expense is a(n) ____________________ account.

expense

20.

The procedure that most nearly attains the objective of matching revenues and expenses to specific accounting periods is called the ____________________ basis of accounting.

accrual

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items; and enter the adjustments on the worksheet. Learning Objective: 12-03 Compute adjustments for accrued and deferred income items; and enter the adjustments on the worksheet. Topic: Calculating and Recording Adjustments

21.

The adjusting entry to record accrued interest on a note receivable increases the Interest Receivable account and ____________________ the Interest Income account.

increases

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Blooms: Understand Difficulty: 1 Easy Learning Objective: 12-03 Compute adjustments for accrued and deferred income items; and enter the adjustments on the worksheet. Topic: Calculating and Recording Adjustments

22.

If an account has a debit balance in the Trial Balance section and a debit entry in the Adjustments section, _______________ the two amounts.

Add

AACSB: Analytic AICPA BB: Industry

AICPA FN: Reporting Blooms: Understand Difficulty: 1 Easy Learning Objective: 12-04 Complete a 10-column worksheet. Topic: Completing the Worksheet

23.

Net income is recorded on the net income line in the ___________________ column of the Balance Sheet section of the worksheet.

credit

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 12-04 Complete a 10-column worksheet. Topic: Completing the Worksheet

Multiple Choice Questions

24.

If a company uses the periodic inventory system, purchases of merchandise are

A. debited to Merchandise Inventory. B. credited to Merchandise Inventory. C. debited to Purchases. D. credited to Sales.

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand

Difficulty: 1 Easy Learning Objective: 12-01 Determine the adjustment for merchandise inventory; and enter the adjustment on the worksheet. Topic: Calculating and Recording Adjustments

25.

On the financial statements prepared at the end of an accounting period, the merchandise inventory is shown as

A. a liability on the balance sheet. B. revenue on the income statement. C. an asset on the balance sheet. D. an addition to capital on the statement of owner's equity.

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 12-01 Determine the adjustment for merchandise inventory; and enter the adjustment on the worksheet. Topic: Calculating and Recording Adjustments

26.

Identify the statement below that is true regarding the Allowance for Doubtful Accounts account.

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement

AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items; and enter the adjustments on the worksheet. Topic: Calculating and Recording Adjustments

27.

Allowance for Doubtful Accounts is

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items; and enter the adjustments on the worksheet. Topic: Calculating and Recording Adjustments

28.

The adjusting entry for uncollectible accounts requires a debit to

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement 12-49 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items; and enter the adjustments on the worksheet. Topic: Calculating and Recording Adjustments

29.

During the year, Spirit Fun had net credit sales of $500,000. Past experience shows that 1.5 percent of the firm's net credit sales result in uncollectible accounts. Determine the adjusting entry needed to recognize the estimated expense for these uncollectible accounts.

Accounts $7,500. D. debit Uncollectible Accounts Expense $75,000 and credit Allowance for Doubtful

Accounts $75,000. $500,000 * .015 = $7,500

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items; and enter the adjustments on the worksheet. Topic: Calculating and Recording Adjustments

30.

Which of the following statements is not correct?

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 2 Medium Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items; and enter the adjustments on the worksheet. Topic: Calculating and Recording Adjustments

31.

The adjusting entry to record accrued interest on a note payable requires a debit to

A. Interest Income and a credit to Notes Payable. B. Interest Payable and a credit to Interest Expense. C. Interest Expense and a credit to Cash. D. Interest Expense and a credit to Interest Payable.

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items; and enter the adjustments on the worksheet. Topic: Calculating and Recording Adjustments

32.

On June 1, 2016, Mighty Fast Flooring issued a 10-month, 9 percent note for $4,000. The note was recorded in the Notes Payable-Trade account. The adjusting entry on December 31 to record the interest accrued (owed) on the note is:

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items; and enter the adjustments on the worksheet. Topic: Calculating and Recording Adjustments

33.

Allowance for Doubtful Accounts is reported in the

A. Assets section of the balance sheet. B. Operating Expenses section of the income statement. C. Liabilities section of the balance sheet. D. Cost of Goods Sold section of the income statement.

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 1 Easy Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items; and enter the adjustments on the worksheet. Topic: Calculating and Recording Adjustments

34.

On July 1, 2016, a firm purchased a 1-year insurance policy for $1,800 and paid the full premium in advance. The insurance expense associated with this policy for the year ending December 31, 2016, is

A. $600. B. $1,050. C. $900. D. $1,800. $1,800/12 = 150 per month * 6 months = $900

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items; and enter the adjustments on the worksheet. Topic: Calculating and Recording Adjustments

35.

On May 1, 2016, a firm purchased a 1-year insurance policy for $3,600 and paid the full premium in advance. The insurance expense associated with this policy for the year ending December 31, 2016, is

A. $3,600. B. $2,400. C. $2,100. D. $1,200. $3,600/12 = 300 per month * 8 months = $2,400

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items; and enter the adjustments on the worksheet. Topic: Calculating and Recording Adjustments

36.

On Oct 1, 2016, a firm purchased a 1-year insurance policy for $2,400 and paid the full premium in advance. The adjustment needed on December 31, 2016, to report the amount of insurance that had expired, would be:

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items; and enter the adjustments on the worksheet. Topic: Calculating and Recording Adjustments

37.

On January 2, 2016, a firm purchased equipment for $8,500. Depreciation expense for the year ending December 31, 2016, given the straight-line method, a 5-year useful life, and a salvage value of $1,500, is

A. $1,500. B. $1,700. C. $1,200. D. $1,400. ($8,500 - $1,500)/5 years = $1,400 per year

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items; and enter the adjustments on the worksheet. Topic: Calculating and Recording Adjustments

38.

On January 1, 2016, a firm purchased machinery for $17,000. Depreciation expense for the year ending December 31, 2016, given the straight-line method, a 5-year useful life, and a salvage value of $3,000, is

A. $3,000. B. $3,400. C. $2,800. D. $2,400. ($17,000 - $3,000)/5 years = $2,800 per year

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items; and enter the adjustments on the worksheet. Topic: Calculating and Recording Adjustments

39.

Accrued expenses are

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember

Difficulty: 1 Easy Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items; and enter the adjustments on the worksheet. Topic: Calculating and Recording Adjustments

40.

An adjusting entry is usually not required for a revenue item when it is

41.

Which of the following statements is correct?

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making 12-58 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 12-03 Compute adjustments for accrued and deferred income items; and enter the adjustments on the worksheet. Topic: Calculating and Recording Adjustments

42.

On November 1, 2016, a firm accepted a 4-month, 10 percent note for $900 from a customer with an overdue balance. The accrued interest recorded for this note for the year ended December 31, 2016, is

A. $90. B. $75. C. $30. D. $15. $900 * .1 = $90; ($90/12) * 2 = $15

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 12-03 Compute adjustments for accrued and deferred income items; and enter the adjustments on the worksheet. Topic: Calculating and Recording Adjustments

43.

On December 1, 2016, a firm accepted a 6-month, 12 percent note for $5,000 from a customer. The adjusting entry on December 31 to record the interest earned on the note is:

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 12-03 Compute adjustments for accrued and deferred income items; and enter the adjustments on the worksheet. Topic: Calculating and Recording Adjustments

44.

On April 1, 2016, a firm accepted a 3-month, 10 percent note for $1,800 from a customer with an overdue balance. The accrued interest recorded for this note for the year ended May 31, 2016, is

A. $30. B. $60. C. $150. D. $180. $1,800 * .1 = $180; ($180/12) * 2 = $30

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 12-03 Compute adjustments for accrued and deferred income items; and enter the adjustments on the worksheet. Topic: Calculating and Recording Adjustments

45.

With the accrual basis of accounting, it is appropriate to recognize revenue from a credit sale

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making AICPA FN: Measurement

Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 12-01 Determine the adjustment for merchandise inventory; and enter the adjustment on the worksheet. Topic: Calculating and Recording Adjustments

46.

Accrued income is income that has been

A. received but not earned. B. earned but not received. C. earned and received. D. budgeted for the fiscal period.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 12-03 Compute adjustments for accrued and deferred income items; and enter the adjustments on the worksheet. Topic: Calculating and Recording Adjustments

47.

Which of the following statements is correct?

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 2 Medium Learning Objective: 12-04 Complete a 10-column worksheet. Topic: Completing the Worksheet

48.

If an account has a debit balance of $700 in the Trial Balance section of a worksheet and there is a credit entry of $200 in the Adjustments section, the account balance in the Adjusted Trial Balance section of the worksheet is a

A. $900 debit. B. $500 debit. C. $500 credit. D. $900 credit. $700 dr. - $200 cr. = $500 dr.

AACSB: Analytic AICPA BB: Critical Thinking

AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 12-04 Complete a 10-column worksheet. Topic: Completing the Worksheet

49.

If an account has a credit balance of $700 in the Trial Balance section of a worksheet and there is a credit entry of $200 in the Adjustments section, the account balance in the Adjusted Trial Balance section of the worksheet is

A. $900 debit. B. $500 debit. C. $500 credit. D. $900 credit. $700 cr. - $200 cr. = $900 cr.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 12-04 Complete a 10-column worksheet. Topic: Completing the Worksheet

50.

If an account has a debit balance of $700 in the Trial Balance section of a worksheet and there is a debit entry of $200 in the Adjustments section, the account balance in the Adjusted Trial Balance section of the worksheet is a

A. $900 debit. B. $500 debit. C. $500 credit. D. $900 credit. $700 dr. - $200 dr. = $900 dr.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 12-04 Complete a 10-column worksheet. Topic: Completing the Worksheet

51.

The net income for an accounting period appears on the worksheet in the

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy

Learning Objective: 12-04 Complete a 10-column worksheet. Topic: Completing the Worksheet

52.

The net income for an accounting period can be determined using the worksheet by comparing the balances and determining the difference between the balances in the two

A. only the Income Statement columns. B. Income Statement or Balance Sheet columns. C. Balance Sheet and Income Statement Debit columns. D. Balance Sheet and Income Statement Credit columns.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 12-04 Complete a 10-column worksheet. Topic: Completing the Worksheet

53.

The ending merchandise inventory is recorded on the worksheet in the

A. Income Statement Credit and the Balance Sheet Debit columns. B. Income Statement Credit column only. C. Balance Sheet Debit column only. D. Income Statement Debit column only.

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 12-04 Complete a 10-column worksheet. Topic: Completing the Worksheet

54.

On November 1, 2016, Paige Turner Publishing received $50,400 in cash for subscriptions covering one year, recording the entry as a debit to Cash and a credit to Unearned Subscriptions. The correct adjusting entry at December 31, 2016, is

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 12-03 Compute adjustments for accrued and deferred income items; and enter the adjustments on the worksheet. Topic: Calculating and Recording Adjustments

55.

The Supplies account has a trial balance of $3,136. A year-end inventory shows $1,734 worth of supplies left at the end of the year. The correct adjusting entry is:

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items; and enter the adjustments on the worksheet. Topic: Calculating and Recording Adjustments

56.

Hugh Morris Company pays weekly wages of $10,000 every Friday for a five day week ending on that day. If the last day of the year is on Wednesday, the adjusting entry to record the accrued wages is:

AACSB: Analytic

AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items; and enter the adjustments on the worksheet. Topic: Calculating and Recording Adjustments

57.

Robin Banks, Inc. owns an armored truck which was purchased for $80,000. The Accumulated Depreciation on the truck is $55,000. The book value of the armored truck is

A. $25,000. B. $80,000. C. $55,000. D. $135,000. $80,000 - $55,000 = $25,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items; and enter the adjustments on the worksheet. Topic: Calculating and Recording Adjustments

58.

After both of the entries for the inventory adjustment have been posted, the debit in the Income Summary account represents:

A. Net Income B. Ending Inventory C. Beginning Inventory D. Cost of Goods Sold

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 12-01 Determine the adjustment for merchandise inventory; and enter the adjustment on the worksheet. Topic: Calculating and Recording Adjustments

59.

The trial balance of Premier Lighting Co. shows Merchandise Inventory of $35,000. Based on a count taken on December 31, merchandise inventory at the end of the year actually totaled $28,000. The adjusting entry to remove the old merchandise inventory balance would be:

AACSB: Analytic AICPA BB: Critical Thinking 12-70 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 12-01 Determine the adjustment for merchandise inventory; and enter the adjustment on the worksheet. Topic: Calculating and Recording Adjustments

60.

The trial balance of Marley Motorcycles shows Merchandise Inventory of $80,000. Based on a count taken on December 31, merchandise inventory at the end of the year actually totaled $92,000. The adjusting entry to place on the books, the new merchandise inventory balance would be:

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 12-01 Determine the adjustment for merchandise inventory; and enter the adjustment on the worksheet. Topic: Calculating and Recording Adjustments

61.

Rose Bush Nursery purchased a delivery truck for $27,000. The truck is expected to have a useful life of 4 years and a residual value of $1,080. If the truck was purchased on June 1, 2016, what is the amount of depreciation expense for the truck for the year ended December 31, 2016?

A. $3,780 B. $1,080 C. $6,480 D. $3,240 ($27,000 - $1,080)/48 months = $540 per month * 7 months = $3,780

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items; and enter the adjustments on the worksheet. Topic: Calculating and Recording Adjustments

62.

Stan Still Stationery Store's employees are paid every Friday for a five day work week and are paid a total of $1,250 per day. If December 31, 2016, is on a Monday, the amount of the adjusting entry for accrued wages is:

A. $1,250 B. $5,000 C. $6,250 D. $3,750 $1,250 * 1 day = $1,250

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items; and enter the adjustments on the worksheet. Topic: Calculating and Recording Adjustments

63.

Millie's Bakery employees earn $450 a week for a five-day work week and are paid every Friday. If December 31 falls on a Wednesday, calculate the amount that is owed and select the adjusting entry needed to record the owed but unpaid salaries as of December 31.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items; and enter the adjustments on the worksheet. Topic: Calculating and Recording Adjustments

64.

On October 1, 2016, a firm accepted a 4-month, 8% note for $12,000 from a customer with an overdue account balance. The accrued interest recorded for this note on December 31, 2016, is

A. $960.00. B. $80.00. C. $240.00. D. No accrual is necessary. $12,000 * .08 = $960; ($960/12) * 3 months = $240

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 12-03 Compute adjustments for accrued and deferred income items; and enter the adjustments on the worksheet. Topic: Calculating and Recording Adjustments

65.

Prepaid Advertising has a debit balance in the Trial Balance section of the worksheet of $1,500 and a credit entry of $500 in the adjustments section of the worksheet, the balance of Prepaid Advertising in the Adjusted Trial Balance section of the worksheet is a

A. $1,000 credit. B. $500 debit. C. $1,000 debit. D. $1,500 debit. $1,500 dr. - $500 cr. = $1,000 dr.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 12-04 Complete a 10-column worksheet. Topic: Completing the Worksheet

66.

Abe & Anna Split Ice Cream Parlour paid $1,800 cash for a 6-month advertising contract on September 30, 2013. The amount of advertising expense reported on the Income Statement for the year ending December 31, 2016, for this advertising contract is

A. $900. B. $300. C. $1,800. D. $1,200. $1,800/6 = $300 per month * 3 months = $900

AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items; and enter the adjustments on the worksheet. Topic: Calculating and Recording Adjustments

Short Answer Questions

67.

Determine the account and amount to be debited and the account and amount to be credited for the following adjustment. The beginning inventory for a merchandising business was $73,000, and the ending inventory is $66,000.

First entry: Debit Income Summary, $73,000; credit Merchandise Inventory, $73,000 Second entry: Debit Merchandise Inventory, $66,000; credit Income Summary, $66,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 12-01 Determine the adjustment for merchandise inventory; and enter the adjustment on the worksheet. Topic: Calculating and Recording Adjustments

68.

Determine the account and amount to be debited and the account and amount to be credited for the following adjustment. The beginning inventory for a merchandising business was $32,000, and the ending inventory is $45,000.

First entry: Debit Income Summary, $32,000; credit Merchandise Inventory, $32,000 Second entry: Debit Merchandise Inventory, $45,000; credit Income Summary, $45,000

69.

Determine the account and amount to be debited and the account and amount to be credited for the following adjustment. During the year, the firm had net credit sales of $490,000. Past experience shows that 1.2 percent of the firm's net credit sales result in uncollectible accounts.

Debit Uncollectible Accounts Expense, $5,880; credit Allowance for Doubtful Accounts, $5,880 Feedback: $490,000 * .012 = $5,880

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply

Difficulty: 2 Medium Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items; and enter the adjustments on the worksheet. Topic: Calculating and Recording Adjustments

70.

Determine the account and amount to be debited and the account and amount to be credited for the following adjustment. During the year, the firm had net credit sales of $980,000. Past experience shows that 1.2 percent of the firm's net credit sales result in uncollectible accounts.

Debit Uncollectible Accounts Expense, $11,760; credit Allowance for Doubtful Accounts, $11,760 Feedback: $980,000 * .012 = $11,760

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items; and enter the adjustments on the worksheet. Topic: Calculating and Recording Adjustments

71.

Determine the account and amount to be debited and the account and amount to be credited for the following adjustment. Equipment purchased for $52,000 on January 3, 2016, has an estimated life of 5 years and an estimated salvage value of $4,500. The firm uses the straight-line method of depreciation. Determine the adjustment for the month ended January 31, 2016.

Debit Depreciation Expense--Equipment, $791.67; credit Accumulated Depreciation-Equipment, $791.67 Feedback: ($52,000 - $4,500)/60 = $791.67

72.

Determine the account and amount to be debited and the account and amount to be credited for the following adjustment. Equipment purchased for $104,000 on January 3, 2016, has an estimated life of 5 years and an estimated salvage value of $9,000. The firm uses the straight-line method of depreciation. Determine the adjustment for the month ended January 31, 2016.

Debit Depreciation Expense--Equipment, $1,583.33; credit Accumulated Depreciation-Equipment, $1,583.33 Feedback: ($104,000 - $9,000)/60 = $1,583.33

73.

Determine the account and amount to be debited and the account and amount to be credited for the following adjustment. On December 31, 2016, the firm owed wages totaling $4,300.

Debit Wages Expense, $4,300; credit Wages Payable, $4,300

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply

Difficulty: 1 Easy Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items; and enter the adjustments on the worksheet. Topic: Calculating and Recording Adjustments

74.

Determine the account and amount to be debited and the account and amount to be credited for the following adjustment. On December 31, 2016, the firm owed wages totaling $3,900.

Debit Wages Expense, $3,900; credit Wages Payable, $3,900

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 1 Easy Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items; and enter the adjustments on the worksheet. Topic: Calculating and Recording Adjustments

75.

Determine the account and amount to be debited and the account and amount to be credited for the following adjustment. On December 31, 2016, the Notes Payable account had a balance of $6,000. This represented a 3-month, 9 percent note issued on December 1, 2016.

Debit Interest Expense, $45; credit Interest Payable, $45 Feedback: $6,000 * .09 = $540; $540/12 = $45

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement 12-82 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items; and enter the adjustments on the worksheet. Topic: Calculating and Recording Adjustments

76.

Determine the account and amount to be debited and the account and amount to be credited for the following adjustment. On December 31, 2016, the Notes Payable account had a balance of $12,000. This represented a 3-month, 9 percent note issued on December 1, 2016.

Debit Interest Expense, $90; credit Interest Payable, $90 Feedback: $12,000 * .09 = $1,080; $1,080/12 = $90

77.

Determine the account and amount to be debited and the account and amount to be credited for the following adjustment. The Supplies account has a balance of $1,300. On December 31, 2016, an inventory of supplies showed that items costing $550 were on hand.

Debit Supplies Expense, $750; credit Supplies, $750 Feedback: $1,300 - $550 = $750

78.

Determine the account and amount to be debited and the account and amount to be credited for the following adjustment. The Supplies account has a balance of $1,400. On December 31, 2016, an inventory of supplies showed that items costing $500 were on hand.

Debit Supplies Expense, $900; credit Supplies, $900 Feedback: $1,400 - $500 = $900

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting

Blooms: Apply Difficulty: 2 Medium Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items; and enter the adjustments on the worksheet. Topic: Calculating and Recording Adjustments

79.

Determine the account and amount to be debited and the account and amount to be credited for the following adjustment. On October 1, 2016, the firm paid a premium of $2,800 in cash for a 1-year insurance policy. On December 31, 2016, coverage for a period of three months had expired.

Debit Insurance Expense, $700; credit Prepaid Insurance, $700 Feedback: ($2,800/12) * 3 = $700

80.

Determine the account and amount to be debited and the account and amount to be credited for the following adjustment. On October 1, 2016, the firm paid a premium of $5,600 in cash for a 1-year insurance policy. On December 31, 2016, coverage for a period of three months had expired.

Debit Insurance Expense, $1,400; credit Prepaid Insurance, $1,400 Feedback: ($5,600/12) * 3 = $1,400

81.

Determine the account and amount to be debited and the account and amount to be credited for the following adjustment. During December, the firm received $6,000 in fees in advance and properly recorded the amount as Unearned Fees. An analysis shows that $2,000 applies to services provided in December.

Debit Unearned Fees, $2,000; credit Fees Earned, $2,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 12-03 Compute adjustments for accrued and deferred income items; and enter the adjustments on 12-86 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

the worksheet. Topic: Calculating and Recording Adjustments

82.

Determine the account and amount to be debited and the account and amount to be credited for the following adjustment. During December, the firm received $12,000 in fees in advance and properly recorded the amount as Unearned Fees. An analysis shows that $4,000 applies to services provided in December.

Debit Unearned Fees, $4,000; credit Fees Earned, $4,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 12-03 Compute adjustments for accrued and deferred income items; and enter the adjustments on the worksheet. Topic: Calculating and Recording Adjustments

83.

On July 31, 2016, after one month of operation, the general ledger of Dakota Consulting contained the following accounts and balances. The firm adjusts losses from uncollectible accounts only at the end of the fiscal year. Monthly adjustments are listed below. Prepare the Trial Balance, Adjustments, and Adjusted Trial Balance sections of a worksheet.

Feedback: A. $650 - $250 = $400 B. $3,000/6 = $500 C. $240/3 = $80 D. ($14,500 - $1,000)/60 = $225 E. ($4,000 * .09)/12 = $30 F. $600 earned

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Blooms: Create Difficulty: 3 Hard Learning Objective: 12-01 Determine the adjustment for merchandise inventory; and enter the adjustment on the 12-92 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

worksheet. Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items; and enter the adjustments on the worksheet. Learning Objective: 12-03 Compute adjustments for accrued and deferred income items; and enter the adjustments on the worksheet. Learning Objective: 12-04 Complete a 10-column worksheet. Topic: Calculating and Recording Adjustments

84.

Design Home Furnishings is a retail store. On December 31, 2016, the firm's general ledger contained the following accounts and balances. Adjustments are shown below. Prepare the Trial Balance section, record the adjustments in the Adjustments section, and complete the worksheet for the year ended December 31, 2016. Round to the nearest whole dollar.

Feedback: A. $40,000 cr. B. $44,000 dr. C. $140,000 * .006 = $840 D. $1,350 - $400 = $950 E. ($1,800/6) * 2 = $600 F. ($8,000 - $1,000)/5 = $1,400 G. $3,000 H. $186 ($3,000 * .062); $44 ($3,000 * .0145)

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Blooms: Create Difficulty: 3 Hard Learning Objective: 12-01 Determine the adjustment for merchandise inventory; and enter the adjustment on the worksheet. Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items; and enter the adjustments on the worksheet. Learning Objective: 12-03 Compute adjustments for accrued and deferred income items; and enter the adjustments on the worksheet. Learning Objective: 12-04 Complete a 10-column worksheet. Topic: Calculating and Recording Adjustments

85.

Complete the table below in accordance with the rules that must be followed to combine amounts in the Adjusted Trial Balance Section of the worksheet. Enter the new balance and whether it is entered as a debit or a credit.

Feedback: $4,500 + $250 = $4,750; $800 - $735 = $65; $3,000 + $830 = $3,830; $1,100 + 280 = $1,380

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting Blooms: Create Difficulty: 2 Medium Learning Objective: 12-04 Complete a 10-column worksheet. Topic: Completing the Worksheet

Matching Questions

86.

Match the accounting terms with the description.

A system of accounting by which all revenues and expenses are matched and reported on financial statements for the 1. Accrual basis

applicable period, regardless of when the cash related to the transaction is received or paid 1 Expense items that relate to the current

2. Net income or Net loss

period but have not yet been paid and do not yet appear in the accounting records 11

3. Updated account balances

Income that has been earned but not yet received and recorded 10

4. Deferred income

Another term for prepaid expenses 8

5. Prepaid expenses 6. Unearned income

Another term for unearned income 4 A form used to list the volume and type of goods a firm has in stock 7 The difference between the debit and credit columns of the Income Statement and the

7. Inventory sheet

debit and credit columns of the Balance Sheet on the worksheet. 2 Expenses that are paid for and recorded

8. Deferred expenses

before they are used, such as rent or insurance 5 Long-term assets that are used in the

9. Property, plant, and equipment

operation of a business and that are subject to depreciation (except for land, which is not depreciated) 9

10. Accrued income

Income received before it is earned 6

11. Accrued expenses

The amounts entered in the Adjusted Trial Balance section of the worksheet 3

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: 2 Medium Learning Objective: 12-01 Determine the adjustment for merchandise inventory; and enter the adjustment on the worksheet. Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items; and enter the adjustments on the worksheet. Learning Objective: 12-03 Compute adjustments for accrued and deferred income items; and enter the adjustments on the worksheet. Learning Objective: 12-04 Complete a 10-column worksheet. Topic: Calculating and Recording Adjustments

Chapter 13 Financial Statements and Closing Procedures

True / False Questions

1. The total of the operating expenses for the period is deducted from the gross profit on sales to determine the net income or net loss from operations.

True

False

2. The balance of the Sales Returns and Allowances account is reported as a selling expense in Operating Expenses section of a multiple-step income statement.

True

False

3. Interest on notes payable would be listed in the Other Income section of a classified income statement.

True

False

4. The statement of owner's equity is prepared before the balance sheet so that the beginning owner's equity balance is available for the balance sheet.

True

False

5. Current assets provide the funds needed to pay bills and meet expenses.

True

False

6. Current assets are usually listed on a balance sheet in order of liquidity.

True

False

7. After all adjusting entries are posted, the balances of the general ledger accounts should match the amounts shown in the Adjusted Trial Balance section of the worksheet.

True

False

8. If the Income Summary account has a credit balance after revenues, and expenses are closed, the firm had a net income for the fiscal period.

True

False

9. When a firm experiences a net loss, the owner's capital is decreased.

True

False

10. At the end of the period, the balance of the Accounts Receivable account is closed to the Income Summary account.

True

False

11. The adjusting entry to record depreciation should be reversed at the start of a new fiscal period to make subsequent financial record keeping easier.

True

False

Fill in the Blank Questions

12. The difference between net sales and the cost of goods sold is called the ____________________ on sales.

________________________________________

13. Cash, items that will normally be converted to cash within one year, and items that will be used up within one year are called ____________________ assets.

________________________________________

14. On a classified balance sheet, Accounts Payable would appear in the ____________________ section.

________________________________________

15. The ____________________ of a building is the portion of the original cost that has not yet been depreciated.

________________________________________

16. Each balance appearing in the ____________________ section of the worksheet is closed into the Income Summary account.

________________________________________

17. After the ____________________ entries are posted, the Sales account will have a zero balance.

________________________________________

18. A gross profit percentage of 45 percent means that for every $1 of net sales, gross profit amounts to ___________________.

________________________________________

19. Each reversing entry is the exact opposite of the related ____________________ entry.

________________________________________

20. An adjusting entry was made for accrued salaries of $600 at the end of 2013. The adjusting entry was then reversed. To record the first payroll of 2014, which totaled $1,500, Salaries Expense should be debited for ___________________.

________________________________________

Multiple Choice Questions

21. Gross profit on sales is calculated by subtracting

A. sales returns and allowances from sales. B. cost of goods sold from net sales. C. ending inventory from the total merchandise available for sale. D. total expenses from sales.

22. An income statement that has one total for all revenues and one total for all expenses is known as a

A. classified income statement. B. multiple-step income statement. C. single-step income statement. D. categorized income statement.

23. Which of the following statements is correct?

A. The term single-step income statement is sometimes used to describe a classified income statement. B. If a business is to earn a net income, the gross profit on sales must be greater than operating expenses. C. Salaries of office employees would be grouped with the selling expenses in the Operating Expenses section of the income statement. D. Sales less Operating Expenses equals Gross Profit.

24. The beginning capital balance shown on a statement of owner's equity is $43,000. Net income for the period is $18,000. The owner withdrew $22,000 cash from the business and made no additional investments during the period. The owner's capital balance at the end of the period is

A. $39,000. B. $47,000. C. $61,000. D. $83,000.

25. The beginning capital balance shown on a statement of owner's equity is $86,000. Net income for the period is $36,000. The owner withdrew $44,000 cash from the business and made no additional investments during the period. The owner's capital balance at the end of the period is

A. $78,000. B. $94,000. C. $122,000. D. $166,000.

26. The beginning capital balance shown on a statement of owner's equity is $100,000. Net income for the period is $50,000. The owner withdrew $25,000 cash from the business and made no additional investments during the period. The owner's capital balance at the end of the period is

A. $175,000. B. $150,000. C. $125,000. D. $100,000.

27. The balance of the owner's drawing account is

A. listed in the Other Expenses section of the income statement. B. listed in the Current Assets section of the balance sheet. C. used in the calculation of ending capital on a statement of owner's equity. D. listed in the Operating Expenses section of the income statement.

28. Which of the following is not a current asset?

A. Accounts Receivable B. Prepaid Insurance C. Merchandise Inventory D. Equipment

29. Prepaid expenses appear in the

A. Operating Expenses section of the income statement. B. Other Expenses section of the income statement. C. Current Assets section of the balance sheet. D. Current Liabilities section of the balance sheet.

30. Which of the following statements is not correct?

A. The gross profit percentage is calculated by dividing the gross profit for the year by the net sales for the year. B. The average inventory is calculated by adding the beginning inventory to the ending inventory and dividing the sum by 2. C. A current ratio of 3.5 to 1 means that a firm has $3.50 in current liabilities for every $1 of current assets. D. Working capital is the difference between total current assets and total current liabilities.

31. On Mar. 1, Brown's Antiques paid $18,000 for 12 months of advance rent on its store and immediately debited an asset account for the full amount. Select the adjusting entry made on December 31, to record the amount of rent that had expired.

32. A total of $8,000 in supplies was purchased during the year. By the end of the year, the company had used up $5,300 of the supplies. The adjusting entry needed at the end of the year is:

33. Use the following account balances from the adjusted trial balance columns of RB Auto's worksheet to answer below question.

Select the closing entry that RB Auto would make at the end of the accounting period to close their revenue accounts and income statement accounts with credit balances.

A. debit Sales and credit Income Summary for $15,000. B. debit Income Summary for $15,000 and credit Sales for $15,000. C. debit Sales and credit R Holloway, Capital for $15,000. D. debit Sales $15,000; debit Purchase Returns and Allowances $200 and credit Income

Summary for $15,200.

34. Use the following account balances from the adjusted trial balance columns of RB Auto's worksheet to answer below question.

Select the correct closing entry that RB Auto would make to close their expense account(s) at the end of the accounting period.

A. debit Salary Expense $4,000; debit Rent Expense $3,000; debit Purchases $2,000 and credit Income Summary $9,000 B. debit Income Summary $9,000 and credit Salary Expense $4,000; credit Rent Expense $3,000; credit Purchases $2,000 C. debit Income Summary $9,000 and credit R. Holloway, Capital for $9,000 D. debit R. Holloway, Capital $9,000 and credit Salary Expense $4,000; credit Rent Expense $3,000; credit Purchases $2,000

35. Use the following account balances from the adjusted trial balance columns of RB Auto's worksheet to answer below question.

Select the correct closing entry that RB Auto would make to close the owner's withdrawal account at the end of the accounting period.

A. debit R. Holloway, Drawing $500 and credit Income Summary for $500. B. debit Income Summary $500 and credit R. Holloway, Drawing for $500. C. debit R. Holloway, Capital $500 and credit R. Holloway, Drawing for $500. D. debit R. Holloway, Drawing $500 credit R. Holloway, Capital for $500.

36. Use the following account balances from the adjusted trial balance columns of Goody

Chocolate's worksheet to answer below question.

Using the adjusted trial balance above, select the correct closing entry that Goody Chocolate would make to close their revenue accounts (and other temporary income statement accounts with credit balances) at the end of the accounting period.

37. Use the following account balances from the adjusted trial balance columns of Goody

Chocolate's worksheet to answer below question.

Using the adjusted trial balance above, select the correct closing entry that Goody Chocolate would make to close the expense accounts (and cost of goods sold accounts with debit balances) at the end of the accounting period.

38. The accountant of Randy's Flooring has closed all of the temporary income statement accounts. The accountant is now ready to close the Income Summary account. Using the

Income Summary T-account below, determine the correct closing entry the accountant needs to make in order to close the account.

39. Which of the following accounts is not closed?

A. Purchases B. Rent Expense C. Sales D. Merchandise Inventory

40. Which of the following accounts is not closed?

A. Accumulated Depreciation B. Depreciation Expense C. Interest Expense D. Sales

41. Which of the following accounts is not closed?

A. Sales B. Accounts Receivable C. Depreciation Expense D. Purchases

42. Which of the following accounts is not closed?

A. Capital B. Depreciation Expense C. Sales D. Purchase Discounts

43. Which of the following groups of accounts will have zero balances after the closing process is completed?

A. Allowance for Doubtful Accounts and Uncollectible Accounts Expense B. Purchases and Purchases Returns and Allowances C. Merchandise Inventory and Sales D. Depreciation Expense and Accumulated Depreciation—Equipment

44. The Income Summary account, for Wise Tools appears below. Based on the data contained in the account, determine which of the statements below is correct.

A. Wise Tools will report a $6,000 net loss for the period ending 12/31 B. Wise Tools will report net income of $6,000 for the period ending 12/31 C. Wise Tools will report net income of $1,000 for the period ending 12/31 D. Wise Tools will report a $1,000 net loss for the period ending 12/31

45. The Income Summary account, for Edgar's Cigars appears below. Based on the data contained in the account, determine which of the statements below is correct.

A. Edgar's Cigars will report a $7,000 net loss for the period ending 12/31 B. Edgar's Cigars will report net income of $7,000 for the period ending 12/31 C. Edgar's Cigars will report net income of $11,000 for the period ending 12/31 D. Edgar's Cigars will report an $11,000 net loss for the period ending 12/31

46. Which of the following accounts will appear on the post-closing trial balance?

A. Miscellaneous Income B. Payroll Taxes Expense C. Medicare Tax Payable D. Sales

47. Which of the following accounts will appear on the post-closing trial balance?

A. Capital B. Depreciation Expense C. Sales D. Payroll Tax Expense

48. Inventory turnover is calculated by

A. adding beginning inventory to ending inventory and dividing by 2. B. dividing average inventory by cost of goods sold. C. dividing cost of goods sold by average inventory. D. dividing average inventory by the ending inventory.

49. The current ratio is calculated by

A. dividing current assets by current liabilities. B. dividing current liabilities by current assets. C. dividing total assets by total current assets. D. dividing current assets by total assets.

50. Which of the following statements is not correct?

A. The worksheet is the source of data for the general journal entries required to close the temporary accounts. B. In the closing process, the balance of the owner's drawing account is transferred to the debit side of the owner's capital account. C. In the closing process, the balance of the Purchases account is transferred to the Merchandise Inventory account. D. Closing the Revenue accounts is the first step in the closing process.

51. A reversing entry should not be made for an adjusting entry to record

A. the accrued salaries. B. an accrued expense item that will involve future cash payments. C. an accrued income item that will involve future cash receipts. D. depreciation.

52. The entry to reverse the adjustment for accrued interest income consists of a debit to

A. Interest Income and a credit to Income Summary. B. Interest Income and a credit to Interest Receivable. C. Interest Income and a credit to Interest Expense. D. Interest Receivable and a credit to Interest Income.

53. In the general journal, reversing entries are dated as of

A. the last day of the old fiscal period. B. the first day of the new fiscal period. C. any day during the month of the new fiscal period. D. any time before the end of the fiscal period.

54. The entry to reverse the adjusting entry for accrued payroll taxes expense includes

A. a debit to Payroll Taxes Expense. B. a debit to Employee Income Tax Payable. C. a credit to Social Security Tax Payable and a credit to Medicare Tax Payable. D. a debit to Social Security Tax Payable and a debit to Medicare Tax Payable.

55. A company reported gross profit of $85,000, total operating expenses of $40,000 and interest income of $2,500. What is the income from operations?

A. $47,500 B. $42,500 C. $40,000 D. $45,000

56. For the current fiscal year, Purchases were $166,000, Purchase Returns and Allowances were $3,000 and Freight In was $12,000. If the beginning merchandise inventory was $110,000 and the ending merchandise inventory was $75,000, the Cost of Goods Sold is:

A. $186,000 B. $116,000 C. $210,000 D. $216,000

57. Which of the following is not a selling expense:

A. Advertising Expense B. Rent Expense C. Sales Salaries Expense D. Delivery Expense

58. Which of the following would not be classified as a Current Asset:

A. Equipment B. Supplies C. Accounts Receivable D. Cash

59. Interest Expense is classified as a(n):

A. Administrative Expense B. Selling Expense C. Other Income D. Other Expense

60. Which of the following is not a section on a Classified Balance Sheet:

A. Current Assets B. Long-Term Liabilities C. Selling Expenses D. Plant and Equipment

61. Which of the following should be classified as a General and Administrative Expense on a Multi-Step Income Statement:

A. Delivery Expense B. Sales Salaries Expense C. Insurance Expense D. Advertising Expense

62. Cost of Goods Sold is classified as a(n):

A. Revenue account B. Asset account C. Expense account D. Owner's Equity account

63. At the end of the year Stan Still Stationery Store had the following balances: Sales $580,000; Sales Discounts $2,540; Sales Returns and Allowances $14,280; Sales Salaries Expense $60,000. The Net Sales for the year are:

A. $565,720 B. $577,460 C. $563,180 D. $503,180

64. For the current fiscal year, Purchases were $245,000, Purchase Returns and Allowances were $8,600, Purchase Discounts were $2,200 and Freight In was $32,000. If the beginning merchandise inventory was $60,000 and the ending merchandise inventory was $75,000, the Cost of Goods Sold is:

A. $266,200 B. $281,200 C. $272,800 D. $251,200

Short Answer Questions

65. A classified income statement showed net sales of $435,000, cost of goods sold of $188,000, and total operating expenses of $165,000 for the fiscal year ended June 30, 2016. 1. What was the gross profit on sales? 2. What was the net income from operations?

66. A classified income statement showed net sales of $870,000, cost of goods sold of $376,000, and total operating expenses of $330,000 for the fiscal year ended December 31, 2016. 1. What was the gross profit on sales? 2. What was the net income from operations?

67. A firm had merchandise inventory of $30,000 on January 1, 2016, and had purchases of $45,000, freight in of $600, purchases returns and allowances of $2,300, and purchases discounts of $1,000 during 2016. The firm had merchandise inventory of $27,000 on December 31, 2016. 1. What net delivered cost of purchases was shown for the year ended December 31, 2016, on the classified income statement? 2. What was the cost of goods sold?

68. A firm had merchandise inventory of $60,000 on January 1, 2016, and had purchases of $90,000, freight in of $1,200, purchases returns and allowances of $4,600, and purchases discounts of $2,000 during 2016. The firm had merchandise inventory of $54,000 on December 31, 2016. 1. What net delivered cost of purchases was shown for the year ended December 31, 2016, on the classified income statement? 2. What was the cost of goods sold?

69. The adjusted trial balance data given below is from the Morgan Company's worksheet for the year ended December 31, 2016. Prepare a classified income statement for the year ended December 31, 2016. The expense accounts numbered 611-615 represent selling expenses, and those numbered 621-631 represent general and administrative expenses.

70. The adjusted trial balance data given below is from the Hampton Company's worksheet for the year ended December 31, 2016. The firm had net income of $38,000 for the year. Prepare a statement of owner's equity for the year. No additional investments were made during the period.

71. The adjusted trial balance data given below is from the Bennett Company's worksheet for the year ended December 31, 2016. The firm had net income of $100,000 for the year. Prepare a statement of owner's equity for the year. No additional investments were made during the period.

72. The adjusted trial balance data given below is from the Saugatuck Craft's worksheet for the year ended December 31, 2016. The firm had a net loss of $30,000 for the year. Prepare a statement of owner's equity for the year. No additional investments were made during the period.

73. The owner of a firm had capital of $85,000 on January 1, 2016, and made withdrawals of $33,000 during 2016. The business earned a net income of $45,000 for the year. 1. What amount of capital was shown as of December 31, 2016, on the statement of owner's equity? 2. How much was the increase or decrease in capital for the year?

74. The owner of a firm had capital of $170,000 on January 1, 2016, and made withdrawals of $66,000 during 2016. The business earned a net income of $90,000 for the year. 1. What amount of capital was shown as of December 31, 2016, on the statement of owner's equity? 2. How much was the increase or decrease in capital for the year?

75. The adjusted trial balance data given below is from Cameron White Company's worksheet for the year ended December 31, 2016. The balance of the Notes Payable account consists of notes that are due within a year. The mortgage extends for more than a year. Prepare a classified balance sheet as of December 31, 2016. The ending capital for the period from the statement of owner's equity is $56,150.

76. Brianna Graham is the owner of a dress shop. The firm had a net loss of $9,000 for the year. What accounts are debited and credited to transfer the net loss to the owner's capital account during the closing process?

77. Teresa Davis is the owner of a convenience shop. The firm had a net income of $4,500 for the year. What accounts are debited and credited to transfer the net loss to the owner's capital account during the closing process?

78. Allyse Petry is the owner of a boutique. During the year she made withdrawals of cash totaling $25,000. What accounts are debited and credited to close the owner's drawing account?

79. Jeannine Coulson is the owner of a book store. During the year she made withdrawals of cash totaling $9,000. What accounts are debited and credited to close the owner's drawing account?

80. On December 31, 2016, the Income Statement section of the worksheet is shown below. The balance of Ally Logan's drawing account is $16,000. Record the necessary closing entries on page 9 of a general journal.

81. The data below concerns adjustments to be made at the Conner Company. Record the adjusting entries on page 12 of a general journal as of December 31, 2016. On the same page of the general journal, record the reversing entries as of January 1, 2017. Include descriptions. Adjustment data: (a) On October 1, 2016, the firm paid rent of $6,000 in advance for a 6-month period. (b) A total of $5,000 should be recorded as depreciation of equipment for 2016. (c) On December 31, 2016, the firm owed salaries of $4,000 that will not be paid until January 2017. (d) On December 31, 2016, the firm owed the employer's social security (6.2%) and Medicare (1.45%) taxes on all of the accrued salaries.

82. The data below concerns adjustments to be made at the Tyson Company. Record the adjusting entries on page 12 of a general journal as of December 31, 2016. On the same page of the general journal, record the reversing entries as of January 1, 2017. Include descriptions. Adjustment data: (a) On October 1, 2016, the firm paid rent of $18,000 in advance for a 6-month period. (b) A total of $15,000 should be recorded as depreciation of equipment for 2016. (c) On December 31, 2016, the firm owed salaries of $12,000 that will not be paid until January 2017. (d) On December 31, 2016, the firm owed the employer's social security (6.2%) and Medicare (1.45%) taxes on all of the accrued salaries.

Matching Questions

83. Match the accounting terms with the description.

A format by which revenues and expenses on the income statement, and assets and liabilities on the balance sheet, are divided 1. Gross profit percentage

into groups of similar accounts and a subtotal is given for each group ____ Assets consisting of cash, items that normally will be converted into cash within

2. Long-term liabilities

one year, or items that will be used up within one year ____

3. Current assets

Debts that must be paid within one year ____

4. Classified

A relationship between current assets and

financial statement

current liabilities that provides a measure of a firm's ability to pay its current debts ____

5. Single-step income statement

The difference between net sales and the cost of goods sold ____ The amount of gross profit from each

6. Gross profit

dollar of sales ____ The number of times inventory is

7. Current liabilities

purchased and sold during the accounting period ____ The ease with which an item can be

8. Current ratio

converted into cash ____

9. Multiple-step income statement

Debts of a business that are due more than one year in the future ____ A type of income statement on which several subtotals are computed before the net

10. Liquidity

income is calculated ____

11. Reversing

Property that will be used in the business

entries

for longer than one year ____ Journal entries made to reverse the effect of certain adjusting entries involving accrued income or accrued expenses to avoid

12. Plant and equipment

problems in recording future payments or receipts of cash in a new accounting period ____ A type of income statement where only one computation is needed to determine the

13. Inventory

net income (total revenue - total expenses =

turnover

net income) ____

Short Answer Questions

84. A. Check all of the following accounts that would be classified as a current asset.

B. Check all of the following accounts that would be classified as a current liability.

85. Write the word "YES" in the empty column if an account would be closed at the end of the accounting period.

Chapter 13 Financial Statements and Closing Procedures Answer Key

True / False Questions

The total of the operating expenses for the period is deducted from the gross profit on sales to determine the net income or net loss from operations.

TRUE

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 13-01 Prepare a classified income statement from the worksheet. Topic: Preparing the Financial Statements

The balance of the Sales Returns and Allowances account is reported as a selling expense in Operating Expenses section of a multiple-step income statement.

FALSE

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 13-01 Prepare a classified income statement from the worksheet. Topic: Preparing the Financial Statements

Interest on notes payable would be listed in the Other Income section of a classified income statement.

FALSE

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 13-01 Prepare a classified income statement from the worksheet. Topic: Preparing the Financial Statements

The statement of owner's equity is prepared before the balance sheet so that the beginning owner's equity balance is available for the balance sheet.

FALSE

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 13-02 Prepare a statement of owner's equity from the worksheet. Topic: Preparing the Financial Statements

Current assets provide the funds needed to pay bills and meet expenses.

TRUE

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 13-03 Prepare a classified balance sheet from the worksheet. Topic: Preparing the Financial Statements

Current assets are usually listed on a balance sheet in order of liquidity.

TRUE

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 13-03 Prepare a classified balance sheet from the worksheet. Topic: Preparing the Financial Statements

After all adjusting entries are posted, the balances of the general ledger accounts should match the amounts shown in the Adjusted Trial Balance section of the worksheet.

TRUE

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 13-04 Journalize and post the adjusting entries. Topic: Completing the Accounting Cycle

If the Income Summary account has a credit balance after revenues, and expenses are closed, the firm had a net income for the fiscal period.

TRUE

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 13-05 Journalize and post the closing entries. Topic: Completing the Accounting Cycle

When a firm experiences a net loss, the owner's capital is decreased.

TRUE

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 13-05 Journalize and post the closing entries. Topic: Completing the Accounting Cycle

10.

At the end of the period, the balance of the Accounts Receivable account is closed to the Income Summary account.

FALSE

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 13-05 Journalize and post the closing entries. Topic: Completing the Accounting Cycle

11.

The adjusting entry to record depreciation should be reversed at the start of a new fiscal period to make subsequent financial record keeping easier.

FALSE

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 13-07 Journalize and post reversing entries. Topic: Completing the Accounting Cycle

Fill in the Blank Questions

12.

The difference between net sales and the cost of goods sold is called the ____________________ on sales.

gross profit

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 13-01 Prepare a classified income statement from the worksheet.

Learning Objective: 13-08 Define the accounting terms new to this chapter. Topic: Preparing the Financial Statements

13.

Cash, items that will normally be converted to cash within one year, and items that will be used up within one year are called ____________________ assets.

current

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 13-03 Prepare a classified balance sheet from the worksheet. Topic: Preparing the Financial Statements

14.

On a classified balance sheet, Accounts Payable would appear in the ____________________ section.

current liabilities

15.

The ____________________ of a building is the portion of the original cost that has not yet been depreciated.

book value

AACSB: Analytic AICPA BB: Industry

AICPA FN: Measurement AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 13-03 Prepare a classified balance sheet from the worksheet. Topic: Preparing the Financial Statements

16.

Each balance appearing in the ____________________ section of the worksheet is closed into the Income Summary account.

Income Statement

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 13-05 Journalize and post the closing entries. Topic: Completing the Accounting Cycle

17.

After the ____________________ entries are posted, the Sales account will have a zero balance.

closing

18.

A gross profit percentage of 45 percent means that for every $1 of net sales, gross profit amounts to ___________________.

$0.45 $1.00 * 45% = $0.45

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 1 Easy Learning Objective: 13-06 Prepare a postclosing trial balance. Topic: Completing the Accounting Cycle

19.

Each reversing entry is the exact opposite of the related ____________________ entry.

adjusting

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 13-07 Journalize and post reversing entries. Topic: Completing the Accounting Cycle

20.

An adjusting entry was made for accrued salaries of $600 at the end of 2013. The adjusting entry was then reversed. To record the first payroll of 2014, which totaled $1,500, Salaries Expense should be debited for ___________________.

$1,500

AACSB: Analytic

AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 13-07 Journalize and post reversing entries. Topic: Completing the Accounting Cycle

Multiple Choice Questions

21.

Gross profit on sales is calculated by subtracting

A. sales returns and allowances from sales. B. cost of goods sold from net sales. C. ending inventory from the total merchandise available for sale. D. total expenses from sales.

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 13-01 Prepare a classified income statement from the worksheet. Topic: Preparing the Financial Statements

22.

An income statement that has one total for all revenues and one total for all expenses is known as a

A. classified income statement. B. multiple-step income statement. C. single-step income statement. D. categorized income statement.

23.

Which of the following statements is correct?

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand 13-50 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Difficulty: 2 Medium Learning Objective: 13-01 Prepare a classified income statement from the worksheet. Topic: Preparing the Financial Statements

24.

The beginning capital balance shown on a statement of owner's equity is $43,000. Net income for the period is $18,000. The owner withdrew $22,000 cash from the business and made no additional investments during the period. The owner's capital balance at the end of the period is

A. $39,000. B. $47,000. C. $61,000. D. $83,000. $43,000 + $18,000 - $22,000 = $39,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 1 Easy Learning Objective: 13-02 Prepare a statement of owner's equity from the worksheet. Topic: Preparing the Financial Statements

25.

The beginning capital balance shown on a statement of owner's equity is $86,000. Net income for the period is $36,000. The owner withdrew $44,000 cash from the business and made no additional investments during the period. The owner's capital balance at the end of the period is

A. $78,000. B. $94,000. C. $122,000. D. $166,000. $86,000 + $36,000 - $44,000 = $78,000

26.

The beginning capital balance shown on a statement of owner's equity is $100,000. Net income for the period is $50,000. The owner withdrew $25,000 cash from the business and made no additional investments during the period. The owner's capital balance at the end of the period is

A. $175,000. B. $150,000. C. $125,000. D. $100,000. $100,000 + $50,000 - $25,000 = $125,000

27.

The balance of the owner's drawing account is

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 13-02 Prepare a statement of owner's equity from the worksheet. Topic: Preparing the Financial Statements

28.

Which of the following is not a current asset?

A. Accounts Receivable B. Prepaid Insurance C. Merchandise Inventory D. Equipment

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 13-03 Prepare a classified balance sheet from the worksheet. Topic: Preparing the Financial Statements

29.

Prepaid expenses appear in the

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation 13-54 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Blooms: Remember Difficulty: 1 Easy Learning Objective: 13-03 Prepare a classified balance sheet from the worksheet. Topic: Preparing the Financial Statements

30.

Which of the following statements is not correct?

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Decision Making AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 2 Medium Learning Objective: 13-06 Prepare a postclosing trial balance. Topic: Completing the Accounting Cycle

31.

On Mar. 1, Brown's Antiques paid $18,000 for 12 months of advance rent on its store and immediately debited an asset account for the full amount. Select the adjusting entry made on December 31, to record the amount of rent that had expired.

$18,000/12 months = $1,500; ($1,500 * 10 months = $15,000)

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Analyze Difficulty: 2 Medium Learning Objective: 13-04 Journalize and post the adjusting entries. Topic: Completing the Accounting Cycle

32.

A total of $8,000 in supplies was purchased during the year. By the end of the year, the company had used up $5,300 of the supplies. The adjusting entry needed at the end of the year is:

Since the problem stated that $5,300 had been used up that is the amount that needs to be credited from the supplies account and recognized as an expense.

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 13-04 Journalize and post the adjusting entries. Topic: Completing the Accounting Cycle

33.

Use the following account balances from the adjusted trial balance columns of RB Auto's worksheet to answer below question.

Select the closing entry that RB Auto would make at the end of the accounting period to close their revenue accounts and income statement accounts with credit balances.

Summary for $15,200. AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Analyze Difficulty: 2 Medium Learning Objective: 13-05 Journalize and post the closing entries. Topic: Completing the Accounting Cycle

34.

Use the following account balances from the adjusted trial balance columns of RB Auto's worksheet to answer below question.

Select the correct closing entry that RB Auto would make to close their expense account(s) at the end of the accounting period.

Expense $3,000; credit Purchases $2,000 AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Analyze Difficulty: 2 Medium Learning Objective: 13-05 Journalize and post the closing entries. Topic: Completing the Accounting Cycle

35.

Use the following account balances from the adjusted trial balance columns of RB Auto's worksheet to answer below question.

Select the correct closing entry that RB Auto would make to close the owner's withdrawal account at the end of the accounting period.

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Analyze Difficulty: 2 Medium Learning Objective: 13-05 Journalize and post the closing entries. Topic: Completing the Accounting Cycle

36.

Use the following account balances from the adjusted trial balance columns of Goody

Chocolate's worksheet to answer below question.

Using the adjusted trial balance above, select the correct closing entry that Goody

Chocolate would make to close their revenue accounts (and other temporary income statement accounts with credit balances) at the end of the accounting period.

37.

Use the following account balances from the adjusted trial balance columns of Goody

Chocolate's worksheet to answer below question.

Using the adjusted trial balance above, select the correct closing entry that Goody

Chocolate would make to close the expense accounts (and cost of goods sold accounts with debit balances) at the end of the accounting period.

38.

The accountant of Randy's Flooring has closed all of the temporary income statement accounts. The accountant is now ready to close the Income Summary account. Using the

Income Summary T-account below, determine the correct closing entry the accountant needs to make in order to close the account.

Credit balance of $90,000 - debit balance of $44,000 = $46,000 credit balance. To close the account, a debit of $46,000 is needed to close Income Summary.

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Analyze Difficulty: 2 Medium 13-65 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Learning Objective: 13-05 Journalize and post the closing entries. Topic: Completing the Accounting Cycle

39.

Which of the following accounts is not closed?

A. Purchases B. Rent Expense C. Sales D. Merchandise Inventory

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 13-05 Journalize and post the closing entries. Topic: Completing the Accounting Cycle

40.

Which of the following accounts is not closed?

A. Accumulated Depreciation B. Depreciation Expense C. Interest Expense D. Sales

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 13-05 Journalize and post the closing entries. Topic: Completing the Accounting Cycle 13-66 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

41.

Which of the following accounts is not closed?

A. Sales B. Accounts Receivable C. Depreciation Expense D. Purchases

42.

Which of the following accounts is not closed?

A. Capital B. Depreciation Expense C. Sales D. Purchase Discounts

43.

Which of the following groups of accounts will have zero balances after the closing process is completed?

44.

The Income Summary account, for Wise Tools appears below. Based on the data contained in the account, determine which of the statements below is correct.

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement

AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 13-05 Journalize and post the closing entries. Topic: Completing the Accounting Cycle

45.

The Income Summary account, for Edgar's Cigars appears below. Based on the data contained in the account, determine which of the statements below is correct.

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 13-05 Journalize and post the closing entries. Topic: Completing the Accounting Cycle

46.

Which of the following accounts will appear on the post-closing trial balance?

A. Miscellaneous Income B. Payroll Taxes Expense C. Medicare Tax Payable D. Sales

47.

Which of the following accounts will appear on the post-closing trial balance?

A. Capital B. Depreciation Expense C. Sales D. Payroll Tax Expense

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 13-06 Prepare a postclosing trial balance. Topic: Completing the Accounting Cycle

48.

Inventory turnover is calculated by

49.

The current ratio is calculated by

A. dividing current assets by current liabilities. B. dividing current liabilities by current assets. C. dividing total assets by total current assets. D. dividing current assets by total assets.

50.

Which of the following statements is not correct?

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 2 Medium Learning Objective: 13-05 Journalize and post the closing entries. Topic: Completing the Accounting Cycle

51.

A reversing entry should not be made for an adjusting entry to record

A. the accrued salaries. B. an accrued expense item that will involve future cash payments. C. an accrued income item that will involve future cash receipts. D. depreciation.

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium 13-72 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Learning Objective: 13-07 Journalize and post reversing entries. Topic: Completing the Accounting Cycle

52.

The entry to reverse the adjustment for accrued interest income consists of a debit to

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 13-07 Journalize and post reversing entries. Topic: Completing the Accounting Cycle

53.

In the general journal, reversing entries are dated as of

A. the last day of the old fiscal period. B. the first day of the new fiscal period. C. any day during the month of the new fiscal period. D. any time before the end of the fiscal period.

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 13-07 Journalize and post reversing entries. Topic: Completing the Accounting Cycle 13-73 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

54.

The entry to reverse the adjusting entry for accrued payroll taxes expense includes

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 13-07 Journalize and post reversing entries. Topic: Completing the Accounting Cycle

55.

A company reported gross profit of $85,000, total operating expenses of $40,000 and interest income of $2,500. What is the income from operations?

A. $47,500 B. $42,500 C. $40,000 D. $45,000 $85,000 - $40,000 = $45,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation

Blooms: Apply Difficulty: 2 Medium Learning Objective: 13-01 Prepare a classified income statement from the worksheet. Topic: Preparing the Financial Statements

56.

For the current fiscal year, Purchases were $166,000, Purchase Returns and Allowances were $3,000 and Freight In was $12,000. If the beginning merchandise inventory was $110,000 and the ending merchandise inventory was $75,000, the Cost of Goods Sold is:

A. $186,000 B. $116,000 C. $210,000 D. $216,000 $110,000 + ($166,000 + $12,000 - $3,000) - $75,000 = $210,000

57.

Which of the following is not a selling expense:

A. Advertising Expense B. Rent Expense C. Sales Salaries Expense D. Delivery Expense

58.

Which of the following would not be classified as a Current Asset:

A. Equipment B. Supplies C. Accounts Receivable D. Cash

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 13-03 Prepare a classified balance sheet from the worksheet. Topic: Preparing the Financial Statements

59.

Interest Expense is classified as a(n):

A. Administrative Expense B. Selling Expense C. Other Income D. Other Expense

60.

Which of the following is not a section on a Classified Balance Sheet:

A. Current Assets B. Long-Term Liabilities C. Selling Expenses D. Plant and Equipment

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 13-03 Prepare a classified balance sheet from the worksheet. Topic: Preparing the Financial Statements

61.

Which of the following should be classified as a General and Administrative Expense on a Multi-Step Income Statement:

A. Delivery Expense B. Sales Salaries Expense C. Insurance Expense D. Advertising Expense

62.

Cost of Goods Sold is classified as a(n):

A. Revenue account B. Asset account C. Expense account D. Owner's Equity account

63.

At the end of the year Stan Still Stationery Store had the following balances: Sales $580,000; Sales Discounts $2,540; Sales Returns and Allowances $14,280; Sales Salaries Expense $60,000. The Net Sales for the year are:

A. $565,720 B. $577,460 C. $563,180 D. $503,180 $580,000 - $2,540 - $14,280 = $563,180

64.

For the current fiscal year, Purchases were $245,000, Purchase Returns and Allowances were $8,600, Purchase Discounts were $2,200 and Freight In was $32,000. If the beginning merchandise inventory was $60,000 and the ending merchandise inventory was $75,000, the Cost of Goods Sold is:

A. $266,200 B. $281,200 C. $272,800 D. $251,200 $60,000 + ($245,000 + $32,000 - $8,600 - $2,200) - $75,000 = $251,200

Short Answer Questions

65.

A classified income statement showed net sales of $435,000, cost of goods sold of $188,000, and total operating expenses of $165,000 for the fiscal year ended June 30, 2016. 1. What was the gross profit on sales? 2. What was the net income from operations?

1. $247,000; 2. $82,000 Feedback: 1. $435,000 - $188,000 = $247,000 2. $247,000 - $165,000 = $82,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Decision Making AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 13-01 Prepare a classified income statement from the worksheet. Topic: Preparing the Financial Statements

66.

A classified income statement showed net sales of $870,000, cost of goods sold of $376,000, and total operating expenses of $330,000 for the fiscal year ended December 31, 2016. 1. What was the gross profit on sales? 2. What was the net income from operations?

1. $494,000; 2. $164,000 Feedback: 1. $870,000 - $376,000 = $494,000 2. $494,000 - $330,000 = $164,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 13-01 Prepare a classified income statement from the worksheet. Topic: Preparing the Financial Statements

67.

A firm had merchandise inventory of $30,000 on January 1, 2016, and had purchases of $45,000, freight in of $600, purchases returns and allowances of $2,300, and purchases discounts of $1,000 during 2016. The firm had merchandise inventory of $27,000 on December 31, 2016. 1. What net delivered cost of purchases was shown for the year ended December 31, 2016, on the classified income statement? 2. What was the cost of goods sold?

1. $42,300; 2. $45,300 Feedback: 1. $45,000 + $600 - $2,300 - $1,000 = $42,300 2. $30,000 + $42,300 - $27,000 = $45,300

68.

A firm had merchandise inventory of $60,000 on January 1, 2016, and had purchases of $90,000, freight in of $1,200, purchases returns and allowances of $4,600, and purchases discounts of $2,000 during 2016. The firm had merchandise inventory of $54,000 on December 31, 2016. 1. What net delivered cost of purchases was shown for the year ended December 31, 2016, on the classified income statement? 2. What was the cost of goods sold?

1. $84,600; 2. $90,600 Feedback: 1. $90,000 + $1,200 - $4,600 - $2,000 = $84,600 2. $60,000 + $86,600 - $54,000 = $90,600

69.

The adjusted trial balance data given below is from the Morgan Company's worksheet for the year ended December 31, 2016. Prepare a classified income statement for the year ended December 31, 2016. The expense accounts numbered 611-615 represent selling expenses, and those numbered 621-631 represent general and administrative expenses.

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Decision Making

AICPA FN: Measurement AICPA FN: Reporting Blooms: Create Difficulty: 3 Hard Learning Objective: 13-01 Prepare a classified income statement from the worksheet. Topic: Preparing the Financial Statements

70.

The adjusted trial balance data given below is from the Hampton Company's worksheet for the year ended December 31, 2016. The firm had net income of $38,000 for the year. Prepare a statement of owner's equity for the year. No additional investments were made during the period.

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Decision Making AICPA FN: Measurement AICPA FN: Reporting Blooms: Create Difficulty: 2 Medium Learning Objective: 13-02 Prepare a statement of owner's equity from the worksheet. Topic: Preparing the Financial Statements

71.

The adjusted trial balance data given below is from the Bennett Company's worksheet for the year ended December 31, 2016. The firm had net income of $100,000 for the year. Prepare a statement of owner's equity for the year. No additional investments were made during the period.

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Decision Making AICPA FN: Measurement AICPA FN: Reporting Blooms: Create Difficulty: 2 Medium Learning Objective: 13-02 Prepare a statement of owner's equity from the worksheet. Topic: Preparing the Financial Statements

72.

The adjusted trial balance data given below is from the Saugatuck Craft's worksheet for the year ended December 31, 2016. The firm had a net loss of $30,000 for the year. Prepare a statement of owner's equity for the year. No additional investments were made during the period.

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Decision Making AICPA FN: Measurement AICPA FN: Reporting Blooms: Create Difficulty: 3 Hard Learning Objective: 13-02 Prepare a statement of owner's equity from the worksheet. Topic: Preparing the Financial Statements

73.

The owner of a firm had capital of $85,000 on January 1, 2016, and made withdrawals of $33,000 during 2016. The business earned a net income of $45,000 for the year. 1. What amount of capital was shown as of December 31, 2016, on the statement of owner's equity? 2. How much was the increase or decrease in capital for the year?

1. $97,000; 2. $12,000 increase Feedback: 1. $85,000 + $45,000 - $33,000 = $97,000 2. $45,000 - $33,000 = $12,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Create Difficulty: 2 Medium Learning Objective: 13-02 Prepare a statement of owner's equity from the worksheet. Topic: Preparing the Financial Statements

74.

The owner of a firm had capital of $170,000 on January 1, 2016, and made withdrawals of $66,000 during 2016. The business earned a net income of $90,000 for the year. 1. What amount of capital was shown as of December 31, 2016, on the statement of owner's equity? 2. How much was the increase or decrease in capital for the year?

1. $194,000; 2. $24,000 increase Feedback: 1. $170,000 + $90,000 - $66,000 = $194,000 2. $90,000 - $66,000 = $24,000

75.

The adjusted trial balance data given below is from Cameron White Company's worksheet for the year ended December 31, 2016. The balance of the Notes Payable account consists of notes that are due within a year. The mortgage extends for more than a year. Prepare a classified balance sheet as of December 31, 2016. The ending capital for the period from the statement of owner's equity is $56,150.

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Decision Making AICPA FN: Measurement AICPA FN: Reporting Blooms: Create Difficulty: 3 Hard

Learning Objective: 13-03 Prepare a classified balance sheet from the worksheet. Topic: Preparing the Financial Statements

76.

Brianna Graham is the owner of a dress shop. The firm had a net loss of $9,000 for the year. What accounts are debited and credited to transfer the net loss to the owner's capital account during the closing process?

Debit Brianna Graham, Capital; credit Income Summary

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 13-05 Journalize and post the closing entries. Topic: Completing the Accounting Cycle

77.

Teresa Davis is the owner of a convenience shop. The firm had a net income of $4,500 for the year. What accounts are debited and credited to transfer the net loss to the owner's capital account during the closing process?

Debit Income Summary; credit Teresa Davis, Capital

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Blooms: Apply Difficulty: 2 Medium Learning Objective: 13-05 Journalize and post the closing entries. Topic: Completing the Accounting Cycle

78.

Allyse Petry is the owner of a boutique. During the year she made withdrawals of cash totaling $25,000. What accounts are debited and credited to close the owner's drawing account?

Debit Allyse Petry, Capital; credit Allyse Petry, Drawing

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Blooms: Apply Difficulty: 1 Easy Learning Objective: 13-05 Journalize and post the closing entries. Topic: Completing the Accounting Cycle

79.

Jeannine Coulson is the owner of a book store. During the year she made withdrawals of cash totaling $9,000. What accounts are debited and credited to close the owner's drawing account?

Debit Jeannine Coulson, Capital; credit Jeannine Coulson, Drawing

AACSB: Analytic AICPA BB: Industry AICPA FN: Reporting Blooms: Apply Difficulty: 1 Easy Learning Objective: 13-05 Journalize and post the closing entries. Topic: Completing the Accounting Cycle

80.

On December 31, 2016, the Income Statement section of the worksheet is shown below. The balance of Ally Logan's drawing account is $16,000. Record the necessary closing entries on page 9 of a general journal.

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Blooms: Create Difficulty: 3 Hard Learning Objective: 13-05 Journalize and post the closing entries. Topic: Completing the Accounting Cycle

81.

The data below concerns adjustments to be made at the Conner Company. Record the adjusting entries on page 12 of a general journal as of December 31, 2016. On the same page of the general journal, record the reversing entries as of January 1, 2017. Include descriptions. Adjustment data: (a) On October 1, 2016, the firm paid rent of $6,000 in advance for a 6-month period. (b) A total of $5,000 should be recorded as depreciation of equipment for 2016. (c) On December 31, 2016, the firm owed salaries of $4,000 that will not be paid until January 2017. (d) On December 31, 2016, the firm owed the employer's social security (6.2%) and Medicare (1.45%) taxes on all of the accrued salaries.

Feedback: A. ($6,000/6) * 3 = $3,000; B. $5,000; C. $4,000; D. $4,000 * .062 = $248; $4,000 * .0145 = $58

AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Decision Making AICPA FN: Measurement AICPA FN: Reporting Blooms: Create Difficulty: 3 Hard Learning Objective: 13-04 Journalize and post the adjusting entries. Learning Objective: 13-07 Journalize and post reversing entries. Topic: Completing the Accounting Cycle

82.

The data below concerns adjustments to be made at the Tyson Company. Record the adjusting entries on page 12 of a general journal as of December 31, 2016. On the same page of the general journal, record the reversing entries as of January 1, 2017. Include descriptions. Adjustment data: (a) On October 1, 2016, the firm paid rent of $18,000 in advance for a 6-month period. (b) A total of $15,000 should be recorded as depreciation of equipment for 2016. (c) On December 31, 2016, the firm owed salaries of $12,000 that will not be paid until January 2017. (d) On December 31, 2016, the firm owed the employer's social security (6.2%) and Medicare (1.45%) taxes on all of the accrued salaries.

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Decision Making

AICPA FN: Measurement AICPA FN: Reporting Blooms: Create Difficulty: 3 Hard Learning Objective: 13-04 Journalize and post the adjusting entries. Learning Objective: 13-07 Journalize and post reversing entries. Topic: Completing the Accounting Cycle

Matching Questions

83.

Match the accounting terms with the description.

A format by which revenues and expenses on the income statement, and assets and liabilities on the balance sheet, are divided 1. Gross profit percentage

into groups of similar accounts and a subtotal is given for each group 4 Assets consisting of cash, items that normally will be converted into cash within

2. Long-term liabilities

one year, or items that will be used up within one year 3

3. Current assets

Debts that must be paid within one year 7

4. Classified

A relationship between current assets and

financial statement

current liabilities that provides a measure of a firm's ability to pay its current debts 8

5. Single-step income statement

The difference between net sales and the cost of goods sold 6 The amount of gross profit from each

6. Gross profit

dollar of sales 1 The number of times inventory is

7. Current liabilities

purchased and sold during the accounting period 13 The ease with which an item can be

8. Current ratio

converted into cash 10

9. Multiple-step income statement

Debts of a business that are due more than one year in the future 2 A type of income statement on which several subtotals are computed before the

10. Liquidity

net income is calculated 9

11. Reversing

Property that will be used in the business

entries

for longer than one year 12 Journal entries made to reverse the effect of certain adjusting entries involving accrued income or accrued expenses to avoid

12. Plant and

problems in recording future payments or

equipment

receipts of cash in a new accounting period 11 A type of income statement where only one computation is needed to determine the

13. Inventory

net income (total revenue - total expenses =

turnover

net income) 5

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Decision Making AICPA FN: Reporting Blooms: Remember Difficulty: 2 Medium Learning Objective: 13-01 Prepare a classified income statement from the worksheet. Learning Objective: 13-02 Prepare a statement of owner's equity from the worksheet. Learning Objective: 13-03 Prepare a classified balance sheet from the worksheet. Learning Objective: 13-04 Journalize and post the adjusting entries. Learning Objective: 13-05 Journalize and post the closing entries. Learning Objective: 13-06 Prepare a postclosing trial balance. Learning Objective: 13-07 Journalize and post reversing entries. Learning Objective: 13-08 Define the accounting terms new to this chapter. Topic: Account Classifications Topic: Preparing the Financial Statements

Short Answer Questions

84.

A. Check all of the following accounts that would be classified as a current asset.

B. Check all of the following accounts that would be classified as a current liability.

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Decision Making AICPA FN: Reporting Blooms: Analyze Difficulty: 2 Medium Learning Objective: 13-03 Prepare a classified balance sheet from the worksheet. Topic: Preparing the Financial Statements

85.

Write the word "YES" in the empty column if an account would be closed at the end of the accounting period.

AACSB: Analytic AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Decision Making AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 13-05 Journalize and post the closing entries. Topic: Completing the Accounting Cycle