TEST BANK for College Accounting: A Practical Approach, 15th edition 2023. by Jeffrey Slater and Mik by StudyGuide

College Accounting, 15e (Slater) Chapter 1 Accounting Concepts and Procedures Learning Objective 1-1 1) The type of business organization where the owners are NOT personally liable for the business’s debts is a: A) corporation B) partnership C) sole proprietorship D) All of the above Answer: A Diff: 2 LO: 1-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 2) The purpose of the accounting process is to provide financial information about: A) sole proprietorships B) small businesses C) large corporations D) All of these answers are correct Answer: D Diff: 1 LO: 1-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 3) Accounting provides information to: A) investors B) government C) managers D) All of these answers are correct Answer: D Diff: 2 LO: 1-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

4) Which of the following is a characteristic of a sole proprietorship? A) Business owned by more than one person. B) Easy to form. C) Each stockholder acts as an owner of the company. D) Can continue indefinitely. Answer: B Diff: 1 LO: 1-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 5) A partnership is a business which: A) is easy to form B) ends with the death of a partner C) is owned by more than one person D) All of these answers are correct Answer: D Diff: 1 LO: 1-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 6) Which is an advantage of a sole proprietorship form of business? A) There is limited personal risk. B) The business can continue indefinitely. C) The owner makes all the decisions. D) The business is owned by stockholders. Answer: C Diff: 1 LO: 1-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 7) Which of the following is NOT a type of business organization? A) Corporation B) Partnership C) Sole proprietorship D) Limited Asset Corporation Answer: D Diff: 1 LO: 1-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

8) A corporation: A) is legally separate from its owners B) is owned by stockholders C) has limited risk to stockholders D) All of the above Answer: D Diff: 2 LO: 1-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 9) The basic accounting equation is: A) Assets + Liabilities = Owner’s Equity B) Assets = Liabilities - Owner's Equity C) Assets = Owner’s Equity - Liabilities D) Assets = Liabilities + Owner's Equity Answer: D Diff: 1 LO: 1-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 10) A law firm would be considered a: A) merchandise company B) manufacturer C) service company D) retailer Answer: C Diff: 1 LO: 1-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 11) GAAP stand for ______________________. A) Generally Accepted Accounting Practices B) General Accounting Accepted Practices C) Generally Accepted Accounting Principles D) General Accounting Application Practices Answer: C Diff: 1 LO: 1-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

12) The purchase of supplies for cash would affect which account category? A) Assets B) Liabilities C) Capital D) Expense Answer: A Diff: 1 LO: 1-1 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 13) Items owned by the business such as land, supplies and equipment are: A) Assets B) Liabilities C) Owner's Equity D) Expenses Answer: A Diff: 1 LO: 1-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 14) Which of the following is NOT an Asset? A) Cash B) Accounts Receivable C) Buildings D) All of the above are Assets Answer: D Diff: 1 LO: 1-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 15) If total liabilities increased by $10,000 and the assets increased by $10,000 during the accounting period, what is the change in the owner's equity amount? A) No effect on owner's equity B) Decrease of $10,000 C) Increase of $20,000 D) Decrease of $40,000 Answer: A Diff: 2 LO: 1-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

16) The claims of creditors against the Assets are: A) Expenses B) Revenues C) Liabilities D) Owner's Equity Answer: C Diff: 1 LO: 1-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 17) The Owner's Equity of Logan's Company is equal to one-half of the total Assets. Liabilities equal $90,000. What is the amount of Owner's Equity? A) $45,000 B) $90,000 C) $135,000 D) None of these answers is correct. Answer: B Explanation: If owner’s equity equals one-half of total assets, then liabilities also equal one-half of total assets because Assets = Liabilities + Owner’s Equity. Diff: 2 LO: 1-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 18) Assets are equal to: A) Liabilities + Owner's Equity. B) Liabilities - Owner's Equity. C) Liabilities - Revenues. D) Revenues - Expenses. Answer: A Diff: 1 LO: 1-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 19) The basic accounting equation can be written as: A) Assets = Revenues - Expenses B) Assets = Liabilities - Owner's Equity C) Profit = Revenues - Expenses D) Assets — Owner’s Equity = Liabilities Answer: D Diff: 1 LO: 1-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

20) An acceptable variation of the accounting equation is: A) Assets - Owner's Equity = Liabilities B) Revenues = Profit - Expenses C) Assets = Liabilities - Owner's Equity D) All of these answers are correct Answer: A Diff: 1 LO: 1-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 21) If total Liabilities are $50,000 and Owner's Equity is $35,000, the total Assets must be: A) $85,000 B) $15,000 C) $42,500 D) $70,000 Answer: A Explanation: Total assets = Total liabilities $50,000 + Total owner’s equity $35,000 = $85,000 Diff: 1 LO: 1-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 22) If total Liabilities are $2000 and total Assets are $16,000, Owner's Equity must be: A) $14,000 B) $9000 C) $16,000 D) $18,000 Answer: A Explanation: Total Assets $16,000 = Total liabilities $2,000 + Total owner’s equity $14,000 Diff: 2 LO: 1-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 23) How does the purchase of supplies on account affect the accounting equation? A) Assets increase; Liabilities decrease B) Assets increase; Owner's Equity increases C) Assets increase; Liabilities increase D) Liabilities increase; Owner's Equity decreases Answer: C Diff: 2 LO: 1-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

24) Strum Hardware has total Assets of $60,000. What are the total Assets if a new building is purchased for $5000 cash? A) $70,000 B) $65,000 C) $55,000 D) $60,000 Answer: D Diff: 2 LO: 1-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 25) Harvest Moon Company has total Assets of $37,000. If $2000 cash is used to purchase a new computer, the total Assets would be: A) $37,000 B) $35,000 C) $39,000 D) $2000 Answer: A Diff: 2 LO: 1-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 26) Katie's Vegetarian Restaurant, with total Assets of $121,000, borrows $27,000 cash from the bank. Which of the following is a true statement after borrowing the money? A) Total Assets are now $148,000. B) Total Assets are now $94,000. C) Total Assets are now $175,000. D) Total Assets are now $121,000. Answer: A Explanation: Total Assets $121,000 + Cash $27,000 = $148,000 Diff: 2 LO: 1-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 27) Logan's Motor Sports buys $47,000 of supplies for cash. Which of the following is a true statement? A) Total Assets increase. B) Total Assets are unchanged. C) Total Assets decrease. D) Total Liabilities increase. Answer: B Diff: 1 LO: 1-1 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 7 Copyright © 2023 Pearson Education, Inc.

28) Bonnie's Baskets purchases $3000 worth of office equipment on account. This causes: A) Cash and Capital to decrease B) Office Equipment and Accounts Payable to increase C) Office Equipment to decrease and Accounts Payable to increase D) Accounts Payable to increase and Capital to decrease Answer: B Diff: 2 LO: 1-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 29) Eileen's Corner Shoppe purchases a desk for cash. This causes: A) Cash and Capital to increase B) Furniture and Cash to increase C) Furniture to increase and Cash to decrease D) Accounts Payable to increase and Capital to increase Answer: C Diff: 1 LO: 1-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 30) Bob purchased a new computer for the company for cash. The transaction will: A) increase Computer; increase Capital B) decrease Cash; increase Accounts Payable C) decrease Cash; increase Computer D) increase Supplies; increase Accounts Payable Answer: C Diff: 1 LO: 1-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 31) Pat purchased $8000 of new electronic equipment for her BJ Company on account. The effect on the basic accounting equation was to: A) increase Cash $8000 and increase Equipment $8000. B) increase Equipment $8000 and increase Accounts Payable $8000. C) decrease Cash $8000and increase Accounts Payable $8000. D) decrease Cash $8000 and increase Equipment $8000. Answer: B Diff: 1 LO: 1-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

32) If Total Assets are $68,000 and Total Owner’s Equity is $30,000, Liabilities must equal: A) $38,000 B) $30,000 C) $98,000 D) $68,000 Answer: A Diff: 1 LO: 1-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 33) Which of the following would result if the business purchased equipment for cash? A) Supplies would increase and Cash would decrease. B) Supplies would increase and Capital would increase. C) Equipment would increase and Cash would decrease. D) The purchase of supplies is not a business transaction. Answer: C Diff: 2 LO: 1-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 34) Which of the following would result if a business purchased Equipment with a 40% down payment and the rest on account? A) Equipment and Cash would increase, and Accounts Payable would decrease. B) Accounts Payable would increase, Equipment and Cash would decrease. C) Since the equipment has not been paid in full, there is nothing to record. D) Equipment and Accounts Payable would increase, Cash would decrease. Answer: D Diff: 2 LO: 1-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 35) Mary invested cash in her new business. What effect will this have? A) Increase an Asset and increase a Liability B) Decrease an Asset and increase a Liability C) Increase an Asset and increase Owner's Equity D) Decrease an Asset and decrease Owner's Equity Answer: C Diff: 2 LO: 1-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

36) A business received $10,000 from a customer in payment of an amount owed. The effect of the transaction on the accounting equation was to: A) increase one Asset, decrease another Asset. B) increase an Asset, increase a Liability. C) decrease an Asset, decrease a Liability. D) increase an Asset, increase Owner's Equity. Answer: A Diff: 2 LO: 1-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 37) The purchase of supplies with both cash and on account was recorded as only an open account purchase. Due to this error: A) Assets would be understated. B) Liabilities would be overstated. C) Owner's Equity would be overstated. D) None of the above is correct. Answer: B Diff: 3 LO: 1-1 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 38) A purchase of a vehicle on credit would have what effect on the accounting equation? A) Total Assets and total Liabilities increase. B) Total Liabilities are overstated. C) Total Owner's Equity is overstated. D) Both A and B are correct. Answer: A Diff: 1 LO: 1-1 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 39) The cash purchase of a truck was recorded as a credit purchase. Due to this error: A) Assets were understated. B) Liabilities were understated. C) Answers A and B are both correct. D) None of the above is correct. Answer: D Diff: 3 LO: 1-1 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

40) The right side of the basic accounting equation shows what is owed by the business. Answer: TRUE Diff: 1 LO: 1-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 41) Generally Accepted Accounting Principles are the procedures and guidelines that must be followed every other year. Answer: FALSE Diff: 1 LO: 1-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 42) The functions of accounting include analyzing, recording, classifying, summarizing, reporting, strategic management, and environmental assessment. Answer: FALSE Diff: 1 LO: 1-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 43) A sole proprietorship ends with the death of the owner. Answer: TRUE Diff: 1 LO: 1-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 44) If the Liabilities owed by a business total $150,000, then the Assets must also total $150,000. Answer: FALSE Diff: 1 LO: 1-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 45) The left side of the basic accounting equation must always be greater than the right side of the equation. Answer: FALSE Diff: 1 LO: 1-1 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

46) If the Assets owned by a business total $59,000, Owner's Equity must also total $59,000. Answer: FALSE Diff: 1 LO: 1-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 47) In a shift of Assets, the composition of the Assets changes but total Assets do not change. Answer: TRUE Diff: 1 LO: 1-1 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 48) If Owner's Equity totals $73,000 and Liabilities total $40,000, then Assets owned by a business totals $113,000. Answer: TRUE Diff: 1 LO: 1-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 49) Creditors' claims against Assets are called Liabilities. Answer: TRUE Diff: 1 LO: 1-1 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 50) The basic accounting equation states that total Assets must always equal total Liabilities plus Owner's Equity. Answer: TRUE Diff: 1 LO: 1-1 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 51) If Liabilities are $22,000 and Assets are $42,000, Owner's Equity will be $20,000. Answer: TRUE Diff: 1 LO: 1-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

52) Put the 7 main steps of the accounting process in order (from 1 -7) below: ________ Interpreting ________ Analyzing ________ Recording ________ Classifying ________ Reporting ________ Communication ________ Summarizing Answer: 6 Interpreting 1 Analyzing 2 Recording 3 Classifying 5 Reporting 7 Communication 4 Summarizing Diff: 3 LO: 1-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 53) Discuss the advantages and disadvantages of sole proprietorships, partnerships and corporations. Answer: A sole proprietorship is a business that has one owner. The advantage of a sole proprietorship is that the owner makes all of the decisions for the business. Another advantage is ease of formation. A disadvantage is that if the business cannot pay its obligations, the business owner must pay them from personal assets. The business ends with the death of the owner or the closing of the business. A partnership is a business owned by more than one person. Its advantage is ease of formation. The disadvantages are that partners could lose personal assets to meet obligations of the partnership and a partnership ends with death of a partner from the partnership. A corporation is a business owned by stockholders. The advantages are that stockholders have limited personal risk which is limited to their investment in the company. In addition, the corporation has an unlimited life and it is easy to raise capital. A disadvantage is that a corporation is more difficult to form and stockholders have a limited ability to influence business decisions. Diff: 2 LO: 1-1 AACSB: Written and Oral Communication Learning Outcome: Define accounting terms, accounting concepts and principles 54) What is the difference between Bookkeeping and Accounting? Answer: Bookkeeping is the recording function within the accounting process. A bookkeeper records the transactions into the company's books (more transactional), while an accountant reviews and analyzes the information including the transactions which are recorded. The accountant then takes the information and prepares the financial statements. Diff: 2 LO: 1-1 AACSB: Written and Oral Communication Learning Outcome: Define accounting terms, accounting concepts and principles 13 Copyright © 2023 Pearson Education, Inc.

55) Determine the missing amount in each accounting equation. Assets Liabilities Owner’s Equity A. $10,000 $2,000 ? B. ? $5,000 $4,000 C. $15,000 ? $10,000 D. $12,000 $4,000 ? Answer: A. $8,000 B. $9,000 C. $5,000 D. $8,000 Diff: 2 LO: 1-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

56) Record the following transactions in the basic accounting equation: a. Brian invests $30,000 cash to begin an accounting service. b. The company buys office furniture for cash, $900. c. The company buys additional office furniture on account, $200. d. The company makes a payment on the office furniture purchased in (c), $100. Brian's Accounting Service ASSETS Cash + Office Furniture a. b. c. d. Totals Answer:

= LIABILITIES = Accounts Payable

Brian's Accounting Service ASSETS

a. b. c. d. T

+ OWNER'S EQUITY + Brian, Capital

Cash + +$30,000 - 900 - 100 +$29,000

= Office Furniture +$900 + 200 ______ +$1,100

= = = = = =

OWNER'S EQUITY

LIABILITIES Accounts Payable + Brian, Capital +$30,000 +$200 - 100 +$100

________ +$30,000

Diff: 3 LO: 1-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

57) Mike's Photography completes the following transactions: a. Mike invests $15,000 cash in his company. b. The company purchases equipment on account, $600. c. The company purchases additional equipment for cash, $300. d. The company makes a payment on account for the equipment in (b), $500. Required: Record the above transactions in the basic accounting equation. Mike's Photography ASSETS Cash + Equipment

= =

a. b. c. d. Totals Answer:

= = = = =

LIABILITIES Accounts Payable

OWNER'S EQUITY Mike, Capital

Mike's Photography ASSETS

a. b. c. d. T

+ +

Cash + +$15,000 -300 - 500 +$14,200

= Equipment +$600 + 300 ______ +$900

= = = = = =

LIABILITIES Accounts Payable

OWNER'S EQUITY + Mike's, Capital +$15,000

+$600 - 500 +$100

________ +$15,000

Diff: 2 LO: 1-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

Learning Objective 1-2 1) The balance sheet contains: A) Liabilities, Expenses and capital B) Assets, Liabilities and Revenues C) Expenses, Assets and cash D) None of the above is correct Answer: D Diff: 1 LO: 1-2 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 16 Copyright © 2023 Pearson Education, Inc.

2) Which of the following items is NOT listed on the balance sheet? A) Accounts Payable B) Accounts Receivable C) Revenue D) Equipment Answer: C Diff: 1 LO: 1-2 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 3) The Balance Sheet may also be called: A) Income Statement B) Owner’s Equity Statement C) Statement of Financial Position D) Any of the above Answer: C Diff: 1 LO: 1-2 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 4) A Balance Sheet has a ________ line heading A) one B) two C) three D) four Answer: C Diff: 1 LO: 1-2 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 5) On the Balance sheet: A) Assets appear on the left side, Liabilities and Owner’s Equity appear on the right side B) Assets and Liabilities appear on the left side, Owner’s Equity appears on the right side C) Liabilities and Owner’s Equity appear on the left side, Assets appear on the right side D) Assets and Owner’s Equity appear on the left side, Liabilities appear on the right side Answer: A Diff: 1 LO: 1-2 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

6) The balance sheet shows the company's financial position as of a particular date. Answer: TRUE Diff: 2 LO: 1-2 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 7) To distinguish the total of a series of numbers on a financial statement, use a single underline. Answer: FALSE Diff: 1 LO: 1-2 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 8) The three elements that make up a balance sheet are Assets, Liabilities and Owner's Equity. Answer: TRUE Diff: 1 LO: 1-2 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 9) Dollar signs appear on each number on the Balance Sheet. Answer: FALSE Diff: 1 LO: 1-2 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 10) A double underline should be placed under the number for Total Assets on the Balance Sheet. Answer: TRUE Diff: 1 LO: 1-2 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

11) Use the following ending balances to prepare a Balance Sheet at December 31, 202X for Jones Company. Jones, Capital $3,000 Cash 4,000 Equipment 1,000 Accounts Payable 2,000 Answer:

Assets Cash Equipment

Total Assets

$4,000 1,000

$5,000

Jones Company BALANCE SHEET December 31, 202X Liabilities and Owner's Equity Liabilities Accounts Payable Owner's Equity Jones, Capital Total Liabilities and Owner's Equity

$2,000 3,000 $5,000

Diff: 2 LO: 1-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

12) Use the following ending balances to prepare a Balance Sheet at January 31, 202X for Taylor Company. Cash $15,000 Accounts Payable 3,000 Computers 2,000 Taylor, Capital 14,000 Answer:

Assets Cash Computers

Total Assets

$15,000 2,000

$17,000

Taylor Company BALANCE SHEET January 31, 202X Liabilities and Owner's Equity Liabilities Accounts Payable Owner's Equity Taylor, Capital Total Liabilities and Owner's Equity

$3,000 14,000 $17,000

Diff: 2 LO: 1-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

Learning Objective 1-3 1) The net income or net loss is calculated on the: A) balance sheet B) statement of Owner's Equity C) income statement D) None of these Answer: C Diff: 1 LO: 1-3 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 2) Owner's withdrawals: A) decrease Assets B) increase Expenses C) increase Assets D) increase Liabilities Answer: A Diff: 2 LO: 1-3 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 20 Copyright © 2023 Pearson Education, Inc.

3) Go Big Red Retail Store collected $16,000 of its accounts receivable. The expanded accounting equation changes include: A) Cash and Capital increase $16,000 B) Cash and Revenue increase $16,000 C) Cash increases and Accounts Receivable decreases $16,000 D) Accounts Receivable decreases and Capital increases $16,000 Answer: C Diff: 1 LO: 1-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 4) The payment of accounts payable would: A) increase both Assets and Liabilities B) increase Assets and decrease Liabilities C) decrease both Assets and Liabilities D) decrease Assets and increase Liabilities Answer: C Diff: 2 LO: 1-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 5) Ryan withdrew cash from the business to pay his personal cell phone bill. The expanded accounting equation changes include: A) increase in both Cash and Withdrawals B) decrease in both Cash and Withdrawals C) decrease in Cash and increase in Withdrawals D) increase in Cash and decrease in Withdrawals Answer: C Diff: 3 LO: 1-3 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 6) Revenue, Expenses, and Withdrawals are subdivisions of: A) Assets B) Liabilities C) Owner's Equity D) All of these answers are correct Answer: C Diff: 2 LO: 1-3 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

7) Which of the following transactions affect Owner's Equity? A) Payment on account B) Equipment purchase on account C) Customer payment on account D) A withdrawal Answer: D Diff: 2 LO: 1-3 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 8) When services are rendered but payment is not made, which account would be increased? A) Accounts Receivable B) Accounts Payable C) Cash D) Supplies Expense Answer: A Diff: 2 LO: 1-3 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 9) If Old Fashioned Toys' Revenues are less than its Expenses during the accounting period: A) owner's withdrawals increase net income B) net income causes Liabilities to decrease C) the business will incur a net loss D) owner's withdrawals increase Owner's Equity Answer: C Diff: 3 LO: 1-3 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 10) If Old Fashioned Toys' Revenues are greater than its Expenses during the accounting period: A) Assets will increase more than Liabilities B) Liabilities will increase more than Assets C) the business will incur a net loss D) the business will earn a net income Answer: D Diff: 3 LO: 1-3 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

11) Kim billed her legal clients $12,000 for legal work completed during the month using accrual basis. This transaction will: A) cause a $12,000 increase in Revenues and Liabilities B) cause a $12,000 increase in Revenues and a decrease in cash C) cause a $12,000 increase in Assets and Revenues D) not be recorded until the cash is collected Answer: C Diff: 2 LO: 1-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 12) Cup's Inc. paid $15,000 in salaries and wages for February. This transaction will: A) increase Expenses and decrease Revenue B) increase Expenses and increase Liabilities C) decrease Assets and increase Expenses D) increase Assets and Expenses Answer: C Diff: 2 LO: 1-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 13) Crystal Clear Imagery received and paid a utility bill for $600 for the month of November. This transaction will: A) increase Cash and increase Utility Expense B) decrease Cash and increase Utility Expense C) increase Cash and decrease Utility Expense D) increase Utility Expense and decrease Revenue Answer: B Diff: 1 LO: 1-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 14) If a company's Revenues are higher than its Expenses, it will cause: A) an increase in Owner's Equity B) a decrease in Owner's Equity C) an increase in Assets D) a net loss Answer: A Diff: 3 LO: 1-3 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

15) Expenses: A) are costs the company incurs in carrying on operations B) are a subdivision of Owner's Equity C) are withdrawals not related to the business D) Both A and B are correct Answer: D Diff: 2 LO: 1-3 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 16) An Expense should be recorded when: A) a liability for accounts payable is paid B) a purchase of equipment is made on credit C) a bill for utilities is received in the mail but it is not paid immediately D) All of the above are correct Answer: C Diff: 1 LO: 1-3 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 17) Using the accrual basis, revenues should be recorded when: A) the earning process is complete B) payment is received on account C) cash is received from the customer for services to be rendered at a future date D) All of the above are correct Answer: A Diff: 1 LO: 1-3 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 18) Accounting services were provided to a customer for cash. How would this affect the accounting equation? A) Cash and Accounts Receivable increase. B) Accounts Payable decreased and Capital decreased. C) Cash and Revenue increase. D) None of the above are correct. Answer: C Diff: 2 LO: 1-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

19) Which accounts are affected when a company pays salaries? A) Assets and Liabilities B) Liabilities and Revenue C) Assets and Expenses D) None of the above is correct Answer: C Diff: 1 LO: 1-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 20) Which accounts are affected when the company buys a truck for cash? A) Assets and Revenue B) Liabilities and Capital C) Assets and Liabilities D) None of the above is correct Answer: D Diff: 1 LO: 1-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 21) Which accounts are affected when the company provides services to a customer on credit? A) Assets and Liabilities B) Liabilities and Revenue C) Assets and Revenue D) None of the above is correct Answer: C Diff: 2 LO: 1-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 22) Which accounts are affected when the owner withdraws cash from the business? A) Assets and Withdrawals B) Liabilities and Capital C) Assets and Liabilities D) None of the above is correct Answer: A Diff: 2 LO: 1-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

23) Which of the following transactions would cause one asset to decrease and another asset to increase? A) The business provided services to a cash customer. B) The business bought supplies for cash. C) The owner withdrew cash from the business. D) All of the above are correct Answer: B Diff: 2 LO: 1-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 24) Mick's Mart collects $100 of its accounts receivable. The expanded accounting equation impact is: A) Cash and Capital increase $100 B) Cash and Revenue increase $100 C) Cash increases and Accounts Receivable decreases $100 D) Accounts Receivable decreases and Capital increases $100 Answer: C Diff: 1 LO: 1-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 25) Mark paid $300 cash to partially reduce the amount owed for equipment that was previously bought on account. This transaction would: A) increase both Assets and Liabilities B) increase Assets and decrease Liabilities C) decrease both Assets and Liabilities D) decrease Assets and increase Liabilities Answer: C Diff: 2 LO: 1-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 26) Victoria received $1000 from customers in partial payment for accounting services performed previously. The recording of this transaction would: A) increase Cash and Victoria's Capital $1000 B) increase Cash and decrease Accounts Receivable $1000 C) increase Cash and increase Accounts Receivable $1000 D) decrease Accounts Receivable and increase Victoria's Capital $1000 Answer: B Diff: 3 LO: 1-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

27) Which of the following will decrease Owner's Equity? A) A sale of merchandise on account B) The purchase of an asset on credit C) An investment by the owner D) A withdrawal by the owner Answer: D Diff: 2 LO: 1-3 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 28) Which of the following transactions would cause an asset to decrease and the Owner's Equity to decrease? A) The owner invested cash in the business B) The business incurred an Expense on credit C) The business bought supplies on account D) None of the above Answer: D Diff: 2 LO: 1-3 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 29) Which of the following transactions would cause one asset to increase and another asset to decrease? A) The owner invested cash in the business. B) The business paid a creditor. C) The business incurred an Expense on credit. D) The business bought supplies for cash. Answer: D Diff: 2 LO: 1-3 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 30) Which of the following would result if the owner made an additional investment of cash in the business? A) Cash would increase and Capital would increase. B) Cash would increase and Withdrawals would increase. C) Cash would decrease and Withdrawals would increase. D) An investment by the owner is not a business transaction. Answer: A Diff: 1 LO: 1-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

31) Revenue is the same thing as cash. Answer: FALSE Diff: 2 LO: 1-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 32) The owner of a business paid the rent with cash. This payment reduces Cash as well as increases the Expenses of the firm. Answer: TRUE Diff: 2 LO: 1-3 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 33) Accounts Payable results from earning Revenue on account. Answer: FALSE Diff: 1 LO: 1-3 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 34) Expenses are recorded as costs of doing business whether cash was paid or not for Expenses. Answer: TRUE Diff: 2 LO: 1-3 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 35) An owner’s investment is considered revenue for the business. Answer: FALSE Diff: 2 LO: 1-3 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 36) When Expenses are greater than Revenue, a net loss is the result. Answer: TRUE Diff: 1 LO: 1-3 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

37) The four parts of Owner's Equity include capital, withdrawals, Revenues, and Expenses. Answer: TRUE Diff: 1 LO: 1-3 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 38) Cash withdrawals by the owner increase both equity and Liabilities. Answer: FALSE Diff: 1 LO: 1-3 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 39) Cash investments by the owner increase both Capital and Assets. Answer: TRUE Diff: 1 LO: 1-3 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 40) Revenue and cash will always equal. Answer: FALSE Diff: 3 LO: 1-3 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 41) Withdrawals are business Expenses that are included on the income statement. Answer: FALSE Diff: 3 LO: 1-3 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 42) If Expenses are greater than Revenues, a net income results. Answer: FALSE Diff: 1 LO: 1-3 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

43) Indicate whether each of the following represents (1) Asset, (2) Liability, or (3) Owner's Equity: 1. ________ Office Supplies 2. ________ Accounts Payable 3. ________ Capital 4. ________ Cash 5. ________ Withdrawal 6. ________ Land 7. ________ Accounts Receivable 8. ________ Expense 9. ________ Equipment 10. ________ Revenue Answer: 1. Asset 2. Liability 3. Owner's Equity 4. Asset 5. Owner's Equity 6. Asset 7. Asset 8. Owner's Equity 9. Asset 10. Owner's Equity Diff: 2 LO: 1-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

44) Record the following transactions into the expanded accounting equation for Dora's Law Firm. Note that all accounts have beginning balances. (You will need to determine the beginning capital balance.) a. Provided legal services for cash, $700 b. Billed customers for services rendered, $2,500 c. Received and paid the monthly utility bill, $300 d. Collected $1,000 on account from customers e. Paid Supplies Expense, $250 f. Withdrew $200 cash for personal use Dora's Law Firm

beg. a. b. c. d. e. f. Totals

LIABILIT OWNER'S ASSETS = IES EQUITY Accounts Accounts +Dora, + - Dora, Cash + Receivable = Payable Capital Revenue - Expenses Withdrawals $900 $100 = $300 ??

Answer:

beg. a. b. c. d. e. f. Totals

ASSETS Accounts Cash + Receivable $900 $100 +700 +2,500 - 300 +1,000 -1,000 -250 -200 $1,850 $1,600

Dora's Law Firm LIABILITIES OWNER'S EQUITY Accounts +Dora, + - Dora, = Payable Capital Revenue Expenses Withdrawals = $300 $700 = +700 = +2,500 = +300 = = +250 +200 = $300 $700 $3,200 $550 $200

Diff: 2 LO: 1-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

45) Melvin's Cleaning Service completed the following transactions: a. Billed clients for service, $1,050. b. Completed work for clients $400 on account. c. Received a bill for utilities to be paid later, $120. d. Received $700 in cash for services performed. e. Paid the amount due for utilities. f. Withdrew $500 cash for personal use. Required: Record the above transactions in the expanded accounting equation. Note that the accounts have beginning balances. Melvin's Cleaning Service

ASSETS

beg. a. b. c. d. e. f. Total s Answer:

beg. a. b. c. d. e. f. Totals

ASSETS

LIABILIT OWNER'S = IES EQUITY

Accounts Accounts + Melvin, +Reven Expens -Melvin, Cash + Receivable = Payable Capital ue es Withdrawals $800 $85 = $300 $235 $900 $400 $150

Melvin's Cleaning Service ASSETS = LIABILITIES OWNER'S EQUITY Accounts Accounts +Melvin, + - Melvin, Cash + Receivable = Payable Capital Revenue Expenses Withdrawals $800 $85 = $300 $235 $900 $400 $150 +1,050 = +1,050 +400 = +400 = +120 +120 +700 = +700 -120 = -120 -500 +500 $880 $1,535 = $300 $235 $3,050 $520 $650

Learning Objective 1-4 1) Cash is reported on the: A) Income Statement B) Statement of Owner's Equity C) Balance sheet D) All of these are correct Answer: C Diff: 2 LO: 1-4 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 2) Which financial statement is prepared last? A) Statement of Owner's Equity B) Balance sheet C) Income Statement D) None of the above Answer: B Diff: 2 LO: 1-4 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 3) The financial statement that shows business results in terms of Revenue and Expenses is: A) Customer Statement. B) Balance sheet C) Statement of Owner's Equity D) None of the above Answer: D Diff: 1 LO: 1-4 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 4) An accounting report that shows the changes in capital during the accounting period is: A) Balance sheet B) Income Statement C) Statement of Owner's Equity D) All of these answers are correct Answer: C Diff: 2 LO: 1-4 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

5) Which of the following items are on both the Balance Sheet and the Statement of Owner's Equity? A) Net loss B) Capital C) Additional owner's investments D) Owner's withdrawals Answer: B Diff: 2 LO: 1-4 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 6) Which account is NOT included in the asset section of the balance sheet? A) Supplies B) Utility Expense C) Land D) Computer Answer: B Diff: 1 LO: 1-4 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 7) If beginning capital was $170,000, ending capital is $93,000, and the owner's withdrawals were $19,000, the amount of net income or net loss was: A) net income of $77,000 B) net income of $58,000 C) net loss of $58,000 D) net loss of $77,000 Answer: C Diff: 2 LO: 1-4 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 8) The Income Statement is a financial statement showing the change in owners' equity. Answer: FALSE Diff: 1 LO: 1-4 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 9) The Statement of Owner's Equity shows the change in Revenue. Answer: FALSE Diff: 2 LO: 1-4 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 34 Copyright © 2023 Pearson Education, Inc.

10) The Statement of Owner's Equity shows the beginning and the ending capital balances. Answer: TRUE Diff: 2 LO: 1-4 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 11) Total Liabilities are included in the Statement of Owner's Equity. Answer: FALSE Diff: 1 LO: 1-4 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 12) The Statement of Owner's Equity is the link between the Income Statement and the Balance Sheet. Answer: TRUE Diff: 2 LO: 1-4 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 13) The Income Statement is completed before the Statement of Owners' Equity. Answer: TRUE Diff: 2 LO: 1-4 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 14) Determine the ending capital balance of a business which had a beginning capital balance of $2,950, additional investments of $500, withdrawals of $750, Revenue of $3,800, and Expenses of $2,600. $ ________ Answer: $3,900 [$2,950 + $500 - $750 + $3,800 - $2,600] Diff: 2 LO: 1-4 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 15) Determine the beginning capital balance of a business having an ending capital balance of $10,800, no additional investments, withdrawals of $2,600, and a net income of $4,700. $ ________ Answer: $8,700 [$10,800 - $4,700 + $2,600] Diff: 3 LO: 1-4 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

16) Given the following account balances, determine the total Liabilities. Cash $520, Accounts Receivable $280, Supplies $300 and Capital $500. $ ________ Answer: $600 [$520 + $280 + $300 -$500] Diff: 2 LO: 1-4 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 17) Calculate the Total Liabilities if the company has: Assets totaling $600 and Capital of $450. $ ________ Answer: $150 [$600 - $450] Diff: 1 LO: 1-4 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 18) Calculate the Total Assets if the company has: Cash $400, Accounts Receivable $200, Accounts Payable $500, Equipment $300. $ ________ Answer: $900 [$400 + $200 + $300] Diff: 1 LO: 1-4 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

19) Use the following information to prepare 1) an Income Statement, 2) a Statement of Owner's Equity, and 3) a Balance Sheet for the month ended April 30, 202X for Tallhouse Company. J. Tallhouse, Capital (April 1) Revenue Expenses Withdrawals Cash Equipment Accounts Receivable Accounts Payable

$3,000 900 600 150 4,000 1,000 150 2,000

Answer: Tallhouse Company INCOME STATEMENT For the month ended April 30, 202X Revenue $900 Expenses 600 Net Income $300

Tallhouse Company STATEMENT OF OWNER'S EQUITY For the month ended April 30, 202X J. Tallhouse, Capital, April 1 $3,000 Net Income $300 Less: Withdrawals 150 Increase in Capital 150 J. Tallhouse, Capital, April 30 $3,150

Assets Cash Accounts Receivable Equipment Total Assets

Tallhouse Company BALANCE SHEET April 30, 202X Liabilities and Owner's Equity Liabilities $4,000 Accounts Payable 150 Owner's Equity 1,000 J. Tallhouse, Capital Total Liabilities and Owner's $5,150 Equity

$2,000 3,150 $5,150

20) Use the following account balances to prepare the following financial statements for Logan Motorcycles: 1) an Income Statement, 2) a Statement of Owner's Equity, and 3) a Balance Sheet for the month ended October 31, 202X. You will need to calculate the value of the Accounts Payable account (note: remember the basic accounting equation). Cash Accounts Receivable Equipment Accounts Payable H. Logan, Capital (October 1) Revenue Expenses H. Logan, Withdrawals

$1,300 500 2,000 ??? 3,000 1,000 700 100

Answer: Logan Motorcycles INCOME STATEMENT For the month ended October 31, 202X Revenue $1,000 Expenses 700 Net Income $300

Logan Motorcycles STATEMENT OF OWNER'S EQUITY For the month ended October 31, 202X H. Logan, Capital, Oct. 1 $3,000 Net Income $300 Less: Withdrawals 100 Increase in Capital 200 H. Logan, Capital, Oct. 31 $3,200

Assets Cash Accounts Receivable Equipment Total Assets

Logan Motorcycles BALANCE SHEET October 31, 202X Liabilities and Owner's Equity Liabilities $1,300 Accounts Payable 500 Owner's Equity 2,000 H. Logan, Capital Total Liabilities and owner's $3,800 Equity

$ 600 3,200 $3,800

Diff: 3 LO: 1-4 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

College Accounting, 15e (Slater) Chapter 2 Debits and Credits: Analyzing and Recording Business Transactions Learning Objective 2-1 1) Accounts Payable had a normal starting balance of $900 credit. There were debit postings of $100 and credit postings of $450 during the month. The ending balance is: A) $1250 credit. B) $1450 debit. C) $1250 debit. D) $1450 credit. Answer: A Explanation: $900 - $100 + $450 = $1250 Diff: 2 LO: 2-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 2) The beginning balance in the Equipment account was $4000 debit. The company purchased additional Equipment with a cost of $1000. The ending balance in the account is: A) debit of $3000. B) credit of $4000. C) debit of $5000. D) credit of $3000. Answer: C Explanation: $4000 + $1000 = $5000 Diff: 1 LO: 2-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 3) An accounting tool used to record increases and decreases in individual Assets, Liabilities, Capital, Revenue, Expenses, and Owner's Withdrawals is a(n): A) chart of accounts. B) account. C) trial balance. D) footing. Answer: B Diff: 2 LO: 2-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

4) A formal account that has columns for date, explanation, posting reference, debit, and credit is called the: A) T account. B) standard account form. C) ledger. D) chart of accounts. Answer: B Diff: 2 LO: 2-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 5) A ledger: A) includes all company accounts and their related balances. B) can replace the financial statements. C) is the same as a chart of accounts. D) is known as a worksheet. Answer: A Diff: 1 LO: 2-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 6) The right side of any account is the: A) debit side. B) credit side. C) ending balance. D) beginning balance. Answer: B Diff: 1 LO: 2-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 7) The left side of any account is the: A) debit side. B) credit side. C) ending balance. D) beginning balance. Answer: A Diff: 1 LO: 2-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

8) An account is said to have a debit balance if: A) the footing of the debits exceeds the footing of the credits. B) there are more entries on the debit side than on the credit side. C) its normal balance is debit without regard to the amounts or number of entries on the debit side. D) the last entry of the accounting period was posted on the debit side. Answer: A Diff: 2 LO: 2-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 9) The ledger is: A) a group of accounts that records results from business transactions. B) a tool used to ensure that all accounts have normal balances. C) a chronological record of the day's transactions. D) a tool used to ensure that debits equal credits. Answer: A Diff: 1 LO: 2-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 10) The credit side is always the left side of the account. Answer: FALSE Diff: 1 LO: 2-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 11) A T account is used for demonstration purposes. Answer: TRUE Diff: 2 LO: 2-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

12) From the following T account, prepare footings and calculate the ending balance.

Answer: Diff: 2 LO: 2-1 AACSB: Written and Oral Communication Learning Outcome: Analyze and record transactions and their effects on the financial statements 13) From the following T account, prepare footings and calculate the ending balance.

Answer: Diff: 2 LO: 2-1 AACSB: Written and Oral Communication Learning Outcome: Analyze and record transactions and their effects on the financial statements

Learning Objective 2-2 1) A compound entry is: A) a transaction involving more than one debit and/or credit. B) used to prepare the trial balance. C) to duplicate an entry. D) found on the income statement. Answer: A Diff: 1 LO: 2-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 2) The rules of debit and credit require increases be posted on the: A) debit side. B) credit side. C) normal balance side. D) None of these answers is correct. Answer: C Diff: 1 LO: 2-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 3) The Accounts Payable account is: A) a capital account, and it has a normal debit balance. B) a withdrawal account, and it has a normal credit balance. C) a liability account, and it has a normal debit balance. D) a liability account, and it has a normal credit balance. Answer: D Diff: 1 LO: 2-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 4) An account that would be increased by a credit is: A) Cash. B) Prepaid Expense. C) Utilities Expense. D) Accounts Payable. Answer: D Diff: 1 LO: 2-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

5) A debit may signify a(n): A) increase in an Asset account. B) decrease in a Revenue account. C) decrease in a Liability account. D) All of the above Answer: D Diff: 1 LO: 2-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 6) A credit may signify a(n): A) increase in assets. B) decrease in liabilities. C) increase in revenue. D) increase in withdrawals. Answer: C Diff: 1 LO: 2-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 7) Which of the following types of accounts has a normal credit balance? A) Withdrawals B) Assets C) Expenses D) None of the above Answer: D Diff: 1 LO: 2-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 8) Which of the following types of accounts has a normal debit balance? A) Withdrawals B) Assets C) Expenses D) All of these answers are correct. Answer: D Diff: 1 LO: 2-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

9) When recording transactions in two or more accounts and the totals of the debits and credits are equal, it is called: A) debiting. B) crediting. C) balancing. D) double-entry bookkeeping. Answer: D Diff: 1 LO: 2-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 10) Which of the following groups of accounts have a normal debit balance? A) Revenue, liabilities, and expenses B) Assets, capital, and withdrawals C) Liabilities, expenses, and assets D) Assets, expenses, and withdrawals Answer: D Diff: 2 LO: 2-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 11) Which of the following accounts would be increased by a debit? A) Supplies B) Accounts Payable C) Capital D) Service Revenue Answer: A Diff: 1 LO: 2-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 12) What is a proper entry to show the owner making an investment in the company? A) A credit to Cash and a debit to Capital B) A debit to Cash and a credit to Capital C) A debit to Cash and a credit to Revenue D) A credit to Cash and a debit to Revenue Answer: B Diff: 1 LO: 2-2 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

13) Which of the following entries would be used to record the billing of fees earned? A) Debit Accounts Receivable and credit Consulting Fees B) Credit Cash and credit Consulting Fees C) Debit Accounts Payable and credit Consulting Fees D) Debit Consulting Fees, credit Accounts Receivable Answer: A Diff: 2 LO: 2-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 14) Which of the statements of the rules of debit and credit is true? A) Decrease Accounts Receivable with a credit and the normal balance is a credit. B) Increase Accounts Payable with a credit and the normal balance is a credit. C) Increase Revenue with a debit and the normal balance is a debit. D) Decrease Cash with a debit and the normal balance is a debit. Answer: B Diff: 2 LO: 2-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 15) Which of the following entries records the investment of cash by Sam, the owner of a sole proprietorship? A) Debit Sam, Capital; credit Cash B) Debit Cash; credit Revenue C) Debit Sam, Withdrawals; credit Revenue D) Debit Cash; credit Sam, Capital Answer: D Diff: 2 LO: 2-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 16) Bill, owner of Bill's Golf Center, withdrew $1,600 in cash from the business. Record the transaction by: A) debiting Bill, Withdrawals, $1,600; crediting Cash, $1,600. B) debiting Accounts Receivable, $1,600; crediting Cash, $1,600. C) debiting Expense, $1,600; crediting Cash, $1,600. D) debiting Bill, Withdrawals, $1,600; crediting Bill, Capital, $1,600. Answer: A Diff: 2 LO: 2-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

17) The entry to record Tom taking cash out of his business to make a payment of a home telephone bill is: A) debit Accounts Payable; credit Telephone Expense. B) debit Tom, Withdrawals; credit Cash. C) debit Telephone Expense; credit Cash. D) debit Tom, Withdrawals; credit Accounts Payable. Answer: B Diff: 2 LO: 2-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 18) Excel Home bought painting equipment on account for $5,000. The entry would include: A) debit to Supplies Expense, $5,000; credit to Cash, $5,000. B) debit to Equipment, $5,000; credit to Cash, $5,000. C) debit to Equipment, $5,000; credit to Accounts Payable, $5,000. D) debit to Supplies Expense, $5,000; credit to Accounts Payable, $5,000. Answer: C Diff: 2 LO: 2-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 19) The owner of BobCats R Us paid his personal Visa Card bill using a company check. The correct entry to record the transaction is: A) credit Cash; debit Capital. B) credit Cash; debit Supplies Expense. C) credit Cash; debit Withdrawals. D) credit Cash; debit Accounts Payable. Answer: C Diff: 2 LO: 2-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 20) Susan flew to San Francisco on a business trip that was paid by her employer. The purchase price of the ticket was $800, and it was bought on account. The entry to record the transaction is: A) debit Accounts Payable, $800; credit Travel Expense, $800. B) debit Capital, $800; credit Accounts Payable, $800. C) debit Travel Expense, $800; credit Accounts Payable, $800. D) debit Travel Expense, $800; credit Cash, $800. Answer: C Diff: 2 LO: 2-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

21) The Accounts Payable account has total credit postings of $2200 and debit postings of $1200. The balance of the account is: A) $1000 debit. B) $1000 credit. C) $3400 credit. D) $3400 debit. Answer: B Diff: 2 LO: 2-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 22) The Salaries Payable account has total debit postings of $1100 and credit postings of $1500. The ending balance of the account is: A) $2600 debit. B) $400 credit. C) $2600 credit. D) $400 debit. Answer: B Explanation: $1500 - $1100 = $400 Diff: 2 LO: 2-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 23) Office Supplies had a normal starting balance of $95. There were debit postings of $120 and credit postings of $60 during the month. The ending balance of the account is: A) $85 debit. B) $85 credit. C) $155 debit. D) $155 credit. Answer: C Explanation: ($95 + $120) - $60 = $155 Diff: 2 LO: 2-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

24) Accounts Payable has a normal balance of $1100. After paying $300 to creditors, the balance in the account is: A) debit $800. B) debit $1400. C) credit $800. D) credit $1400. Answer: C Diff: 2 LO: 2-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 25) The beginning balance in Cash was $5000. Additional cash of $2600 was received. Checks were written totaling $3300. The ending balance in cash is: A) $2400. B) $7600. C) $5700. D) $4300. Answer: D Explanation: ($5000 + $2600) - $3300 = $4300 Diff: 2 LO: 2-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 26) A credit to an asset account was posted as a credit to the Revenue account. This error would cause: A) revenue to be overstated. B) liabilities to be overstated. C) capital to be understated. D) Both A and C are correct. Answer: A Diff: 2 LO: 2-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 27) A credit to a liability account was posted as a credit to an expense account. This error would cause: A) assets to be overstated. B) liabilities to be overstated. C) expenses to be overstated. D) liabilities to be understated. Answer: D Diff: 2 LO: 2-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

28) A debit to an expense account was posted as a debit to a revenue account. This error would cause: A) assets to be overstated. B) expenses to be overstated. C) revenue to be understated. D) None of the above is correct. Answer: C Diff: 2 LO: 2-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 29) A credit to an asset account was posted as a credit to a revenue account. This error would cause: A) assets to be overstated. B) revenue to be overstated. C) expenses to be overstated. D) Both A and B are correct. Answer: D Diff: 2 LO: 2-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 30) A credit to a liability account was posted as a debit to the Revenue account. This error would cause: A) Liability to be overstated. B) Revenue to be understated. C) Revenue to be overstated. D) None of the above is correct. Answer: B Diff: 2 LO: 2-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 31) A debit to an asset account was posted as a debit to an expense account. This error would cause: A) liabilities to be overstated. B) expenses to be overstated. C) assets to be understated. D) Both B and C are correct. Answer: D Diff: 2 LO: 2-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

32) A debit to a Liability account was posted as a debit to an Asset account. This error would cause: A) Asset to be understated. B) Liabilities to be understated. C) Asset to be overstated. D) None of the above is correct. Answer: C Diff: 2 LO: 2-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 33) A debit to an asset account was posted as a debit to a liability account. This error would cause: A) assets to be understated. B) liabilities to be overstated. C) capital to be understated. D) None of the above is correct. Answer: A Diff: 2 LO: 2-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 34) The chart of accounts: A) is a numbered list of all of the business's accounts. B) allows accounts to be located quickly. C) can be expanded as the business grows. D) All of the above are correct. Answer: D Diff: 1 LO: 2-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 35) A credit to an asset account was posted as a credit to a liability account. This error would cause: A) assets to be understated. B) liabilities to be overstated. C) capital to be understated. D) None of the above is correct. Answer: B Diff: 2 LO: 2-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

36) The business incurred an expense and planned to pay for the expense later on credit. To record this: A) an expense is debited and a liability is credited. B) an expense is debited and an asset is credited. C) an asset is debited and asset is credited. D) None of the above answers are correct. Answer: A Diff: 2 LO: 2-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 37) The business provided services for cash. To record this: A) an asset is credited and a liability is debited. B) an asset is debited and a revenue is credited. C) an expense is debited and Capital is credited. D) None of the above answers are correct. Answer: B Diff: 2 LO: 2-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 38) The owner invested a personal truck in the business. To record this transaction: A) debit Truck and credit Revenue. B) debit Accounts Payable and credit Truck. C) debit Truck and credit Capital. D) credit Truck and debit Capital. Answer: C Diff: 2 LO: 2-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 39) The business bought supplies on account. To record this: A) an expense is debited and a liability is credited. B) an asset is debited and a liability is credited. C) an asset is credited and a liability is credited. D) None of the above answers are correct. Answer: B Diff: 1 LO: 2-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

40) A liability would be debited and an asset credited if: A) the business paid a creditor. B) the business incurred an expense and did not pay the expense immediately. C) the business bought supplies on account. D) the business bought supplies for cash. Answer: A Diff: 2 LO: 2-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 41) One asset would be debited and another credited if: A) the business provided services to a cash customer. B) the business paid a creditor. C) the business bought supplies paying cash. D) the business provided services to a credit customer. Answer: C Diff: 2 LO: 2-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 42) An asset would be debited and another asset credited if: A) the business bought equipment for cash. B) the business incurred an expense and paid it. C) the business bought equipment on account. D) None of these is correct. Answer: A Diff: 2 LO: 2-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 43) What would be the effect on the accounts if a business provided services to a customer on account? A) An asset would be debited and an expense credited. B) Capital would be debited and Revenue credited. C) An asset would be debited and Revenue credited. D) An asset would be debited and Capital credited. Answer: C Diff: 1 LO: 2-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

44) What would be the effect on the accounts if a business provided services to a credit customer? A) An asset would be debited and an expense debited. B) Capital would be credited and Revenue credited. C) An asset would be debited and Revenue credited. D) An asset would be debited and Capital credited. Answer: C Diff: 1 LO: 2-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 45) What would be the effect on the accounts if the owner invested cash into the business? A) An asset would be debited and Capital credited. B) Withdrawals would be debited and an asset credited. C) An asset would be debited and a revenue credited. D) A Revenue would be debited and Capital credited. Answer: A Diff: 1 LO: 2-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 46) What would be the effect on the accounts if the business purchased equipment on account? A) An asset would be debited and an expense credited. B) Expense would be debited and a Liability credited. C) An asset would be debited and Capital credited. D) An asset would be debited and a Liability credited. Answer: D Diff: 1 LO: 2-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 47) What would be the effect on the accounts of a business if salaries expense was paid in cash? A) An asset would be credited and an expense debited. B) Expense would be debited and a Liability credited. C) An asset would be debited and a Liability credited. D) An asset would be debited and an expense credited. Answer: A Diff: 1 LO: 2-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

48) What would be the effect on the accounts if the business received the telephone bill but did not pay it immediately? A) An expense would be debited and an asset credited. B) Capital would be debited and Revenue credited. C) An expense would be debited and a liability credited. D) An asset would be debited and Capital credited. Answer: C Diff: 2 LO: 2-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 49) An account that would be increased by a debit is: A) Cash B) Fees Earned C) Capital D) Accounts Payable Answer: A Diff: 1 LO: 2-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 50) Which of the following groups of accounts have a normal credit balance? A) Revenue, liabilities, and capital B) Assets, capital, and withdrawals C) Liabilities, expenses, and assets D) Assets, expenses, and withdrawals Answer: A Diff: 1 LO: 2-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 51) A chart of accounts: A) is set up in alphabetical order. B) is a list of customer accounts. C) is a listing of all the accounts in order of dollar value. D) None of the above are correct. Answer: D Diff: 2 LO: 2-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

52) Accounts receivable decrease on the credit side of the account. Answer: TRUE Diff: 1 LO: 2-2 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 53) The normal balance of a Revenue account is a debit balance. Answer: FALSE Diff: 1 LO: 2-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 54) Cash is credited when the business makes a payment for supplies. Answer: TRUE Diff: 1 LO: 2-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 55) Debits must always exceed credits in a transaction or journal entry. Answer: FALSE Diff: 1 LO: 2-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 56) The debit side of all accounts decreases the account balance and the credit side of all accounts increases the account balance. Answer: FALSE Diff: 2 LO: 2-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 57) The debit side is always the left side of Asset accounts only. Answer: FALSE Diff: 1 LO: 2-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

58) A transaction that involves more than one credit or more than one debit is called a compound entry. Answer: TRUE Diff: 2 LO: 2-2 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 59) The right side of an account is always the normal balance side. Answer: FALSE Diff: 1 LO: 2-2 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 60) Double-entry accounting requires transactions to affect two or more accounts, and the total of the debits to be greater than the credits. Answer: FALSE Diff: 2 LO: 2-2 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 61) Three accounts are affected in every transaction. Answer: FALSE Diff: 2 LO: 2-2 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 62) Withdrawals increase on the credit side of the account. Answer: FALSE Diff: 1 LO: 2-2 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 63) After deciding which accounts are affected, the next step in analyzing a transaction is to determine to which categories the accounts belong. Answer: TRUE Diff: 1 LO: 2-2 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

64) Equipment is an example of a Capital account. Answer: FALSE Diff: 1 LO: 2-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 65) A compound entry is when more than one transaction occurs. Answer: FALSE Diff: 2 LO: 2-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 66) When the owner invests personal equipment in the business, cash is decreased. Answer: FALSE Diff: 1 LO: 2-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 67) Accounts Payable indicates amounts owed. Answer: TRUE Diff: 1 LO: 2-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 68) Accounts Payable indicates monies owed to us by our clients or customers. Answer: FALSE Diff: 1 LO: 2-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 69) Expenses paid in advance are recorded as Assets. Answer: TRUE Diff: 1 LO: 2-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 70) Accounts Payable is an asset account that is increased on the debit side. Answer: FALSE Diff: 1 LO: 2-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 20 Copyright © 2023 Pearson Education, Inc.

71) The Accounts Receivable account is increased by a credit. Answer: FALSE Diff: 1 LO: 2-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 72) Why is Revenue increased on the Credit side? (Explain as it pertains to the expanded accounting equation and its relationship to Owner's Equity.) Answer: Revenue is an increase to owner's equity; Capital is increased on the credit side. Diff: 1 LO: 2-2 AACSB: Written and Oral Communication Learning Outcome: Define accounting terms, accounting concepts and principles

73) Selected accounts from the ledger of Thomas Company appear below. For each account, indicate the following: a. In the first column at right, indicate the type of each account using the following abbreviations: Asset - A Revenue - R None of the above - N Liability - L Expense - E b. In the second column, indicate the normal balance of the account by inserting a Dr. or Cr. Account 1. Office Supplies 2. Accounts Receivable 3. Fees Earned 4. Thomas, Withdrawals 5. Accounts Payable 6. Salaries Expense 7. Thomas, Capital 8. Accounts Receivable 9. Equipment 10. Telephone Expense Answer: Account 1. Office Supplies 2. Accounts Receivable 3. Fees Earned 4. Thomas, Withdrawals 5. Accounts Payable 6. Salaries Expense 7. Thomas, Capital 8. Accounts Receivable 9. Equipment 10. Telephone Expense

Type of Account ______ ______ ______ ______ ______ ______ ______ ______ ______ ______

Normal Balance ______ ______ ______ ______ ______ ______ ______ ______ ______ ______

Type of Account A A R N L E N A A E

Normal Balance Dr Dr Cr Dr Cr Dr Cr Dr Dr Dr

Diff: 2 LO: 2-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

74) Identify the normal balance for each of the following accounts by placing a Dr. (debit) or a Cr. (credit) in the space provided. ________ 1. Truck ________ 2. B. James, Withdrawals ________ 3. B. James, Capital ________ 4. Accounting Fees Earned ________ 5. Cash ________ 6. Accounts Receivable ________ 7. Accounts Payable ________ 8. Rent Expense ________ 9. Office Equipment ________ 10. Supplies Answer: 1. Dr. 2. Dr. 3. Cr. 4. Cr. 5. Dr. 6. Dr. 7. Cr. 8. Dr. 9. Dr. 10. Dr. Diff: 2 LO: 2-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

75) Identify whether a debit or credit would be correct for each of the following account changes. Use a Dr. (debit) or Cr. (credit) in the space provided. ________ 1. Increase Truck ________ 2. Increase Accounts Receivable ________ 3. Increase Accounts Payable ________ 4. Increase Salaries Expense ________ 5. Increase Service Fees Earned ________ 6. Decrease Cash ________ 7. Increase S. McCrae, Capital ________ 8. Increase S. McCrae, Withdrawals ________ 9. Increase Rent Expense ________ 10. Increase Equipment Answer: 1. Dr. 2. Dr. 3. Cr. 4. Dr. 5. Cr. 6. Cr. 7. Cr. 8. Dr. 9. Dr. 10. Dr. Diff: 2 LO: 2-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

76) Below is a chart of accounts. Following is a series of transactions. Indicate for each transaction the accounts that should be debited and credited by inserting the proper account number in the space provided. 111 Cash 112 Accounts Receivable 121 Office Equipment 211 Accounts Payable 311 S. Anderson, Capital

312 S. Anderson, Withdrawals 411 Service Fees Earned 511 Salaries Expense 512 Rent Expense 513 Supplies Expense

Debit Credit Transaction ________ ________ 1. Purchased office equipment with cash. ________ ________ 2. Paid salaries for the week. ________ ________ 3. Invested additional cash in the business. ________ ________ 4. Received cash on account. ________ ________ 5. Billed a client on account for services performed. ________ ________ 6. Paid accounts payable. ________ ________ 7. Collected accounts receivable. ________ ________ 8. Withdrew cash for personal use. ________ ________ 9. Paid Supplies expense. ________ ________ 10. Paid rent expense for the month. Answer: 1. 121 111 2. 511 111 3. 111 311 4. 111 112 5. 112 411 6. 211 111 7. 111 112 8. 312 111 9. 513 111 10. 512 111 Diff: 2 LO: 2-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

77) A chart of accounts is below. Following is a series of transactions. Indicate for each transaction the accounts that should be debited and credited by inserting the proper account number in the space provided. 111 Cash 112 Accounts Receivable 121 Delivery Equipment 211 Accounts Payable 311 G. Baxter, Capital

312 G. Baxter, Withdrawals 411 Delivery Fees Earned 511 Salaries Expense 512 Rent Expense 513 Utilities Expense 514 Gas Expense

Debit Credit Transaction ________ ________ 1. Invested cash in the business. ________ ________ 2. Received cash for delivery services performed. ________ ________ 3. Billed a customer for services performed. ________ ________ 4. Paid accounts payable. ________ ________ 5. Collected accounts receivable. ________ ________ 6. Withdrew cash for personal use. ________ ________ 7. Paid utilities expense. ________ ________ 8. Paid rent expense for the month. ________ ________ 9. Purchased delivery equipment on account. ________ ________ 10. Paid salaries for the week. Answer: 1. 111 311 2. 111 411 3. 112 411 4. 211 111 5. 111 112 6. 312 111 7. 513 111 8. 512 111 9. 121 211 10. 511 111 Diff: 2 LO: 2-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

78) The following transactions occurred during June for Center City Cycle Shop. Record the transactions below in the T accounts. Place the letter of the transaction next to the entry amount when recording each transaction in the T accounts. Calculate the ending balances of the T accounts where appropriate. a. Invested $6,500 in the bike shop from his personal savings account. b. Bought office equipment for cash, $900. c. Performed bike service for a customer on account, $1,000. d. Company cell phone bill received, but not paid, $80. e. Collected $500 from customer in transaction c. f. Withdrew $300 for personal use.

Answer:

For each of the following, identify in Column 1 the category to which the account belongs, in Column 2 the normal balance for the account, and in Column 3 the financial statement that the account appears upon. 79) Column 1

Column 2

Column 1 expense

Column 2 debit

Column 3

Postage Expense Answer: Postage Expense

Column 3 income statement

Diff: 2 LO: 2-2 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 80) Column 1

Column 2

Column 3

Column 1 asset

Column 2 debit

Column 3 balance sheet

Equipment Answer: Equipment

Diff: 2 LO: 2-2 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 81) Column 1

Column 2

Column 3

Column 1 asset

Column 2 debit

Column 3 balance sheet

Truck Answer: Truck

Diff: 2 LO: 2-2 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

82) Column 1

Column 2

Column 1 expense

Column 2 debit

Column 3

Cleaning Expense Answer: Cleaning Expense

Column 3 income statement

Diff: 2 LO: 2-2 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 83) Column 1

Column 2

Column 3

Column 1 revenue

Column 2 credit

Column 3 income statement

Cleaning Fees Earned Answer: Cleaning Fees Earned

Diff: 2 LO: 2-2 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 84) Column 1

Column 2

Column 3

Column 1 liability

Column 2 credit

Column 3 balance sheet

Salaries Payable Answer: Salaries Payable

Diff: 2 LO: 2-2 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

85) Column 1

Column 2

Column 3

Service Fees Earned Answer: Column 1 revenue

Service Fees Earned

Column 2 credit

Column 3 income statement

Diff: 2 LO: 2-2 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 86) Column 1

Column 2

Column 3

Tree Care Fees Earned Answer: Tree Care Fees Earned

Column 1 revenue

Column 2 credit

Column 3 income statement

Diff: 2 LO: 2-2 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 87) Column 1

Column 2

Column 3

Column 1 asset

Column 2 debit

Column 3 balance sheet

Supplies Answer: Supplies

Diff: 2 LO: 2-2 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

Learning Objective 2-3 1) Which of the following is a financial statement? A) Balance Sheet B) Income Statement C) Statement of Owner's Equity D) All of the above Answer: D Diff: 1 LO: 2-3 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 2) A list of all the accounts from the ledger with their ending balances is called a: A) normal balance. B) trial balance. C) chart of accounts. D) bank statement. Answer: B Diff: 2 LO: 2-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 3) Which of the following is prepared first? A) Balance Sheet B) Income Statement C) Statement of Owner's Equity D) Trial Balance Answer: D Diff: 2 LO: 2-3 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

4) Given the following list of accounts with normal balances, what are the trial balance totals of the debits and credits? Cash Accounts Receivable Capital Accounts Payable Service Fees Earned Rent Expense

$1100 800 2000 900 1000 2000

A) $3900 debit, $3900 credit B) $4800 debit, $4800 credit C) $1900 debit, $1900 credit D) $1100 debit, $1100 credit Answer: A Explanation: Cash $1100 + Accounts Receivable $800 + Rent Expense $2000 = $3900 Debit column Diff: 2 LO: 2-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 5) Given the following list of accounts with normal balances, what are the trial balance totals of the debits and credits? Cash Equipment Accounts Payable Capital Service Fees Earned Salaries Expense

$1000 900 350 900 1000 350

A) $3250 debit, $3250 credit B) $1900 debit, $1900 credit C) $4500 debit, $4500 credit D) $2250 debit, $2250 credit Answer: D Explanation: Cash $1000 + Equipment $900 + Salaries Expense $350 = $2250 Debit column Diff: 2 LO: 2-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

6) Which type of account would NOT be reported on the income statement? A) Revenue B) Expenses C) Liabilities D) None of the above answers are correct. Answer: C Diff: 2 LO: 2-3 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 7) Prepaid expense would appear on which financial statement? A) Balance Sheet B) Income Statement C) Owner's Equity Statement D) None of the above answers are correct. Answer: A Diff: 2 LO: 2-3 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 8) An income statement: A) shows debits. B) shows credits. C) shows debt owed. D) none of the above. Answer: D Diff: 2 LO: 2-3 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 9) The beginning balance in the Capital account would appear on which financial statement? A) Statement of Owner's Equity B) Balance Sheet C) Income Statement D) All of the above are correct. Answer: A Diff: 3 LO: 2-3 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

10) The income statement contains: A) Liabilities. B) Revenues. C) Expenses. D) Both B and C are correct. Answer: D Diff: 2 LO: 2-3 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 11) On which financial statement would you find the ending balance in the Capital account? A) Income Statement B) Balance Sheet C) Statement of Owner's Equity D) Both B and C are correct. Answer: D Diff: 2 LO: 2-3 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 12) Which of the following is prepared last? A) Balance Sheet B) Income Statement C) Statement of Owner's Equity D) Trial Balance Answer: A Diff: 2 LO: 2-3 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 13) Net income or net loss for a period is calculated by the following formula: A) total liabilities - total revenue. B) total revenues + total expenses - total withdrawals - assets. C) total revenues - total expenses. D) total revenues - total expenses + capital. Answer: C Diff: 2 LO: 2-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

14) Which type of account would NOT be reported on the balance sheet? A) Expense B) Cash C) Accounts Payable D) Equipment Answer: A Diff: 1 LO: 2-3 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 15) What is X-cel Company's net income or net loss if it had Revenue of $2200, Salary Expense of $700, Utility Expense of $350, and Withdrawals of $3000 during October? A) $1850 net income B) $1150 net loss C) $1150 net income D) $1850 net loss Answer: C Explanation: $2200 - $700- $350 = $1150 Diff: 2 LO: 2-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 16) The income statement is a financial statement. Answer: TRUE Diff: 2 LO: 2-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 17) The financial statements contain debit and credit columns. Answer: FALSE Diff: 2 LO: 2-3 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 18) Withdrawals and expenses are reported on the income statement. Answer: FALSE Diff: 2 LO: 2-3 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

19) Accounts Payable appears on the income statement. Answer: FALSE Diff: 1 LO: 2-3 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 20) Wages Expense appears on the balance sheet. Answer: FALSE Diff: 1 LO: 2-3 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 21) Determine the ending owner's equity of a business having a beginning owner's equity of $8,500, additional investments of $600, withdrawals of $1,000, and net income of $1,200. $ ________ Answer: $9,300 [$8,500 + $600 - $1,000 + $1,200] Diff: 2 LO: 2-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 22) Determine the beginning owner's equity of a business having an ending owner's equity of $3,500, additional investments of $600, withdrawals of $500, and net loss of $750. $ ________ Answer: $4,150 [$3,500 - $600 + $500 + $750] Diff: 2 LO: 2-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 23) Determine the beginning owner's equity of a business having beginning assets of $9,000 and ending liabilities of $5,000. During the year the liabilities decreased by $1,000. $ ________ Answer: $3,000 [$9,000 - ($5,000 + $1,000)] Diff: 2 LO: 2-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

24) Number the following types of accounts (1-6) as they would appear on the Trial Balance. ________ Assets ________ Capital ________ Revenue ________ Liabilities ________ Withdrawals ________ Expenses Answer: 1 Assets 3 Capital 5 Revenue 2 Liabilities 4 Withdrawals 6 Expenses Diff: 2 LO: 2-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 25) The following is a list of accounts and their balances for Myra's Company for the month ended May 31, 20XX. Prepare a trial balance in good form. Cash Accounts Payable Office Equipment Myra, Capital

$1,710 Myra, Withdrawals 1,000 Accounts Receivable 1,760 Service Fees Earned 3,465 Rent Expense

$980 1,200 1,835 650

Answer: Myra's Company Trial Balance May 31, 20XX Debit Credit Cash 1,710 Accounts Receivable 1,200 Office Equipment 1,760 Accounts Payable 1,000 Myra, Capital 3,465 Myra, Withdrawals 980 Service Fees Earned 1,835 Rent Expense 650 ____ Totals

6,300

26) The following is a list of accounts and their balances for Benson Company for the month ended June 30, 20XX. Prepare a trial balance in good form. Cash Accounts Payable Office Equipment Benson, Capital

$1,170 Benson, Withdrawals 1,270 Accounts Receivable 1,600 Service Fees Earned 1,500 Salaries Expense

$500 1,100 2,230 630

Answer: Benson Company Trial Balance June 30, 20XX Debit Credit Cash 1,170 Accounts Receivable 1,100 Office Equipment 1,600 Accounts Payable 1,270 Benson, Capital 1,500 Benson, Withdrawals 500 Service Fees Earned 2,230 Salaries Expense 630 ____ Totals

5,000

Diff: 2 LO: 2-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

27) From the following Trial Balance for Taylor Company for the month ended June 30, 20XX, prepare the financial statements. Taylor Company Trial Balance June 30, 20XX Debit Credit Cash 2,000 Accounts Receivable 1,100 Office Equipment 3,000 Accounts Payable 2,900 Taylor, Capital 3,100 Taylor, Withdrawals 100 Service Fees Earned 4,200 Rent Expense 1,300 Advertising Expense 500 Salaries Expense 2,200 ____ Totals

10,200

Answer: Taylor Company Income Statement For Month Ended June 30, 20XX Revenue: Service Fees Earned Operating Expenses: Rent Expense Advertising Expense Salaries Expense Total Operating Expenses Net Income

$4,200 $1,300 500 2,200 4,000 $200

Taylor Company Statement of Owner’s Equity For Month Ended June 30, 20XX Taylor, Capital, June 1, 20XX Net Income for June $200 Less: Withdrawals for June 100 Increase in Capital Taylor, Capital, June 30, 20XX

Assets Cash Accounts Receivable Office Equipment Total Assets

$3,100

100 $3,200

Taylor Company Balance Sheet June 30, 20XX Liabilities and Owner’s Equity $2,000 Liabilities 1,100 Accounts Payable 3,000 Owner’s Equity Taylor, Capital $6,100 Total Liabilities and Owner’s Equity

$2,900 3,200 $6,100

Diff: 2 LO: 2-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

College Accounting, 15e (Slater) Chapter 3 Beginning the Accounting Cycle Learning Objective 3-1 1) The process that begins with recording business transactions and concludes with the completion of the financial statements is the: A) operating cycle. B) natural business year. C) fiscal year. D) accounting cycle. Answer: D Diff: 2 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 2) The twelve-month period a business chooses for its accounting period is a(n): A) calendar year. B) accounting period. C) fiscal year. D) accounting cycle. Answer: C Diff: 2 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 3) The time period for which an income statement is prepared is a(n): A) calendar year. B) accounting period. C) fiscal period. D) accounting cycle. Answer: B Diff: 2 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

4) Financial statements that are prepared for a period shorter than a year are called: A) accounting period statements. B) fiscal year statements. C) interim statements. D) periodic statements. Answer: C Diff: 2 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 5) The first step of the accounting cycle is: A) recording journal entries. B) posting to the ledger. C) preparing closing entries. D) analyzing business transactions. Answer: D Diff: 1 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 6) A journal entry affecting three or more accounts is called a: A) multi-level entry. B) multi-step entry. C) compound entry. D) triple-step entry. Answer: C Diff: 1 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 7) Business transactions are first recorded in the: A) ledger. B) journal. C) trial balance. D) interim statement. Answer: B Diff: 1 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

8) Revenue is traditionally recognized in the accounting records when: A) cash is received on account. B) services are rendered and cash may or may not be received. C) cash is received before services are rendered. D) None of the answers are correct. Answer: B Diff: 2 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 9) The general journal: A) is the book of original entry. B) is the book of final entry. C) contains account balances. D) is completed after the closing entries. Answer: A Diff: 2 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 10) The process of initially recording business transactions in a journal is: A) sliding. B) posting. C) journalizing. D) kiting. Answer: C Diff: 1 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 11) When recording a transaction in a journal, the account listed first is the _______ entry. A) debit. B) credit. C) increasing. D) highest dollar. Answer: A Diff: 1 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

12) How are credits distinguished from debits in the journal entry? A) A line separation B) A different color C) Indenting D) There is no distinction. Answer: C Diff: 1 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 13) How are explanations entered in the journal? A) They are underlined. B) They are marked with an X before and after the explanation. C) They are indented below the credit entries. D) They are written in all capital letters, in line with the debit entries. Answer: C Diff: 1 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 14) The journal entry debiting Cash and crediting Capital would be a result of a(n): A) customer payment. B) owner's withdrawal. C) owner’s investment. D) revenue. Answer: C Diff: 1 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 15) If you debit Prepaid Insurance, you most likely will: A) credit Fees Earned. B) credit Capital. C) credit Insurance Expense. D) credit Cash. Answer: D Diff: 1 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

16) The entry to record the payment of office salaries would be: A) Debit Cash; Credit Salaries Payable B) Debit Cash; Credit Salaries Expense C) Debit Salaries Expense; Credit Accounts Payable D) Debit Salaries Expense; Credit Cash Answer: D Diff: 1 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 17) Which of the following entries would record the payment of a utility bill? A) Utilities Expense, debit; Cash, credit B) Cash, debit; Utilities Expense, credit C) Utilities Expense, debit; Accounts Payable, credit D) Accounts Receivable, debit; Utilities Expense, credit Answer: A Diff: 1 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 18) Which of the following entries records the owner taking cash for personal use? A) Wage Expense, debit; Cash, credit B) Capital, debit; Cash, credit C) Withdrawals, debit; Cash, credit D) No entry is necessary since this is a personal transaction. Answer: C Diff: 1 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 19) During the month of June, Jane invested $19,000 in starting her legal practice. The proper journal entry would be: A) Cash, debit $19,000; Jane, Capital, credit $19,000 B) Accounts Payable, debit $19,000; Cash, credit $19,000 C) Cash, debit $19,000; Revenue, credit $19,000 D) Jane's Capital, debit $19,000; Cash, credit $19,000 Answer: A Diff: 1 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

20) Which of the following entries records the acquisition of office supplies for cash? A) Office Supplies 4000 Cash 4000 B) Office Supplies Payable

4000 Accounts

C) Equipment Payable

4000 Accounts

D) Equipment Receivable

4000

4000 Accounts

4000

Answer: A Diff: 1 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 21) During the month of October, Ford advertised on the Internet. Ford received the bill for $500 in October, but waited until November to pay the advertising expense. The journal entry to record the payment in November is: A) Accounts Payable, debit; Cash, credit B) Advertising Expense, debit; Accounts Payable, credit C) Advertising Expense, debit; Cash, credit D) The journal entry is not made in November. Answer: A Diff: 2 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

22) On July 1, Bill's Construction paid six months' insurance in advance. The journal entry to record this transaction is: A) debit Prepaid Insurance; credit Cash B) debit Insurance Expense; credit Accounts Payable C) debit Cash; credit Prepaid Insurance D) debit Cash; credit Insurance Expense Answer: A Diff: 1 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 23) Sue's Book Review billed customers $550 for editing fees. The journal entry to record this transaction is: A) Accounts Receivable, debit $550; Editing Fees, credit $550 B) Editing Fees, debit $550; Sue, Capital, credit $550 C) Accounts Payable, debit $550; Editing Fees, credit $550 D) Cash, debit $550; Accounts Receivable, credit $550 Answer: A Diff: 1 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

24) Bob's catered a reception. The total price was $600. The customer paid half of the fee in cash and placed the remainder on account. The journal entry to record this transaction is: A) Cash 300 Accounts Receivable 300 Catering Service Fees 600 B) Cash Receivable

600 Accounts

C) Cash Fees

600 Catering Service

D) Cash

Fees

600

600 Accounts Receivable Catering Service

300 300

Answer: A Diff: 2 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

25) Renzi's Volleyball Gym purchased equipment for $1300. It made a down payment of $500 with the remainder on account. The journal entry to record this transaction is: A) Cash 800 Accounts Receivable 800 B) Accounts Receivable Cash Equipment C) Supplies

500 800 1300

1300 Cash Accounts Payable

D) Equipment Accounts Payable Cash

800 500

1300 800 500

Answer: D Diff: 2 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

26) The entry to record completing a financial lecture and immediately collecting payment from customers would be: A) Cash 1400 Lecture Fees 1400 B) Cash

1400 Accounts Payable

1400

C) Lecture Fees Cash

1400

D) Lecture Fees Accounts Payable

1400

Answer: A Diff: 1 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 27) CSI completed a performance and collected revenue of $12,000 not previously billed or recorded. The journal entry to record the collection would be: A) Accounts Receivable 12,000 Performance Fees 12,000 B) Cash

12,000 Performance Fees

12,000

C) Accounts Receivable Cash

12,000

D) Performance Fees Cash

12,000

28) The general journal does NOT have a column titled: A) Date. B) Account Titles & Descriptions. C) Dr. and Cr. D) Balance. Answer: D Diff: 1 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 29) A calendar year is: A) any 12-month period that a business chooses for its accounting year. B) the 12-month period beginning with January 1. C) the period for when an interim financial statement would be completed. D) All of these answers are correct. Answer: B Diff: 1 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 30) Interim statements are prepared to: A) notify management of the company's current financial position. B) notify investors of the company's current financial position. C) allow management to make changes to the business before preparing year-end financial statements. D) All of the above are correct. Answer: D Diff: 2 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 31) A transaction completed by Norton Company caused a $10,000 increase in both the total assets and the total liabilities. This transaction could have been: A) purchase of office equipment for $16,000, paying $6000 cash, with the rest on account. B) investment by the owner of an additional $10,000. C) purchase of office equipment, paying $10,000 cash, and $6000 on account. D) a loan of $2000, on a $12,000 purchase of equipment with $10,000 down payment. Answer: A Diff: 2 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

32) Conner Sales' total assets and total liabilities increased $3400. The transaction could have been: A) purchase of supplies for cash, $3400. B) purchase of supplies for $3700 with a down payment of $300 and the remainder on account. C) paid the rent for the month, $3400. D) None of these answers is correct. Answer: B Diff: 2 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 33) Which of the following accounts would be debited in a proper journal entry? A) Notes Payable when it is increased B) Accounts Receivable when it is increased C) Cash when it is decreased D) Capital when it is increased Answer: B Diff: 1 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 34) Normally, with a cash withdrawal, Withdrawals will increase and: A) Cash decreases. B) Owner's Equity increases. C) Cash increases. D) Expense increases. Answer: A Diff: 2 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 35) If Accounts Receivable has been credited, it is most likely that: A) the company collected a payment from a customer. B) the company made a payment on account. C) the company made a purchase on account. D) None of these is possible. Answer: A Diff: 2 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

36) If Accounts Payable has been credited, it is most likely that: A) a collection from a customer was made. B) a service was provided on account. C) the company made a purchase and will pay for the purchase next month. D) None of these is possible. Answer: C Diff: 1 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 37) The journal entry to record an investment by the owner would most commonly include: A) a debit to Cash and a credit to Fees Earned. B) a debit to Capital and a credit to Cash. C) a debit to Fees Earned and a credit to Capital. D) a debit to Cash and a credit to Capital. Answer: D Diff: 1 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 38) The journal entry to record a withdrawal by the owner would most commonly include: A) a debit to Wage Expense and a credit to Cash. B) a debit to Capital and a credit to Cash. C) a debit to Withdrawals and a credit to Cash. D) a debit to Cash and a credit to Wage Expense. Answer: C Diff: 1 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 39) The journal entry to record a shift of assets would include: A) a debit to Cash and a credit to Fees Earned. B) a debit to Supplies and a credit to Accounts Payable. C) a debit to Cash and a credit to Accounts Receivable. D) a debit to Fees Earned and a credit to Accounts Receivable. Answer: C Diff: 2 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

40) The general journal entry to record the purchase of an asset for cash would include: A) a debit to Accounts Receivable and a credit to Fees Earned. B) a debit to Equipment and a credit to Accounts Payable. C) a debit to Accounts Payable and a credit to Cash. D) a debit to Supplies and a credit to Cash. Answer: D Diff: 1 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 41) The general journal entry to record a payment to a creditor would most commonly include: A) a debit to Accounts Payable and a credit to Cash. B) a debit to Capital and a credit to Cash. C) a debit to Supplies and a credit to Cash. D) a debit to Cash and a credit to Accounts Payable. Answer: A Diff: 1 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 42) The general journal entry to record the earning of revenue on account would most commonly include: A) a debit to Accounts Receivable and a credit to Capital. B) a debit to Cash and a credit to Capital. C) a debit to Fees Earned and a credit to Cash. D) a debit to Accounts Receivable and a credit to Fees Earned. Answer: D Diff: 2 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 43) Which of the following statements is false regarding a proper journal entry? A) Debits are always listed first in the entry. B) Credits are always indented. C) Skip a line between journal entries. D) Always list the expenses first. Answer: D Diff: 1 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

44) To find an explanation for a transaction, look in the: A) income statement. B) balance sheet. C) journal. D) trial balance. Answer: C Diff: 2 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 45) If Cash has been debited, it is likely that: A) the owner made an investment. B) a customer made a payment on account. C) a customer paid cash for services. D) All of these are possible. Answer: D Diff: 2 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 46) If Prepaid Rent has been debited, it is likely that: A) the rent was paid for three months in advance. B) a bill for the past month's rent was received. C) this month's rent was paid. D) All of these are possible. Answer: A Diff: 1 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 47) If Rent Expense has been debited, it is likely that: A) the rent was paid for three months in advance. B) a copy of the lease was received. C) this month's rent was paid. D) All of these are possible. Answer: C Diff: 2 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

48) If Capital has been credited, it is likely that: A) services were provided to a cash customer. B) services were provided to a charge customer. C) the owner made an investment. D) the owner withdrew cash. Answer: C Diff: 2 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 49) The proper format for a journal entry includes all of the following, except: A) the total amount of debits must equal the total amount of credits. B) skip a line between journal entries. C) the credit portion of the journal entry is always indented. D) debits and credits are listed in the order of highest dollar value. Answer: D Diff: 2 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 50) An overpayment was discovered in computing and paying the wages of a Plum Hollow Country Club employee. When the employee returns the amount of the overpayment, Plum Hollow should make which of the following entries? A) Cash, debit; Wages Expense, credit B) Wages Payable, debit; Wages Expense, credit C) Wages Expense, debit; Cash, credit D) Cash, debit; Wages Payable, credit Answer: A Diff: 2 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 51) Which of the following accounts would be credited in a proper journal entry? A) Cash when it is increased B) Accounts Receivable when it is increased C) Expenses when it is increased D) Accounts Payable when it is increased Answer: D Diff: 2 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

52) If Fees Earned has been credited, it is most likely that: A) services were provided. B) the owner made an investment. C) a correcting entry for the overstatement of revenue was recorded. D) a customer paid in advance. Answer: A Diff: 1 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 53) If Accounts Payable has been debited, it is most likely that: A) a payment was made on account. B) a purchase was made on account. C) a charge customer made a payment. D) an expense was paid with cash. Answer: A Diff: 2 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 54) If Accounts Payable has been credited, it is most likely that: A) a sale was made on account. B) a purchase was made on account. C) a correcting entry was made for the overstatement of the purchase of equipment on account. D) a customer paid a bill on account. Answer: B Diff: 2 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 55) An income statement shows revenues and expenses over a period of time. Answer: TRUE Diff: 2 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 56) A fiscal year is always January 1 through December 31. Answer: FALSE Diff: 2 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

57) Transactions are listed in chronological order in the journal. Answer: TRUE Diff: 1 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 58) Insurance paid in advance is an expense. Answer: FALSE Diff: 2 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 59) Interim statements are statements that are prepared for a minimum of 6 months of the fiscal year. Answer: FALSE Diff: 2 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 60) A journal is called the book of final entry. Answer: FALSE Diff: 2 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 61) A business's fiscal year that ends at the same time as the slow seasonal period begins is the natural business year. Answer: TRUE Diff: 2 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 62) The debit part of the transaction is recorded second in a journal entry. Answer: FALSE Diff: 2 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

63) The debit is indented in a journal entry. Answer: FALSE Diff: 1 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 64) A compound journal entry affects more than two accounts in the transaction. Answer: TRUE Diff: 2 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 65) A company would review the journal if an account balance was needed. Answer: FALSE Diff: 2 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

66) Prepare in proper form journal entries for the following transactions. Omit explanations. December 2 Owner made a cash investment into the company $2,500 6 Bought supplies on account $100. 10 Paid salaries, $700 16 Paid for supplies purchased on December 6 21 Received company telephone bill, to be paid later, $50 Answer: Date Account Title Dr. Cr. Dec. 2 Cash 2,500 Capital 2,500 6

Supplies Accounts Payable

100

Salaries Expense Cash

700

Accounts Payable Cash

100

Telephone Expense Accounts Payable

100

700

100

Diff: 3 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

67) Journalize, in proper form, the following transactions that occurred during September. Omit explanations. September 5 Mike invested $13,000 cash and $20,000 of equipment into his new business 10 Paid three months' rent in advance, $2,400 23 Withdrew $400 from the business 24 Billed a client for services rendered, $18,000 Answer: Date Account Title Debit Credit Sept. 5 Cash 13,000 Equipment 20,000 Mike, Capital 33,000 10

Prepaid Rent Cash Mike, Withdrawals Cash Accounts Receivable Service Revenue

2,400 2,400 400 400 18,000 18,000

Diff: 3 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

68) James Company began business in July. Prepare the following transactions for July. Omit explanations. July 2 James invested $3,000 cash and $1,000 equipment into the new business 12 Billed a customer for services performed, $600 16 Purchased equipment on account, $200 20 Received one-half of the amount due from June 12 25 James withdrew cash for personal use, $150 Answer: Date Account Title Debit Credit July 2 Cash 3,000 Equipment 1,000 James, Capital 4,000 12

Accounts Receivable Service Revenue

600

Equipment Accounts Payable

200

Cash

300

600

200

Accounts Receivable 25

James, Withdrawals Cash

300 150 150

Diff: 3 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

69) Record the following selected transactions for January in a two-column journal, identifying each entry by letter: (a) Earned $8,000 fees; customer will pay later. (b) Purchased equipment for $50,000, paying $20,000 in cash and the remainder on credit.. (c) Paid $3,000 for rent for January. (d) Purchased $2,500 of supplies on account. (e) Allen made a $1,000 investment in the company. (f) Received $7,000 in cash for fees earned previously. (g) Paid $1,500 to creditors on account. (h) Paid wages of $6,250. (i) Received $7,150 from customers on account. (j) Allen withdrawal of $2,000.

Answer: Item Account Title a Accounts Receivable Fees Earned b

Debit

Credit 8,000 8,000

Equipment Cash Accounts Payable

50,000

Rent Expense Cash

3,000

Supplies Accounts Payable

2,500

Cash

1,000

20,000 30,000

3,000

2,500

Allen, Capital f

1,000

Cash

7,000 Accounts Receivable

7,000

Accounts Payable Cash

1,500

Wages Expense Cash

6,250

Cash

7,150

1,500

6,250

Accounts Receivable j

Allen, Withdrawals Cash

7,150 2,000 2,000

Diff: 3 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 70) Define and discuss a calendar year, accounting period, and fiscal year. Answer: A calendar year runs from January 1 to December 31. An accounting period is the period of time for which an income statement is prepared. It could be a day, a month, a quarter of the year, or a year. A fiscal year is any 12-month period a business chooses for its accounting year. It could run, for example, from February 1 to January 31 or from October 1 to September 30. Diff: 2 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 24 Copyright © 2023 Pearson Education, Inc.

71) Provide an explanation for the following journal entries: a) Prepaid Rent debited; Cash credited b) Office supplies debited; Cash credited c) Cash debited; Capital credited d) Utility expense debited; Cash credited e) Accounts Payable debited; Cash credited Answer: a) Paid rent in advance b) Purchased supplies and paid for them right away c) Owner invested cash in the company d) Received an utility bill and paid it immediately e) Made payment on account Diff: 2 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 72) Complete the following entries by using a "debit" or "credit." a) Received payment from a customer. Cash would have a:

________

b) Owner makes an investment of equipment. Capital would have a: ________ c) Paid rent in advance. Prepaid Rent would have a:

________

d) Billed a customer for services rendered. Revenue would have a:

________

e) Paid an advertising bill received last month. Cash would have a: ________ f) Owner withdrew cash. Withdrawals would have a: ________ Answer: a) Debit b) Credit c) Debit d) Credit e) Credit f) Debit Diff: 2 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

73) What are interim financial statements? Answer: Interim financial statements are prepared for a month, quarter or some other portion of the fiscal year. They provide information about the company's financial status to its management, investors, etc. at a given point in time. Interim statements allow management to review the results and make changes prior to the fiscal year-end. Diff: 2 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 74) Complete the following questions based on the journal entry below: GENERAL JOURNAL Date Acct. Titles and Description June 1 Cash Accounts Receivable

PR 110 112

a) Date of Journal entry:

___________

b) Name of account debited:

___________

c) Name of account credited:

___________

d) Provide an explanation for this entry:

___________

e) Page of Journal:

___________

f) Account number for Cash:

___________

Debit 6,000

Page 1 Credit 6,000

g) Account number for Accounts Receivable: ___________ Answer: a) June 1 b) Cash c) Accounts receivable d) Received payment on account from customer e) Page 1 f) 110 g) 112 Diff: 2 LO: 3-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

Learning Objective 3-2 1) The purpose of posting is to: A) record the transactions in chronological order in the journal. B) provide an explanation of the transaction. C) update the account balances in the ledger. D) correct a previous entry. Answer: C Diff: 2 LO: 3-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 2) Posting is performed by transferring information from the journal to the: A) balance sheet. B) trial balance. C) ledger. D) income statement. Answer: C Diff: 2 LO: 3-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 3) The general ledger: A) is after the trial balance. B) is the book of final entry. C) lists the transactions in chronological order. D) is before the general journal. Answer: B Diff: 2 LO: 3-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 4) "PR" in the general journal and general ledger stands for: A) past reference. B) posting reference. C) prior receipt. D) post review. Answer: B Diff: 1 LO: 3-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

5) The posting reference column in the ledger is: A) used to record the journal page number the journal entries originated from. B) used to record the account number in the ledger. C) used to record the date. D) not used. Answer: A Diff: 2 LO: 3-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 6) A credit to a liability account was posted to the capital account. This would cause: A) assets to be understated. B) liabilities to be understated. C) owner's equity to be understated. D) net income to be overstated. Answer: B Diff: 1 LO: 3-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 7) A credit to an asset account was posted to a liability account. This would cause: A) assets to be overstated. B) liabilities to be understated. C) capital to be understated. D) revenue to be overstated. Answer: A Diff: 2 LO: 3-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 8) A credit to an asset account was posted to an expense account. This would cause: A) assets to be understated. B) liabilities to be understated. C) capital to be understated. D) expenses to be understated. Answer: D Diff: 2 LO: 3-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

9) A debit to an expense account was posted to an asset account. This would cause: A) assets to be overstated. B) liabilities to be understated. C) capital to be understated. D) expenses to be overstated. Answer: A Diff: 2 LO: 3-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 10) A debit to the liability account was posted to an expense account. This would cause: A) assets to be overstated. B) liabilities to be understated. C) capital to be overstated. D) liabilities to be overstated. Answer: D Diff: 2 LO: 3-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 11) A debit to an asset account was posted to a liability account. This would cause: A) assets to be overstated. B) liabilities to be understated. C) capital to be overstated. D) revenue to be overstated. Answer: B Diff: 2 LO: 3-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 12) A debit to the Accounts Receivable account was posted to an Expenses account. This would cause: A) assets to be understated. B) liabilities to be overstated. C) assets to be overstated. D) expenses to be understated. Answer: A Diff: 2 LO: 3-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

13) The informal listing of the ledger accounts and their balances in the ledger to aid in proving the equality of debits and credits is the: A) journal. B) balance sheet. C) income statement. D) trial balance. Answer: D Diff: 2 LO: 3-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 14) A debit to an Expenses account was posted to a Revenue account. This would cause: A) expenses to be overstated. B) revenue to be overstated. C) expenses to be understated. D) None of the above Answer: C Diff: 2 LO: 3-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 15) A debit to a Liability account was posted to an Expense account. This would cause: A) assets to be overstated. B) liabilities to be understated. C) owner's equity to be overstated. D) expenses to be overstated. Answer: D Diff: 2 LO: 3-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 16) A credit to a Liability account was posted to a Revenue account. This would cause: A) assets to be overstated. B) liabilities to be understated. C) capital to be understated. D) revenue to be understated. Answer: B Diff: 2 LO: 3-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

17) The posting reference column in the general journal: A) shows which journal entries have been posted to the ledger. B) displays to which accounts the journal entries have been posted. C) allows us to cross reference to the general ledger. D) All of the above are correct. Answer: D Diff: 2 LO: 3-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 18) The posting reference column in the journal is used for: A) recording the source document's identification number. B) recording the account number to which the entry was posted. C) recording the posted account's initials. D) recording the initials of the person who did the posting. Answer: B Diff: 2 LO: 3-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 19) The proper sequence used in recording a business transaction is: A) analyze, post, journalize, post the account balance, and complete the PR column in the journal. B) analyze, journalize, post, calculate the account balance, and complete the PR column in the journal. C) analyze, journalize, post, complete the PR column in the journal, and calculate the account balance. D) journalize, analyze, post, post the account balance, and complete the PR column in the journal. Answer: B Diff: 2 LO: 3-1, 3-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 20) Posting is the process of transferring information from the ledger to the trial balance. Answer: FALSE Diff: 2 LO: 3-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 21) Posting is the process of entering amounts in the journal. Answer: FALSE Diff: 2 LO: 3-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

22) The process of transferring the data from the journal to the ledger accounts is called posting. Answer: TRUE Diff: 2 LO: 3-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 23) A running balance is maintained in the journal after each journal entry is posted. Answer: FALSE Diff: 2 LO: 3-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

24) Post the following journal entries to the ledger of Perry Company. The partial chart of accounts of Perry Company is as follows: 100 Cash 120 Equipment 210 Accounts Payable 300 Perry, Capital GENERAL JOURNAL Date Acct. Titles and Description April 1 Cash Perry, Capital Cash investment by owner 5

Debit 30,000

30,000

Equipment Cash Accounts Payable Purchased equipment on account and with cash

4,000 1,000 3,000

Cash Date

Explanation

Debit

Credit

Account 100 Debit Credit Balance Balance

Credit

Account 120 Debit Credit Balance Balance

Credit

Account 210 Debit Credit Balance Balance

Credit

Account 300 Debit Credit Balance Balance

Equipment Date

Explanation

Debit

Accounts Payable Date

Explanation

Debit

Perry, Capital Date

Explanation

Page 1 Credit

Debit

Answer: Cash Date April 1 5

Explanation

PR GJ1 GJ1

Account 100 Debit Credit Debit Credit Balance Balance 30,000 30,000 1,000 29,000

PR GJ1

Account 120 Debit Credit Balance Balance 4,000

Equipment Date April 5

Explanation

Debit Credit 4,000

Accounts Payable Date April 5

Explanation

PR GJ1

Debit

Perry, Capital Date April 1

Explanation

PR GJ1

Debit

Account 210 Debit Credit Credit Balance Balance 3,000 3,000 Account 300 Debit Credit Credit Balance Balance 30,000 30,000

Diff: 2 LO: 3-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 25) Describe the difference in information contained in the general journal vs. the general ledger. Answer: The general journal provides a listing of day-to-day transactions listed in chronological order. It displays the date, titles of the account(s) that are debited, titles of account(s) that are credited, the respective amounts of those debits and credits and the explanation of the transaction. It also includes the post reference column so that you can verify that the transaction was posted to the ledger. The general ledger is a complete "book" of all accounts used by the company. The ledger keeps an account page for each account along with the running balance of each specific account based on the journal entries posted. It displays the date of journal entries and the amount of each account in the journal entry. It also includes the post reference column which shows the journal and page number where the journal entry is journalized. Diff: 2 LO: 3-1, 3-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

26) Post the following to the ledger of Smith Services. The partial chart of accounts is: 111 Cash 121 Accounts Receivable 125 Supplies 211 Accounts Payable 300 Smith, Capital 411 Service Fees Earned GENERAL JOURNAL Date Acct. Titles and Description May 1 Accounts Receivable Service Fees Earned Billed customer for services provided 2

Cash

Debit 22,000

22,000

30,000

Smith, Capital Owner made additional investment 4

30,000

Supplies Accounts Payable Purchase supplies on account

4,000

Accounts Payable Cash Paid amount due on account

3,000

4,000

3,000

Cash Date

Explanation

Debit

Credit

Account 111 Debit Credit Balance Balance

Credit

Account 121 Debit Credit Balance Balance

Credit

Account 125 Debit Credit Balance Balance

Accounts Receivable Date

Explanation

Debit

Supplies Date

Explanation

Page 1 Credit

Debit

Accounts Payable Date

Explanation

Debit

Credit

Account 211 Debit Credit Balance Balance

Credit

Account 300 Debit Credit Balance Balance

Credit

Account 411 Debit Credit Balance Balance

Smith, Capital Date

Explanation

Debit

Service Fees Earned Date

Explanation

Debit

Answer: Cash Date May 2 5

Explanation

PR GJ1 GJ1

Account 111 Debit Credit Debit Credit Balance Balance 30,000 30,000 3,000 27,000

PR GJ1

Debit Credit 22,000

Account 121 Debit Credit Balance Balance 22,000

PR GJ1

Debit Credit 4,000

Account 125 Debit Credit Balance Balance 4,000

PR GJ1 GJ1

Account 211 Debit Credit Debit Credit Balance Balance 4,000 4,000 3,000 1,000

PR GJ1

Account 300 Debit Credit Credit Balance Balance 30,000 30,000

Accounts Receivable Date May 1

Explanation

Supplies Date May 4

Explanation

Accounts Payable Date May 4 5

Explanation

Smith, Capital Date May 2

Explanation

Debit

Service Fees Earned Date May 1

Explanation

PR GJ1

Debit

Account 411 Debit Credit Credit Balance Balance 22,000 22,000

Diff: 2 LO: 3-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

Learning Objective 3-3 1) If the debit and credit totals of a trial balance are not equal, it could be due to the following type of error: A) Failure to record an entire transaction B) Recording the same erroneous amount for both the debit and the credit sides of a transaction C) Incorrectly calculating the debit side total of the trial balance D) Recording the same transaction more than once Answer: C Diff: 2 LO: 3-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 2) If the business records a number as 971 and it should be 179, this error would be called: A) a rearrangement. B) a slide. C) a transposition. D) None of the above Answer: C Diff: 2 LO: 3-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 3) If a trial balance is not equal, you should first: A) re-compute the ledger balances. B) trace all postings. C) re-add the trial balance and calculate the difference between the debit and credit columns. D) match debits and credits in the journal. Answer: C Diff: 2 LO: 3-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

4) Which of the following errors would cause the trial balance to be out of balance? A) The payment of utilities expense was recorded as a debit to Rent Expense for $97 and a credit to Cash for $97. B) The payment of an account payable for $100 was recorded as a debit to Cash, $100, and a credit to Accounts Payable, $100. C) The collection of an account was not recorded. D) The payment of an account payable for $700 was recorded as a debit to Accounts Payable for $700 and a credit to Cash for $7000. Answer: D Diff: 2 LO: 3-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 5) Which of the following transactions would cause the trial balance to be out of balance? A) A debit to Cash and a debit to Equipment for the same amount B) A credit to Cash and a debit to Supplies for the same amount C) A debit to Accounts Receivable and a credit to Accounting Fees for the same amount D) All of these answers are correct. Answer: A Diff: 2 LO: 3-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 6) Supplies were purchased and paid for with a $1500 check. The transaction was journalized and posted as $150. The entry to correct this error is: A) debit Supplies, $1350; credit Cash, $1350. B) debit Cash, $1350; credit Supplies, $1350. C) debit Supplies, $150; credit Cash, $150. D) debit Cash, $150; credit Supplies, $150. Answer: A Diff: 3 LO: 3-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 7) Proof that the dollar amount of the debits equals the dollar amount of the credits in the ledger means: A) all of the information from the journal was correctly transferred to the ledger. B) all accounts have their correct balances in the ledger. C) only the ledger is accurate; the journal may be incorrect. D) only that the debit dollar amounts equal the credit dollar amounts. Answer: D Diff: 2 LO: 3-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 39 Copyright © 2023 Pearson Education, Inc.

8) In preparing the trial balance of the J&J's Bridal Service, the Withdrawals account (which had a normal balance in the general ledger) was listed as a credit for $600. What will be the difference between the debit and credit columns of the trial balance? A) $150 B) $250 C) $600 D) $1,200 Answer: D Diff: 3 LO: 3-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 9) The trial balance: A) includes all accounts in the ledger with a balance. B) includes assets, liabilities, capital, withdrawals, revenues and expenses. C) ensures that debits equal credits. D) All of the above are correct. Answer: D Diff: 2 LO: 3-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 10) To correct an error made in the journal (after posting in the ledger): A) erase the error and write the correct entry. B) write a new journal entry correcting the original entry. C) No adjustment is required. D) None of the above is correct. Answer: B Diff: 3 LO: 3-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 11) When the trial balance includes a debit column total of $10,390 and a credit column total of $10,910, it is probable that: A) a $260 credit was recorded as a debit. B) a $260 debit was recorded twice. C) a $260 credit was recorded twice. D) a $260 debit was recorded as a credit. Answer: D Diff: 3 LO: 3-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

12) The trial balance lists the accounts: A) alphabetically. B) in the same order as in the ledger. C) all debits first and then the credits. D) In the order of highest dollar value. Answer: B Diff: 2 LO: 3-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 13) A trial balance is a list of the accounts and their ledger balances. Answer: TRUE Diff: 1 LO: 3-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 14) The trial balance proves the accuracy of the ledger. Answer: FALSE Diff: 1 LO: 3-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 15) A slide is evenly divisible by the number 8. Answer: FALSE Diff: 2 LO: 3-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 16) The trial balance listing is in the opposite order of the chart of accounts. Answer: FALSE Diff: 2 LO: 3-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 17) Journalizing a transaction with both the debit and the credit for $87 instead of the correct amount of $78 will cause the trial balance to be out of balance. Answer: FALSE Diff: 2 LO: 3-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

18) If the trial balance is in balance, it proves that all transactions were properly journalized. Answer: FALSE Diff: 2 LO: 3-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 19) Correctly posting a transaction twice will cause the trial balance column totals to be unequal. Answer: FALSE Diff: 2 LO: 3-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 20) A slide is an error that results when zeros have been added or deleted when writing an amount. Example: 10,000 is written as 1,000. Answer: TRUE Diff: 2 LO: 3-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 21) The order of the flow of accounting data is to (1) post in a ledger, (2) record in a journal, (3) prepare a trial balance. Answer: FALSE Diff: 2 LO: 3-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 22) The dollar amount of the debits must be equal to the dollar amount of the credits for each journal entry. Answer: TRUE Diff: 1 LO: 3-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

23) All nine transactions for Ross Realty for June 202X, the first month of operation, are recorded in the following T accounts:

Prepare a trial balance, listing the accounts and their balances in proper order. Answer: Ross Realty Trial Balance June 30, 202X Debit Credit Cash 12,600 Accounts Receivable 400 Supplies 7,500 Equipment 22,500 Accounts Payable 20,500 Greg Ross, Capital 20,000 Greg Ross, Withdrawals 2,000 Fees Earned 9,000 Operating Expense 4,500 _____ Totals 49,500 49,500 Diff: 2 LO: 3-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

24) The following trial balance has been improperly completed. All the accounts have normal balances. Prepare a corrected trial balance in good form. Danielson Online Company Trial Balance March 31, 202X Salaries Expense Rent Expense Accounts Receivable 40 Equipment 2,250 Danielson, Capital 1,800 Danielson, Withdrawals Service Fees Earned 2,050 Accounts Payable Cash _____

2,000 2,210

Totals

5,560

6,140

200 250

900

Answer: Danielson Online Company Trial Balance March 31, 202X Cash 2,210 Accounts Receivable 40 Equipment 2,250 Accounts Payable 2,000 Danielson, Capital 1,800 Danielson, Withdrawals 900 Service Fees Earned 2,050 Rent Expense 250 Salaries Expense 200 _____ _____ Totals 5,850 5,850 Diff: 2 LO: 3-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

25) John, a new employee, is not sure of the effect the following unrelated situations would have on the accuracy of the financial statements. Identify the account(s) that are affected and if the trial balance would balance. a. Equipment was purchased for $900 cash. The debit was recorded properly, but the credit was omitted. b. A debit to Cash for $250 was posted as $2,500; the credit was posted correctly. c. A purchase of supplies on account for $75 was posted as a debit to Supplies and a credit to Cash. Answer: a. Cash is overstated by $900; the debit side is $900 greater than the credit side on the trial balance. The trial balance would not balance. b. Cash is overstated by $2,250; the debit side is $2,250 greater than the credit side on the trial balance. The trial balance would not balance. c. Accounts Payable and Cash are both understated by $75. The trial balance would balance. Diff: 3 LO: 3-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

College Accounting, 15e (Slater) Chapter 4 The Accounting Cycle Continued Learning Objective 4-1 1) A form used to organize and check data before preparing financial reports is known as a(n): A) statement of financial position. B) income statement. C) ledger. D) worksheet. Answer: D Diff: 2 LO: 4-1 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 2) Bringing account balances up to date before preparing financial reports is called: A) posting. B) adjusting. C) journalizing. D) closing. Answer: B Diff: 2 LO: 4-1 AACSB: Reflective Thinking Learning Outcome: Define and record adjusting entries 3) An adjustment for Prepaid Rent Expense would indicate: A) the amount originally paid. B) the amount expired. C) the amount of the ending balance. D) the amount of the beginning balance. Answer: B Diff: 2 LO: 4-1 AACSB: Reflective Thinking Learning Outcome: Define and record adjusting entries

4) If the balance of supplies at the start of the month was $1000 and at the end of the month you had $500 on hand, the adjustment for Supplies would be: A) $500 . B) $600 . C) $400 . D) $1000. Answer: A Diff: 2 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 5) The adjustment to record supplies used during the period would be: A) debit Supplies; credit Supplies Expense. B) debit Supplies Expense; credit Cash. C) debit Supplies Expense; credit Supplies. D) debit Supplies; credit Cash. Answer: C Diff: 2 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 6) A contra-asset is: A) a liability. B) an asset with a debit balance. C) an account with an opposite balance of a normal asset account. D) a revenue account. Answer: C Diff: 2 LO: 4-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 7) If the adjustment for Supplies used during the period was NOT made: A) expenses would be too low. B) assets would be too low. C) expenses would be too high. D) revenue would be too low. Answer: A Diff: 3 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries

8) NOT recording the Prepaid Rent Expense used causes: A) assets to be too low. B) liabilities to be too high. C) expenses to be too low. D) revenue to be too low. Answer: C Diff: 3 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 9) Prepaid Rent is considered to be a(n): A) liability. B) asset. C) contra-asset. D) expense. Answer: B Diff: 1 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 10) As Prepaid Rent is used, it becomes a(n): A) liability. B) expense. C) contra-asset. D) contra-revenue. Answer: B Diff: 2 LO: 4-1 AACSB: Reflective Thinking Learning Outcome: Define and record adjusting entries 11) If the expired Prepaid Rent for the period is NOT adjusted: A) assets will be overstated and expenses will be overstated. B) assets will be overstated and expenses will be understated. C) assets will be understated and expenses will be overstated. D) revenue will be understated and expenses will be understated. Answer: B Diff: 2 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries

12) If the Supplies account is NOT adjusted for supplies that are used: A) assets will be overstated and expenses will be understated. B) assets will be overstated and expenses will be overstated. C) assets will be understated and expenses will be overstated. D) assets will be understated and expenses will be understated. Answer: A Diff: 2 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 13) When historical cost is used to record equipment, it would appear as the: A) original cost in the Equipment account on the balance sheet. B) residual value in the Stockholders' Equity account. C) residual value in an asset account on the balance sheet. D) original cost on the income statement. Answer: A Diff: 2 LO: 4-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 14) When original cost is used in the accounting records, the book value of the plant asset is: A) the original cost. B) the market value. C) original cost less accumulated depreciation. D) closed out. Answer: C Diff: 2 LO: 4-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 15) The cost of an asset less accumulated depreciation equals: A) residual value. B) original cost. C) depreciation expense. D) book value. Answer: D Diff: 2 LO: 4-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

16) After the adjustment for depreciation has been made, the original cost of the equipment as reported on the balance sheet: A) increases with a credit. B) decreases with a debit. C) remains the same. D) is transferred to a liability. Answer: C Diff: 2 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 17) The adjustment that is made to allocate the cost of a building over its expected life is called: A) depreciation expense. B) residual value. C) accumulated depreciation. D) None of the above answers are correct. Answer: A Diff: 2 LO: 4-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 18) Bob purchased a truck for $54,000 with a residual value of $29,000 and a life of 4 years; using straightline depreciation, the amount of the depreciation adjustment for the first year would be: A) $13,500. B) $6250. C) $7250. D) $6750. Answer: B Explanation: (purchase price – residual value) / life = ($54,000 - $29,000) / 4 = $6250 Diff: 2 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 19) Which of the following would be an example of a contra-asset? A) Depreciation Expense B) Unearned Revenue C) Accumulated Depreciation D) Prepaid Rent Answer: C Diff: 2 LO: 4-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 5 Copyright © 2023 Pearson Education, Inc.

20) Residual value is the: A) estimated value of the asset when it is purchased. B) estimated value of the asset at the end of its useful life. C) cost of the asset. D) same as book value. Answer: B Diff: 2 LO: 4-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 21) The estimated value of equipment at the end of its useful life is: A) depreciation expense. B) residual value. C) accumulated depreciation. D) book value. Answer: B Diff: 1 LO: 4-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 22) As accumulated depreciation is recorded, the net book value: A) increases. B) decreases. C) remains the same. D) equals zero. Answer: B Diff: 2 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 23) To record accrued salaries, you would: A) debit Cash and credit Salaries Payable. B) debit Salaries Payable and credit Salaries Expense. C) debit Salaries Expense and credit Salaries Payable. D) debit Salaries Expense and credit Cash. Answer: C Diff: 2 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries

24) What type of account is Salaries Payable? A) Asset B) Contra-Asset C) Liability D) Revenue Answer: C Diff: 1 LO: 4-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 25) Unlimited Doors showed supplies available during the year of $2300. A count of the supplies on hand as of October 31 is $1600. The adjusting entry for Store Supplies would include: A) a debit to Store Supplies Expense for $1600. B) a credit to Store Supplies Expense for $1600. C) a debit to Store Supplies for $700. D) a debit to Store Supplies Expense for $700. Answer: D Diff: 2 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 26) Alcatraz Boat Tours showed store supplies available during the year, $600. If at the end of the month supplies used were $200, the adjusting entry would include a: A) debit to Supplies Expense for $200. B) debit to Supplies Expense for $400. C) credit to Supplies Expense for $200. D) credit to Supplies Expense for $400. Answer: A Diff: 2 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 27) Larry's Snowboards estimated depreciation for office equipment at $450. The adjusting entry to record the depreciation would include: A) a debit to Office Equipment for $450. B) a credit to Depreciation Expense, Office Equipment for $450. C) a credit to Accumulated Depreciation, Office Equipment for $450. D) a credit to Office Equipment for $450. Answer: C Diff: 2 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries

28) Simpson Golf Academy estimated depreciation on its building at $400. The adjusting entry for depreciation of the building would be: A) a debit to Building for $400; a credit to Accumulated Depreciation, Building for $400. B) a debit to Depreciation Expense, Building for $400; a credit to Accumulated Depreciation, Building for $400. C) a debit to Depreciation Expense, Building for $400; a credit to Building for $400. D) a debit to Accumulated Depreciation, Building for $400; a credit to Depreciation Expense, Building for $400. Answer: B Diff: 2 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 29) Sam purchased a 3-year insurance policy for $6480. The adjusting entry for one month would include a: A) debit to Insurance Expense, $180. B) credit to Cash, $180. C) debit to Prepaid Insurance, $180. D) credit to Insurance Expense, $180. Answer: A Explanation: (3 years × 12) = 48 months; $6480 / 36 months = $180 Diff: 2 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 30) Sally's Spices accrued wages of $2100. Which of the following is the required adjusting entry? A) Debit Wages Expense, $2100; credit Wages Payable, $2100 B) Credit Wages Expense, $2100; debit Wages Payable, $2100 C) Debit Cash, $2100; credit Wages Expense, $2100 D) Debit Wages Payable, $2100; credit Cash, $2100 Answer: A Diff: 2 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries

31) Total wages per week are $6700. You have accrued $5400 of wages. The adjusting entry would include which of the following? A) Credit Wages Expense, $5400; debit Wages Payable, $5400 B) Debit Wages Expense, $5400; credit Wages Payable, $5400 C) Debit Wages Expense, $6700; credit Wages Payable, $6700 D) Debit Wages Expense, $6700; credit Cash, $6700 Answer: B Diff: 2 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 32) On November 1, Duane paid $25,500 in advance for a year's rent. The November 30 adjusting entry for rent expense should include a: A) debit Rent Expense, $25,500. B) credit Prepaid Rent Expense, $25,500. C) debit Rent Expense, $2125. D) credit Cash, $2125. Answer: C Explanation: $25,500 / 12 month = $2125 Diff: 2 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 33) The adjusted trial balance on the worksheet shows Accumulated Depreciation, $1400, and Depreciation Expense, $100. What was the balance in the Accumulated Depreciation account before the adjustment? A) $1500 B) $1300 C) $100 D) $1400 Answer: B Explanation: $1400 - $100 = $1300 Diff: 2 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries

34) Great Plains Modeling Agency purchased $1300 of office furniture at the beginning of the month. Depreciation Expense at the end of the month is $700. What is the balance of the Office Furniture account at the end of the month? A) $600 B) $2000 C) $700 D) $1300 Answer: D Diff: 2 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 35) The adjustment for wages earned, but not yet paid is: A) Debit Wages Expense, credit Cash. B) Debit Wages Payable, credit Wages Expense. C) Debit Wages Payable, credit Cash. D) Debit Wages Expense, credit Wages Payable. Answer: D Diff: 2 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 36) Which of the following accounts would most likely NOT need to be adjusted at the end of the year? A) Office Supplies B) Salaries Payable C) Accumulated Depreciation D) Cash Answer: D Diff: 2 LO: 4-1 AACSB: Reflective Thinking Learning Outcome: Define and record adjusting entries 37) Equipment with a cost of $530,000 has an accumulated depreciation of $330,000. What is the book value of the equipment? A) $530,000 B) $330,000 C) $200,000 D) $100,000 Answer: C Diff: 2 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries

38) Equipment with a cost of $150,000 has an accumulated depreciation of $53,000. What is the historical cost of the equipment? A) $150,000 B) $53,000 C) $203,000 D) $97,000 Answer: A Diff: 2 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 39) Baileys received its electric bill for December on December 31 but did not pay nor record it in the general journal. This resulted in: A) understated assets. B) overstated net income. C) overstated liabilities. D) understated net income. Answer: B Diff: 2 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 40) Online Service received its telephone bill for January, but is not going to pay the bill until February. What journal entry is needed to record the transaction when the bill is received in January? A) Debit Telephone Expense; credit Cash B) Debit Accounts Payable; credit Telephone Expense C) Debit Telephone Expense; credit Accounts Payable D) Debit Accounts Payable; credit Cash Answer: C Diff: 2 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 41) Which of the following is most likely to result in an adjusting entry at the end of the period? A) Payment of two months' insurance in advance B) Payment of one month's rent C) Owner's withdrawals D) Owner's investment Answer: A Diff: 2 LO: 4-1 AACSB: Reflective Thinking Learning Outcome: Define and record adjusting entries

42) Assuming no investments were made during the period, the balance of Capital shown on the worksheet is: A) beginning capital. B) ending capital. C) net income. D) equal to owner's withdrawals. Answer: A Diff: 2 LO: 4-1 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 43) Adjusting entries affect: A) the balance sheet. B) the income statement. C) the cash account. D) Both A and B are correct. Answer: D Diff: 3 LO: 4-1 AACSB: Reflective Thinking Learning Outcome: Define and record adjusting entries 44) Which of the following transactions would result in an accrual? A) Salary expense has been incurred but unpaid. B) Rent expired for the month. C) Supplies used during the accounting period. D) Owner's withdrawals. Answer: A Diff: 2 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 45) The adjustment for depreciation was credited to Equipment and debited to Depreciation Expense, Equipment. This would: A) overstate the total assets. B) understate the total assets. C) overstate net income. D) None of these is correct. Answer: D Diff: 3 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries

46) Which of the following accounts would most likely be depreciated? A) Equipment B) Office Supplies C) Investments D) Prepaid Rent Expense Answer: A Diff: 2 LO: 4-1 AACSB: Reflective Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 47) When making the adjustment for prepaid insurance, instead of expensing only the portion of the insurance that reflects the time that has passed, the entire policy was expensed. This would: A) overstate the assets. B) overstate the liabilities. C) understate net income. D) understate expenses. Answer: C Diff: 2 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 48) The adjustment for accrued wages included days from the next accounting period instead of the current accounting period. This would: A) understate the liabilities. B) overstate the liabilities. C) overstate net income. D) None of these is correct. Answer: B Diff: 2 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 49) Historical cost is the same as: A) residual value. B) original cost. C) depreciable value. D) salvage value. Answer: B Diff: 1 LO: 4-1 AACSB: Reflective Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 13 Copyright © 2023 Pearson Education, Inc.

50) An accrued expense for salaries was not recorded. This would: A) overstate assets and overstate liabilities. B) overstate expenses and understate liabilities. C) understate expenses and overstate liabilities. D) understate expenses and understate liabilities. Answer: D Diff: 2 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 51) Depreciation of equipment was recorded twice this period. This would: A) overstate expenses and overstate assets. B) overstate expenses and understate assets. C) understate expenses and overstate assets. D) understate expenses and understate assets. Answer: B Diff: 2 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 52) Adjusting the Supplies account will: A) decrease the total assets and increase the total expenses. B) decrease the total assets and decrease the total expenses. C) increase the total assets and increase the total expenses. D) increase the total assets and decrease the total expenses. Answer: A Diff: 2 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 53) It's the end of the accounting period and no electric bill has been received (but the expense has been incurred); you should record an entry that: A) increases the total revenue and increases the total expenses. B) decreases the total assets and increases the total expenses. C) increases the total liabilities and increases the total expenses. D) decreases the total liabilities and increases the total expenses. Answer: C Diff: 3 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries

54) The entry to record the expiration of part of the Prepaid Rent will: A) decrease total liabilities and increase total expenses at the end of the month. B) decrease total assets and decrease total expenses at the end of the month. C) decrease total assets and increase total expenses at the end of the month. D) increase total revenue and decrease total expenses at the end of the month. Answer: C Diff: 2 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 55) The depreciation of equipment will require an adjustment that results in: A) total assets and total expenses increasing. B) total assets increasing and total expenses decreasing. C) total assets and revenue decreasing. D) total assets decreasing and total expenses increasing. Answer: D Diff: 2 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 56) Which of the following would cause a liability to be credited and an expense to be debited? A) Recording the adjustment for the expiration of rent B) Recording the depreciation of equipment C) Recording the accrual of salaries incurred D) Purchasing equipment Answer: C Diff: 2 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 57) Which of the following would cause a contra-asset to be credited and an expense debited? A) Recording an accrued expense B) Recording the consumption of supplies C) Recording the building depreciation D) All of the above would have that effect. Answer: C Diff: 3 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries

58) Which of the following would cause total assets to decrease and total expenses to increase? A) Recording the depreciation of equipment B) Recording the consumption of supplies C) Recording the expiration of Prepaid Rent Expense D) All of the above would have that effect Answer: D Diff: 2 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 59) It is the year end, but not the pay period end. How will the recording of accrued wages affect the balance sheet? A) Assets will be decreased. B) Liabilities will be increased. C) Owner's equity will be increased. D) Net Income will be increased. Answer: B Diff: 3 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 60) At the start of this year 18 months of rent was paid. At the year's end, how will this affect the balance sheet? A) Assets will be decreased. B) Liabilities will be increased. C) Owner's Equity will be increased. D) Net Income will be increased. Answer: A Diff: 3 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 61) The Prepaid Insurance account has a balance of $33,100, representing a one year advanced payment. If one month has expired, the adjusting entry would be: A) Debit Insurance Expense for $33,100; credit Cash for $33,100. B) Debit Prepaid Insurance for $33,100; credit Cash for $33,100. C) Debit Insurance Expense for $2758, credit Prepaid Insurance for $2758. D) no transaction is needed. Answer: C Diff: 2 LO: 4-1 AACSB: Reflective Thinking Learning Outcome: Define internal controls and list the internal control principles

62) The worksheet is a formal financial statement. Answer: FALSE Diff: 2 LO: 4-1 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 63) Adjustments are necessary to update account balances for internal transactions. Answer: TRUE Diff: 2 LO: 4-1 AACSB: Reflective Thinking Learning Outcome: Define and record adjusting entries 64) An important function of the worksheet is for the accountant to find and correct errors before the financial statements are prepared. Answer: TRUE Diff: 2 LO: 4-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 65) The accounts added below the trial balance, on the worksheet, are always increasing. Answer: FALSE Diff: 2 LO: 4-1 AACSB: Reflective Thinking Learning Outcome: Define and record adjusting entries 66) The Equipment account is directly adjusted downward at the end of the accounting period for depreciation. Answer: FALSE Diff: 2 LO: 4-1 AACSB: Reflective Thinking Learning Outcome: Define and record adjusting entries 67) Accumulated Depreciation is a contra-asset account found on the income statement. Answer: FALSE Diff: 2 LO: 4-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

68) The amount of supplies used during the period would be shown in the adjustment columns of the worksheet. Answer: TRUE Diff: 2 LO: 4-1 AACSB: Reflective Thinking Learning Outcome: Define and record adjusting entries 69) When an asset expires or is used up, it becomes revenue. Answer: FALSE Diff: 2 LO: 4-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 70) If an adjustment to Supplies is not made, the balance in the Supplies account will be understated. Answer: FALSE Diff: 2 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 71) If Prepaid Rent expired at the end of an accounting period, an adjustment is required. Answer: TRUE Diff: 2 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 72) The original cost of equipment is reduced by the amount of Depreciation Expense, Equipment. Answer: FALSE Diff: 2 LO: 4-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 73) The spreading or allocating the cost of a long-term asset, such as a building over time, is called discounting. Answer: FALSE Diff: 2 LO: 4-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

74) Accumulated Depreciation is a Liability account. Answer: FALSE Diff: 1 LO: 4-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 75) The worksheet contains a Depreciation Schedule of Assets. Answer: FALSE Diff: 1 LO: 4-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 76) Depreciation Expense is debited when recording the depreciation for the period. Answer: TRUE Diff: 2 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 77) The use of straight-line depreciation results in equal amounts of depreciation being taken over a a long-term asset’s life. Answer: TRUE Diff: 2 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 78) Prepaid Rent is a contra-asset with a normal balance of a debit. Answer: FALSE Diff: 2 LO: 4-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 79) To compute net income or net loss, the debit and credit columns of the income statement section of the worksheet are totaled, and the difference is placed on the smaller side. Answer: TRUE Diff: 2 LO: 4-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

80) Revenue is recorded only after cash is received, and expenses are recorded only when incurred. Answer: FALSE Diff: 2 LO: 4-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 81) The worksheet is the first financial statement prepared. Answer: FALSE Diff: 2 LO: 4-1 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 82) Equipment was purchased for $50,000, residual value is $2,000 and it is expected that the useful life is 10 years. What is the annual depreciation adjustment amount after the first year assuming straight-line depreciation? $ ________ Answer: $4,800 [$50,000 - $2,000 = $48,000/10 years] Diff: 2 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 83) Equipment was purchased for $50,000, residual value is $2,000 and it is expected that the useful life is 10 years. What is the book value of the equipment after the third year assuming straight-line depreciation? $ ________ Answer: $35,600 [$50,000 – ($4,800 × 3) = $35,600] Diff: 2 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 84) Equipment was purchased for $50,000, residual value is $2,000 and it is expected that the useful life is 10 years. What is the amount in the Accumulated Depreciation account after 6 years assuming straightline depreciation? $ ________ Answer: $28,800 [($4,800 × 6) = $28,800] Diff: 2 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method

85) On January 1 the Prepaid Insurance account had a balance of $6,000 that represented 6 months' worth of advance payment. It is now the end of March and there have been no adjustments to the account balance. Determine the amount of expense to record at the end of March. $ ________ Answer: $3,000 [(6,000/6) × 3 = $3,000] Diff: 2 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 86) On November 30, the balance in the Supplies account was $500. During December additional supplies were purchased of $200. On December 31, there was $200 worth of Supplies on hand. What would be the adjustment for the month of December for Supplies? $ ________ Answer: $500 [$500 + $200 - $200 = $500] Diff: 2 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 87) The company pays $5,000 per 5-day work week. The total of all other expenses as of Friday, April 27 was $20,000. What would be the month's total expenses at the end of the day on Monday, April 30 (assuming no pay is earned over the weekend)? $ ________ Answer: $21,000 [$20,000 + ($5,000/5) = $21,000] Diff: 2 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 88) On the worksheet, the Income Statement debit column totaled $13,000 and the credit column totaled $15,000. What is the amount of Net Income? $ ________ Answer: $2,000 [$15,000 – $13,000 = $2,000] Diff: 2 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 89) On the worksheet, the Balance Sheet debit column totaled $1,400 and the credit column totaled $2,000. What is the amount of Net Loss? $ ________ Answer: $600 [$2,000 - $1,400 = $600] Diff: 2 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 21 Copyright © 2023 Pearson Education, Inc.

90) What is the purpose of adjusting entries? Discuss the effect of not preparing adjusting entries on various accounts. Answer: The purpose of adjusting entries is to adjust the balances in the various accounts to better match revenues and expenses and to update the balances of the assets and liabilities. If adjustments are not prepared, assets might be overstated and expenses understated, or liabilities and expenses might be understated. For example, if an adjustment were not made for accrued salaries, Salaries Expense and Salaries Payable would be understated. Diff: 2 LO: 4-1 AACSB: Written and Oral Communication Learning Outcome: Define and record adjusting entries 91) What are the differences between depreciation expense and accumulated depreciation? Answer: The differences between depreciation expense and accumulated depreciation are: Depreciation expense is an expense account and appears on the income statement. It is used to record the depreciation amount for each period. Accumulated Depreciation is a contra-asset account and appears on the balance sheet. It maintains a running total of the depreciation amount. Diff: 2 LO: 4-1 AACSB: Written and Oral Communication Learning Outcome: Define accounting terms, accounting concepts and principles

92) From the following data, make the following adjustments on the worksheet and total the adjustments columns. a. Depreciation Expense is $400. b. Supplies remaining at end of period $100. c. Prepaid Insurance balance $400, $100 has expired. d. Wages for the 5-day work-week are $1,000; the month ended on a Thursday. Account Trial Balance Adjustments DR CR DR CR Cash 750 Accounts Receivable 400 Supplies 250 Prepaid Insurance 400 Equipment 7,000 Accounts Payable 900 Hall, Capital 7,100 Fees Earned 900 Wages Expense 100 Totals 8,900 8,900

Answer: Account Cash Accounts Receivable Supplies Prepaid Insurance Equipment Accounts Payable Hall, Capital Fees Earned Wages Expense Totals Depreciation Expense, Equipment Accumulated Depreciation, Equipment Supplies Expense Insurance Expense Wages Payable Totals

Trial Balance DR CR 750 400 250 400 7,000

Adjustments DR CR

b) 150 c) 100

900 7,100 900 100 8,900

d) 800 8,900

a) 400

a) 400 b) 150 c) 100 1,450

d) 800 1,450

Diff: 3 LO: 4-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries

Learning Objective 4-2 1) The capital balance amount shown in the balance sheet column of the worksheet represents: A) the beginning capital plus net income interest. B) the beginning capital plus net income less withdrawal. C) the beginning capital less withdrawals plus any investments to capital during the period. D) the beginning capital plus any investments to capital that occurred during the period. Answer: D Diff: 2 LO: 4-2 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

2) When the Balance Sheet credit column total exceeds the debit column total on the worksheet: A) a net loss has occurred. B) a net income has occurred. C) the income statement credit column total exceeds the debit column total on the worksheet. D) None of the above is correct. Answer: A Diff: 2 LO: 4-2 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 3) On a worksheet, the income statement debit column totals $11,400 and the credit column totals $9400. Which of the following statements is correct? A) The company had a net loss of $2000. B) The company had a net income of $2000. C) The company's revenues were greater than expenses. D) None of the above is correct. Answer: A Diff: 2 LO: 4-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 4) On a worksheet, the balance sheet debit column total is $700 and the credit column total is $1800. Which of the following statements is correct? A) The company had a net income of $1100. B) The company had a loss of $1100. C) The company's expenses were less than revenues. D) None of the above is correct. Answer: B Diff: 2 LO: 4-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 5) On a worksheet, the income statement debit column totals $24,400 and the credit column totals $40,300. Which of the following statements is correct? A) The company had a net loss of $15,900. B) The company had a net income of $15,900. C) The company had a $24,400 net income. D) None of the above is correct. Answer: B Diff: 2 LO: 4-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

6) On a worksheet, the balance sheet debit column total is $3,400 and the credit column total is $2,200. Which of the following statements is correct? A) The company had a net income of $1,200. B) The company had a loss of $1,200. C) The company had a $3,400 net income. D) None of the above is correct. Answer: A Diff: 2 LO: 4-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 7) Withdrawals would most likely be found in which sections of the worksheet? A) Income Statement B) Balance Sheet C) Trial Balance D) B and C Answer: D Diff: 2 LO: 4-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 8) The order of the steps to prepare the worksheet are: A) prepare the trial balance, complete adjustments, prepare the adjusted trial balance, extend the respective totals to the Income Statement and Balance Sheet columns. B) complete the adjustments, prepare the adjusted trial balance, prepare the trial balance, extend the respective totals to the Income Statement and Balance Sheet columns. C) extend the totals to the Income Statement and Balance Sheet columns, prepare the trial balance, complete the adjustments, prepare the adjusted trial balance. D) prepare the adjusted trial balance, complete the adjustments, prepare the trial balance, extend the respective totals to the Income Statement and Balance Sheet columns. Answer: A Diff: 3 LO: 4-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 9) On a worksheet, the adjusted trial balance column totals: A) help to ensure the ledger is still in balance. B) help to identify any errors that may have been made during adjustment. C) show updated account balances to aid in preparation of the financial statements. D) All of the above are correct. Answer: D Diff: 2 LO: 4-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 26 Copyright © 2023 Pearson Education, Inc.

10) On the worksheet, the difference between the debit column total and the credit column total in the income statement columns would be the ending owner's equity balance. Answer: FALSE Diff: 2 LO: 4-2 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 11) The debit column total equals the credit column total on the adjusted trial balance columns of the worksheet. Answer: TRUE Diff: 2 LO: 4-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

12) Provide the adjusting entries to account for the differences between the trial balance amounts and the adjusted trial balance amounts for the accounts shown below. Only a partial trial balance is provided.

Supplies Prepaid Rent Equipment Accumulated Depreciation, Equipment Service Fees Depreciation Expense, Equipment Telephone Expense Salaries Expense Rent Expense Supplies Expense Salaries Payable

Trial Balance Debit Credit 500 1,100 10,000 3,000 1,200 150 500

Answer: Date Accounts Supplies Expense Supplies

Debit

Adjusted Trial Balance Debit Credit 250 300 10,000 3,400 1,200 400 150 600 800 250 100

Credit 250 250

Rent Expense Prepaid Rent

800

Depreciation Expense, Equipment Accumulated Depreciation, Equipment

400

Salaries Expense Salaries Payable

100

800

400

100

Diff: 2 LO: 4-1, 4-2 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 13) Determine the ending owner's equity of a business having a beginning owner's equity of $10,500, withdrawals of $1,300, and net income of $9,000. $ ________ Answer: $18,200 [$10,500 - $1,300 + $9,000] Diff: 2 LO: 4-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

14) Four columns of a worksheet are given below. Show which columns would contain the adjusted balances of each account by placing an "x" in the appropriate column. Assume all accounts have normal balances, and this is the first year of operations. Income Statement Debit Credit

Balance Sheet Debit Credit

Cash (example) ________ ________ x ________ Accounts Receivable ________ ________ ________ ________ Office Supplies ________ ________ ________ ________ Prepaid Rent ________ ________ ________ ________ Word Processing Equipment ________ ________ ________ ________ Accounts Payable ________ ________ ________ ________ M. Scott, Capital ________ ________ ________ ________ M. Scott, Withdrawals ________ ________ ________ ________ Word Processing Fees ________ ________ ________ ________ Office Salaries Expense ________ ________ ________ ________ Supplies Expense ________ ________ ________ ________ Accumulated Depreciation, Word Processing Equipment ________ ________ ________ ________ Rent Expense ________ ________ ________ ________ Answer: Cash (example) ________ ________ x ________ Accounts Receivable ________ ________ x ________ Office Supplies ________ ________ x ________ Prepaid Rent ________ ________ x ________ Word Processing Equipment ________ ________ x ________ Accounts Payable ________ ________ ________ x M. Scott, Capital ________ ________ ________ x M. Scott, Withdrawals ________ ________ x ________ Word Processing Fees ________ x ________ ________ Office Salaries Expense x ________ ________ ________ Supplies Expense x ________ ________ ________ Accumulated Depreciation, Word Processing Equipment ________ ________ ________ x Rent Expense x ________ ________ ______ __ Diff: 2 LO: 4-2 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

15) Define the expression accrued salaries. Answer: Accrued salaries represent salaries that have been earned but are unpaid and unrecorded in an accounting period. They require an adjusting journal entry at the end of the accounting period (when incurred) and will be due for payment the following accounting period. Diff: 2 LO: 4-2 AACSB: Written and Oral Communication Learning Outcome: Define and record adjusting entries

16) From the following data, make the following adjustments, and complete the worksheet for the month. a. Depreciation Expense is $500. b. Supplies remaining at end of period $75. c. Prepaid Insurance balance $400, $100 has expired. d. Wages for the 5-day work-week are $1,000, the month ended on a Wednesday. Trial Income Balance Account Balance Adjustments Adj. Trial Bal. Stmt Sheet DR CR DR CR DR CR DR CR DR CR Cash 750 Accounts Receivable 400 Supplies 250 Prepaid Insurance 400 Equipment 7,000 Accounts Payable 900 Hall, Capital 7,100 Fees Earned 900 Wages Expense 100 Totals 8,900 8,900

Answer: Account

Trial Balance DR CR 750

Adjustments DR CR

Cash Accounts Receivable 400 Supplies 250 b) 175 Prepaid Insurance 400 c) 100 Equipment 7,000 Accounts Payable 900 Hall, Capital 7,100 Fees Earned 900 Wages Expense 100 d) 600 Totals 8,900 8,900 Depreciation Expense, Equip. Accumulated Depreciation, Equipment Supp. Exp. Ins. Expense Wages Payable Totals Net Loss

a) 500

Adj. Trial Bal. DR CR 750

1,375

Balance Sheet DR CR 750

400 75

300 7,000

300 7,000 900 900 7,100 900

7,100 900

700

500

a) 500 b) 175 c) 100

Income Stmt DR CR

500 175 100

d) 600 600 ____ ____ 600 1,375 10,000 10,000 1,475 900 8,525 9,100 _____ 575 575 ____ 1,475 1,475 9,100 9,100

Diff: 3 LO: 4-1, 4-2 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries

17) Using the following data, make the adjustments, and complete the worksheet for one month. a. Equipment costing $750 with a residual value of $150 has an expected life of 12 months. Company depreciates equipment using the straight-line method. b. Accrued salaries of $100. c. Supplies ledger balance $900, supplies used $400.

Account Cash Accounts Receivable Supplies Equipment Accts. Payable Capital Withdrawals Fees Earned Sal. Expense Totals

Trial Balance DR CR 1,600

Adjustments DR CR

Adj. Trial Bal. DR CR

Income Stmt DR CR

900 900 750 800 2,950 200 900 300 4,650 4,650

Balance Sheet DR CR

Answer: Account Cash Accts. Rec. Supplies Equipment Acct. Pay. Capital Withdrawals Fees Earned Sal. Exp. Totals

Trial Balance Adjustments Adj. Trial Bal. DR CR DR CR DR CR 1,600 1,600 900 900 900 c) 400 500 750 750 800 800 2,950 2,950 200 200 900 900 300 b) 100 400 4,650 4,650

Depr. Exp., Eq. Ac. Depr., Eq. Sal. Payable Supp. Expense Totals Net Income Totals

a) 50

c) 400 550

50 a) 50 b) 100 ____ 550

400 4,800

Income Stmt DR CR

Balance Sheet DR CR 1,600 900 500 750 800 2,950 200

900 400

50 50 100 ____ 4,800

400 850 50 900

50 100 ____ ____ ____ 900 3,950 3,900 ____ ____ 50 900 3,950 3,950

Diff: 3 LO: 4-1, 4-2 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries

Learning Objective 4-3 1) Accumulated Depreciation is found on which of the following financial statements? A) Balance Sheet B) Income Statement C) Statement of Owner's Equity D) All of these answers are correct. Answer: A Diff: 2 LO: 4-3 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

2) Depreciation Expense would be found on which of the following financial statements? A) Balance Sheet B) Income Statement C) Statement of Owner's Equity D) Worksheet Answer: B Diff: 2 LO: 4-3 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 3) Which of the following accounts would appear on the Balance Sheet? A) Accumulated Depreciation, Delivery Truck B) Depreciation Expense, Delivery Truck C) Delivery Truck D) Both A and C. Answer: D Diff: 1 LO: 4-3 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 4) Which of the following accounts would NOT appear on the Balance Sheet? A) Accumulated Depreciation B) Rent Expense C) Equipment D) Cash Answer: B Diff: 1 LO: 4-3 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 5) The Accumulated Depreciation account will appear in which of the following worksheet columns? A) The Income Statement debit column B) The Income Statement credit column C) The Balance Sheet debit column D) The Balance Sheet credit column Answer: D Diff: 1 LO: 4-3 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

6) All of the following are reasons to adjust the account balances at the end of the period, except: A) to accurately report the assets on the balance sheet. B) to report all revenues earned during the period. C) to report all expenses incurred during the period. D) to correct any errors made during the period. Answer: D Diff: 2 LO: 4-1, 4-3 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 7) Assume worksheets are used to prepare the financial statements. Financial statements are prepared from the: A) trial balance. B) worksheet income statement and balance sheet columns. C) adjusted trial balance. D) ledger. Answer: B Diff: 2 LO: 4-3 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 8) Which of the financial statements is prepared last from the worksheet? A) Balance Sheet B) Income Statement C) Statement of Owner's Equity D) None of these answers is correct. Answer: A Diff: 2 LO: 4-3 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 9) When using a worksheet, the ending figure for capital, used on the balance sheet, will be obtained from: A) balance sheet credit column of the worksheet. B) the statement of owner's equity. C) balance sheet debit column of the worksheet. D) credit column of the income statement section of the worksheet. Answer: B Diff: 2 LO: 4-3 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

10) The inside columns on the financial statements are used to: A) show debits. B) show credits. C) show subtotals. D) show the Capital balance. Answer: C Diff: 2 LO: 4-3 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 11) Assuming no additional investments during the year, the beginning capital balance used on the Statement of Owner's Equity is obtained from: A) the worksheet in the balance sheet credit column. B) the worksheet in the income statement credit column. C) the amount calculated on the statement of owner's equity. D) the worksheet in the balance sheet debit column. Answer: A Diff: 2 LO: 4-3 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 12) The amount for withdrawals, to be used on the Statement of Owner's Equity, would be obtained from: A) the worksheet in the balance sheet debit column. B) the worksheet in the income statement credit column. C) the worksheet in the income statement debit column. D) the worksheet in the balance sheet credit column. Answer: A Diff: 2 LO: 4-3 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 13) Debits must exceed credits on the Statement of Owner's Equity. Answer: FALSE Diff: 2 LO: 4-3 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 14) Every amount needed for the income statement can be found in the debit column of the income statement section of the worksheet. Answer: FALSE Diff: 2 LO: 4-3 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 37 Copyright © 2023 Pearson Education, Inc.

15) On the formal income statement, the left column is the debit column, and the right column is the credit column. Answer: FALSE Diff: 2 LO: 4-3 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 16) For each account listed, identify the category it belongs to, the normal balance (debit or credit), and the financial statement the account appears.

Account 0. Cash 1. Depreciation Expense, Equipment 2. Accumulated Depreciation, Equipment 3 Wages Expense 4. Equipment 5. Office Supplies Expense 6. Wages Payable 7. Prepaid Insurance

Category Asset

Financial Normal Balance Statement Debit Balance Sheet

Answer: 1. 2. 3. 4. 5. 6. 7.

Category Expense Contra-asset Expense Asset Expense Liability Asset

Normal Balance Debit Credit Debit Debit Debit Credit Debit

Financial Statement Income Statement Balance Sheet Income Statement Balance Sheet Income Statement Balance Sheet Balance Sheet

Diff: 2 LO: 4-3 AACSB: Reflective Thinking Learning Outcome: Define and record adjusting entries

17) For each account listed, identify the category it belongs to, the normal balance (debit or credit), and the financial statement in which the account appears.

Account 0. Cash 1. Capital, Beginning 2. Salaries Expense 3. Salaries Payable 4. Accounts Receivable 5. Prepaid Insurance 6. Withdrawals 7. Service Fees Earned 8. Accounts Payable

Category Asset

Financial Normal Balance Statement Debit Balance Sheet

Answer: 0. 1. 2. 3. 4. 5. 6. 7. 8.

Category Asset Capital Expense Liability Asset Asset Withdrawal Revenue Liability

Normal Balance Debit Credit Debit Credit Debit Debit Debit Credit Credit

Financial Statement Balance Sheet Statement of Owner's Equity Income Statement Balance Sheet Balance Sheet Balance Sheet Statement of Owner's Equity Income Statement Balance Sheet

Diff: 2 LO: 4-3 AACSB: Reflective Thinking Learning Outcome: Define and record adjusting entries

18) Given the worksheet, prepare an income statement for the month of October 31, 20XX, for the Riley Company.

Answer: Riley Company Income Statement For the month ending October 31, 20XX Revenue: Fees Earned Operating Expenses: Salaries Expense Depreciation Expense Supplies Expense Total Operating Expenses Net Income

$900

$400 50 400 850 $50

Diff: 2 LO: 4-3 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

19) Given the worksheet, prepare a balance sheet dated December 31, 202X, for Bear Company.

Answer: Bear Company Balance Sheet December 31, 202X Assets Cash Accounts Receivable Supplies Prepaid Insurance Equipment Less: Accumulated Depreciation

$ 650 400 75 300 $7,000 250

Total Assets

6,750 $8,175

Liabilities Accounts Payable Wages Payable Total Liabilities

$ 800 300 $1,100

Owner's Equity Capital Total Liabilities & Owner's Equity

7,075 $8,175

Diff: 2 LO: 4-3 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 20) Discuss the benefits of the worksheet. Explain how the financial reports are prepared from the worksheet. Answer: An accountant uses a worksheet like a scratch pad to organize and check data before preparing the financial reports. Its most important function is to allow the accountant to find and correct errors before the financial statements are prepared. Data in the income statement and balance sheet columns can be used to prepare the financial statements without returning to the ledger. Diff: 2 LO: 4-1, 4-3 AACSB: Written and Oral Communication Learning Outcome: Describe the components of and prepare the four basic financial statements

21) From the following worksheet, prepare the Income Statement, Statement of Owner’s Equity, and Balance Sheet for Jones Company, for the month ended January 31, 20XX. Assume no additional investments.

Answer: Jones Company Income Statement For the month ending January 31, 20XX Revenue: Fees Earned

$2,000

Operating Expenses: Wages Expense Depreciation Expense, Equipment Insurance Expense Supplies Expense Total Operating Expenses Net Income

$700 500 100 175 1,475 $525

Jones Company Statement of Owner’s Equity For the month ending January 31, 20XX Jones, Capital, January 1, 20XX Net Income for January $525 Less: Withdrawals for Jones 100 Increase in Capital Jones, Capital, January 31, 20XX

$6,000

425 $6,425

Jones Company Balance Sheet January 31, 20XX Assets Cash Accounts Receivable Supplies Prepaid Insurance Equipment Less: Accumulated Depreciation, Eq.

$ 750 400 75 300 $7,000 500 6,500 $8,025

Total Assets Liabilities Accounts Payable Wages Payable Total Liabilities

$1,000 600 $1,600

Owner's Equity Jones, Capital Total Liabilities & Owner's Equity

6,425 $8,025

Diff: 3 LO: 4-3 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries

College Accounting, 15e (Slater) Chapter 5 The Accounting Cycle Completed Learning Objective 5-1 1) Adjusting journal entries: A) need not be journalized since they appear on the worksheet. B) need not be posted if the financial statements are prepared from the worksheet. C) are not needed if closing entries are prepared. D) must be journalized and posted. Answer: D Diff: 2 LO: 5-1 AACSB: Reflective Thinking Learning Outcome: Define and record adjusting entries 2) Journal entries that are needed in order to update account balances for internal business transactions (such as supplies and prepaid rent) at the end of the period are called: A) closing entries. B) adjusting entries. C) Balance Sheet entries. D) adjusting Cash. Answer: B Diff: 2 LO: 5-1 AACSB: Reflective Thinking Learning Outcome: Define and record adjusting entries 3) The adjusting entry to record depreciation for the company automobile would be: A) debit Cash; credit Accumulated Depreciation, Automobile. B) debit Accumulated Depreciation, Automobile; credit Automobile. C) debit Depreciation Expense, Automobile; credit Accumulated Depreciation, Automobile. D) debit Depreciation Expense, Automobile; credit Automobile. Answer: C Diff: 2 LO: 5-1 AACSB: Reflective Thinking Learning Outcome: Define and record adjusting entries

4) The adjusting entry to record the expired rent would be to: A) debit Prepaid Rent Expense; credit Cash. B) debit Cash; credit Prepaid Rent. C) debit Prepaid Rent; credit Cash. D) debit Rent Expense; credit Prepaid Rent. Answer: D Diff: 2 LO: 5-1 AACSB: Reflective Thinking Learning Outcome: Define and record adjusting entries 5) The adjusting entry for accrued salaries is to: A) debit Salaries Expense; credit Salaries Payable. B) debit Salaries Expense; credit Cash. C) debit Salaries Payable; credit Salaries Expense. D) debit Cash; credit Salaries Payable. Answer: A Diff: 2 LO: 5-1 AACSB: Reflective Thinking Learning Outcome: Define and record adjusting entries 6) Each adjusting entry affects: A) the income statement. B) the balance sheet. C) the cash account. D) Both A and B are correct. Answer: D Diff: 2 LO: 5-1 AACSB: Reflective Thinking Learning Outcome: Define and record adjusting entries

7) John's Tree Service’s depreciation expense on its equipment for the month is $500. The adjusting journal entry is: A) Equipment 500 Accumulated Depreciation, Equipment 500 B) Depreciation Expense, Equipment Accumulated Depreciation, Equipment

500

C) Depreciation Expense, Equipment Equipment

500

D) Accumulated Depreciation, Equipment Depreciation Expense, Equipment

500

Answer: B Diff: 1 LO: 5-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries

8) Tom's Electrical Service purchased tools for $6000. Depreciation expense for the month is $300. The adjusting journal entry for the month is: A) Depreciation Expense, Tools 300 Tools 300 B) Depreciation Expense , Tools Accumulated Depreciation, Tools

300 300

C) Accumulated Depreciation, Tools Depreciation Expense, Tools

300

D) Accumulated Depreciation, Tools Tools

300

Answer: B Diff: 2 LO: 5-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries

9) Sandra's Design Studio showed the Office Supplies account with a balance of $1000. A count of the supplies left on hand as of June 30 was $700. The adjusting journal entry is: A) Office Supplies 700 Office Supplies Expense 700 B) Office Supplies Expense Office Supplies

300

C) Office Supplies Office Supplies Expense

300

D) Office Supplies Expense Office Supplies

700

300

700

Answer: B Diff: 2 LO: 5-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 10) Eav's Event Planning bought a computer on January 1st that depreciated by $5000 during the year. What is the adjusting journal entry for December 31 at the end of the first year? A) Computer 5000 Depreciation Expense, Computer 5000 B) Computer Accumulated Depreciation, Computer

5000

C) Depreciation Expense, Computer Accumulated Depreciation, Computer

5000

D) Depreciation Expense, Computer Computer

5000

11) The worksheet is a financial statement. Answer: FALSE Diff: 1 LO: 5-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 12) The ending balances in the ledger after posting the adjusting entries will be the same amounts that are found on the worksheet in the adjusted trial balance column. Answer: TRUE Diff: 2 LO: 5-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 13) Record the following adjusting entries: A) Used office supplies of $550. B) Prepaid rent of $250 expired. C) Depreciation on the equipment is $325. D) Salaries earned at the end of the period but not paid yet are $260. Answer: A) Office Supplies Expense 550 Office Supplies 550 B)

Rent Expense Prepaid Rent

250

Depreciation Expense, Equipment Accumulated Depreciation, Equipment

325

Salaries Expense Salaries Payable

260

250

325

260

Diff: 3 LO: 5-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries

Learning Objective 5-2 1) Closing entries are prepared: A) to clear all temporary accounts to zero. B) to update the Capital balance. C) at the end of the accounting period. D) All of the above are correct. Answer: D Diff: 2 LO: 5-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 2) Income Summary: A) is a temporary account. B) is a permanent account. C) summarizes revenues and expenses and transfers the balance to Capital. D) Both A and C are correct. Answer: D Diff: 2 LO: 5-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 3) Which of the following accounts is a temporary account? A) Withdrawals B) Accounts Receivable C) Cash D) Supplies Answer: A Diff: 2 LO: 5-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 4) Which of the following accounts would NOT be considered a permanent account? A) Accounts Receivable B) Depreciation Expense C) Accounts Payable D) Prepaid Rent Answer: B Diff: 2 LO: 5-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

5) An account in which the balance is NOT carried over from one accounting period to the next is called a: A) permanent account. B) real account. C) temporary account. D) zero account. Answer: C Diff: 2 LO: 5-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 6) Accounts in which the balances are carried over from one accounting period to the next are called: A) real accounts. B) nominal accounts. C) temporary accounts. D) zero accounts. Answer: A Diff: 2 LO: 5-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 7) Closing entries: A) need not be journalized since they appear on the worksheet. B) are prepared before adjusting entries. C) are not needed if adjusting entries are prepared. D) must be journalized and posted. Answer: D Diff: 2 LO: 5-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 8) Closing entries will affect: A) total assets. B) Cash. C) Owner's Capital. D) total liabilities. Answer: C Diff: 2 LO: 5-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

9) Which of the following accounts should NOT be closed to Income Summary at the end of the fiscal year? A) Salaries Expense B) Fees Earned C) Utilities Expense D) Withdrawals Answer: D Diff: 2 LO: 5-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 10) To close the Withdrawals account: A) debit Withdrawals; credit Revenue. B) debit Capital; credit Withdrawals. C) debit Withdrawals; credit Income Summary. D) debit Income Summary; credit Withdrawals. Answer: B Diff: 2 LO: 5-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 11) The correct order for closing the accounts is: A) revenue, expenses, income summary, withdrawals. B) revenue, income summary, expenses, withdrawals. C) revenue, expenses, capital, withdrawals. D) revenue, capital, expenses, withdrawals. Answer: A Diff: 2 LO: 5-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 12) To close the Fees Earned account: A) debit Fees Earned; credit Capital. B) debit Fees Earned; credit Withdrawals. C) debit Fees Earned; credit Income Summary. D) debit Capital; credit Fees Earned. Answer: C Diff: 2 LO: 5-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

13) Which of the following accounts will be closed directly to Capital at the end of the fiscal year? A) Salaries Expense B) Fees Revenue C) Withdrawals D) Accumulated Depreciation Answer: C Diff: 2 LO: 5-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 14) When the balance of the Income Summary account is a credit, the entry to close this account is: A) debit Income Summary; credit Withdrawals. B) debit Income Summary; credit Revenue. C) debit Income Summary; credit Capital. D) debit Revenue; credit Income Summary. Answer: C Diff: 2 LO: 5-2 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 15) When the balance of the Income Summary account is a debit, the entry to close this account is: A) debit Income Summary; credit Withdrawals. B) debit Income Summary; credit Revenue. C) debit Capital; credit Income Summary. D) debit Income Summary; credit Capital. Answer: C Diff: 2 LO: 5-2 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 16) When the balance in the Income Summary account is a debit, the company has: A) incurred a net loss. B) incurred a net income. C) had more revenue than expenses. D) made an error in their closing entries. Answer: A Diff: 2 LO: 5-2 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

17) Which of the following columns of the worksheet are referred to when preparing closing entries to the Income Summary? A) Adjusted trial balance columns B) Balance sheet columns C) Adjustments columns D) Income statement columns Answer: D Diff: 2 LO: 5-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 18) After posting the closing entries, which of the following accounts is most likely NOT to have a zero balance? A) Prepaid Insurance B) Advertising Expense C) J. Taylor, Withdrawals D) Medical Fees Earned Answer: A Diff: 1 LO: 5-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 19) When the balance in the Income Summary account is a credit, the company has: A) incurred a net loss. B) incurred a net income. C) had more expenses than revenue. D) no owner withdrawals during the period. Answer: B Diff: 1 LO: 5-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 20) How do you close a revenue account? A) Debit Capital; credit Revenue B) Credit Withdrawals; debit Revenue C) Credit Income Summary; debit Revenue D) Debit Income Summary; credit Revenue Answer: C Diff: 1 LO: 5-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

21) How do you close the expense accounts? A) Debit Capital; credit the expense accounts B) Credit Capital; debit the expense accounts C) Credit Income Summary; debit the expense accounts D) Debit Income Summary; credit the expense accounts Answer: D Diff: 1 LO: 5-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 22) All permanent accounts can be found: A) on the Income Statement. B) on the Statement of Owner's Equity. C) on the Balance Sheet. D) Permanent accounts do not appear on the financial statements. Answer: C Diff: 1 LO: 5-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 23) Closing entries will: A) only decrease the Owner's Capital. B) increase the Cash balance. C) either increase or decrease Owner's Capital. D) not affect the Owner's Capital balance. Answer: C Diff: 2 LO: 5-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 24) On Petro Company's worksheet, the Revenue account had a normal balance of $3200. The entry to close the account would include a: A) debit to Cash for $3200. B) credit to Income Summary for $3200. C) debit to Capital for $3200. D) credit to Revenue for $3200. Answer: B Diff: 2 LO: 5-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

25) The Rent Expense account had a normal balance of $1100. The entry to close the account would include a: A) debit to Rent Expense, $1100. B) debit to Income Summary, $1100. C) debit to Capital, $1100. D) credit to Income Summary, $1100. Answer: B Diff: 2 LO: 5-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 26) M. Sims showed a net income of $8000. The entry to close the Income Summary account would include a: A) debit to M. Sims Capital, $8000. B) credit to M. Sims Capital, $8000. C) debit to Income Summary, $8000. D) Both B and C are correct. Answer: D Diff: 2 LO: 5-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 27) J. Oakely showed a net loss of $5500. The entry to close the Income Summary account would include a: A) debit to J. Oakely, Capital, $5500. B) debit to Income Summary, $5500. C) credit to J. Oakely, Capital, $5500. D) credit to Cash, $5500. Answer: A Diff: 2 LO: 5-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 28) The balance in the J. Higgins, Withdrawal's account was $3200. The entry to close the account would include a: A) debit to Income Summary, $3200. B) credit to Income Summary, $3200. C) debit to J. Higgins, Capital, $3200. D) debit to J. Higgins, Withdrawals, $3200. Answer: C Diff: 2 LO: 5-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 13 Copyright © 2023 Pearson Education, Inc.

29) The balance in the Rent Expense account on the worksheet was $220. The journal entry to close the Rent Expense account is: A) Rent Expense 220 Prepaid Rent Expense 220 B) Rent Expense

220 Income Summary

C) Rent Expense

220

220 Capital

D) Income Summary Rent Expense

220

220 220

Answer: D Diff: 2 LO: 5-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 30) B. Jensen's worksheet showed the revenue account, Rental Fees, $1800. The journal entry to close the account is: A) Rental Fees 1800 Income Summary 1800 B) B. Jensen, Capital Rental Fees

1800

C) Rental Fees B. Jensen, Capital

1800

D) Income Summary Rental Fees

1800

31) The Income Summary account shows debits of $35,824 and credits of $25,977. This results in: A) Withdrawals of $61,801. B) a net loss of $61,801. C) a net income of $9847. D) a net loss of $9847. Answer: D Diff: 2 LO: 5-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 32) After closing the revenue, expense, and withdrawal accounts, the capital increased by $2500. Which of the following situations could have occurred? A) The company had a net loss. B) The owner invested an additional amount. C) The owner made a withdrawal. D) All of these answers are correct. Answer: C Explanation: An additional investment by the owner is not part of the closing process. An additional investment by the owner does not affect the closing of revenue, expense, and withdrawal accounts. If net income exceeds withdrawals, capital will increase. Diff: 2 LO: 5-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

33) The income statement credit column of the worksheet showed the following revenues: Catering Fees Earned Cleaning Fees Earned

$670 820

The journal entry to close the revenue accounts is: A) Income Summary 1490 Catering Fees Earned Cleaning Fees Earned

670 820

B) Catering Fees Earned Cleaning Fees Earned Income Summary

1490

C) Capital

670 820

1490 Income Summary

D) Catering Fees Earned Cleaning Fees Earned Capital

1490

670 820 1490

Answer: B Diff: 2 LO: 5-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 34) The business failed to close any of the revenue accounts. The result of this error is that: A) revenues will be understated. B) capital will be understated. C) the assets will be overstated. D) the liabilities will be overstated. Answer: B Diff: 3 LO: 5-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

35) The entry to close the expense account(s) was entered in reverse—Income Summary was credited and the expense account(s) was/were debited. The result of this error is that: A) before closing it, Income Summary will have a credit balance. B) before closing it, Income Summary will have a debit balance. C) the assets will be understated. D) the liabilities will be understated. Answer: A Diff: 3 LO: 5-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 36) The entry to close the revenue account(s) was entered in reverse—Income Summary was debited and the revenue account(s) was/were credited. The result of this error is that: A) before closing it, Income Summary will have a credit balance. B) before closing it, Income Summary will have a debit balance. C) the assets will be overstated. D) the liabilities will be overstated. Answer: B Diff: 3 LO: 5-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 37) The following normal account balances were found on the general ledger before closing entries were prepared: Revenue $910 Expenses $550 Capital $7300

Cash $800 Accounts Receivable $430 Withdrawals $1700

After closing entries are posted, what is the balance in the Revenue account? A) $910 B) $0 C) $360 D) Closing entries do not affect Revenue. Answer: B Diff: 3 LO: 5-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

38) The following normal account balances were found on the general ledger before closing entries were prepared: Revenue $1200 Expenses $640 Capital $7000

Cash $1300 Accounts Receivable $420 Withdrawals $1000

After all closing entries are posted, what is the balance in the Capital account? A) $7560 B) $7000 C) $6560 D) Closing entries do not affect the Capital account. Answer: C Explanation: Revenue + Capital – Expenses – Withdrawals = ($7000 + $1200) - $640 - $1000 = $6560 Diff: 3 LO: 5-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 39) The following normal account balances were found on the general ledger before closing entries were prepared: Revenue $800 Expenses $410 Capital $7200

Cash $600 Accounts Receivable $430 Withdrawals $1300

After closing entries are posted, what is the balance in the Cash account? A) $800 B) $0 C) $200 D) $600 Answer: D Diff: 2 LO: 5-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 40) The entry to close the Withdrawal account was entered in reverse—the Withdrawal account was debited and Capital credited. The result of this error is that: A) before closing it, Income Summary will have a credit balance. B) before closing it, Income Summary will have a debit balance. C) the end of period capital will be understated. D) the end of period capital will be overstated. Answer: D Diff: 3 LO: 5-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 18 Copyright © 2023 Pearson Education, Inc.

41) The entry to close Income Summary (net loss) was entered in reverse—Income Summary was debited and Capital was credited. This error will cause: A) Income Summary to have a credit balance. B) Income Summary to have a debit balance. C) the assets to be overstated. D) the liabilities to be understated. Answer: B Diff: 3 LO: 5-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 42) Which of the following is a real account? A) Cash B) Accounts Payable C) Utilities Expense D) A and B are correct Answer: D Diff: 2 LO: 5-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 43) Which of the following is a temporary account? A) Depreciation Expense B) Service Fees Earned C) Rent Expense D) All of the above are temporary accounts Answer: D Diff: 2 LO: 5-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 44) The entry to close Income Summary (net loss) to Capital was omitted. This error will cause: A) the ending capital to be overstated. B) the ending capital to be understated. C) no error in the ending capital balance. D) None of these is correct. Answer: A Diff: 3 LO: 5-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

45) When Income Summary has a credit balance and the account is closed: A) Capital is decreased. B) Capital is increased. C) Withdrawals is increased. D) Revenue is decreased. Answer: B Diff: 2 LO: 5-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 46) When revenue is closed: A) Owner's Capital will be debited. B) Expenses will be debited. C) Income Summary will be credited. D) None of the above answers are correct. Answer: C Diff: 2 LO: 5-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 47) When the expenses are closed: A) Owner's Capital will be debited. B) Income Summary will be debited. C) Income Summary will be credited. D) None of the above answers are correct. Answer: B Diff: 2 LO: 5-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 48) When the Withdrawals account is closed: A) Owner's Capital will be debited. B) Income Summary will be debited. C) Income Summary will be credited. D) Revenue will be debited. Answer: A Diff: 2 LO: 5-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

49) When the Income Summary account is debited, and the expense accounts are credited, this would be the result of: A) closing the Income Summary account—there is a net income. B) closing the revenue accounts. C) closing the Income Summary accounts—there is a net loss. D) closing the expense accounts. Answer: D Diff: 2 LO: 5-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 50) When the Capital account is debited, and the Withdrawals account is credited, this would be the result of: A) closing the Income Summary account—there is a net income. B) closing the Withdrawals account. C) closing the Income Summary account—there is a net loss. D) closing the capital accounts. Answer: B Diff: 2 LO: 5-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 51) When the revenue accounts are debited, and the Income Summary account is credited, this would be the result of: A) closing the Income Summary account—there is a net income. B) closing the Income Summary account—there is a net loss. C) closing the revenue accounts. D) closing the expense accounts. Answer: C Diff: 2 LO: 5-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 52) After closing the Income Summary account when there is a net income: A) Capital would increase. B) Revenue would decrease. C) Capital would remain the same. D) None of these is correct. Answer: A Diff: 2 LO: 5-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

53) After closing the Withdrawals account: A) Capital would increase. B) Capital would decrease. C) Income Summary will be debited. D) None of these is correct. Answer: B Diff: 2 LO: 5-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 54) The entry to close the Depreciation Expense account would cause: A) the Capital account balance to increase. B) the Income Summary account to increase. C) the Accumulated Depreciation account balance to increase. D) None of the above answers are correct. Answer: D Diff: 3 LO: 5-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 55) After closing the Income Summary account when there is a net loss: A) Capital would increase. B) Capital would decrease. C) Capital would remain the same. D) Revenue would decrease. Answer: B Diff: 3 LO: 5-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 56) The entry to close the Fees Earned account would cause: A) the Income Summary account balance to decrease. B) the Capital account balance to decrease. C) the Fees Earned account to decrease. D) the Income Summary account balance not to be affected. Answer: C Diff: 3 LO: 5-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

57) The beginning capital balance is $1600; there are no additional investments or withdrawals by the owner during the accounting period. The period's revenue is $630 , and expenses total $600. What is the ending capital balance (after closing entries)? A) $1630 B) $2200 C) $2230 D) $30 Answer: A Explanation: ($1600 + $630) - $600 = $1630 Diff: 2 LO: 5-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 58) The beginning capital balance is $6200, there are no additional investments, but the owner did withdraw $500 during the accounting period. The period's revenue is $4300 and expenses total $6100. What is the ending capital balance (after closing entries)? A) $6200 B) $6700 C) $4400 D) $3900 Answer: D Explanation: ($6200 + $4300) - $500 - $6100 = $3900 Diff: 2 LO: 5-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

59) The income statement debit column of the worksheet showed the following expenses: Supplies Expense Depreciation Expense, Building Salaries Expense

$1200 400 200

The journal entry to close the expense accounts is: A) Income Summary 1800 Supplies Expense Depreciation Expense, Building Salaries Expense

1200 400 200

B) Income Summary Capital

1800 1800

C) Supplies Expense Depreciation Expense, Building Salaries Expense Income Summary

1200 400 200

D) Capital

1800

1800 Income Summary

1800

Answer: A Diff: 3 LO: 5-2 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 60) There are 7 closing entries. Answer: FALSE Diff: 2 LO: 5-2 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 61) The Withdrawals account is closed to Income Summary. Answer: FALSE Diff: 2 LO: 5-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

62) The Withdrawals account is closed to the Revenue account. Answer: FALSE Diff: 2 LO: 5-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 63) Real accounts are those accounts with balances that are brought forward to the next accounting period. Answer: TRUE Diff: 2 LO: 5-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 64) Nominal accounts are called temporary accounts because their balances are carried forward to the next accounting period. Answer: FALSE Diff: 2 LO: 5-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 65) Revenues are closed to the Withdrawal account. Answer: FALSE Diff: 2 LO: 5-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 66) Closing entries are not included in the adjustment columns of the worksheet. Answer: TRUE Diff: 2 LO: 5-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 67) Depreciation Expense is closed to Income Summary, but Accumulated Depreciation is not closed. Answer: TRUE Diff: 2 LO: 5-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

68) The income statement and balance sheet sections of the worksheet provide the information needed to prepare the closing entries. Answer: TRUE Diff: 2 LO: 5-2 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 69) Each individual revenue account is debited when closing, and the total of all the revenue accounts is transferred to Income Summary. Answer: TRUE Diff: 2 LO: 5-2 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 70) Each individual expense account is credited when closing, and the total of all the expense accounts is transferred to Income Summary. Answer: TRUE Diff: 2 LO: 5-2 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 71) The balance in Income Summary after posting all revenues and expenses for the period is equal to the amount closed to the Capital account. Answer: TRUE Diff: 1 LO: 5-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 72) A real account is the same as a permanent account. Answer: TRUE Diff: 1 LO: 5-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 73) A real account is the same as a nominal account. Answer: FALSE Diff: 1 LO: 5-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

74) After posting adjusting entries, the permanent accounts will be set back to zero. Answer: FALSE Diff: 2 LO: 5-2 AACSB: Reflective Thinking Learning Outcome: Define and record adjusting entries 75) Closing entries will update the Capital account to the same figure that is on the balance sheet at the end of the accounting period. Answer: TRUE Diff: 2 LO: 5-2 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 76) Income Summary has a credit normal balance. Answer: FALSE Explanation: Income Summary has no normal balance Diff: 2 LO: 5-2 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 77) The goal of closing is to clear all temporary accounts. Answer: TRUE Diff: 3 LO: 5-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 78) The first entry to close accounts is to credit Revenue and debit Income Summary. Answer: FALSE Diff: 2 LO: 5-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

Identify whether the entries below are an adjusting entry (AE) or a closing entry (CE). 79) ________ Insurance Expense

1,300 Prepaid Insurance

1,300

Answer: AE Diff: 2 LO: 5-1, 5-2 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 80) ________ Wages Expense

700 Wages Payable

700

Answer: AE Diff: 2 LO: 5-1, 5-2 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 81) ________ Income Summary

500 Supplies Expense

500

Answer: CE Diff: 2 LO: 5-1, 5-2 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 82) ________ Fees Earned

17,000 Income Summary

17,000

Answer: CE Diff: 2 LO: 5-1, 5-2 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries

83) ________ Capital

11,000 Withdrawals

11,000

Answer: CE Diff: 2 LO: 5-1, 5-2 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 84) ________ Depreciation Expense 300 Accumulated Depreciation

300

Answer: AE Diff: 2 LO: 5-1, 5-2 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries For each of the following, identify in Column 1 the category to which the account belongs, in Column 2 the normal balance for the account, in Column 3 the financial statement on which the account balance is reported, and in Column 4 the nature of the account (permanent/temporary). Example: Cash

Column 1 asset

Column 2 debit

Column 3 balance sheet

Column 4 permanent

Column 1

Column 2

Column 3

Column 4

Column 1 asset

Column 2 debit

Column 3 balance sheet

Column 4 permanent

85) Supplies Answer: Supplies

Diff: 2 LO: 5-1, 5-2 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries

86) Column 1

Column 2

Column 3

Column 4

Accumulated Depreciation Answer: Column 1 Accumulated Depreciation

contra-asset

Column 2 credit

Column 3 balance sheet

Column 4 permanent

Diff: 2 LO: 5-1, 5-2 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 87) Column 1

Column 2

Column 3

Column 4

Salary Expense Answer: Column 1 Salary Expense

expense

Column 2 debit

Column 3 income statement

Column 4 temporary

Diff: 2 LO: 5-1, 5-2 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 88) Column 1

Column 2

Column 3

Column 4

Column 3 statement of owner's equity & balance sheet

Column 4

Capital Answer: Column 1

Capital

capital

Column 2

credit

permanent

Diff: 2 LO: 5-1, 5-2 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries

89) Column 1

Column 2

Column 1 revenue

Column 2 credit

Column 3

Column 4

Fees Earned Answer: Fees Earned

Column 3 Column 4 income statement temporary

Diff: 2 LO: 5-1, 5-2 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 90) Column 1

Column 2

Column 3

Column 4

Column 1

Column 2

Column 3 statement owner's equity

Column 4

Withdrawals Answer:

Withdrawals

withdrawals

debit

temporary

Diff: 2 LO: 5-2 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 91) Column 1

Column 2

Column 3

Column 4

Column 1

Column 2

Column 3

Column 4

Accounts Payable Answer: Accounts Payable

liability

credit

balance sheet

permanent

Diff: 2 LO: 5-2 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries

92) Determine the ending owner's equity of a business having a beginning owner's equity of $3,200, withdrawals of $2,000, and after closing the revenues and expenses Income Summary has a credit balance of $5,250. $ ________ Answer: $6,450 [$3,200 - $2,000 + $5,250] Diff: 2 LO: 5-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 93) Determine the beginning owner's equity of a business having an ending owner's equity of $6,000, withdrawals of $1,250, and after closing the revenues and expenses, the Income Summary account has a debit balance of $2,100. $ ________ Answer: $9,350 [$6,000 + $1,250 + $2,100] Diff: 2 LO: 5-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 94) Why will the Income Summary account never appear on a financial statement? Answer: The Income Summary account is used during the closing process to summarize the revenue and expense accounts. The beginning balance is zero and when the net income/loss is closed to Capital, the balance is zero again. Therefore, since it has a zero balance, it does not appear on the financial statements. Diff: 2 LO: 5-2 AACSB: Written and Oral Communication Learning Outcome: Define accounting terms, accounting concepts and principles 95) Determine the beginning assets of a business having ending liabilities of $4,000, the liabilities decreased by $1,500 during the year, an ending owner's equity of $10,700, additional investments of $2,000, withdrawals of $15,600, and after closing the revenues and expenses the Income Summary account has a credit balance of $6,800. $ ________ Answer: $23,000 Explanation: [($4,000 + $1,500) + ($10,700 + $15,600 - $2,000 - $6,800)] = Total Beginning Assets Diff: 3 LO: 5-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

96) In the first space below, indicate whether each account is a real or nominal account using (R) Real Account and (N) Nominal Account. In the second space below, indicate by an (X) if the account should be closed. N X 0. Advertising Expense ________ ________ 1. Prepaid Insurance Expense ________ ________ 2. Service Fees Earned ________ ________ 3. Depreciation Expense ________ ________ 4. Accumulated Depreciation ________ ________ 5. Salaries Payable ________ ________ 6. Prepaid Rent Expense ________ ________ 7. Income Summary ________ ________ 8. Insurance Expense Answer: 1. R 2. N X 3. N X 4. R 5. R 6. R 7. N X 8. N X Diff: 2 LO: 5-2 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

97) In the first space below, indicate whether each account is a real or nominal account using (R) Real Account and (N) Nominal Account. In the second space below, indicate by an (X) if the account should be closed. N X 0. Advertising Expense ________ ________ 1. Cash ________ ________ 2. Tennis Fees Earned ________ ________ 3. Accounts Receivable ________ ________ 4. Accumulated Depreciation ________ ________ 5. Withdrawals ________ ________ 6. Prepaid Rent Expense ________ ________ 7. Income Summary ________ ________ 8. Utilities Expense Answer: 1. R 2. N X 3. R 4. R 5. N X 6. R 7. N X 8. N X Diff: 2 LO: 5-2 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

98) From the following items in the income statement columns of the worksheet of Brandy's Tutoring on December 31, prepare the closing entries without explanation, assuming that a $2,000 withdrawal was made during the period.

Account Tutoring Fees Earned Wages Expense Rent Expense Supplies Expense Insurance Expense Net Income

Answer: Tutoring Fees Earned Income Summary

Income Statement Debit Credit 4,450 700 600 450 250 _____ 2,000 4,450 2,450 _____ $4,450 $4,450

4,450 4,450

Income Summary Wages Expense Rent Expense Supplies Expense Insurance Expense

2,000

Income Summary Brandy, Capital

2,450

Capital Brandy, Withdrawals

2,000

700 600 450 250

2,450

2,000

Diff: 2 LO: 5-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

99) From the following items in the income statement columns of the worksheet of Monaghan Company at December 31, prepare the closing entries without explanation, assuming that a $500 withdrawal was made during the period.

Account Service Revenue Earned Wages Expense Rent Expense Supplies Expense Insurance Expense Net Loss

Answer: Service Revenue Earned Income Summary

Income Statement Debit Credit 900 550 250 100 50 _____ 950 900 ____ 50 $950 $950

900 900

Income Summary Wages Expense Rent Expense Supplies Expense Insurance Expense

950

Capital Income Summary

Capital Withdrawals

500

550 250 100 50

500

Diff: 2 LO: 5-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

100) A summary of selected ledger accounts appears below for S. Ball for the current calendar year.

Answer the following questions. 1. What was the total amount of withdrawals for the year? 2. What was the net income? 3. What was the total revenue? 4. What were the total expenses? 5. What is the ending balance in S. Ball, Capital after closing entries? 6. What is the ending balance in Income Summary after closing entries? Answer: 1. $6,000 2. $4,250 3. $17,000 4. $12,750 5. $25,250 6. $0 Diff: 3 LO: 5-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

101) On the basis of the following data taken from the adjusted trial balance columns of the worksheet for the year ended December 31 for Painting the Perfect Picture, journalize the four closing entries in the proper order. Account Debit Credit Cash 20,000 Accounts Receivable 67,000 Supplies 7,000 Equipment 200,000 Accumulated Depreciation, Equipment 70,000 Accounts Payable 30,000 Capital 200,250 Withdrawals 25,000 Fees Earned 100,000 Salary Expense 27,000 Rent Expense 17,500 Depreciation Expense, Equipment 20,000 Supplies Expense 12,500 Miscellaneous Expense __4,250 ______ Total 400,250 400,250 Answer: Fees Earned Income Summary

100,000 100,000

Income Summary Salary Expense Rent Expense Depreciation Expense, Equipment Supplies Expense Miscellaneous Expense

81,250

Income Summary Capital

18,750

Capital Withdrawals

25,000

27,000 17,500 20,000 12,500 4,250

18,750

25,000

Diff: 3 LO: 5-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

102) What are the major goals of the closing process? Answer: Closing is a mechanical process that aids the accountant in recording transactions for the next accounting period. Closing entries are usually done only at year-end. Interim reports can be prepared from worksheets, which are prepared monthly, quarterly, etc. When the closing journal entries are prepared, they reduce or clear all temporary accounts to a zero balance, and update the capital account to a new balance. Diff: 2 LO: 5-2 AACSB: Written and Oral Communication Learning Outcome: Analyze and record transactions and their effects on the financial statements

Learning Objective 5-3 1) The final step in the accounting cycle is: A) preparing the post-closing trial balance. B) preparing the financial statements. C) posting the closing entries. D) posting the adjusting entries. Answer: A Diff: 2 LO: 5-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 2) Which of the following sequence of actions describes the proper order in the accounting cycle when worksheets are used? A) Journalize, post, close, prepare financial statements, adjust, and analyze transactions B) Prepare financial statements, journalize, post, adjust, analyze transactions, close C) Analyze transactions, journalize, post, worksheet, adjustments on worksheet, prepare financial statements, journalize and post adjusting entries, journalize and post closing entries D) Post, close, prepare financial statements, adjust, analyze transactions, and journalize Answer: C Diff: 2 LO: 5-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 3) When worksheets are used to prepare financial statements, the: A) financial statements are prepared after the adjusting entries are posted. B) financial statements are prepared before the adjusting entries are posted. C) adjusting and closing entries are journalized before the financial statements are prepared. D) post-closing trial balance is prepared before the closing entries are posted. Answer: B Diff: 2 LO: 5-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 39 Copyright © 2023 Pearson Education, Inc.

4) Of the following accounts, which might appear in the adjusted trial balance, but not in the post-closing trial balance? A) Salaries Payable B) Owner's Capital C) Accounts Payable D) Salary Expense Answer: D Diff: 3 LO: 5-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 5) Which of the following accounts would appear on the post-closing trial balance? A) Fees Earned B) Rent Expense C) Accounts Receivable D) Withdrawals Answer: C Diff: 2 LO: 5-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 6) After closing the revenue and expense accounts, Income Summary showed a debit balance of $1900. Which of the following statements is true? A) The company had a net loss of $1900. B) The company had a net income of $1900. C) The company's cash increased $1900. D) The Capital account increased $1900. Answer: A Diff: 2 LO: 5-3 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 7) The trial balance prepared after all of the temporary accounts have been closed is called a post-closing trial balance. Answer: TRUE Diff: 2 LO: 5-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

8) The Service Revenue account can be found on the worksheet. Answer: TRUE Diff: 2 LO: 5-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 9) The post-closing trial balance contains the beginning figure for Capital. Answer: FALSE Diff: 2 LO: 5-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 10) The post-closing trial balance is used to determine if the ledger is in balance after posting adjustments and closing entries. Answer: TRUE Diff: 2 LO: 5-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 11) All closing entries must be posted after preparing the post-closing trial balance. Answer: FALSE Diff: 2 LO: 5-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

12) From the following accounts, prepare in proper form a post-closing trial balance for Jones' Pet Sitting on December 31, 202X. (Note: These balances are before closing). Jones, Capital Cash Accumulated Depreciation, Equipment Equipment Accounts Payable Jones, Withdrawals Wages Expense Supplies Expense Accounts Receivable Personal Trainer Fees

$7,500 3,750 1,500 5,000 1,900 1,000 1,250 1,775 3,125 5,000

Answer: Jones' Pet Sitting Post-Closing Trial Balance December 31, 202X Debit Credit Cash 3,750 Accounts Receivable 3,125 Equipment 5,000 Accumulated Depreciation, Equipment 1,500 Accounts Payable 1,900 Jones, Capital* 8,475 ______ ______ Totals 11,875 11,875 *Ending Capital is calculated by: $7,500 + $5,000 Fees - $1,000 Withdrawals - $1,250 Wage Expense $1,775 Supplies Expense = $8,475 Diff: 3 LO: 5-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

13) From the following accounts, prepare in proper form a post-closing trial balance for Matison Company on December 31, 202X. Accounts Receivable Accounts Payable Cash Salaries Payable Supplies Prepaid Insurance Matison, Capital

$4,600 1,290 6,450 1,660 500 1,200 9,800

Answer: Matison Company Post-Closing Trial Balance December 31, 202X Debit Credit Cash 6,450 Accounts Receivable 4,600 Supplies 500 Prepaid Insurance 1,200 Accounts Payable 1,290 Salaries Payable 1,660 Matison, Capital ______ 9,800 Totals 12,750 12,750 Diff: 2 LO: 5-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

College Accounting, 15e (Slater) Chapter 6 Banking Procedure and Control of Cash Learning Objective 6-1 1) Internal control over a company's assets should NOT include the following procedures: A) Responsibilities and duties of employees will be divided. B) All cash receipts will be accumulated for several days until significant enough for a major deposit. C) All cash payments will be made by check (except petty cash). D) All of these answers are correct. Answer: B Diff: 2 LO: 6-1 AACSB: Reflective Thinking Learning Outcome: Define internal controls and list the internal control principles 2) Company policy for internal control should include all of the following except: A) Employees will be rotated twice a year. B) Monthly bank statements should be sent to and reconciled by the same employee who authorizes payments and writes checks. C) The owner (or responsible employee) signs all checks after receiving authorization to pay from the departments concerned. D) At time of payment, all supporting invoices or documents will be stamped "paid." Answer: B Diff: 2 LO: 6-1 AACSB: Reflective Thinking Learning Outcome: Define internal controls and list the internal control principles 3) An example of an internal control is NOT: A) the use of bank checking account. B) the use of unnumbered checks. C) all checks written must have reference source documents. D) All of these answers are correct. Answer: B Diff: 2 LO: 6-1 AACSB: Reflective Thinking Learning Outcome: Define internal controls and list the internal control principles

4) Endorsing a check: A) guarantees payment from the drawer. B) allows the bank to collect the money from the drawer of the check. C) allows a check to be deposited only. D) None of these answers are correct. Answer: B Diff: 2 LO: 6-1 AACSB: Reflective Thinking Learning Outcome: Define internal controls and list the internal control principles 5) A blank endorsement on a check: A) can be further endorsed by someone else. B) cannot be further endorsed by someone else. C) is the safest type of endorsement. D) permits only the first endorser to get the money. Answer: A Diff: 2 LO: 6-1 AACSB: Reflective Thinking Learning Outcome: Define internal controls and list the internal control principles 6) A restrictive endorsement on a check: A) can be further endorsed by someone else. B) is the safest endorsement for businesses. C) permits the bank to use its best judgment. D) must be endorsed by the company treasurer. Answer: B Diff: 2 LO: 6-1 AACSB: Reflective Thinking Learning Outcome: Define internal controls and list the internal control principles 7) A full endorsement on a check: A) is the same as a blank endorsement. B) is the same as a restrictive endorsement. C) is the safest endorsement for businesses. D) none of the above. Answer: D Diff: 2 LO: 6-1 AACSB: Reflective Thinking Learning Outcome: Define internal controls and list the internal control principles

8) The person or company to whom a check is payable is called the: A) payer. B) drawer. C) drawee. D) payee. Answer: D Diff: 1 LO: 6-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 9) The check is written and signed by the: A) drawer. B) drawee. C) bank teller. D) None of the above Answer: A Diff: 1 LO: 6-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 10) The drawee is the: A) person who writes the check. B) bank that the drawer has an account with. C) the person to whom the check is payable. D) person named as the co-signer. Answer: B Diff: 1 LO: 6-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 11) If the written amount on the check does NOT match the amount expressed in figures, the bank may: A) pay the amount written in words. B) return the check unpaid. C) contact the drawer to see what was meant. D) All of the above are correct choices. Answer: D Diff: 2 LO: 6-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

12) The first two numbers of the ABA code listed on the check identify: A) the large city or state in which the bank is located and the bank. B) the code indicating business or personal account. C) the routing number. D) the account number. Answer: A Diff: 2 LO: 6-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 13) One internal control safeguard is to assign all the duties of receiving, depositing, and recording cash to the same employee. Answer: FALSE Diff: 2 LO: 6-1 AACSB: Reflective Thinking Learning Outcome: Define internal controls and list the internal control principles 14) Using correct cash handling procedures, deposits should be made by the end of the week only. Answer: FALSE Diff: 2 LO: 6-1 AACSB: Reflective Thinking Learning Outcome: Define internal controls and list the internal control principles 15) A signature card is kept by the bookkeeper in case of spotting possible forgeries at the bank. Answer: FALSE Diff: 2 LO: 6-1 AACSB: Reflective Thinking Learning Outcome: Define internal controls and list the internal control principles 16) When a bank credits your account, it is increasing the balance. Answer: TRUE Diff: 2 LO: 6-1 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 17) A signature card is used by the drawer of a check. Answer: FALSE Diff: 2 LO: 6-1 AACSB: Reflective Thinking Learning Outcome: Define internal controls and list the internal control principles

18) The drawee writes the check. Answer: FALSE Diff: 2 LO: 6-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 19) The drawee of the check is the person receiving the money. Answer: FALSE Diff: 1 LO: 6-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 20) The drawee is the bank at which the company issuing the check has an account. Answer: TRUE Diff: 1 LO: 6-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 21) A deposit ticket usually combines checks deposited with coin and currency deposited. Answer: TRUE Diff: 1 LO: 6-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 22) What is the purpose of internal control? Answer: Internal control helps a company protect their assets (i.e. Cash) and monitor its ongoing operations. Diff: 1 LO: 6-1 AACSB: Written and Oral Communication Learning Outcome: Define internal controls and list the internal control principles

23) List at least five company policies that would be included in an internal control system. Answer: 1. Responsibilities and duties of employees will be divided. 2. All cash receipts will be deposited into the bank daily. 3. All cash payments except petty cash will be made by check. 4. Employees will be rotated. 5. All checks will be authorized. 6. All documents upon payment will be stamped paid. 7. All checks will be pre-numbered. 8. Monthly bank statements will be sent to and reconciled by someone other than the employees who handle, record or deposit cash. Diff: 3 LO: 6-1 AACSB: Written and Oral Communication Learning Outcome: Define internal controls and list the internal control principles

Learning Objective 6-2 1) The bank statement does NOT show: A) the bank balance in a depositor’s checking account at the start of the month. B) the checks the bank has paid and any deposits received. C) any other charges or additions to the checking account balance. D) outstanding checks. Answer: D Diff: 2 LO: 6-2 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 2) Scotch Services received a credit memorandum from the bank. During the bank reconciliation they should: A) increase their cash account on the company's books. B) decrease their cash account on the company's books. C) increase the ending cash balance on the bank statement. D) decrease the ending cash balance on the bank statement. Answer: A Diff: 2 LO: 6-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

3) Checks that have been processed by the bank and are no longer negotiable are: A) outstanding checks. B) canceled checks. C) voided checks. D) deposits in transit. Answer: B Diff: 2 LO: 6-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 4) On a bank reconciliation, deposits added to the bank side are called: A) deposits in transit. B) bank collections. C) electronic funds transfers. D) outstanding deposits. Answer: A Diff: 2 LO: 6-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 5) Outstanding checks: A) have been deducted from the bank balance but not the checkbook records. B) have not been presented to the bank for payment and have not been subtracted from the checkbook. C) have not been presented to the bank for payment but have been subtracted in the checkbook. D) have been returned to the business for nonpayment. Answer: C Diff: 2 LO: 6-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 6) A nonsufficient funds check was returned to your company. How does the bank treat this on your bank statement? A) It is added to the balance in your checking account. B) It is subtracted from the balance in your checking account. C) It is shown as a credit memo. D) It is shown as an electronic funds transfer. Answer: B Diff: 2 LO: 6-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

7) The bank statement included bank charges. On the bank reconciliation, this item is: A) an addition to the balance per company books. B) an addition to the balance per bank statement. C) a deduction from the balance per bank statement. D) a deduction from the balance per company books. Answer: D Diff: 2 LO: 6-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 8) The bank would issue a credit memorandum to Marion's Life Management when the bank: A) receives the outstanding checks. B) collects a note receivable from a customer. C) discovers a check that was deposited was returned for nonsufficient funds. D) issues an electronic funds payment on behalf of Marion’s Life Management. Answer: B Diff: 2 LO: 6-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 9) How would outstanding checks be handled when reconciling the ending cash balance per the bank statement to the correct adjusted cash balance? A) They would be added to the balance of the bank statement. B) They would be subtracted from the balance of the bank statement. C) They would be added to the balance per books. D) They would be subtracted from the balance per books. Answer: B Diff: 2 LO: 6-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 10) An example of an electronic funds transfer is: A) a transfer of funds without the use of paper checks. B) a transfer of funds by writing a check. C) the same as a deposit in transit. D) the return of a deposited check. Answer: A Diff: 2 LO: 6-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

11) Calculate, from the following information accumulated by Gene Park, the adjusted cash balance at the end of April. Bank statement ending cash balance General ledger cash balance ending Bank monthly service charge Deposits in transit Outstanding checks NSF check returned with bank statement

$2880 4250 50 2700 1600 220

A) $3980 B) $4250 C) $4200 D) $5580 Answer: A Explanation: Ending General ledger cash balance – Service Charge – NSF check returned = adjusted cash balance = $4250 - $50 - $220 = $3980 Diff: 2 LO: 6-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 12) Determine the adjusted cash balance per bank for Sheryl's Packaging on November 30, from the following information: Cash balance on the bank statement Customer's check returned—NSF Customer's note collected by the bank Deposits in transit, November 30 Outstanding checks, November 30

$3500 500 800 1100 3700

A) $1300 B) $900 C) $1900 D) $1600 Answer: B Explanation: Cash balance per bank + Deposits in transit – Outstanding checks = $3500 + $1100 - $3700 = $900 Diff: 2 LO: 6-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

13) Information to calculate the adjusted cash balance for Chris's Company is as follows: Cash balance per general ledger Customer's check returned—NSF Bank service charges Deposits in transit Outstanding checks Customer's note collected by bank

$2400 90 20 700 600 660

A) $3550 B) $3050 C) $2950 D) $2430 Answer: C Explanation: Cash balance per general ledger + Customer's note collected by bank – NSF checks – Bank service charges = $2400 + $660 - $90 - $20 = $2950 Diff: 2 LO: 6-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 14) The May bank statement for Accounting Services shows a balance of $5800, but the balance per books shows a cash balance of $7780. Other information includes: 1. A check for $220 to pay the electric bill was recorded on the books as $20. 2. Included on the bank statement was a note collected by the bank for $400 plus interest of $20. 3. Checks outstanding totaled $220. 4. Bank service charges were $90. 5. Deposits in transit were $2330. The adjusted cash balance at the end of May should be: A) $10,110. B) $7740. C) $7160. D) $7910. Answer: D Explanation: Bank cash balance + Deposits in transit – outstanding checks = adjusted cash balance = $5800 + $2330- $220 = $7910 Diff: 2 LO: 6-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

15) The May bank statement for Consulting Services shows a balance of $7,700, but the balance per books shows a cash balance of $9,000. Other information includes: 1. A check for $170 to pay the electric bill was recorded on the books as $30. 2. Included on the bank statement was a note collected by the bank for $350 plus interest of $40. 3. Checks outstanding totaled $240. 4. Bank service charges were $60. 5. Deposits in transit were $1,730. The adjusted cash balance at the end of May should be: A) $9,840 B) $9,010 C) $9,290 D) $9,190 Answer: D Explanation: Bank cash balance + Deposits in transit - outstanding checks = adjusted cash balance = $7,700 + $1,730 - $240 = $9,190 Diff: 1 LO: 6-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 16) The May bank statement for Consulting Services shows a balance of $7200, but the balance per books shows a cash balance of $9100. Other information includes: 1. A check for $170 to pay the electric bill was recorded on the books as $20. 2. Included on the bank statement was a note collected by the bank for $450 plus interest of $30. 3. Checks outstanding totaled $290. 4. Bank service charges were $60. 5. Deposits in transit were $2460. Which item should be added to the company's book balance during the bank reconciliation? A) Deposit in transit B) Outstanding check C) Bank service charge D) Note collected by the bank Answer: D Explanation: Cash balance per books + note collected plus interest — bank service charges — electric bill difference Diff: 1 LO: 6-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

17) The May bank statement for Tax Services shows a balance of $5700, but the balance per books shows a cash balance of $7200. Other information includes: 1. A check for $200 to pay the electric bill was recorded on the books as $30. 2. Included on the bank statement was a note collected by the bank for $440 plus interest of $20. 3. Checks outstanding totaled $270. 4. Bank service charges were $50. 5. Deposits in transit were $2010. Which item(s) should be subtracted from the balance per books? A) Deposits in transit B) Checks outstanding and bank service charge C) Bank service charge and the note collected by the bank D) None of the above is correct. Answer: D Explanation: Cash balance per books + note collected plus interest — bank service charges — electric bill difference Diff: 2 LO: 6-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 18) The May bank statement for Rental shows a balance of $6000, but the balance per books shows a cash balance of $8000. Other information includes: 1. A check for $190 to pay the electric bill was recorded on the books as $10. 2. Included on the bank statement was a note collected by the bank for $450 plus interest of $30. 3. Checks outstanding totaled $270. 4. Bank service charges were $60. 5. Deposits in transit were $2510. Which item(s) will require a journal entry to update the balance in the Cash account? A) Checks outstanding and deposits in transit B) Bank service charges, note collected by the bank, and deposits in transit C) Bank service charges, note collected by the bank, and error made by the Bookkeeper D) None of these answers is correct. Answer: C Explanation: Cash balance per books + note collected plus interest — bank service charges — electric bill difference Diff: 2 LO: 6-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

19) A payment for $27 is incorrectly recorded on the checkbook stub as $72. The $45 error should be shown on the bank reconciliation as: A) added to the balance per bank statement. B) deducted from the balance per bank statement. C) added to the balance per books. D) deducted from the balance per books. Answer: C Diff: 2 LO: 6-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 20) A payment for $51 is incorrectly recorded on the checkbook stub as $15. The $36 error should be shown on the bank reconciliation as: A) added to the balance per bank statement. B) deducted from the balance per bank statement. C) added to the balance per books. D) deducted from the balance per books. Answer: D Diff: 2 LO: 6-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 21) Bank interest earned on a checking account would be shown on a bank reconciliation as: A) added to the balance per bank statement. B) deducted from the balance per bank statement. C) added to the balance per books. D) deducted from the balance per books. Answer: C Diff: 2 LO: 6-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 22) Bank service charges would be shown on a bank reconciliation as: A) addition to the balance per bank statement. B) deduction from the balance per bank statement. C) addition to the balance per books. D) deduction from the balance per books. Answer: D Diff: 2 LO: 6-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

23) If the owner of Pastel Legal Services forgot to deduct a withdrawal from the balance per books, what entry would be necessary? A) Debit Cash; credit Withdrawals B) Debit Withdrawals; credit Cash C) Debit Cash; credit Accounts Receivable D) Debit Accounts Receivable; credit Cash Answer: B Diff: 2 LO: 6-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 24) Which of the following bank reconciliation items would be reflected in a journal entry? A) Error made by the bank B) Outstanding checks C) Bank service charges D) Deposit in transit Answer: C Diff: 2 LO: 6-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 25) The journal entry to adjust the records from Nothin' But Organization bank reconciliation would include: A) the total of outstanding checks. B) deposits in transit. C) notification from the bank of a customer's NSF check. D) correction of any errors or omissions on the bank statement. Answer: C Diff: 2 LO: 6-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 26) The journal entry to record the entry of a customer's nonsufficient funds check would include a: A) debit to Revenue. B) credit to Cash. C) debit to Service Charge Expense. D) credit to Accounts Receivable. Answer: B Diff: 2 LO: 6-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

27) From the bank reconciliation, no entry was recorded for a debit memo for a new check fee expense. This would cause: A) Cash to be understated. B) liabilities to be overstated. C) expenses to be understated. D) expenses to be overstated. Answer: C Diff: 3 LO: 6-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 28) From the bank reconciliation, no entry was recorded for deposits in transit. This would cause: A) Accounts Receivable to be overstated. B) Accounts Receivable to be understated. C) no impact since deposits in transit are already included in the balance per books. D) no impact since deposits in transit are not recorded in the books. Answer: C Diff: 3 LO: 6-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 29) The bank charged another company's deposit to our account. This would be included on the bank reconciliation as a(n): A) addition to the balance per books. B) subtraction from the balance per books. C) subtraction from the balance per bank. D) addition to the balance per bank. Answer: C Diff: 2 LO: 6-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 30) A bank service charge would be included on the bank reconciliation as a(n): A) addition to the balance per books. B) subtraction from the balance per books. C) addition to the balance per bank. D) subtraction from the balance per bank. Answer: B Diff: 2 LO: 6-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

31) An error, on the company's books, in recording a $52 deposit as $25 would be included on the bank reconciliation as a(n): A) addition to the balance per bank. B) subtraction from the balance per bank. C) addition to the balance per books. D) subtraction from the balance per books. Answer: C Diff: 2 LO: 6-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 32) The bank deducted another company's check from our account. This would be included on the bank reconciliation as a(n): A) addition to the balance per books. B) subtraction from the balance per books. C) addition to the balance per bank. D) subtraction from the balance per bank. Answer: C Diff: 2 LO: 6-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 33) Advantages of online banking include: A) convenience. B) transaction speed. C) effectiveness. D) All of the above are correct. Answer: D Diff: 1 LO: 6-2 AACSB: Information Technology Learning Outcome: Define internal controls and list the internal control principles 34) When the bank pays a check written by a company, it would: A) credit the company's bank account. B) debit the company's bank account. C) issue a credit memorandum for the company. D) No increase or decrease is made to the company’s bank account. Answer: B Diff: 2 LO: 6-2 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

35) On a bank reconciliation, outstanding checks are deducted from the balance per the books. Answer: FALSE Diff: 2 LO: 6-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 36) Canceled checks are negotiable at the bank for the face value. Answer: FALSE Diff: 2 LO: 6-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 37) Deposits that have been added to the bank balance but not the checkbook balance are called deposits in transit. Answer: FALSE Diff: 2 LO: 6-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 38) Deposits in transit result because of a timing difference between the bank records and checkbook records. Answer: TRUE Diff: 2 LO: 6-2 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 39) Any adjustment to the depositor's side of the bank reconciliation due to an item on the bank statement requires a journal entry. Answer: TRUE Diff: 2 LO: 6-2 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 40) When adjustments are made to the bank balance when completing a bank reconciliation, a journal entry is needed to bring the bank balance up to date. Answer: FALSE Diff: 2 LO: 6-2 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

41) Transferring money without paper checks is called an electronic funds transfer. Answer: TRUE Diff: 2 LO: 6-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 42) If a check marked NSF is returned from the bank, an adjusting entry crediting Cash is needed. Answer: TRUE Diff: 2 LO: 6-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 43) Phishing occurs when a bank customer receives an email requesting personal information. Answer: TRUE Diff: 2 LO: 6-2 AACSB: Information Technology Learning Outcome: Define internal controls and list the internal control principles

44) Construct the bank reconciliation for Bill's Tutoring, as of October 31, from the following information: Ending checkbook balance Ending bank statement balance Deposits in transit Outstanding checks Bank service charge (debit memo)

$940 540 640 280 40

Answer: Bill's Tutoring Bank Reconciliation as of October 31 Checkbook Balance Balance per Bank Ending Checkbook Bal.

Deduct: Service Charge

Reconciled Balance

$940 Ending Bank Stat. Bal. Add: Deposits in Transit 40

$540 640 $1,180

Deduct: Outstanding Checks

280

$900 Reconciled Balance

$900

Diff: 2 LO: 6-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

45) From the following information, prepare the bank reconciliation for Paula's Photography Studio as of June 30, 202X. Ending checkbook balance Ending bank statement balance Deposits in transit Outstanding checks Service Charge

$40 30 90 90 10

Answer: Paula's Photography Studio Bank Reconciliation as of June 30, 202X Checkbook Balance Balance per Bank Ending Checkbook Bal.

Deduct: Service Charge

Reconciled Balance

$40 Ending Bank Stat. Bal. Add: Deposits in Transit

$30

$120

Deduct: Outstanding Checks

$30 Reconciled Balance

$30

Diff: 2 LO: 6-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

46) Construct the bank reconciliation for Milton Company as of July 31, 202X, from the following information: a. Balance per bank statement b. Deposit in transit c. Checkbook balance d. Outstanding checks e. NSF check (debit memo) f. Service charges g. Interest earned on account

$9,150 705 9,250 800 220 115 140

Answer: Milton Company Bank Reconciliation as of July 31, 202X Checkbook Balance Balance per Bank Ending Checkbook Bal. Add: Interest Earned

Deduct: Service Charge NSF Check Reconciled Balance

$9,250 Ending Bank Stat. Bal. Add: 140 Deposit in Transit

$9,150

$9,390

$9,855

Deduct: 115 Outstanding Checks 220 $9,055 Reconciled Balance

705

800 $9,055

Diff: 2 LO: 6-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

47) Prepare a bank reconciliation as of May 31 from the following information: a. Balance per bank statement of May b. Checkbook balance c. Collection of note by bank d. Service charges e. Deposit in transit f. Outstanding checks

$4,825 5,250 500 110 2,140 1,325

Answer: Bank Reconciliation as of May 31 Checkbook Balance Balance per Bank Ending Checkbook Bal. Add: Note Collected by Bank

Deduct: Service Charge Reconciled Balance

$5,250 Ending Bank Stat. Bal. Add: 500 Deposits in Transit

$4,825

$5,750

$6,965

2,140

Deduct: 110 Outstanding Checks

1,325

$5,640 Reconciled Balance

$5,640

Diff: 2 LO: 6-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

48) Indicate what effect each situation will have on the bank reconciliation process. Place the number of your choice beside the items listed. 1. Add to bank balance 2. Deduct from bank balance 3. Add to checkbook balance 4. Deduct from checkbook balance ________ a. deposit in transit ________ b. bank service charge ________ c. NSF check ________ d. Check written for $95 recorded in the company's journal as $59 ________ e. Outstanding checks ________ f. Check written for $80 recorded as $800 ________ g. Check printing charges ________ h. Interest earned on checking account Answer: a. 1, b. 4, c. 4, d. 4, e. 2, f. 3, g. 4, h. 3 Diff: 2 LO: 6-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 49) Indicate which adjustments would require a journal entry during the completion of the bank reconciliation. Place an "X" on the respective line(s). ________ a. Deposit in transit ________ b. Bank service charge ________ c. NSF check ________ d. Check written for $58 recorded in the company's journal as $85 ________ e. Outstanding checks ________ f. Check written for $42 recorded as $4 ________ g. Check printing charge ________ h. Note collected by bank. Answer: _______ a. Deposit in transit X b. Bank service charge X c. NSF check X d. Check written for $58 recorded as $85 _______ e. Outstanding checks X f. Check written for $42 recorded as $4 X g. Check printing charge X h. Note collected by bank. Diff: 2 LO: 6-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

50) List the various steps and procedures included in the bank reconciliation process. What are the advantages in preparing a monthly bank reconciliation? Answer: 1. Prepare a list of deposits in transit. 2. Prepare a list of outstanding checks. 3. Enter the checking account balance per the bank on the bank reconciliation. 4. Total the deposits in transit. 5. Total the outstanding checks. 6. Compute the updated balance in the checking account per the bank reconciliation. 7. Enter the checkbook balance on the bank reconciliation. Adjust for unrecorded bank charges and credits. Compute the updated balance in the checking account per the bank reconciliation. 8. Record any bank charges or credits. The advantages of preparing a monthly bank reconciliation are to: (1) determine the amount of cash in the company's checking account, (2) uncover any irregularities such as an employee’s theft of funds, (3) strengthen internal control over cash and assets, and (4) update the accounts for unrecorded bank charges and collections by journal entries. Diff: 2 LO: 6-2 AACSB: Written and Oral Communication Learning Outcome: Define accounting terms, accounting concepts and principles 51) List and describe some of the electronic conveniences that we are now provided when doing our banking. Answer: ATM—Automated Teller Machines enable the user to withdraw money at any time up to a specified amount. Online banking—allows us to pay bills, reconcile our account, transfer funds, at the touch of a finger. Available any time day or night. EFTs (Electronic Funds Transfers) allow depositors to transfer money electronically without a check. Mobile Remote Deposit Capture –Allows depositors to take a picture of a check with a mobile device and transfer it to a bank for deposit. Apps–Most banks have apps that allow depositors to carry out transactions, check account balances, etc. Diff: 2 LO: 6-2 AACSB: Information Technology Learning Outcome: Define internal controls and list the internal control principles

52) Determine the reconciled bank balance given the following: The balance per bank statement is $ 195. The balance per general ledger is $192. There is a credit memo for a note collected, $408. There is a credit memo for interest earned, $25. There is a debit memo for a customer's NSF check $350. Deposits in transit, $850. Outstanding checks amount to $845. This month's service charge amounts to $50. There is a debit memo for check printing fees, $25. $ ________ Answer: $200 [$195 + 850 - $845] Diff: 3 LO: 6-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 53) Determine the reconciled checkbook balance given the following: The balance per general ledger is $200. There is a credit memo for a note collected, $450. There is a debit memo for interest expense, $50. There is a debit memo for a customer's NSF check $425. Outstanding checks amount to $2,000. This month's service charge amounts to $50. Deposits in transit amount to $1,500. $ ________ Answer: $125 [($200 + 450 - $50 - $425 - $50) Diff: 3 LO: 6-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

54) Determine the unadjusted bank balance from the bank statement given the following: The balance per general ledger is $200. There is a credit memo for a note collected, $450. There is a debit memo for interest expense, $50. There is a debit memo for a customer's NSF check $425. Outstanding checks amount to $2,000. This month's service charge amounts to $50. Deposits in transit amount to $1,500. $ ________ Answer: $625 [($200 + 450 - $50 - $425 - $50)] = $125 Adjusted check book balance. So, the Adjusted bank balance is also $125. X + Deposits in transit $1,500 — Outstanding checks $2,000 = 125; where X = $625 the unadjusted bank balance; Diff: 3 LO: 6-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 55) Prepare the required journal entries from the bank reconciliation below as of the end of June: The balance per general ledger is $200. There is a debit memo for interest expense, $150. There is a debit memo for a customer's NSF check $240. Outstanding checks amount to $2,000. This month's service charge amounts to $50. Deposits in transit amount to $1,500. Answer: June 30 Interest Expense $150 Cash $150 June 30 Accounts Receivable $240 Cash $240 June 30 Service Charge Expense $50 Cash $50 Diff: 3 LO: 6-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 56) When completing a bank reconciliation, explain why all adjustments to the checkbook balance require journal entries? Answer: These items were not recorded in the checkbook and journal yet. Diff: 3 LO: 6-2 AACSB: Written and Oral Communication Learning Outcome: Define accounting terms, accounting concepts and principles

57) What is the difference between a debit and credit memorandum when received from a bank where you have a checking account? Answer: A debit memoranda is received from the bank when they have decreased the customer's account balance for reasons such as: returning an NSF check, bank service charges, automatic bill payments, EFT, etc. A credit memorandum is received from the bank when they have increased the customer's account balance for reasons such as: collection of a note, interest revenue, EFT, etc. Diff: 2 LO: 6-2 AACSB: Written and Oral Communication Learning Outcome: Analyze and record transactions and their effects on the financial statements

Learning Objective 6-3 1) What type of an account is the petty cash fund? A) Contra-asset B) Expense C) Asset D) Liability Answer: C Diff: 2 LO: 6-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 2) A petty cash fund is set up: A) to pay for office supplies only. B) to pay for small expenses. C) to pay for merchandise inventory only. D) to pay for business meeting expenses only. Answer: B Diff: 2 LO: 6-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 3) The credit recorded in the journal to replenish the petty cash fund is to: A) Cash. B) Petty Cash. C) Accounts Receivable. D) Miscellaneous Expense Answer: A Diff: 2 LO: 6-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 27 Copyright © 2023 Pearson Education, Inc.

4) The debit recorded in the journal to establish the petty cash fund is to: A) Cash. B) Petty Cash. C) Accounts Receivable. D) Accounts Payable. Answer: B Diff: 2 LO: 6-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 5) Which of the following accounts would most likely be debited in the replenishment of petty cash? A) Cash B) Petty Cash C) Postage Expense D) Withdrawals Answer: C Diff: 2 LO: 6-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 6) The credit recorded in the journal entry to establish the petty cash fund is to: A) Cash. B) Petty Cash. C) Accounts Payable. D) Withdrawals. Answer: A Diff: 2 LO: 6-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 7) A $100 petty cash fund has cash of $20 and valid receipts for $50. The entry to replenish the fund would include a: A) credit to Cash for $80. B) credit to Cash for $50. C) credit to Petty Cash for $30. D) debit to Petty Cash for $50. Answer: A Explanation: $100 - $20 = $80 credit to cash Diff: 2 LO: 6-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

8) The entry establishing a $220 petty cash fund would include a: A) debit to Cash for $220. B) credit to Petty Cash for $220. C) debit to Petty Cash for $220. D) debit to Miscellaneous Expense for $220. Answer: C Diff: 2 LO: 6-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 9) The Petty Cash account is debited when: A) the account is being replenished. B) the account balance is being decreased. C) the account balance is being increased. D) the account is closed. Answer: C Diff: 2 LO: 6-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 10) The entry to replenish the petty cash fund debited Insurance Expense for postage. This would cause: A) Petty Cash to be overstated. B) Cash to be understated. C) Postage Expense to be overstated. D) Insurance Expense to be overstated. Answer: D Diff: 2 LO: 6-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 11) Jim's Limousines' entry to establish a $160 petty cash fund for the office would include a: A) debit to Cash for $160. B) credit to Petty Cash for $160. C) credit to Cash for $160. D) debit to Office Expense for $160. Answer: C Diff: 2 LO: 6-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

12) The entry to replenish the petty cash fund included a debit to Equipment instead of Supplies for the purchase of supplies. This would cause: A) Petty Cash to be overstated. B) Petty Cash to be understated. C) Equipment to be understated. D) Supplies to be understated. Answer: D Diff: 2 LO: 6-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 13) The replenishment of the petty cash fund was recorded twice. This would cause: A) Expenses to be overstated. B) Expenses to be understated. C) Petty Cash to be overstated. D) Petty Cash to be understated. Answer: A Diff: 2 LO: 6-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 14) The entry to establish the petty cash fund was not completed. This would cause: A) Cash to be understated. B) Cash to be overstated. C) Petty Cash to be understated. D) Both B and C are correct. Answer: D Diff: 2 LO: 6-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 15) The entry to establish the petty cash fund debited Misc. Expense. This would cause: A) Revenues to be overstated. B) Revenues to be understated. C) Expenses to be overstated. D) Expenses to be understated. Answer: C Diff: 2 LO: 6-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

16) Which of the following transactions would be recorded in an auxiliary petty cash record? A) Purchase of first aid supplies B) Payment of Salaries Expense C) Owner's Withdrawal of $1200 D) Purchase of a $2400 piece of Equipment Answer: A Diff: 3 LO: 6-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 17) Which of the following transactions would most likely NOT be recorded in an auxiliary petty cash record? A) Purchase of first aid supplies B) Purchase of postage stamps C) Payment on a $700 rent bill D) Payment of gas for the company vehicle Answer: C Diff: 3 LO: 6-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 18) A company would use a change fund if: A) there are cash transactions daily. B) they want to pay the postage expense without writing a check. C) the owner wants to make personal withdrawals easily. D) there are supplies purchased for cash. Answer: A Diff: 3 LO: 6-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 19) The entry to replenish a $270 petty cash fund, which has cash of $170 and valid receipts for $160 would include: A) a credit to Cash for $100. B) a debit to Petty Cash for $100. C) a credit to Cash for $160. D) a credit to Petty Cash for $160. Answer: A Explanation: $270 - $170 = $100 credit to cash Diff: 2 LO: 6-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

20) Sam's Tutoring Service's $470 petty cash fund has a shortage of $4. The facts are: $190 in valid receipts for expenses; $276 in coins and currency. The journal entry to replenish the petty cash fund would include a: A) credit to Cash for $190. B) credit to Petty Cash for $194. C) credit to Cash Short and Over for $4. D) debit to Cash Short and Over for $4. Answer: D Diff: 2 LO: 6-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 21) Vanessa's Gymnastics' cash register tapes do not agree with cash receipts. The facts are: total cash register tapes $430; total coins and currency $433. The summary journal entry to record the day's transactions would include a: A) $430 debit to Cash; $3 debit to Cash Short and Over; and $433 credit to Service Revenue. B) $433 debit to Cash; $3 credit to Cash Short and Over; and $430 credit to Service Revenue. C) $433 debit to Cash and $433 credit to Service Revenue. D) $430 debit to Cash and $430 credit to Service Revenue. Answer: B Diff: 3 LO: 6-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 22) The change fund is what type of account? A) Expense B) Contra-asset C) Asset D) Revenue Answer: C Diff: 2 LO: 6-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 23) The petty cash overage was not recorded. This would cause: A) Revenues to be overstated. B) Revenues to be understated. C) Expenses to be overstated. D) Accounts Receivable to be understated. Answer: B Diff: 3 LO: 6-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 32 Copyright © 2023 Pearson Education, Inc.

24) Cash Short and Over is: A) a Miscellaneous Expense account. B) a Miscellaneous Revenue account. C) a Miscellaneous Expense or Miscellaneous Revenue account depending on the balance in the account. D) an asset or liability depending on the balance in the account. Answer: C Diff: 2 LO: 6-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 25) If the ending balance in the Cash Short and Over account is a credit, it indicates that cash shortages have exceeded cash overages for the period. Answer: FALSE Diff: 2 LO: 6-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 26) If the ending balance in the Cash Short and Over account is a debit, it indicates that cash shortages have exceeded cash overages for the period. Answer: TRUE Diff: 2 LO: 6-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 27) Petty Cash is an asset shown on the income statement. Answer: FALSE Diff: 1 LO: 6-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 28) The Petty Cash account is used to pay for small items such as postage stamps and supplies. Answer: TRUE Diff: 1 LO: 6-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 29) An employee assigned the responsibility for overseeing the petty cash fund is called the Accounts Receivable clerk. Answer: FALSE Diff: 2 LO: 6-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 33 Copyright © 2023 Pearson Education, Inc.

30) The normal balance of the Petty Cash account is a credit. Answer: FALSE Diff: 1 LO: 6-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 31) The Petty Cash account should never be debited when the fund is replenished. Answer: TRUE Diff: 2 LO: 6-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles Indicate which effect(s) each situation will have: 1. 2. 3. 4.

New check written Recorded in the general journal Recorded in auxiliary petty cash record Petty cash voucher prepared

32) ________ Establishment of petty cash Answer: 1, 2, 3 Diff: 2 LO: 6-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 33) ________ Bought Supplies on account Answer: 2 Diff: 2 LO: 6-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 34) ________ Bought coffee and rolls for a business meeting and used petty cash Answer: 3, 4 Diff: 2 LO: 6-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

35) ________ Filled up the company's truck with gas and used petty cash Answer: 3, 4 Diff: 2 LO: 6-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 36) ________ Owner withdrew $2,000 from the company for personal use Answer: 1, 2 Diff: 2 LO: 6-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 37) ________ Replenishment of petty cash Answer: 1, 2, 3 Diff: 2 LO: 6-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 38) Determine the cash overage given the following: The balance per the Petty Cash account $100 The count of coin and currency amounts to $65 There are receipts: for gas of $9, for office supplies of $18, for first aid supplies $14 $ ________ Answer: $6 over [($100 - $65) - $9 - $18 - $14] Diff: 3 LO: 6-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 39) Determine the cash shortage given the following: The balance per the petty cash account $200 The count of coin and currency amounts to $120 There are receipts: for telephone costs of $25, for supplies of $6, for transportation $6, for funeral flowers $38 $ ________ Answer: $5 short [($200 - $120) - $25 - $6 - $6 - $38] Diff: 3 LO: 6-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

40) Prepare journal entries for the following petty cash fund transactions: Sept. 1 Established a $300 petty cash fund. 30 Replenished the petty cash fund. Currency and coins remaining were $225; approved paid vouchers were: $12 donation expense; $18 postage; $24 office supplies expense; and $26 miscellaneous expense. Answer: Date Account Title and Description Debit Credit Sept 1

Petty Cash Cash Establishment of petty cash Donation Expense Postage Expense 18 Office Supplies Expense 24 Miscellaneous Expense 26 Cash Short and Over Cash Replenishment of petty cash

300 300 12

5 75

Diff: 2 LO: 6-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

41) Prepare journal entries for the following petty cash fund transactions: Nov.

1 Established a $75 petty cash fund. 15 Increased the petty cash fund to have a new balance of $200. 30 Replenished the petty cash fund. Currency and coins remaining were $130. Approved paid vouchers were: $10 donation expense; $16 postage expense; $30 office supplies expense; and $20 misc. expense. Answer: Date Account Title Debit Credit Nov 1

Petty Cash Cash

75 75

Petty Cash Cash

125 125

Donations Expense Postage Expense Office Supplies Expense Miscellaneous Expense Cash Short and Over Cash

10 16 30 20 6 70

Diff: 3 LO: 6-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

For each of the following, identify in Column 1 the category to which the account belongs, in Column 2 the normal balance for the account, in Column 3 the financial statement on which the account balance is reported, and in Column 4 the nature of the account (permanent/temporary). Example: Cash

Column 1 Asset

Column 2 Debit

Column 3 Balance Sheet

Column 4 Permanent

Column 1

Column 2

Column 3

Column 4

Column 1 asset

Column 2 debit

Column 3 balance sheet

Column 4 permanent

42) Office Supplies Answer: Office Supplies

Diff: 2 LO: 6-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 43) Column 1

Column 2

Column 3

Column 4

Column 1

Column 2

Column 3

Column 4

expense

debit

income statement temporary

Service Charge Expense Answer: Service Charge Expense

Diff: 2 LO: 6-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

44) Column 1

Column 2

Column 3

Column 4

Column 1 Expense/ Revenue

Column 2

Column 3

Column 4

debit/ credit

income statement temporary

Cash Short & Over Answer: Cash Short & Over

Diff: 2 LO: 6-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 45) Column 1

Column 2

Column 3

Column 4

Column 1 asset

Column 2 debit

Column 3 balance sheet

Column 4 permanent

Change Fund Answer: Change Fund

Diff: 2 LO: 6-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 46) Column 1

Column 2

Column 3

Column 4

Column 1 Delivery Expense expense

Column 2 debit

Column 3 Column 4 income statement temporary

Delivery Expense Answer:

Diff: 2 LO: 6-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

College Accounting, 15e (Slater) Chapter 7 Calculating Pay and Payroll Taxes: The Beginning of the Payroll Process Learning Objective 7-1 1) A pay period is defined as: A) weekly. B) biweekly. C) monthly. D) All of the above are correct. Answer: D Diff: 1 LO: 7-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 2) Gross Earnings are the same as: A) regular earnings only. B) regular earnings + overtime earnings. C) net earnings. D) net earnings + overtime earnings. Answer: B Diff: 1 LO: 7-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 3) Under the Fair Labor Standards Act, for any hours that an employee works over 40 during a work week: A) the employee is paid double. B) the employee is paid time and a half. C) the employee is paid two times the regular pay rate. D) the employee is paid at the regular pay rate. Answer: B Diff: 1 LO: 7-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

4) The law that governs overtime earnings is called: A) State Wage Control Act. B) Federal Wage and Hour Law. C) Fair Labor Standards Act. D) Both B and C are correct. Answer: D Diff: 2 LO: 7-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 5) The Fair Labor Standards Act must be followed if: A) the company has more than 100 employees. B) the employees have received regular earnings. C) the company does business in more than one state. D) the company has less than 50 employees. Answer: C Diff: 2 LO: 7-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 6) If Robert worked 39 hours, how many hours of overtime will Robert earn? A) 0 B) 1.5 C) 6 D) 9 Answer: A Diff: 2 LO: 7-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 7) A company can deem an employee as salaried: A) if they do not want to pay overtime wages. B) if the employee meets the salaried laws under the Fair Labor Standards Act. C) if the employee works at least 40 hours a week for a month. D) if they have been employed at the company for 1 year or longer. Answer: B Diff: 2 LO: 7-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

8) Payroll taxes paid by employees include all of the following except: A) federal income tax. B) state income tax. C) FICA Social Security. D) All of the above are payroll taxes paid by employees. Answer: D Diff: 2 LO: 7-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 9) The Federal Insurance Contributions Act is better known as: A) FIT. B) Collection Act. C) FUTA. D) FICA. Answer: D Diff: 2 LO: 7-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 10) Marital status for an employee determines how much will be withheld from their paycheck for: A) FICA Social Security. B) FICA Medicare C) federal income tax. D) Both A and B are correct. Answer: C Diff: 2 LO: 7-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 11) There are two parts to FICA: A) old age benefits and defined pension. B) retirement and income tax withholdings. C) Social Security and Medicare. D) defined pension and Medicare. Answer: C Diff: 2 LO: 7-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

12) FICA taxes provide funding to the government to pay: A) monthly retirement benefits for persons 62 years old and older. B) medical benefits for persons 65 years old and older. C) benefits for persons who have become disabled. D) All of the above are correct. Answer: D Diff: 2 LO: 7-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 13) Net pay equals: A) gross pay less all deductions. B) regular earnings + overtime earnings. C) gross earnings less some deductions such as charitable contributions and health insurance premiums. D) net earnings + overtime earnings. Answer: A Diff: 2 LO: 7-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 14) Dave Brown's cumulative earnings are $90,000, and his gross pay for the week is $6400. If the FICA rates are: Social Security 6.2% on a limit of $142,800 and Medicare is 1.45%, what are his FICA Social Security and FICA Medicare taxes for the week? (Round your answers to the nearest whole dollar.) A) $0; $93 B) $397; $0 C) $397; $93 D) $3968; $928 Answer: C Explanation: $6400 × 6.2% = $397; $6400 × 1.45% = $93 Diff: 2 LO: 7-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

15) Jim Barnes' cumulative earnings are $104,000, and his gross pay for the week is $6200. If the FICA rates are: Social Security 6.2% on a limit of $142,800 and Medicare is 1.45%, what are his FICA Social Security and FICA Medicare taxes for the week? (Round your answers to the nearest whole dollar.) A) $0; $90 B) $0; $0 C) $384; $90 D) $384; $0 Answer: C Explanation: $6200 × 6.2% = $384; $6200 × 1.45% = $90 Diff: 2 LO: 7-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 16) Dave Brown's cumulative earnings are $109,000, and his gross pay for the week is $5500. If the FICA rates are: Social Security 6.2% on a limit of $142,800 and Medicare is 1.45%, what are his FICA Social Security and FICA Medicare taxes for the week? (Round your answers to the nearest whole dollar.) A) $3410; $80 B) $0; $0 C) $341; $8 D) $341; $80 Answer: D Explanation: $5500 × 6.2% = $341; $5500 × 1.45% = $80 Diff: 2 LO: 7-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 17) Bill James earned $1000 for the week. If his cumulative earnings are $20,000 prior to this pay period, how much FICA Social Security must his employer withhold from his earnings? FICA tax rates are Social Security 6.2% on a limit of $142,800. (Round your answer to the nearest whole dollar.) A) $620 B) $6 C) $62 D) None of the above is correct. Answer: C Explanation: $1000 × 6.2% = $62 Diff: 2 LO: 7-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

18) To compute federal income tax to be withheld using the percentage method: A) use the net earnings and number of dependents. B) use gross earnings, marital status, number of dependents, and length of pay period. C) use net earnings and Form W-4. D) None of the above answers are correct. Answer: B Diff: 2 LO: 7-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 19) Compute an employee’s FICA taxes for the year on earnings of $100,000 at 6.2% on a limit of $142,800 for Social Security and 1.45% for Medicare. (Round your answer to the nearest whole dollar.) A) $6200 B) $7650 C) $1450 D) $76,500 Answer: B Explanation: $100,000 × (6.2% + 1.45%) = $7650 Diff: 2 LO: 7-1 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 20) Jim Stein's hourly wage is $30.00, and he worked 42 hours during the week. Assuming an overtime rate of time and a half over 40 hours, Jim's gross pay is: (Round your answer to the nearest whole dollar.) A) $1290. B) $1260. C) $1320. D) $1380. Answer: A Explanation: ($30.00 × 40) + [($30.00 × 1.5 ) × 42 ] = $1290 Diff: 2 LO: 7-1 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

21) Robert Smith's hourly rate is $45.00, and he worked 36 hours during the week. What is his gross pay for the week? (Round your answer to the nearest whole dollar.) A) $1620 B) $810 C) $1800 D) $1755 Answer: A Explanation: $45.00 × 36 = $1620 Diff: 2 LO: 7-1 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 22) A calendar year is: A) any 12-month period. B) a 12-month period beginning January 1 and ending on December 31. C) always the same as the company's fiscal year. D) None of the above answers are correct. Answer: B Diff: 2 LO: 7-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 23) Net pay is the same as: A) gross pay. B) take-home pay. C) before taxes pay. D) pay before deductions. Answer: B Diff: 2 LO: 7-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 24) Vance Johnson works 46 hours as a coffee barista and earns $17 per hour. Compute his weekly pay assuming an overtime rate of time and a half of regular pay. A) $782 B) $833 C) $884 D) $986 Answer: B Explanation: ($17 × 40) + [($17 × 1.5) × (46 – 40)]= $833 Diff: 2 LO: 7-1 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 7 Copyright © 2023 Pearson Education, Inc.

25) Jane works 50 hours at a rate of pay of $20 per hour. She receives double pay over 40 hours. What is her gross pay? A) $1100 B) $1400 C) $1000 D) $1200 Answer: D Explanation: ($20 × 40) + [($20 × 2) × (50 – 40)] = $1200 Diff: 2 LO: 7-1 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 26) Pam received $2,000 for working 40 hours. What was Pam's rate of pay per hour? (Round your answer to the nearest dollar.) A) $50 B) $100 C) $33 D) $2,000 Answer: A Explanation: $2,000 / 40 = $50 Diff: 2 LO: 7-1 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 27) Todd earns an hourly rate of $40 and had taxes withheld totaling $200. What would his net earnings be if he worked 44 hours (assuming double time over 40 hours)? A) $1720 B) $1920 C) $1560 D) $1640 Answer: A Explanation: (($40 × 40) + (($40 × 2) × (44 – 40)) - $200 = $1720 Diff: 2 LO: 7-1 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

28) A W-4 form: A) shows total gross wages earned for the year. B) determines the amount of FICA-Medicare to be withheld. C) provides the number of dependents an employee has claimed. D) shows total net wages earned for the year. Answer: C Diff: 2 LO: 7-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 29) On June 15, Bob Love earned $6000 and has the following deductions: FICA Social Security 6.2%, FICA Medicare 1.45%; federal income tax of $300; and state income tax $40. What is his net pay (assuming his income is under the limits)? (Round any intermediate calculations to two decimal places, and your final answer to the nearest whole dollar.) A) $5241 B) $5201 C) $5501 D) $5541 Answer: B Explanation: ($6000 - $300 - $40) – ($6000 × 7.65%)= $5201 Diff: 2 LO: 7-1 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 30) Jan Jenkins earns a salary of $75,000 per year and is paid monthly. What is her net pay for the month ended January 31, if FICA tax rates are: 6.2% for Social Security and 1.45% for Medicare; federal income tax is 20%; and union dues are $200 per month? (Round any intermediate calculations to two decimal places, and your final answer to the nearest whole dollar.) A) $4522 B) $4322 C) $6050 D) $5572 Answer: B Explanation: $75,000 / 12 = $6,250 per month $6,250 — ($6,250 x 7.65%) - ($6,250 x 20%) - $400 = $4322 Diff: 2 LO: 7-1 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

31) Compute net earnings on March 3, when gross (taxable) pay equals $700. FICA Social Security tax rate is 6.2%, FICA Medicare rate is 1.45%, federal income tax $71.00, and state income tax $10.00. (Round your answer to the nearest whole dollar.) A) $575 B) $636 C) $565 D) $646 Answer: C Explanation: ($700 - $10.00 - $71.00) - ($700 × 7.65%) = $565 Diff: 2 LO: 7-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 32) Employers withhold the following payroll taxes from an employee’s paycheck: A) FICA Social Security B) Federal income tax. C) State unemployment tax. D) A and B. Answer: D Diff: 2 LO: 7-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 33) The amount of federal income tax withheld from an employee during the year is determined by the employee's: A) W-4 form. B) W-2 form. C) 1040 form. D) All of these answers are correct. Answer: A Diff: 2 LO: 7-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 34) The amount of FICA Social Security and FICA Medicare withheld from the employee's check is determined by the employee's: A) W-2. B) net pay. C) earnings for the period and cumulative earnings before the current pay period. D) W-4. Answer: C Diff: 2 LO: 7-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 10 Copyright © 2023 Pearson Education, Inc.

35) When calculating the employee's payroll, the clerk forgot about the wage base limits. What impact could this error cause on the employee's check? A) FICA Social Security could be overstated. B) FUTA could be overstated. C) SUTA could be overstated. D) All of these could be correct. Answer: A Diff: 2 LO: 7-1 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 36) Another name for the Fair Labor Standards Act is: A) Federal Insurance Act. B) Federal Wage and Hour Law. C) Federal Income Tax Act. D) Federal Wage and Work Law. Answer: B Diff: 2 LO: 7-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 37) Which marital or filing status would typically have the most amount of taxes withheld for federal income tax purposes? A) Married filing jointly B) Single C) Head of household D) All federal income tax withholdings are the same Answer: B Diff: 2 LO: 7-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 38) The current income earnings limit for FICA Social Security taxes at the writing of this textbook is __________. A) $137,500 B) $142,800 C) $150,000 D) $187,500 Answer: B Diff: 2 LO: 7-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 11 Copyright © 2023 Pearson Education, Inc.

39) A work week is 160 hours in length. Answer: FALSE Diff: 2 LO: 7-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 40) A taxpayer’s marital status determines the amount of federal income taxes withheld. Answer: TRUE Diff: 2 LO: 7-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 41) The amount withheld for FICA Social Security is based on the W-4 form. Answer: FALSE Diff: 2 LO: 7-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 42) Gross pay is equal to take-home pay less federal withholdings. Answer: FALSE Diff: 2 LO: 7-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 43) Companies can choose different pay periods for hourly workers versus salary workers. Answer: TRUE Diff: 2 LO: 7-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 44) Net pay is equal to gross pay less the amount withheld for federal income taxes only. Answer: FALSE Diff: 2 LO: 7-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 45) FICA Medicare provides medical benefits for individuals 65 years and older. Answer: TRUE Diff: 2 LO: 7-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 12 Copyright © 2023 Pearson Education, Inc.

46) A maximum earnings limit is set for FICA Medicare taxes. Answer: FALSE Diff: 2 LO: 7-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 47) Both parts of FICA, Social Security and Medicare have the same maximum earnings limits. Answer: FALSE Diff: 2 LO: 7-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 48) All employees must contribute to Federal income taxes. Answer: TRUE Diff: 2 LO: 7-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 49) When an employee's earnings are greater than FICA Social Security base limit during the calendar year, no more FICA Social Security tax is deducted from earnings. Answer: TRUE Diff: 2 LO: 7-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 50) Information put on the W-4 Form is completed by the employer. Answer: FALSE Diff: 2 LO: 7-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 51) All states use the same percent for the state income tax rate. Answer: FALSE Diff: 2 LO: 7-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

52) Gross pay is the amount that the employee takes home. Answer: FALSE Diff: 2 LO: 7-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 53) Regular earnings include hours of overtime pay earned during the weekend. Answer: FALSE Diff: 2 LO: 7-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 54) All states charge a state income tax on an individual’s gross earnings. Answer: FALSE Diff: 2 LO: 7-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 55) Calculate the total wages earned for each employee (assume an overtime rate of time and a half over 40 hours): a) Sam earns $25 per hour and worked 45 hours in one week. b) Jim earns $20 per hour and worked 42 hours in one week. Answer: a) $1,187.50 b) $860.00 Diff: 2 LO: 7-1 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

56) From the following information, complete the chart for gross earnings for the week. Assume an overtime rate of time and a half over 40 hours. Hourly Rate

No. of Hours Worked 43 38 45

Gross Earnings

Ken Nelson $16 ________ Brenda Jinks $18 ________ Nancy Sampson $19 ________ Answer: Ken Nelson $712.00 Brenda Jinks $684.00 Nancy Sampson $902.50 Diff: 2 LO: 7-1 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 57) List the purposes of the Federal Insurance Contributions Act. Answer: The Federal Insurance Contributions Act (FICA) helps fund the payments related to: 1. monthly retirement benefits for those 62 years of age and older. 2. medical benefits for those 65 years old and older. 3. benefits for workers who have become disabled. 4. benefits for families of deceased workers who were covered by FICA Social Security. Each year, rates are set for FICA Social Security. Employers must match the contributions of each employee. Diff: 3 LO: 7-1 AACSB: Written and Oral Communication Learning Outcome: Define accounting terms, accounting concepts and principles 58) What is the purpose of the Fair Labor Standards Act? Answer: The purpose of the Fair Labor Standards Act is to set the regulations an employer must follow. Some of the regulations are: a. A worker will receive a minimum hourly rate of pay, and the maximum number of hours a worker will work during a week at the regular rate of pay is 40 hours. b. At least time and a half must be paid to a worker for hours worked in excess of 40 hours. Diff: 3 LO: 7-1 AACSB: Written and Oral Communication Learning Outcome: Define accounting terms, accounting concepts and principles

59) An employee earns $28 per hour. She worked 50 hours the third week of January (assume time and a half for overtime). The business is involved in interstate commerce. Calculate the net pay given the following additional information: Federal Income Tax rate = 20% State Income Tax rate = 5% FICA Social Security rate = 6.2% and FICA Medicare = 1.45% FUTA rate = .8% SUTA rate = 5.6% $ ________ Answer: $1,037.19 [(($28 × 40) + ($42 × 10)) - ($1,540 × .3265)] Diff: 3 LO: 7-1 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 60) Explain what is meant by the cumulative gross earnings. Answer: Cumulative earnings represent the total gross earnings earned earlier in the year prior to the current period's earnings. Diff: 2 LO: 7-1 AACSB: Written and Oral Communication Learning Outcome: Define accounting terms, accounting concepts and principles 61) Why would a business decide to use an external company to prepare their payroll checks and related reports? Answer: Federal, state and local laws regulate the payroll process. A business can be fined for not following these rules. It is difficult to understand all the rules, prepare payroll checks, and prepare tax forms. It is a long and arduous process, and most companies find it easier to outsource this work. In addition, it is often cheaper to outsource this work. Diff: 2 LO: 7-1 AACSB: Written and Oral Communication Learning Outcome: Define accounting terms, accounting concepts and principles

62) An employee earns $35 per hour. She worked 51 hours the third week of January (assume time and a half for overtime). The business is involved in interstate commerce. Calculate the gross pay. The following information is available: Federal Income Tax rate = 20% State Income Tax rate = 5% FICA Social Security rate = 6.2% and Medicare = 1.45% FUTA rate = .8% SUTA rate = 5.6% $ ________ Answer: $1,977.50 [($35 × 40) + ($52.50 × 11)] Diff: 2 LO: 7-1 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 63) An employee earns $16 per hour. He worked 45 hours the last week of January (assuming time and a half for overtime). The business is involved in interstate commerce. Calculate the total amount of employee deductions. The following information is available: Federal Income Tax rate = 20% State Income Tax rate = 5% FICA Social Security rate = 6.2% and FICA Medicare = 1.45% FUTA rate = .8% SUTA rate = 5.6% $ ________ Answer: $248.14 Gross pay = ($16 × 40) + ($16 × 1.5 × 5) = $760 ($760 × .3265) = $248.14 Diff: 2 LO: 7-1 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

Learning Objective 7-2 1) An employee has gross earnings of $2400 with withholdings of 6.2% FICA Social Security, 1.45 % FICA Medicare, $100 for federal income tax and $60 for state income tax. How much is the gross pay? (Round any intermediate calculations to the nearest cent, and your final answer to the nearest whole dollar.) A) $2400 B) $2056 C) $2116 D) $2156 Answer: A Diff: 2 LO: 7-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 2) Which report would an employer review if they wanted to check how much an employee has earned to date? A) Individual employee earnings record B) Payroll register C) Accounts payable ledger D) A and B Answer: D Diff: 2 LO: 7-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 3) An employee has gross earnings of $1600 with withholdings of 6.2% FICA Social Security, 1.45% FICA Medicare, $50 for federal income tax and $10 for state income tax. How much is the net pay? (Round any intermediate calculations to the nearest cent, and your final answer to the nearest whole dollar.) A) $1428 B) $1468 C) $1418 D) $1478 Answer: C Explanation: ($1600 - $50 - $10) - ($1600 × 7.65%) = $1418 Diff: 2 LO: 7-1, 7-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

4) To examine in detail the weekly payroll of all employees, one would look at the: A) W-2. B) W-4. C) payroll register. D) employee earnings record. Answer: C Diff: 1 LO: 7-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 5) The payroll register includes sections for recording: A) gross pay, deductions, and net pay. B) marital status, number of years of employment, job title, and gross pay. C) employee home address and phone number. D) marital status, federal income tax withheld, state income tax withheld, and federal unemployment tax withheld. Answer: A Diff: 2 LO: 7-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 6) The employee earnings record: A) shows all employee information related to only one pay period. B) keeps track of an individual employee's payroll history for a calendar year. C) is a substitute for a W-4. D) None of the above is correct. Answer: B Diff: 2 LO: 7-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 7) A summary record of each person's earnings, deductions, and net pay is called a(n): A) payroll register. B) W-4. C) employee individual earnings record. D) general journal. Answer: C Diff: 2 LO: 7-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

8) The payroll register: A) is a worksheet. B) is a journal for recording payroll entries. C) keeps track of an individual employee's payroll history for a calendar year. D) is a log for employees to sign in and out of work. Answer: A Diff: 2 LO: 7-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 9) A calendar quarter consists of: A) 13 weeks. B) 12 weeks. C) 14 weeks. D) 4 months. Answer: A Diff: 2 LO: 7-3, 7-4 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 10) The individual employee earnings record provides a summary of the following for a single employee, except: A) hours. B) withholding taxes. C) net pay. D) unemployment taxes. Answer: D Diff: 2 LO: 7-3, 7-4 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 11) The taxable earnings column of the payroll register records the tax due. Answer: FALSE Diff: 2 LO: 7-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 12) The payroll information for a pay period is recorded in the general journal. Answer: TRUE Diff: 2 LO: 7-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 20 Copyright © 2023 Pearson Education, Inc.

13) The use of a payroll register to record a company's payroll is not optional. Answer: FALSE Diff: 2 LO: 7-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 14) The employees collectively earn gross wages of $90,000 for the pay period, but the employer says that they cost $97,000. Discuss the discrepancy. Answer: The employees only consider their gross earnings while the employer also must pay the company’s share of FICA Social Security and Medicare, unemployment taxes, and workers' compensation insurance costs. Diff: 2 LO: 7-1, 7-2 AACSB: Written and Oral Communication Learning Outcome: Define and record current and contingent liabilities 15) What is required of an employer by the Federal Insurance Contributions Act? Answer: The employer is required to withhold FICA Social Security of 6.2% on the first $142,800 earned by an employee and to match that amount. In addition, FICA Medicare of 1.45% on all amounts earned must be withheld and matched. Diff: 2 LO: 7-1, 7-2 AACSB: Written and Oral Communication Learning Outcome: Define and record current and contingent liabilities 16) Compute the net pay for each employee for this week. The FICA tax rate is: Social Security 6.2% on a limit of $142,800; Medicare is 1.45%; federal income tax is 15%; state income tax is 5%; and medical insurance is $100 per employee.

Sally Ahti Mike DeFore

Cumulative Pay $68,000 $80,000

This Week's Pay $2,900 $2,500

Answer: Sally Ahti $1,998.15 = $2,900 - ($2,900 × .2765) - $100 Mike DeFore $1,708.75 = $2,500 - ($2,500 × .2765) - $100 Diff: 2 LO: 7-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

17) Prepare the payroll register for each employee for this week. The FICA tax rate is: Social Security 6.2% on a limit of $142,800; Medicare is 1.45%; federal income tax is 15%; and state income tax is 5%. Take calculations to two decimal places. Prior Current Period Earnings Earnings to Date Deductions Employee Earnings Social MediOverSecurity care FIT SIT Regular time Gross (6.2%) (1.45%) (15%) (5%) Net Pay Joan $68,000 $3,000 $0 Bill $80,000 $3,200 $0 Answer: Prior Period Employee Earnings

Joan Bill

Earnings

Current Earnings to Date

OverRegular time Gross $68,000 $3,000 $0 $3,000 $71,000 $80,000 $3,200 $0 $3,200 $83,200

Deductions Social MediSecurity care FIT SIT (6.2%) (1.45%) (15%) (5%) Net Pay $186.00 $43.50 $450.00 $150.00 $2,170.50 $198.40 $ 46.40 $480.00 $160.00 $2,315.20

Diff: 2 LO: 7-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 18) Compute the net pay for each employee listed below. Assume the following rates: FICA Social Security 6.2% on a limit of $142,800; FICA Medicare is 1.45%; federal income tax is 20%; state income tax is 5%; and union dues are $20.

Jim Bird Joe Read

Cumulative Pay $105,000 60,000

This Week's Pay $4,000 2,900

Answer: Jim Bird $2,674.00 = $4,000 - (.3265* × $4,000) - $20 Joe Read $1,933.15 = $2,900 - (.3265* × $2,900) - $20 *Total taxes = .062 + .0145 + .2 + .05 = .3265 Diff: 2 LO: 7-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

Learning Objective 7-3 1) Betsy's Auction House's payroll for June includes the following data: Gross earnings Salaries subject to FICA: 6.2% Social Security 1.45% Medicare Salaries subject to unemployment: 0.8% FUTA 2.0% SUTA Other deductions include: Federal income tax State income tax

$4100 3,000 4100 2,000 2,000 700 400

What is the amount of employer payroll taxes? (Round all calculations to the nearest cent.) A) $301 B) $1667 C) $1333 D) $2767 Answer: A Explanation: ($3,000 × .062) + ($4100 × .0145) + ($2,000 × .028) = $301 Diff: 3 LO: 7-3 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 2) Workers' Compensation Insurance is: A) paid by the employer to protect the employee against job-related injury or death. B) paid by the employee to protect himself/herself against job-related accidents or death. C) paid by the employer to protect the employee against non-job-related injury or death. D) paid by the employee to protect himself/herself against non-job-related accidents and death. Answer: A Diff: 2 LO: 7-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 3) Which tax does NOT have a wage base limit? A) State unemployment tax B) Federal unemployment tax C) FICA Medicare D) FICA Social Security Answer: C Diff: 2 LO: 7-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 23 Copyright © 2023 Pearson Education, Inc.

4) Bill's Auction House's payroll for June includes the following data: Gross earnings Salaries subject to FICA: 6.2% Social Security 1.45% Medicare Salaries subject to unemployment: 0.8% FUTA 2.0% SUTA Other deductions include: Federal income tax State income tax

$3800 2,500 3800 2,000 2,000 500 300

What is the amount of employer payroll taxes? A) $3000 B) $2734 C) $266 D) $4000 Answer: C Explanation: ($2,000 × .028) + ($2,500 × .062) + ($3800 × .0145) = $266 Diff: 2 LO: 7-3 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

5) Bob's Auction House's payroll for April includes the following data: Gross earnings Salaries subject to FICA: 6.2% Social Security 1.45% Medicare Salaries subject to unemployment: 0.8% FUTA 2.0% SUTA Other deductions include: Federal income tax State income tax

$4000 2080 4000 2,000 2,000 600 300

What is the employer's portion of the taxes? (Round intermediary calculations to the nearest cent and final answers to the whole dollar.) A) $187 B) $185 C) $243 D) $900 Answer: C Explanation: (2,000 * 2.8%) + ($2080 * 6.2%) + ($4000 * 1.45%) = $243 Diff: 3 LO: 7-3 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

6) Greg's Auction House's payroll for April includes the following data: Gross earnings Salaries subject to FICA: 6.2% Social Security 1.45% Medicare Salaries subject to unemployment: 0.8% FUTA 2.0% SUTA Other deductions include: Federal income tax State income tax

$3500 2000 3500 2,000 2,000 500 200

What is the employee's portion of the taxes? (Round any intermediate calculations to the nearest cent, and your final answer to the nearest whole dollar.) A) $824 B) $475 C) $875 D) $700 Answer: B Explanation: ($3500 × .0145) + ($2000 × .062) + $500 + $200 = $867.50 = $475 Diff: 2 LO: 7-3 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 7) The payroll taxes the employer is responsible for are: A) FICA Social Security. B) FICA-Medicare. C) State income taxes. D) A and B. Answer: D Diff: 2 LO: 7-3 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 8) If the employee has $800 withheld from their check for FICA Social Security, what is the amount that the employer would need to record as payroll tax expense? A) $800 B) $160 C) $0 D) $640 Answer: A Diff: 2 LO: 7-3 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 26 Copyright © 2023 Pearson Education, Inc.

9) An employee has $600 withheld from their check for federal income tax. What is the employer's income tax they need to pay? A) $600 B) $140 C) $0 D) $300 Answer: C Diff: 2 LO: 7-3 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 10) Unemployment taxes are: A) based on wages paid to employees. B) based on employer's employment history. C) the same for all employers. D) Both A and B are correct. Answer: D Diff: 2 LO: 7-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 11) Workers' compensation: A) insures employees against losses they may incur due to injury or death while on the job. B) is based on the total estimated gross payroll. C) is paid for by the employer. D) All of the above are correct. Answer: D Diff: 2 LO: 7-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 12) For which of the following taxes is there a ceiling on the amount of employee annual earnings subject to the tax? A) Federal unemployment taxes B) State unemployment taxes C) FICA Social Security D) All of these answers are correct. Answer: D Diff: 2 LO: 7-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

13) Carla's cumulative earnings before this pay period were $5310, and gross pay for the week is $500. Assuming the wage base limit is $7,000, how much of this week's pay is subject to taxes for SUTA and FUTA? A) $500 B) $0 C) $1690 D) $450 Answer: A Diff: 2 LO: 7-3 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities 14) Barbara's cumulative earnings before this pay period were $7400 and gross pay for the week is $900. Assuming the wage base limit is $7,000, how much of this week's pay is subject to taxes for FUTA and SUTA? A) $900 B) $400 C) $0 D) $450 Answer: C Diff: 2 LO: 7-3 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities 15) FICA (Social Security and Medicare) and unemployment taxes are similar in that they: A) are paid by the employee. B) have the same maximum taxable wage base. C) are a specified percent of federal income tax withholdings. D) are payroll tax expenses of the employer. Answer: D Diff: 2 LO: 7-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 16) Most employers are levied a payroll tax for: A) state and federal income taxes and FICA. B) only FICA taxes. C) FICA taxes, federal and state unemployment taxes. D) only state and federal unemployment taxes. Answer: C Diff: 2 LO: 7-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 28 Copyright © 2023 Pearson Education, Inc.

17) Joe's Tax Service has two types of employees, management and clerical support. The company estimates that it will pay the clerical support $510,000 next year and the managers $260,000. For every $100, the company pays $0.14 into the workers' compensation insurance. Calculate the amount of workers' compensation insurance. A) $1078 B) $714 C) $364 D) None of the above is correct. Answer: A Explanation: (($510,000 + $260,000) / 100) × $0.14 = $1078 Diff: 2 LO: 7-3 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 18) Both employees and employers pay which of the following taxes? A) FICA taxes (Social Security and Medicare) B) FUTA tax C) Federal income tax D) State income tax Answer: A Diff: 2 LO: 7-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 19) An employee has gross earnings of $1000 and withholdings of $65 FICA (Social Security and Medicare), and $50 for income taxes (FIT and SIT). The employer pays $65 FICA (Social Security and Medicare), $14 for SUTA, and $6.60 FUTA. What is the employer's total cost of the employee? (Round any intermediate calculations to the nearest cent, and your final answer to the nearest whole dollar.) A) $914 B) $1086 C) $956 D) $1021 Answer: B Explanation: ($1000 + $65) + $14) + $6.60 = $1086 Diff: 2 LO: 7-3 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

20) Carl's earnings during the month of March were $6000. His earnings for the year prior to March were $5400. Carl's employer is subject to federal unemployment taxes of 0.8% and state unemployment taxes of 5.4% on the first $7,000. The employer's unemployment payroll tax expense for Carl in the month of March is: (Round any intermediate calculations to the nearest cent, and your final answer to the nearest whole dollar.) A) $62. B) $99. C) $372. D) $335. Answer: B Explanation: $7,000 limit - $5,500 prior earnings = $1,500 can be taxed. $1,500 × (.008 + .054) = $93 Diff: 2 LO: 7-3 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities 21) Beth's earnings during the month of May were $1600. Her earnings for the year prior to May were $12,200. Beth's employer is subject to state unemployment of 2.0% and federal unemployment taxes of 0.8% on the first $7,000. The employer's unemployment payroll tax expense for May is: A) $45. B) $13. C) $0. D) $32. Answer: C Diff: 2 LO: 7-3 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

22) Sue's Jewelry Shoppe's July payroll includes the following data: Gross salaries Salaries subject to FICA: 6.2% Social Security 1.45% Medicare Salaries subject to: FUTA 0.8% SUTA 2.0%

$13,000 13,000 13,000 6500 6500

The employer's payroll tax expense for the period would be: (Round intermediary calculations to the nearest cent and final answers to the whole dollar.) A) $995. B) $1177. C) $182. D) $1047. Answer: B Explanation: ($13,000 × 7.65%) + ($6500 × 2.8%) = $1177 Diff: 2 LO: 7-3 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 23) Bob's Cake House's payroll for April includes the following data: Gross salaries Salaries subject to FICA: 6.2% Social Security 1.45% Medicare Salaries subject to: 0.8% FUTA 2.0% SUTA

$21,000 19,000 21,000 1,000 1,000

The employer's payroll tax expense for the period would be: (Round intermediary calculations to the nearest cent and final answers to the whole dollar.) A) $1635. B) $1511. C) $2071. D) $2195. Answer: B Explanation: ($21,000 × 1.45%) + ($19,000 × 6.2%) + ($1,000 × 2.8%) = $1511 Diff: 2 LO: 7-3 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

24) Insurance paid in advance by employers to protect their employees against loss due to injury or death incurred during employment is: A) life insurance. B) workers' compensation insurance. C) liability insurance. D) health insurance. Answer: B Diff: 2 LO: 7-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 25) Workers' compensation provides insurance for employees who are: A) unemployed due to an economic downturn. B) unemployed due to a plant closing. C) injured while on the job. D) injured while at home. Answer: C Diff: 2 LO: 7-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 26) Sam's earnings during the month of June were $1100. His earnings for the year prior to June were $15,200. Sam's employer is subject to state unemployment of 2.0% and federal unemployment taxes of 0.6% on the first $7,000. The employer's unemployment payroll tax expense for June is: A) $6.60. B) $22.00. C) $0. D) $28.60. Answer: C Diff: 2 LO: 7-3 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities 27) A FUTA tax credit: A) is given to employers who pay their state unemployment taxes on time. B) is usually in the amount of 5.4% C) is applied against the 6.0% standard rate. D) All of the above are correct. Answer: D Diff: 2 LO: 7-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

28) Which of the following would NOT typically be an employee payroll withholding? A) Federal unemployment taxes B) Medical Insurance premium C) State income tax D) FICA Social Security Answer: A Diff: 2 LO: 7-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 29) Which of the following taxes has a maximum amount an employee must pay in a year? A) Federal income tax B) FICA-Medicare tax C) FICA Social Security tax D) None of the above are correct Answer: C Diff: 2 LO: 7-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 30) An employer can reduce the federal unemployment tax rate by paying the state unemployment tax on time. Answer: TRUE Diff: 2 LO: 7-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 31) Generally, employers can take a credit against the FICA Medicare tax for contributions paid into the state unemployment funds. Answer: FALSE Diff: 2 LO: 7-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 32) FUTA and SUTA are paid for exclusively by the employer. Answer: TRUE Diff: 1 LO: 7-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

33) Payroll tax deductions from employees’ paychecks are used to determine employees’ net pay. Answer: TRUE Diff: 2 LO: 7-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 34) The cost of workers' compensation insurance must be estimated and paid in advance by the employer. Answer: TRUE Diff: 2 LO: 7-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 35) The premium rate for workers' compensation insurance is based on the type of work its employees perform. Answer: TRUE Diff: 1 LO: 7-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 36) The employer's payroll taxes reduce the employee's paycheck. Answer: FALSE Diff: 1 LO: 7-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 37) Only the employer pays FUTA and SUTA taxes. Answer: TRUE Diff: 2 LO: 7-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 38) Only the employer pays FICA taxes. Answer: FALSE Diff: 2 LO: 7-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

39) Workers’ compensation insurance is purchased by most employers to protect their employees against losses due to injury or death while on the job. Answer: TRUE Diff: 2 LO: 7-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles Given the following payroll items you are to identify whether they are the responsibility of the employer and/or the employee by placing an X in the appropriate column. 40) Employer

Employee

Employer X

Employee X

FICA Social Security Answer: FICA Social Security

Diff: 3 LO: 7-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 41) Employer

Employee

Employer X

Employee X

FICA Medicare Answer: FICA Medicare

Diff: 3 LO: 7-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

42) Employer

Employee

Employer

Employee X

Federal income tax Answer: Federal income tax

Diff: 3 LO: 7-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 43) Employer

Employee

Employer

Employee X

State income tax Answer: State income tax

Diff: 3 LO: 7-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 44) Employer

Employee

Employer X

Employee

FUTA Answer: FUTA

Diff: 3 LO: 7-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

45) Employer

Employee

Employer X

Employee

SUTA Answer: SUTA

Diff: 3 LO: 7-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 46) Employer

Employee

Employer X

Employee

Gross wages Answer: Gross wages

Diff: 3 LO: 7-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 47) Employer

Employee

Employer X

Employee

Workers' compensation insurance Answer: Workers' compensation insurance

Diff: 3 LO: 7-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

48) Employer

Employee

Employer

Employee

Employee Charitable Contributions Answer: Employee Charitable Contributions

Diff: 3 LO: 7-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 49) Smith Company payroll for June includes the following data: Gross earnings Salaries subject to FICA: 6.2% Social Security 1.45% Medicare Salaries subject to unemployment: 0.8% FUTA 2.0% SUTA Other deductions include: Federal income tax State income tax

$5,000 5,000 5,000 2,000 2,000 800 400

What is the amount of employer’s payroll tax expense? (Round all calculations to the nearest cent.) Answer: A Explanation: ($5,000 × .062) + ($5,000 × .0145) + ($2,000 × .028) = $438.50 Diff: 3 LO: 7-3 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

Learning Objective 7-4 1) When journalizing the wages and salaries expense, employers will do the following: A) Wages and Salaries Payable is credited for the net pay. B) Wages and Salaries Payable is debited for the net pay. C) FICA Social Security Payable is credited for the amount of deduction. D) Both A and C are correct. Answer: D Diff: 2 LO: 7-4 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 38 Copyright © 2023 Pearson Education, Inc.

2) As the Prepaid Workers' Compensation is recognized over time, the amount will transfer to: A) Workers' Compensation Insurance Payable. B) Workers' Compensation Insurance Expense. C) Wages and Salaries Expense. D) Payroll Tax Expense. Answer: B Diff: 2 LO: 7-4 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 3) The journal entry to record the estimated advance premium payment for workers' compensation insurance is: A) Cash Workers' Compensation Insurance Payable B) Prepaid Workers' Compensation Insurance Cash C) Workers' Compensation Insurance Expense Cash D) Workers' Compensation Insurance Payable Cash Answer: B Diff: 2 LO: 7-4 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 4) Prepaid Workers' Compensation Insurance is what type of account? A) Asset B) Expense C) Liability D) Contra-asset Answer: A Diff: 2 LO: 7-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

5) When journalizing for an employer’s payroll expenses: A) Payroll Tax Expense is credited. B) Payroll Tax Expense is debited. C) FICA Social Security Payable is debited. D) Both A and C are correct. Answer: B Diff: 2 LO: 7-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 6) The journal entry to record the payroll tax expense for the employer’s portion of FICA would be: A) Payroll Tax Expense Cash B) Payroll Tax Expense FICA Social Security Payable FICA Medicare Payable C) FICA Social Security Payable FICA Medicare Payable Payroll Tax Expense D) Cash Payroll Tax Expense Answer: B Diff: 2 LO: 7-4 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 7) The journal entry to record the employees’ FICA deduction would include: A) A debit to Wages and Salaries Expense B) A credit to Wages and Salaries Expense C) A debit to Cash D) A debit to FICA Social Security Payable Answer: A Diff: 2 LO: 7-3 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

8) Premiums for workers' compensation insurance may be adjusted based on actual payroll amounts at the end of the year. Answer: TRUE Diff: 2 LO: 7-4 AACSB: Reflective Thinking Learning Outcome: Define and record adjusting entries 9) When journalizing the employer’s wages and salaries expense, wages and salaries payable is debited. Answer: FALSE Diff: 2 LO: 7-3, 7-4 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 10) Workers' compensation insurance premiums are deducted from employees' checks. Answer: FALSE Diff: 2 LO: 7-4 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles For each of the following, identify in Column 1 the category to which the account belongs, in Column 2 the normal balance for the account, in Column 3 the financial statement on which the account balance is reported, and in Column 4 the nature of the account (permanent/temporary). 11) Column 1

Column 2

Column 3

Column 4

Column 1

Column 2

Column 3

Column 4

Prepaid Workers’ Compensation Insurance Answer: Prepaid Workers’ Compensation Insurance asset

debit

balance sheet

permanent

Diff: 3 LO: 7-4 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

12) From the following data, calculate the estimated annual advance premium for workers' compensation insurance and record it in general journal form.

Department Office Warehouse Sales

Estimated Payroll $60,000 40,000 73,000

Rate per $100 $0.26 1.40 0.80

Answer: Prepaid Workers' Compensation Insurance Cash

1,300 1,300

Diff: 2 LO: 7-4 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 13) Explain the purpose of workers' compensation, and discuss the premium cost to the employer. Answer: Workers' Compensation is insurance provided by an employer to protect its employees against loss due to injury or death related to employment. The premium of workers' compensation insurance is based on the total estimated gross payroll, past injury experience with that type of work position, and the physical difficulty of the work employees perform. The rate stated per $100 of payroll is then multiplied by the estimated gross payroll. At the end of the year, if the estimated amount is not equal to the actual amount, an adjustment is made. Diff: 2 LO: 7-3, 7-4 AACSB: Written and Oral Communication Learning Outcome: Define and record current and contingent liabilities 14) Estimate the annual advance premium for workers' compensation insurance, and record it in general journal form using the following data:

Department Office Dietary Nursing

Estimated Payroll $20,000 10,000 120,000

Rate per $100 $0.25 0.31 1.30

Answer: Prepaid Workers' Compensation Insurance Cash

1,641 1,641

15) From the following data, determine the FUTA tax liability for Sims Company for the first quarter. The FUTA tax rate is 0.6% on the first $7,000 of earnings. (Assume all quarters have 13 weeks.) Gross Pay Per Week $1,500 800 1,200

Employees C. Smith K. James E. Simpson

Answer: (all 3 employees will reach the FUTA limitation of $7,000 of earnings in the first quarter) C. Smith K. James E. Simpson

$ 7,000 7,000 7,000 $21,000 × 0.6% = $126.00

Payroll Tax Expense FUTA Payable

126 126

Diff: 2 LO: 7-3, 7-4 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 16) The CFC College Credit Card Services has a significant increase in business each spring due to a large increase in new applicants from graduating college students. Subsequently, each spring 40 temporary workers are hired for a 12-week period, working 40 hours per week at $10 per hour and then they are laid off. College's permanent employment total is 350 workers. Because of these yearly layoffs, College's state unemployment merit tax rate is 9%. If the number of layoffs could be reduced, the merit tax rate could be reduced to 4.1%. As the payroll specialist for College, you have been asked to evaluate the following and determine the pros/cons of each decision: 1. Should College stop hiring temporary employees and ask its full-time workers to work overtime to handle the extra load? 2. Should College get its temporary employees from a temporary employment agency and therefore not be subject to the extra taxes? Answer: 1. Use regular employees on overtime basis: a. Would regular employees be willing to work the overtime hours? b. What would be the total additional cost (regular pay plus overtime pay)? c. What is the total cost of using temporary employees? (Hourly wages plus benefits plus increase in merit taxes.) Compare the amount calculated in b. to the amount calculated in c. d. What is the continuing availability of quality temporary workers? What training would need to be provided? What is the cost of training?

2. Use temporary employment agency: a. What is the total cost of using the agency? (Worker's hourly wage plus fee charged by the agency.) b. What is the availability of quality workers through the agency? c. What training would have to be provided? d. What is the cost of training? Diff: 3 LO: 7-3, 7-4 AACSB: Written and Oral Communication Learning Outcome: Define and record current and contingent liabilities 17) Journalize the following payroll tax expenses for James Company. FICA Social Security FICA Medicare FIT SIT FUTA SUTA Net Pay

$500 $100 $1,000 $600 $50 $80 $5,000

Answer: Payroll Tax Expense FICA Social Security Payable FICA Medicare Payable FUTA Payable SUTA Payable

730 500 100 50 80

Diff: 2 LO: 7-4 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

18) Journalize the following Wages expense and employee pay deductions for James Company. FICA Social Security FICA Medicare FUTA SUTA FIT SIT Net Pay

$500 $100 $50 $80 $1,000 $600 $5,000

Answer: Wages Expense FICA Social Security Payable FICA Medicare Payable FIT Payable SIT Payable Wages Payable

7,200 500 100 1,000 600 5,000

Diff: 3 LO: 7-4 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

College Accounting, 15e (Slater) Chapter 8 Paying, Recording, and Reporting Payroll and Payroll Taxes: The Conclusion of the Payroll Process Learning Objective 8-1 1) What type of an account is Wages and Salaries Payable? A) Asset B) Liability C) Contra-liability D) Expense Answer: B Diff: 1 LO: 8-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 2) The Wages and Salaries Payable account would be debited when: A) net earnings are distributed to employees. B) paying payroll taxes. C) gross earnings are distributed to employees. D) paying employee taxes owed. Answer: A Diff: 2 LO: 8-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 3) Wages and Salaries Payable would be used to record: A) gross earnings of the employees paid. B) net earnings of the employees not paid. C) straight-time pay only. D) the paid portion of the earnings. Answer: B Diff: 2 LO: 8-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

4) Cash — Payroll Checking is a(n): A) contra-asset. B) liability. C) asset. D) expense. Answer: C Diff: 2 LO: 8-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 5) When journalizing the entry to transfer funds from the regular checking account to the payroll checking account, the _________ account is debited. A) Salaries and Wages Payable B) Cash — Regular Checking C) Payroll Taxes Expense D) Cash — Payroll Checking Answer: D Diff: 2 LO: 8-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 6) When journalizing the entry to transfer funds from the regular checking account to the payroll checking account, the _________ account is credited. A) Salaries and Wages Payable B) Cash — Regular Checking C) Payroll Taxes Expense D) Cash — Payroll Checking Answer: B Diff: 2 LO: 8-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 7) When journalizing the entry to reflect the release of payment for the employees’ paychecks, the _________ account is credited. A) Salaries and Wages Payable B) Cash — Regular Checking C) Payroll Taxes Expense D) Cash — Payroll Checking Answer: D Diff: 2 LO: 8-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

8) When journalizing the entry to reflect the release of payment for the employees’ paychecks, the _________ account is debited. A) Salaries and Wages Payable B) Cash — Regular Checking C) Payroll Taxes Expense D) Cash — Payroll Checking Answer: A Diff: 2 LO: 8-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 9) When paying the FICA Social Security Payable, the _______ account is debited. A) FICA Social Security Payable B) Payroll Tax Expense C) Cash D) None of the above is correct. Answer: A Diff: 2 LO: 8-1 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 10) When paying the FICA Social Security Payable, the _______ account is credited. A) FICA Social Security Payable B) Payroll Tax Expense C) Cash D) None of the above is correct. Answer: C Diff: 2 LO: 8-1 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 11) Which of the following statements is false? A) Cash — Payroll Checking is an asset account. B) FICA Social Security Payable increases on the credit side of the account. C) Salaries and Wages Payable increases on the credit side of the account. D) FIT Payable increases on the debit side of the account. Answer: D Diff: 2 LO: 8-1 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

12) Why would a company use a separate payroll cash account? A) Provides for better internal control B) Ease of account reconciliation C) Determine whether or not the employee has cashed their check D) All of the above are correct. Answer: D Diff: 2 LO: 8-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 13) Gail's Bakery had the following information before the pay period ending June 30:

Employee Name P. Guerrero T. Bennitt

Pay rate $3,000 16/hr

Hours worked Salaried 55

Cumulative earnings Department $12,000 Kitchen 6,500 Office

Federal income tax withheld $89 25

14) Grammy's Bakery had the following information before the pay period ending June 30:

Employee Name P. Ganster T. Barnes

Pay rate $3,400 11/hr

Hours worked Salaried 50

Cumulative earnings Department $12,500 Kitchen 6,600 Office

Federal income tax withheld $86.00 22.00

Assume: Each hourly employee is paid 1 1/2 times pay rate for time worked in excess of 40 hours. FICA Social Security applied to the first $142,800 at a rate of 6.2%. FICA Medicare applied at a rate of 1.45%. FUTA applied to the first $7,000 at a rate of 0.8%. SUTA applied to the first $7,000 at a rate of 5.6%. State income tax is 3.8%. Given the above information, what would be the amount applied to Kitchen Salaries Expense? A) Debit $12,500 B) Credit $12,500 C) Debit $3,400 D) Credit $3,400 Answer: C Diff: 3 LO: 8-1 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 15) Form 941 is used to report: A) FIT Taxes B) FICA Social Security Taxes C) FICA Medicare Taxes D) All of the above Answer: D Diff: 2 LO: 8-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 16) If a company is a monthly depositor, the Form 941 taxes withheld will: A) be electronically transferred to the IRS on or before the 15th day of the following month. B) include state taxes taken out of employees’ paychecks. C) include retirement funds taken out of employees’ paychecks. D) All of the above answers are correct. Answer: A Diff: 2 LO: 8-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 5 Copyright © 2023 Pearson Education, Inc.

17) A paystub will include all except: A) FUTA withheld B) Regular Earnings C) FIT withheld. D) FICA Social Security Tax withheld. Answer: A Diff: 2 LO: 8-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 18) What liability account is reduced when the employees are paid? A) Payroll Taxes Payable B) Federal Income Taxes Payable C) Wages and Salaries Payable D) Wages and Salaries Expense Answer: C Diff: 2 LO: 8-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 19) If Wages and Salaries Payable is debited, what account would most likely be credited? A) Cash B) Pre-Paid Payroll Expense C) Payroll Expense D) SUTA Payable Answer: A Diff: 2 LO: 8-1 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 20) The entry to record the payment of taxes withheld from employees and FICA taxes would be to: A) credit Cash; debit FICA Social Security Payable, FICA Medicare Payable, and Federal Income Tax Payable. B) debit Cash; credit FICA Social Security Payable, FICA Medicare Payable, and Federal Income Tax Payable. C) credit Cash; credit FICA Social Security Payable, FICA Medicare Payable, and Federal Income Tax Payable. D) None of these answers is correct. Answer: A Diff: 2 LO: 8-1 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 6 Copyright © 2023 Pearson Education, Inc.

21) The information needed for the amount of payroll taxes and the quarterly payroll tax reports comes from: A) form W-2. B) form W-4. C) the payroll register. D) form 940. Answer: C Diff: 2 LO: 8-1 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 22) A banking day is any day that the bank is open to the public for business. Answer: TRUE Diff: 2 LO: 8-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 23) FIT Payable has a credit normal balance. Answer: TRUE Diff: 2 LO: 8-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 24) FICA taxes are levied only on employees. Answer: FALSE Diff: 2 LO: 8-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 25) If FICA Social Security taxes withheld from the employee’s paycheck is $1,500, the amount that would be in FICA Social Security Payable would be $3,000. Answer: TRUE Diff: 2 LO: 8-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

26) Sweeney's Company has net employees’ pay owed of $2,000. Journalize the entry to transfer the funds from the general bank account to the payroll bank account. Answer: Cash- Payroll Checking 2,000 Cash — Regular Checking 2,000 Diff: 2 LO: 8-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 27) Sweeney's Company has net employees’ pay owed of $2,000. The company uses a separate banking account for payroll. Journalize the entry for the distribution of the paychecks. Answer: Wages and Salaries Payable 2,000 Cash — Payroll Checking 2,000 Diff: 2 LO: 8-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 28) Sweeney's Company has net pay owed of $2,000. Other information is as follows: FIT Payable $300 FICA Social Security Payable 350 FICA Medicare Payable 150 Journalize the entry for the payment of the federal tax liabilities. Answer: FIT Payable 300 FICA Social Security Payable 350 FICA Medicare Payable 150 Cash 800 Diff: 2 LO: 8-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

29) June’s Recording Studio payroll records show the following information:

D. Gordon

Cumulative Earnings Before Payroll $20,000

Weekly Salary 1,100

Assume the following: a) FICA: Social Security, 6.2% on a limit of $142,800; Medicare, 1.45%. b) Each employee contributes $40 per week for union dues. c) State income tax is 5% of gross pay. d) Federal income tax is 20% of gross pay. 1. Prepare a general journal entry to record the employer’s payroll for the weekly salary of D. Gordon 2. Prepare the journal entry to pay the week’s salary to D. Gordon. Answer: Salaries Expense 1,100.00 FICA Social Security Payable 68.20 FICA Medicare Payable 15.95 FIT Payable 220.00 SIT Payable 55.00 Union Dues Payable 40.00 Salaries Payable 700.85 Salaries Payable Cash

700.85 700.85

Diff: 3 LO: 8-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

30) Using the information below, determine the amount of the payroll tax expense for B. Hope Company's first payroll of the year. In your answer list the amounts for FICA (Social Security and Medicare), SUTA, and FUTA.

Employee K. Jackson K. James T. Smith

Taxable Earnings $800 520 400

Assume: FICA tax rates are: Social Security 6.2% on a limit of $142,800 and Medicare 1.45%. State Unemployment tax rate is 5.0% on the first $7,000. Federal Unemployment tax rate is 0.8% on the first $7,000. Answer: FICA Social Security $106.64 FICA Medicare 24.94 SUTA 86.00 FUTA 13.76 $231.34 Diff: 2 LO: 8-1 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

31) Payroll information for Kinzer's Interior Decorating for the first week in October is as follows: Employees' gross wages Taxable earnings for FICASocial Security Medicare Taxable earnings subject to Federal and State Unemployment taxes: Assume the following tax rates: FICA Social Security FICA Medicare Federal unemployment State unemployment

$70,000 50,000 70,000 5,000

6.2% 1.45% 0.8% 2.0%

Required: 1. Prepare the employer's payroll tax entry for Kinzer for the first week of October. 2. Journalize the payment of all payroll taxes and withholdings. Answer: Payroll Tax Expense 4,255 FICA Social Security Payable 3,100 FICA Medicare Payable 1,015 SUTA Payable 100 FUTA Payable 40 FICA Social Security Payable FICA Medicare Payable SUTA Payable FUTA Payable Cash

6,200 2,030 100 40 8,370

Diff: 3 LO: 8-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

Learning Objective 8-2 1) Which taxes are considered 941 taxes? A) FICA, FUTA, and SUTA B) FICA and SIT C) FICA, FIT, and Workers' Compensation D) None of these answers is correct. Answer: D Diff: 2 LO: 8-2 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities 2) Form 941 is filed: A) monthly. B) annually. C) weekly. D) quarterly. Answer: D Diff: 2 LO: 8-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 3) A calendar quarter is made up of: A) 4 months. B) 13 weeks. C) 5 weeks. D) however many weeks are needed to complete the month. Answer: B Diff: 2 LO: 8-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 4) Which form is used to report FICA taxes for the employer and employee, and also federal income taxes for the employee? A) Form 941 B) Form 944 C) Form 940 D) Form W-2 Answer: A Diff: 2 LO: 8-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

5) Which form is used to report FUTA taxes? A) Form 941 B) Form 944 C) Form 940 D) Form W-2 Answer: C Diff: 2 LO: 8-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 6) If the federal unemployment tax liability exceeds _____ by the end of any calendar quarter, then the employer must remit a quarterly tax deposit. A) $100 B) $200 C) $500 D) $1,000 Answer: C Diff: 2 LO: 8-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 7) The payment of FUTA would include: A) a debit to FUTA Payable. B) a credit to FUTA Payable. C) a debit to cash. D) a credit to FUTA Expense. Answer: A Diff: 2 LO: 8-2 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities 8) When a business starts, what must it obtain that identifies itself to the government? A) State Employment Number B) Federal Unemployment Number C) Employer Identification Number D) Federal Employment Number Answer: C Diff: 2 LO: 8-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

9) The payment of FUTA would include: A) a debit to FUTA Payable. B) a credit to FUTA Payable. C) a credit to Cash. D) both A and C. Answer: D Diff: 2 LO: 8-2 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities 10) The payment of SUTA would include: A) a debit to SUTA Payable. B) a credit to SUTA Payable. C) a debit to Cash. D) a debit to Payroll Tax Expense Answer: A Diff: 2 LO: 8-2 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities 11) The payment of SUTA would include: A) a credit to Payroll Tax Expense. B) a credit to SUTA Payable. C) a credit to Cash. D) a debit to Payroll Tax Expense Answer: C Diff: 2 LO: 8-2 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities 12) In most cases, the SUTA form and payment is due: A) last day of the quarter. B) one week after the end of the quarter. C) last day of the month following quarter end. D) end of each month. Answer: C Diff: 2 LO: 8-2 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

13) The filing date for Form 941 is: A) last day of the quarter. B) one week after the end of the quarter. C) last day of the month following quarter end. D) end of each month. Answer: C Diff: 2 LO: 8-2 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities 14) FUTA taxes are paid: A) by the end of January of the following year if the amount owed is less than $500. B) by the end of the month following the end of the calendar quarter if the amount owed is more than $500. C) at the same time as the Form 941 taxes. D) Both A and B are correct. Answer: D Diff: 2 LO: 8-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 15) The correct journal entry to record the payment of SUTA is: A) debit SUTA Expense; credit Cash. B) debit Cash; credit SUTA Expense. C) debit Cash; credit SUTA Payable. D) debit SUTA Payable; credit Cash. Answer: D Diff: 2 LO: 8-2 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities 16) The form used for the annual federal unemployment taxes is Form 941. Answer: FALSE Diff: 2 LO: 8-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 17) For Form 941, quarters end on calendar year quarters. Answer: TRUE Diff: 2 LO: 8-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 15 Copyright © 2023 Pearson Education, Inc.

18) Payroll quarters are based on pay date, not pay period ending date. Answer: TRUE Diff: 2 LO: 8-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 19) Only monthly depositors are required to submit Form 941 Schedule B. Answer: FALSE Diff: 2 LO: 8-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 20) Form 941 taxes include FICA Social Security, FICA Medicare, and federal unemployment taxes. Answer: FALSE Diff: 2 LO: 8-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 21) Form 941 has an adjustment line for the difference between the calculation of 941 taxes in the payroll register and on Form 941. Answer: TRUE Diff: 2 LO: 8-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 22) Federal income taxes withheld from employees’ paychecks are not reported on Form 941. Answer: FALSE Diff: 2 LO: 8-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 23) FICA Social Security Taxes withheld from employees’ paychecks are not reported on Form 941. Answer: FALSE Diff: 2 LO: 8-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

24) Why are the employee deductions recorded as payables on the employer's books? Answer: The employer collects the amounts from the employees by withholding them from the paychecks of its employees and then makes the payments to the government, insurance company, etc. on the employees' behalf. Therefore, it is owed as a payable to the respective government agency, insurance company, or other entity. Diff: 2 LO: 8-1, 8-2 AACSB: Written and Oral Communication Learning Outcome: Define accounting terms, accounting concepts and principles 25) Why are all of the employer payroll taxes listed in separate payable accounts? Answer: The amounts are kept separately to track the amount owed for each tax liability. The payments must also be submitted to different governmental agencies. Diff: 2 LO: 8-1, 8-2 AACSB: Written and Oral Communication Learning Outcome: Define accounting terms, accounting concepts and principles 26) Prepare the general journal entry to record the payment of $500 for state unemployment tax. Answer: SUTA Payable 500 Cash 500 Diff: 2 LO: 8-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 27) Prepare the general journal entry to record the payment of $600 for federal unemployment tax. Answer: FUTA Payable 600 Cash 600 Diff: 2 LO: 8-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 28) On Form 941, why is the FICA Social Security tax at a rate of 12.4% Answer: The rate is twice the employee’s rate of 6.2%, as the employer must match the employee’s FICA Social Security tax withheld. Diff: 2 LO: 8-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

Learning Objective 8-3 1) The correct journal entry to record the payment of FUTA is to: A) debit Cash; credit FUTA Payable. B) debit FUTA Expense; credit Cash. C) debit FUTA Payable; credit Cash. D) debit Cash; credit FUTA Expense. Answer: C Diff: 2 LO: 8-2, 8-3 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities 2) The employer's annual Federal Unemployment Tax Return is: A) Form 940. B) Form 941. C) Form W-6. D) Form 8109. Answer: A Diff: 2 LO: 8-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 3) How often is a Form 940 filed? A) Monthly B) Annually C) Weekly D) Quarterly Answer: B Diff: 2 LO: 8-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 4) Which of the following does NOT apply to a W-2? A) Reports the total amount of wages, tips and compensation paid to an employee for a year B) Reports the total FICA Social Security and Medicare taxes withheld from an employee’s paychecks for a year C) It is sent to the Social Security Administration D) Employees do not use this form to prepare their personal tax returns. Answer: D Diff: 2 LO: 8-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

5) Which form contains information about gross earnings and is given to the employee by January 31? A) Form W-2 B) Form W-3 C) Form 941 D) Form W-4E Answer: A Diff: 2 LO: 8-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 6) Which form is sent to the Social Security Administration along with the W-2 forms? It reports total wages, FICA taxes withheld, etc., for the previous year for all employees. A) Form W-2 B) Form W-3 C) Form SS-4 D) Form 940 Answer: B Diff: 2 LO: 8-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 7) The W-2 form must be submitted to employees by: A) January 31 of the following year they work. B) December 31 of the current year they work. C) the end of the company’s fiscal year. D) January 1 of the following year they work. Answer: A Diff: 2 LO: 8-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 8) The W-2 form should be submitted to: A) employees. B) Social Security Administration. C) state and local governments. D) all of the above. Answer: D Diff: 2 LO: 8-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

9) If an employer hires independent contractors, they must prepare Form ______ for each contractor who was paid ________ or more during the calendar year. A) 1099; $600 B) 1099; $1,000 C) 1098; $600 D) 1098; $1,000 Answer: A Diff: 2 LO: 8-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 10) Grammy's Bakery had the following information for the pay period ending June 30:

Employee Name P. Ganes T. Baker

Pay rate $2,700 10/hr

Hours worked Salaried 50

Cumulative Earnings Before June 30 Department $12,200 Kitchen 6,500 Office

Federal income tax withheld $86.00 22.00

Assume: FICA Social Security applied to the first $142,800 at a rate of 6.2%. FICA Medicare applied at a rate of 1.45%. FUTA applied to the first $7,000 at a rate of 0.8%. SUTA applied to the first $7,000 at a rate of 5.6%. State income tax is 3.8%. Overtime rate is 1.5 times regular rate. Given the above information, what would be the amount applied to FUTA Payable? (Round intermediary calculations to the nearest cent and final answers to the whole dollar.) A) Debit $4 B) Credit $4 C) Debit $26 D) Credit $26 Answer: B Explanation: $7,000 max - $6,500 cumulative earnings for T. Baker = $500 $500 × .008 = $4 P. Ganes has cumulative earnings above $7,000. Diff: 2 LO: 8-3 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

11) The following amounts are an expense to the company: A) FICA Social Security Payable. B) FUTA Payable. C) SUTA Payable. D) All of the above are correct. Answer: D Diff: 2 LO: 8-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 12) The employer pays the same amount as the employee for Federal Unemployment taxes. Answer: FALSE Diff: 2 LO: 8-2, 8-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 13) Information to prepare W-2 forms can be obtained from the current payroll register. Answer: FALSE Diff: 1 LO: 8-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 14) The W-2 is the Wage and Tax Statement. Answer: TRUE Diff: 1 LO: 8-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 15) A deposit must be made when filing the W-2 form. Answer: FALSE Diff: 2 LO: 8-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 16) Tax form 940 is filed annually. Answer: TRUE Diff: 2 LO: 8-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

17) Form 940 is used by businesses that employ workers in multiple states. Answer: TRUE Diff: 2 LO: 8-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 18) Employees must receive W-3's by January 31 of the following year they work for an employer. Answer: FALSE Diff: 2 LO: 8-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 19) The individual employee earnings for all employees in a company are summarized on the W-3 form. Answer: TRUE Diff: 1 LO: 8-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 20) The W-3 is also known as the Transmittal of Wage and Tax Statements. Answer: TRUE Diff: 2 LO: 8-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 21) The W-3 is filed only for odd years. Answer: FALSE Diff: 2 LO: 8-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 22) Both employer and employee contribute to FICA Social Security and SUTA tax. Answer: FALSE Diff: 2 LO: 8-2, 8-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

Match each of the following terms with the appropriate definition. 23) A. Form 940 B. Form W-2 C. FUTA Taxes D. FICA Taxes E. Form 941 1. Payroll taxes on employers that are assessed by the federal government to the support the federal unemployment insurance program. 2. A form that reports an employer’s federal tax withholdings for the quarter. 3. A form that reports an employer's FUTA tax for the year. 4. Taxes assessed on both the employer and the employee under FICA. 5. A statement that reports an individual employee’s total earnings and deductions for the year. Answer: 1. C 2. E 3. A 4. D 5. B Diff: 2 LO: 8-3 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities Ben's Mentoring had the following information for the pay period ending September 30:

Employee Name T. Sharp V. Chandler M. Hill

Pay rate $5,000 12.00 13.00

Cumulative Earnings Before Hours worked Sept. 30 Department Salaried $103,000 Office 48 51,000 Tutor 43 5,200 Tutor

Federal income tax withheld $ 2,100.00 215.00 208.00

Assume: FICA Social Security I applied to the first $142,800 at a rate of 6.2%. FICA Medicare applied at a rate of 1.45%. FUTA applied to the first $7,000 at a rate of 0.8%. SUTA applied to the first $7,000 at a rate of 5.6%. State income tax is 3.8%. Employees contribute to their retirement fund at a rate of 5.5% of their gross earnings. Overtime pay is 1.5 times regular pay.

24) Compute the total regular earnings. Answer: $6,000.00 Explanation: $5,000 + (40 × $12) + (40 × $13) = $6,000 Diff: 3 LO: 8-1, 8-2, 8-3 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 25) Compute the total overtime earnings. Answer: $202.50 Explanation: (8 × $12 × 1.5) + (3 × $13 × 1.5) = $202.50 Diff: 3 LO: 8-1, 8-2, 8-3 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 26) Compute the total gross earnings for the tutors. Answer: $1,202.50 Explanation: (40 × $12) + (8 × $12 × 1.5) + (40 × $13) + (3 × $13 × 1.5) = $1,202.50 Diff: 3 LO: 8-1, 8-2, 8-3 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 27) Compute the total gross earnings for the office. Answer: $5,000.00 Diff: 3 LO: 8-1, 8-2, 8-3 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 28) Compute the employees' FICA Social Security. Answer: $384.56 Explanation: $6,202.50 × 6.2% = $384.56 Diff: 3 LO: 8-1, 8-2, 8-3 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 29) Compute the employees' FICA Medicare. Answer: $89.94 Explanation: $6,202.50 × 1.45% = $89.94 Diff: 3 LO: 8-1, 8-2, 8-3 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

30) Compute the total federal income tax. Answer: $2,523.00 Explanation: $2,100 + $215 + $208 = $2,523 Diff: 3 LO: 8-1, 8-2, 8-3 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 31) Compute the total state income tax. Answer: $235.70 Explanation: $6,202.50 × 3.8% = $235.70 Diff: 3 LO: 8-1, 8-2, 8-3 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 32) Compute the total retirement contributions. Answer: $341.14 Explanation: $6,202.50 × 5.5% = $341.14 Diff: 3 LO: 8-1, 8-2, 8-3 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 33) Compute the total employer's payroll tax expense. Answer: $511.53 Explanation: FICA Social Security $384.56 + FICA Medicare $89.94 + FUTA $4.63 + SUTA $32.40 = $511.53 Diff: 3 LO: 8-1, 8-2, 8-3 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 34) Compute the total deductions. Answer: $3,574.34 Explanation: FICA Social Security $384.56 + FICA Medicare $89.94 + FIT $2,523 + SIT $235.70 + Retirement Contributions $341.14 = $3,574.34 Diff: 3 LO: 8-1, 8-2, 8-3 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

35) Compute the net pay. Answer: $2,628.16 Explanation: $6,202.50 - $3,574.34 = $2,628.16 Diff: 3 LO: 8-1, 8-2, 8-3 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 36) Prepare the general journal entry to record the payroll. Answer: Office Salary Expense 5,000.00 Tutor Wages Expense 1,202.50 FICA Social Security Payable 384.56 FICA Medicare Payable 89.94 FIT Payable 2,523.00 SIT Payable 235.70 Retirement Fund Payable 341.14 Salary and Wages Payable 2,628.16 a Diff: 3 LO: 8-1, 8-2, 8-3 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 37) Prepare the general journal entry to record the employer's payroll tax expense. Answer: Payroll Tax Expense 511.53 FICA Social Security payable 384.56 FICA Medicare payable 89.94 FUTA payable* 4.63 SUTA payable* 32.40 *All have reached the $7,000 limit except M. Hill. For unemployment tax on M. Hill’s wages, take wages of ($13 × 40 hours) + (1.5 × $13 × 3 hours) = $578.50 $578.50 × .008 = $4.63 $578.50 × .056 = $32.40 Diff: 3 LO: 8-1, 8-2, 8-3 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

38) Prepare the general journal entry to record the payment to the employees. Answer: Salary and Wages Payable 2,628.16 Cash 2,628.16 Diff: 3 LO: 8-1, 8-2, 8-3 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 39) Prepare the general journal entry to record the payment of Form 941 taxes. Answer: FIT Payable 2,523.00 FICA Social Security Payable 769.12 FICA Medicare Payable 179.88 Cash 3,472.00 Diff: 3 LO: 8-1, 8-2, 8-3 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 40) Prepare the general journal entry to record the payment of the retirement fund withholdings. Answer: Retirement Fund Payable 341.14 Cash 341.14 Diff: 3 LO: 8-1, 8-2, 8-3 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

Column 2

Column 3

Column 4

Column 1

Column 2

Column 3 income statement

Column 4

Salary Expense Answer:

Salary Expense

expense

debit

temporary

Diff: 3 LO: 8-1, 8-2, 8-3 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 42) Column 1

Column 2

Column 3

Column 4

Column 1

Column 2

Column 3 income statement

Column 4

Wage Expense Answer:

Wage Expense

expense

debit

temporary

Diff: 3 LO: 8-1, 8-2, 8-3 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 43) Column 1

Column 2

Column 3

Column 4

Column 1

Column 2

Column 3

Column 4

Cash-Payroll Checking Answer: Cash-Payroll Checking

asset

debit

balance sheet

permanent

Diff: 3 LO: 8-1, 8-2, 8-3 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

44) Column 1

Column 2

Column 3

Column 4

Column 1

Column 2

Column 3

Column 4

Payroll Tax Expense Answer: Payroll Tax Expense

expense

debit

income statement temporary

Diff: 3 LO: 8-1, 8-2, 8-3 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 45) Column 1

Column 2

Column 3

Column 4

Column 1 liability

Column 2 credit

Column 3 balance sheet

Column 4 permanent

FUTA Payable Answer: FUTA Payable

Diff: 3 LO: 8-1, 8-2, 8-3 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 46) Column 1

Column 2

Column 3

Column 4

Column 1 liability

Column 2 credit

Column 3 balance sheet

Column 4 permanent

SUTA Payable Answer: SUTA Payable

Diff: 3 LO: 8-1, 8-2, 8-3 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

47) Column 1

Column 2

Column 3

Column 4

Column 1

Column 2

Column 3

Column 4

FICA Social Security Payable Answer: FICA Social Security Payable liability

credit

balance sheet

permanent

Diff: 3 LO: 8-1, 8-2, 8-3 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 48) Column 1

Column 2

Column 3

Column 4

Column 1

Column 2

Column 3

Column 4

FICA Medicare Payable Answer: FICA Medicare Payable

liability

credit

balance sheet

permanent

Diff: 3 LO: 8-1, 8-2, 8-3 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 49) S. Paul, an employee of Plum Hollow Country Club, earned $1,100 during the first week of January. His withholding included: federal income tax, 15%; state income tax, 5%; FICA Social Security, 6.2%; FICA Medicare, 1.45%; and union dues $25. Determine FICA Social Security Tax, FICA Medicare Tax, Federal Income Tax, and State Income Tax. Answer: FICA Social Security $68.20 FICA Medicare 15.95 Federal Income Tax 165.00 State Income Tax 55.00 Diff: 2 LO: 8-1, 8-3 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

College Accounting, 15e (Slater) Chapter 9 Sales and Cash Receipts Learning Objective 9-1 1) Merchants who buy goods from wholesalers for resale to customers are: A) thrift stores. B) retailers. C) service companies. D) None of the above is correct. Answer: B Diff: 1 LO: 9-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 2) Merchandise is: A) the same as inventory. B) an asset. C) the same as supplies. D) Both A and B are correct. Answer: D Diff: 2 LO: 9-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 3) Sales Revenue less Cost of Goods Sold equals: A) net sales . B) gross profit. C) gross sales. D) operating expenses. Answer: B Diff: 2 LO: 9-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 4) A contra-revenue account with a debit balance for returned goods is called: A) Sales Returns and Allowances. B) Sales Discount. C) Prepaid Returns. D) Sales. Answer: A Diff: 2 LO: 9-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 1 Copyright © 2023 Pearson Education, Inc.

5) A characteristic of Sales Returns and Allowances is that: A) it has a credit balance. B) it tracks returns from customers. C) it is a contra-revenue account. D) B and C are correct. Answer: D Diff: 2 LO: 9-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 6) The time frame when customers are allowed to pay their bills and still be eligible for a discount is the: A) credit period. B) discount period. C) short period. D) allowance period. Answer: B Diff: 2 LO: 9-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 7) The length of time a customer is allowed to pay their bill is the: A) discount period. B) short period. C) credit period. D) return period. Answer: C Diff: 2 LO: 9-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 8) From the seller’s perspective, a reduction given to customers for early payment is a: A) sales returns and allowance. B) purchase discount. C) sales discount. D) customer discount. Answer: C Diff: 2 LO: 9-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

9) A characteristic of the account, Sales Discount, includes the following: A) debit balance. B) contra-revenue account. C) records the cash discounts granted to customers. D) All of these answers are correct. Answer: D Diff: 2 LO: 9-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 10) Credit terms of 3/15, n/30 mean that: A) a 3% discount is allowed if the bill is paid within between 15 and 30 days. B) a 3% discount is allowed if the bill is paid within 30 days. C) a 3% discount is allowed if the bill is paid before the 15th day of the following month. D) a 3% discount is allowed if the customer pays the bill within 15 days, or the entire amount is due within 30 days. Answer: D Diff: 2 LO: 9-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 11) Net sales equal: A) gross sales. B) gross sales - sales returns and allowances. C) gross sales - sales returns and allowances - sales discounts. D) gross sales - gross profit. Answer: C Diff: 2 LO: 9-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 12) Sales Tax Payable is a: A) liability account with a debit balance. B) liability account with a credit balance. C) contra-asset account with a debit balance. D) contra-asset account with a credit balance. Answer: B Diff: 2 LO: 9-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

13) The liability account used to record sales tax owed is: A) Sales Tax Expense. B) Prepaid Taxes. C) Sales Tax Payable. D) Sales Returns and Allowances. Answer: C Diff: 2 LO: 9-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities 14) The normal balance of the Sales Returns and Allowances account is: A) a credit. B) a debit. C) zero. D) It does not have a normal balance. Answer: B Diff: 2 LO: 9-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 15) The side of the T-account that increases the balance of the Sales Discount account is: A) a credit. B) a debit. C) both sides increase sales discount. D) It does not have a normal balance. Answer: B Diff: 2 LO: 9-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 16) Home Restoration reports net sales of $70,000. If sales returns and allowances are $13,000 and sales discounts are $2500, what are gross sales? A) $70,000 B) $85,500 C) $80,500 D) $54,500 Answer: B Explanation: Net Sales + Sales Returns and Allowances + Sales Discounts = Gross Sales = $70,000 + $13,000 + $2500 = $85,500 Diff: 2 LO: 9-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

17) B&B Lumber reports gross sales of $120,000. If sales returns and allowances are $11,000 and sales discounts are $2500, what are the net sales? A) $122,500 B) $111,500 C) $106,500 D) $109,000 Answer: C Explanation: Gross Sales - Sales Returns and Allowances - Sales Discounts = Net Sales = $120,000 $11,000 - $2500 = $106,500 Diff: 2 LO: 9-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 18) Betsy's Pottery sold 400 tiles at $25 each to a customer on credit, terms 2/10, n/30. Betsy’s Pottery uses the perpetual inventory system, and each tile cost $20. Which journal entries are required to record the sale? (Round intermediary calculations to the nearest cent and final answers to the whole dollar.) A) Debit Cash $10,000; credit Sales $10,000; Debit Cost of Goods Sold $8,000; credit Merchandise Inventory $8,000 B) Debit Accounts Payable $9,800; credit Sales $9,800; Debit Merchandise Inventory $8,000; credit Cost of Goods Sold $8,000 C) Debit Accounts Receivable $9,800; debit Sales Discount $200; credit Sales $10,000; Debit Merchandise Inventory $8,000; credit Merchandise Inventory $8,000 D) Debit Accounts Receivable $10,000; credit Sales $10,000; Debit Cost of Goods Sold $8,000; credit Merchandise Inventory $8,000 Answer: D Explanation: 400 × $25 = $10,000; 400 x $20 = $8,000 Diff: 2 LO: 9-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 19) Dora's Blankets and Bedding had a sale of $600 to a customer on credit, terms 2/15, n/30. Dora uses the perpetual inventory system and the cost of the goods sold was $300. Dora should record the sale as follows: (Round intermediary calculations to the nearest cent and final answers to the whole dollar.) A) Debit Accounts Receivable $600; credit Sales $600; Debit Cost of Goods Sold $300; credit Merchandise Inventory $300. B) Debit Cash $600; credit Sales $600; Debit Cost of Goods Sold $300; credit Merchandise Inventory $300. C) Debit Accounts Receivable $588; debit Sales Discounts $12; credit Sales $600; Debit Cost of Goods Sold $300; credit Merchandise Inventory $300. D) Debit Sales $600; credit Accounts Receivable $600; Debit Cost of Goods Sold $300; credit Merchandise Inventory $300. Answer: A Diff: 2 LO: 9-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 5 Copyright © 2023 Pearson Education, Inc.

20) Santa Materials sold goods for $3200 plus 5% sales tax to a customer on account, terms n/30. Santa Materials uses the perpetual inventory system and the cost of the goods sold was $1,000. Which entries are required to record this transaction? A) Debit Accounts Receivable $3360; credit Sales Tax Payable $160; credit Sales $3200; Debit Cost of Goods Sold $1,000; credit Merchandise Inventory $1,000 B) Debit Cash $3200; credit Sales $3200; Debit Cost of Goods Sold $1,000; credit Merchandise Inventory $1,000 C) Debit Accounts Receivable $3200; credit Sales $3200; Debit Cost of Goods Sold $1,000; credit Merchandise Inventory $1,000 D) Debit Accounts Receivable $3360; credit Sales $3360; Debit Cost of Goods Sold $1,000; credit Merchandise Inventory $1,000 Answer: A Explanation: Sales Tax Payable: $3200 × 5% = $160 Diff: 2 LO: 9-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 21) Secret Trails received payment in full within the credit period for horse boarding for $1,300 plus 4% sales tax. Terms of the sale were 3/10, n/30. Which entry is required to record this? (Round intermediary calculations to the nearest cent and final answers to the whole dollar.) A) Debit Cash, $1,300; credit Boarding Revenue, $1,300 B) Debit Cash, $1,313; debit Sales Discount $39; credit Accounts Receivable, $1,352 C) Debit Cash, $1,352; credit Boarding Revenue, $1,352 D) Debit Cash, $1,313; credit Boarding Revenue, $1,313 Answer: B Explanation: Sales Discount: $1,300 × 3% = $39 Diff: 2 LO: 9-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 22) H.R. Camping sold goods for $200 to a customer on account. The customer returned for credit goods with a sales value of $100 and a cost of $50. H.R. Camping uses the perpetual inventory method. Which entries are required to record the return transaction? A) Debit Sales Returns and Allowances $100; credit Accounts Receivable $100; Debit Merchandise Inventory $50; credit Cost of Goods Sold $50 B) Debit Sales Returns and Allowances $100; credit Sales $100; Debit Cost of Goods Sold $50; credit Merchandise Inventory $50 C) Debit Sales $100; credit Sales Returns and Allowances $100; Debit Merchandise Inventory $50; credit Cost of Goods Sold $50 D) Debit Accounts Receivable $100; credit Sales Returns and Allowances $100; Debit Cost of Goods Sold $50; credit Merchandise Inventory $50 Answer: A Diff: 2 LO: 9-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 6 Copyright © 2023 Pearson Education, Inc.

23) Monica's Closet received payment in full within the discount period for goods sold on account with a $1000 sales invoice, terms 2/10, n/30. Which entry records the receipt of this payment? (Round your calculations to the nearest whole dollar.) A) Debit Accounts Receivable $1000; credit Sales $1000 B) Debit Cash $1000; credit Accounts Receivable $1000 C) Debit Cash $980, debit Sales Discount $20; credit Sales $1000 D) Debit Cash $980, debit Sales Discount $20; credit Accounts Receivable $1000 Answer: D Explanation: Sales Discount: $1000 × 2% = $20 Diff: 2 LO: 9-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 24) Bob sold goods for $500 to a customer on account. The customer returned for credit goods with a sales value of $35. Terms of the sale were 2/10, n/30. If the customer pays the amount owed within the discount period, what is the amount the customer should pay? (Round your calculations to the nearest whole dollar.) A) $456 B) $465 C) $500 D) $450 Answer: A Explanation: Sales Discount: $500 - $35 = $465 - ($465 × 2%) = $456 Diff: 2 LO: 9-1 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued 25) Mike returned $300 of merchandise to Secret Trails. His original purchase was $600 on account, with terms 1/10, n/30. If Mike pays the balance of his account after the discount period, how much should he pay? (Round your calculations to the nearest whole dollar.) A) $306 B) $294 C) $300 D) $600 Answer: C Explanation: $600 - $300 = $300 Diff: 2 LO: 9-1 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued

26) The arrangements between buyer and seller as to when payments for sold merchandise are to be made are called: A) credit terms. B) net allowance. C) cash on demand. D) discount period. Answer: A Diff: 2 LO: 9-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 27) The contra-revenue accounts include: A) Sales Tax Payable. B) Sales Returns and Allowances. C) Sales Discount. D) Both B and C are correct. Answer: D Diff: 2 LO: 9-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 28) A sales discount correctly taken for a customer who purchased on account was debited to Sales at the time the discount was recorded. This error will cause: A) the net income for the period to be overstated. B) the net income for the period to be understated. C) the sales discount account to be understated. D) the net sales for the period to be overstated. Answer: C Diff: 3 LO: 9-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 29) Merchandise sold on credit was returned for credit and recorded with a debit to Sales Returns and Allowances and a credit to Accounts Payable. This error will cause: A) the net income for the period to be overstated. B) the net income for the period to be understated. C) the assets to be overstated. D) the accounts payable to be understated. Answer: C Diff: 3 LO: 9-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

30) The document indicating to the customer that the seller is reducing the amount owed by the customer is a: A) credit memorandum. B) sales discount. C) customer allowance. D) debit memorandum. Answer: A Diff: 2 LO: 9-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 31) A sale of merchandise on account, using the perpetual inventory system, would be recorded with: A) a debit to an asset account. B) a debit to a liability account. C) a debit to Capital. D) None of these is correct. Answer: A Diff: 2 LO: 9-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 32) A customer returned merchandise sold on account. Under the perpetual inventory method, the seller will record: A) a debit to an asset account. B) a credit to a revenue account. C) a credit to a liability account. D) a debit to a liability. Answer: A Diff: 2 LO: 9-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 33) A wholesale customer returned merchandise having already paid for it within the cash discount period. Under the perpetual inventory method, the return will be recorded by the seller with: A) a credit to an asset account. B) a credit to a liability account. C) a credit to Capital. D) None of these is correct. Answer: A Diff: 2 LO: 9-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

34) The total of all cash sales and credit sales equals: A) net sales. B) gross sales. C) accounts receivable. D) accounts payable. Answer: B Diff: 2 LO: 9-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 35) Sales discounts are NOT taken on which of the following? A) Sales Tax B) Freight C) Merchandise returned D) Sales Discounts are not taken on any of the above. Answer: D Diff: 2 LO: 9-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 36) Sara's Jewelry sold 40 necklaces for $35 each to a customer on credit. The jeweler uses the perpetual inventory system and the necklaces cost $10 each. The invoice included a 7% sales tax and payment terms of 2/10, n/30. In addition, 5 necklaces were returned prior to payment. The entry or entries to record the original sale would include: (Round any intermediate calculations to the nearest cent, and your final answer to the nearest dollar.) A) a debit to Accounts Receivable for $1498. B) a debit to Accounts Receivable for $1400. C) a debit to Sales for $1498. D) a debit to Sales for $1400. Answer: A Explanation: 40 × $35 = $1400 + ($1400 × 7%) = $1498 Debit to Accounts Receivable Diff: 2 LO: 9-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

37) Mel's Art Studio paid cash for freight of $100 for a recent purchase. The studio uses the perpetual inventory system. The entry would include: A) a credit to Sales. B) a debit to Sales. C) a debit to Merchandise Inventory. D) a credit to Merchandise Inventory. Answer: C Diff: 2 LO: 9-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 38) The normal balance of Sales Tax Payable is a debit. Answer: FALSE Diff: 1 LO: 9-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 39) Net Sales equals Gross Sales - Sales Returns and Allowances - Accounts Receivable. Answer: FALSE Diff: 2 LO: 9-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 40) If management wanted to determine if customers were returning goods at a higher rate than usual, they could use the Sales Discount account to analyze the information. Answer: FALSE Diff: 2 LO: 9-1 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 41) The time a customer is granted to pay a bill is the discount period. Answer: FALSE Diff: 2 LO: 9-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 42) Sales tax collected by the seller is not included in the seller's total revenue. Answer: TRUE Diff: 2 LO: 9-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 11 Copyright © 2023 Pearson Education, Inc.

43) Terms of 3/10, n/30 means that a customer is allowed a 3% discount if he or she pays before the 10th day of the month following the sale. Answer: FALSE Diff: 2 LO: 9-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 44) Sales Returns and Allowances is a contra-revenue account. Answer: TRUE Diff: 2 LO: 9-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 45) Sales is a revenue account. Answer: TRUE Diff: 2 LO: 9-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 46) Sales Discounts is a liability account. Answer: FALSE Diff: 2 LO: 9-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 47) If a customer returns merchandise purchased on account, the seller’s income for that period will be increased, if the seller uses the perpetual inventory method. Answer: FALSE Diff: 2 LO: 9-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 48) The Sales Returns and Allowances account is a contra-revenue account. Answer: TRUE Diff: 2 LO: 9-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

49) Sales Tax Payable represents an asset on the books of the seller. Answer: FALSE Diff: 2 LO: 9-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 50) Sales Discounts and Sales Returns and Allowances are contra-asset accounts. Answer: FALSE Diff: 2 LO: 9-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 51) When a customer returns defective office supplies, the Sales Returns and Allowances account will be debited. Answer: TRUE Diff: 2 LO: 9-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 52) Use the following information to answer the question below: Sales Sales Discount Sales Returns and Allowances Freight Expense

$76,000 2,000 500 700

The Net Sales are ________. Answer: $73,500 ($76,000 - $2,000 - $500) Diff: 2 LO: 9-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 53) Determine the amount of net sales given: gross sales = $250,000 sales discounts = $40,000 sales returns and allowances = $35,000 $ ________ Answer: $175,000 ($250,000 - $40,000 - $35,000) Diff: 2 LO: 9-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

54) If cash flow is so important to merchandisers, why do they extend credit to their customers? Answer: A customer who is limited to making only cash purchases will buy less than when credit is available. Diff: 2 LO: 9-1 AACSB: Written and Oral Communication Learning Outcome: Define accounting terms, accounting concepts and principles 55) Calculate gross sales: net sales = $100,000 sales returns and allowances = $25,000 sales discounts = $30,000 accounts receivable = $12,000 Answer: $155,000 ($100,000 + $25,000 + $30,000) Diff: 2 LO: 9-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 56) Explain why the account Sales Tax Payable is credited when a sale is made subject to a sales tax? Answer: Sales Tax Payable is a liability account, and it is increasing until the company makes the payment to the state for sales taxes that they have collected. Diff: 2 LO: 9-1 AACSB: Written and Oral Communication Learning Outcome: Define accounting terms, accounting concepts and principles 57) Compare and discuss a discount period versus a credit period. Answer: A credit period is the length of time allowed for payment of goods sold on account. Customers are encouraged to pay their bills within this time frame to maintain a good credit rating. A discount period is shorter than the credit period to encourage early payment of bills. Customers are given an incentive to make payments shortly after purchase. Terms such as 2/15, n/30 demonstrate the discount period and the credit period. The discount period is 15 days and the credit period is 30 days. If the customer pays the bill within 15 days, the customer will receive a 2% discount, or the balance is due in full if the customer pays the bill within 30 days. Diff: 2 LO: 9-1 AACSB: Written and Oral Communication Learning Outcome: Define accounting terms, accounting concepts and principles

For each of the following, identify in column 1 the category to which the account belongs, in column 2 the normal balance for the account, and in column 3 the financial statement on which the account balance is reported. 58) Column 1

Column 2

Column 3

Column 1 expense

Column 2

Column 3 income statement

Cost of Goods Sold Answer: Cost of Goods Sold

debit

Diff: 2 LO: 9-1 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 59) Column 1

Column 2

Column 1 revenue

Column 2 credit

Column 3

Sales Answer: Sales

Column 3 income statement

Diff: 2 LO: 9-1 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 60) Column 1

Column 2

Column 3

Column 2

Column 3 balance sheet

Accounts Receivable Answer: Column 1 Accounts Receivable

asset

debit

Diff: 2 LO: 9-1 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

61) Column 1

Column 2

Column 3

Column 1

Column 2

Column 3

Sales Returns and Allowances Answer: Sales Returns and Allowances

contra-revenue

debit

income statement

Diff: 2 LO: 9-1 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 62) Column 1

Column 2

Column 3

Column 1 liability

Column 2 credit

Column 3 balance sheet

Accounts Payable Answer: Accounts Payable

Diff: 2 LO: 9-1 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 63) Column 1

Column 2

Column 3

Column 2

Column 3 income statement

Sales Discounts Answer: Sales Discounts

Column 1 contra-revenue

debit

Diff: 2 LO: 9-1 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

64) Column 1

Column 2

Column 3

Column 1 liability

Column 2 credit

Column 3 balance sheet

Sales Tax Payable Answer: Sales Tax Payable

Diff: 2 LO: 9-1 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 65) Column 1

Column 2

Column 3

Column 1

Column 2

Column 3 balance sheet

Merchandise Inventory Answer: Merchandise Inventory

asset

debit

Diff: 2 LO: 9-1 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 66) Journalize the following transactions using the perpetual inventory system. a. Purchased merchandise on account for $8,000, with terms n/30. b. Returned $800 of the purchase made in letter a. c. Paid for the purchase in letter a, less the return in letter b. Answer: a. Merchandise Inventory 8,000 Accounts Payable 8,000 b.

Accounts Payable Merchandise Inventory Accounts Payable Cash

800 800 7,200 7,200

Diff: 3 LO: 9-1 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

67) Journalize the following transactions using the perpetual inventory system. a. Purchased merchandise on account for $7,000, with terms 2/10, n/30. b. Returned $600 of the purchase made in letter a. c. Paid for the purchase in letter a, less the return in letter b, within the discount period. Answer: a. Merchandise Inventory 7,000 Accounts Payable 7,000 b.

Accounts Payable Merchandise Inventory

600

Accounts Payable Cash Merchandise Inventory

6,400

600

6,272 128

Diff: 3 LO: 9-1 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 68) Journalize the following transactions using the perpetual inventory system. a. Sold merchandise that cost $8,000, on account for $20,000 with terms n/30. b. Customer returned $200 of the merchandise from letter a. Cost of merchandise was $100. c. Customer paid for the sale made in letter a, less the return in letter b. Answer: a. Accounts Receivable 20,000 Sales 20,000

Cost of Goods Sold Merchandise Inventory

8,000

Sales Returns and Allowances Accounts Receivable

200

Merchandise Inventory Cost of Goods Sold

100

Cash

8,000

200

100 19,800

Accounts Receivable

19,800

Diff: 3 LO: 9-1 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

69) Journalize the following transactions using the perpetual inventory system. a. Sold merchandise that cost $800, on account for $2,000 with terms 2/10 or n/30. b. Customer returned $200 of the merchandise from letter a. Cost of merchandise was $100. c. Customer paid for the sale made in letter a, less the return in letter b, within the discount period. Answer: a. Accounts Receivable 2,000 Sales 2,000

Cost of Goods Sold Merchandise Inventory

800

Sales Returns and Allowances Accounts Receivable

200

Merchandise Inventory Cost of Goods Sold

100

Cash Sales Discount Accounts Receivable

1,764 36

800

200

100

1,800

Diff: 3 LO: 9-1 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

Learning Objective 9-2 1) If a credit memorandum is issued for goods sold on account, what account will be increased on the seller's books? A) Accounts Receivable B) Sales C) Sales Discount D) Sales Returns and Allowances Answer: D Diff: 2 LO: 9-2 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

2) A record showing the activity and the balances owed by each customer for sales on account is called the: A) accounts payable journal. B) sales journal. C) bank journal. D) accounts receivable subsidiary ledger. Answer: D Diff: 2 LO: 9-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 3) Accounts of a single type are kept in the: A) supplemental ledger. B) primary ledger. C) subsidiary ledger. D) None of these answers is correct. Answer: C Diff: 2 LO: 9-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 4) Which of the following statements about subsidiary ledgers is most accurate? A) The subsidiary ledger accounts will never equal the controlling account in the general ledger. B) The Accounts Receivable subsidiary ledger is a book of accounts that provides supporting detail for the controlling account of Accounts Receivable. C) The Accounts Receivable subsidiary ledger accounts will equal the amount of cash sales. D) All of these answers are correct. Answer: B Diff: 2 LO: 9-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 5) When using a subsidiary ledger for Accounts Receivable, the Accounts Receivable account in the general ledger is called the: A) primary account. B) subsidiary account. C) receivable account. D) controlling account. Answer: D Diff: 2 LO: 9-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

6) Every controlling account must have its own: A) primary ledger. B) general ledger. C) subsidiary ledger. D) general journal. Answer: C Diff: 2 LO: 9-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 7) The principal ledger containing all the balance sheet and income statement accounts is the: A) general ledger. B) creditors' ledger. C) customers' ledger. D) subsidiary ledger. Answer: A Diff: 2 LO: 9-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 8) Entries to customers' accounts for sales on account, as well as collections on account, are posted in the: A) accounts receivable subsidiary ledger. B) accounts payable subsidiary ledger. C) adjustment subsidiary ledger. D) sales subsidiary ledger. Answer: A Diff: 2 LO: 9-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 9) A checkmark in the PR column in the general journal means: A) the entry was recorded correctly. B) the amount was posted to the controlling account. C) the amount was recorded in the subsidiary ledger. D) the payroll was paid. Answer: C Diff: 2 LO: 9-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

10) The accounts receivable subsidiary ledger: A) is organized in alphabetical order. B) is not kept in the same book as Accounts Receivable. C) should equal the controlling account in the general ledger. D) All of the above are correct. Answer: D Diff: 2 LO: 9-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 11) The normal balance of the accounts in the accounts receivable subsidiary ledger is a: A) credit. B) debit. C) It does not have a normal balance. D) Not enough information provided. Answer: B Diff: 2 LO: 9-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 12) The return of merchandise by a customer who purchased on account was recorded with a debit to Accounts Payable and a credit to Accounts Receivable in the general ledger. This error will cause: A) the net income for the period to be overstated. B) the net Sales for the period to be understated. C) the controlling account for Accounts Receivable to not agree with the subsidiary ledger. D) the assets to be overstated. Answer: A Diff: 3 LO: 9-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 13) If a credit memorandum is issued, what account will be decreased on the seller's books? A) Accounts Receivable B) Sales Discounts C) Sales D) Sales Returns and Allowances Answer: A Diff: 2 LO: 9-2 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

14) Jane's Jewelry sold 50 necklaces for $45 each to a customer on account. The invoice included a 4% sales tax and payment terms of 7/10, n/30. Jane’s Jewelry uses the perpetual inventory system, and each necklace cost $10. In addition, 5 necklaces were returned prior to payment. The entry to record the return would include: (Round your calculation to the nearest whole dollar.) A) a debit to Sales Returns and Allowances for $45. B) a debit to Sales Returns and Allowances for $225. C) a credit to Sales Tax Payable for $9. D) a debit to Accounts Receivable for $45. Answer: B Explanation: 5 × $45 = $225 Sales Returns and Allowances Diff: 2 LO: 9-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 15) The Accounts Receivable account is an example of a controlling account when it has a subsidiary ledger to support it. Answer: TRUE Diff: 2 LO: 9-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 16) Sales Returns and Allowances is a contra-revenue account with a normal debit balance. Answer: TRUE Diff: 2 LO: 9-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 17) An example of a subsidiary ledger is the revenue ledger. Answer: FALSE Diff: 2 LO: 9-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 18) Accounts in the accounts receivable subsidiary ledger are listed alphabetically. Answer: TRUE Diff: 2 LO: 9-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

19) The balance in the Accounts Receivable account is $2,300 debit. Therefore, the balances in the Accounts Receivable subsidiary ledger should be $2,100. Answer: FALSE Diff: 2 LO: 9-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 20) The controlling account is found in the subsidiary ledger and it summarizes or controls the general ledger account. Answer: FALSE Diff: 2 LO: 9-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 21) The Accounts Receivable subsidiary ledger shows the amount collected from each customer. Answer: TRUE Diff: 2 LO: 9-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 22) When you record a journal entry to the Accounts Receivable subsidiary ledger and place a checkmark in the PR column, it is necessary to post to the Accounts Receivable controlling account. Answer: TRUE Diff: 2 LO: 9-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 23) The general ledger and the Accounts Receivable subsidiary ledger are the same book. Answer: FALSE Diff: 2 LO: 9-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 24) To show that you have posted to an account in the General Ledger, you use a checkmark. Answer: FALSE Diff: 2 LO: 9-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

25) Individual credit customer accounts are kept in the Accounts Receivable Subsidiary Ledger. Answer: TRUE Diff: 2 LO: 9-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 26) Define and compare the accounts receivable subsidiary ledger with the controlling account, Accounts Receivable. Answer: Accounts receivable subsidiary ledger is a group of accounts that contains, in alphabetical order, the individual records of amounts owed by various credit customers. Recordings from journal entries in the General Journal are made to the customers' accounts to update the current balances. Accounts Receivable controlling account, located in the general ledger, shows a company the total amount of money owed to it from customers who purchased on account. Postings from the journal entries in the General Journal are made to the account. Both the accounts receivable subsidiary ledger and the controlling account, Accounts Receivable, are reconciled at the end of the month by preparing a schedule of accounts receivable. The ending balance in the controlling account should equal the sum of the accounts in the subsidiary ledger. Diff: 2 LO: 9-2 AACSB: Written and Oral Communication Learning Outcome: Define accounting terms, accounting concepts and principles 27) Explain why, when a customer returns merchandise after it was paid for, he/she may or may not receive credit equal to the invoice value (selling price) of the merchandise returned. Answer: If payment was made before the return, and the payment was reduced by a cash discount, then only the net amount, invoice amount minus cash discount, will be credited to the customer's account. Diff: 2 LO: 9-2 AACSB: Written and Oral Communication Learning Outcome: Define accounting terms, accounting concepts and principles

28) Jones Company uses the periodic inventory system and had the following transactions: a. A $2,000 sale to Bishop Company on account. b. A $1,000 sale to Smith Company on account. c. A $500 sale to Jones Company on account. d. Jones Company returned $100 of merchandise for credit. e. Bishop Company made a $1,500 payment. Record each transaction in the Accounts Receivable subsidiary ledger, and show the ending balances. Also record each transaction in the Accounts Receivable Controlling account and show the ending balance. Assume no beginning balances.

Answer: Diff: 3 LO: 9-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

Learning Objective 9-3 1) Collected a payment from a customer who purchased on account, with terms net 30. The journal entry will include: A) a credit to an asset account. B) a credit to a liability account. C) a credit to Revenue. D) a credit to Sales Discounts account. Answer: A Diff: 2 LO: 9-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 2) Sold merchandise subject to a sales tax, accepting cash. The seller uses the perpetual inventory system. The journal entries will include: A) a credit to Sales Discount account. B) a credit to a liability account. C) a debit to Sales. D) a debit to Sales Tax Payable. Answer: B Diff: 2 LO: 9-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 3) Sold Merchandise subject to sales tax for Cash. The seller uses the perpetual inventory system. This will be recorded with: A) a credit to an asset account. B) a debit to a liability account. C) a debit to Capital. D) None of these is correct. Answer: A Diff: 2 LO: 9-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

4) Received payment, within the discount period, for merchandise sold previously on account. The seller uses the perpetual inventory system. The journal entry will include: A) a credit to an asset account. B) a debit to a liability account. C) a debit to Sales. D) a credit to a contra-sales account. Answer: A Diff: 2 LO: 9-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 5) A characteristic of a schedule of accounts receivable is that: A) it contains a list of customers' names with balances. B) the total is equal to the accounts receivable controlling account at the end of the month. C) it is prepared at the end of the month. D) All of these answers are correct. Answer: D Diff: 2 LO: 9-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 6) Payment for merchandise sold on credit for $250 subject to 1/10, n/30 was received within the discount period—$247.50 was received. This was recorded with a debit to Sales Discounts for $2.50, a debit to Cash for $247.50, and a credit to Accounts Receivable for $250. The journal entry was posted to the General Ledger but the subsidiary ledger account was ignored. This error will cause: A) the net income for the period to be overstated. B) the net income for the period to be understated. C) the controlling account to not agree with the subsidiary ledger. D) the assets to be overstated. Answer: C Diff: 3 LO: 9-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 7) The collection on account within the 1/10, n/30 discount period was recorded using a 10% discount rather than a 1% discount in both the controlling and subsidiary accounts. This error will cause: A) the net income for the period to be understated. B) the net income for the period to be overstated. C) the controlling account to not agree with the subsidiary ledger. D) the assets to be overstated. Answer: A Diff: 3 LO: 9-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 28 Copyright © 2023 Pearson Education, Inc.

8) Jane's Jewelry sold 50 necklaces for $30 each to a customer on account. The invoice included a 7% sales tax and payment terms of 3/10, n/30. Jane’s Jewelry uses the perpetual inventory system, and each necklace cost $10. In addition, 7 necklaces were returned prior to payment. The entry to record the payment after the discount period would include: (Round any intermediate calculations to the nearest cent, and your final answer to the nearest dollar.) A) a credit to Cash for $1290. B) a credit to Cash for $1380. C) a credit to Accounts Receivable for $1290. D) a credit to Accounts Receivable for $1380. Answer: D Explanation: (50 - 7) × $30 = $1290 + ($1290 × 7%) = $1380 Accounts Receivable Diff: 2 LO: 9-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 9) The discount period is longer than the credit period. Answer: FALSE Diff: 2 LO: 9-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 10) Determine the amount to be paid within the discount period for a previous sale on account with an invoice price of $12,000, subject to credit terms of 2/10, n/30. $ ________ Answer: $11,760.00 Diff: 2 LO: 9-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 11) Determine the amount of cash collected on a credit sale with a price of $80,000 and credit terms of 1/10, n/30, assuming the payment was after the discount period had expired. $ ________ Answer: $80,000 Diff: 2 LO: 9-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

12) Determine the amount of cash collected at the time of making a sale of merchandise with a sales value of $8,500, subject to a 6% sales tax. $ ________ Answer: $9,010 Diff: 2 LO: 9-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 13) Determine the amount of cash collected at the time of making a sale of $1,000 of merchandise subject to a 3% sales tax. $ ________ Answer: $1,030 Diff: 2 LO: 9-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 14) Determine the amount of cash collected on a credit sale in the amount of $5,000 when $500 of merchandise at sales value has already been returned for credit. Assume cash is collected after the discount period. $ ________ Answer: $4,500 Diff: 2 LO: 9-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

Jackson Sharks Hockey Accessories had the following transactions involving the sale of merchandise. You are to prepare the necessary general journal entries. All sales on account have a 2/10, n/30 discount terms. The company uses the perpetual inventory system. The cost of merchandise inventory is 50% of the sale price. December 2 Sold merchandise priced at $200 to Penny Norton on account. December 4 Sold merchandise priced at $125 to a cash customer. December 10 Payment from Penny Norton received. December 16 Cash customer returned $40 (sales value) of merchandise. 15) Prepare the necessary general journal entries for December 2. Answer: Accounts Receivable, Penny Norton 200 Sales 200 Cost of Goods Sold Merchandise Inventory

100 100

Diff: 2 LO: 9-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 16) Prepare the necessary general journal entries for December 4. Answer: Cash 125 Sales 125 Cost of Goods Sold Merchandise Inventory

62.50 62.50

Diff: 2 LO: 9-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 17) Prepare the necessary general journal entry for December 10. Answer: Cash 196 Sales Discount 4 Accounts Receivable, Penny Norton 200 Diff: 3 LO: 9-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 31 Copyright © 2023 Pearson Education, Inc.

18) Prepare the necessary general journal entries for December 16. Answer: Sales Returns and Allowances 40 Cash 40 Merchandise Inventory Cost of Goods Sold

20 20

Diff: 3 LO: 9-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 19) Explain how the record keeping differs between a cash sale and a credit sale. Answer: With a cash sale it is the customer's responsibility to maintain any records. A credit sale requires the seller to maintain a subsidiary ledger for the customer records and to do the billing and collecting. Diff: 2 LO: 9-3 AACSB: Analytical Thinking Learning Outcome: Compare and contrast cash-basis accounting and accrual accounting The Bay Co. had the following transactions involving the sale of merchandise. You are to prepare the necessary general journal entries. All sales are subject to credit terms of 1/10, n/30. The company uses the perpetual inventory system. The cost of merchandise inventory is 50% of the sale price. July 16 Sold merchandise on account with an invoice price of $5,500 to Carter and Co. July 16 Sold merchandise on account with an invoice price of $6,000 to the Ping Co. July 20 Ping Co. returned merchandise with an invoice price of $1,000. July 25 Received full payment, less discount, from Carter and Co. July 28 Received full payment, less return, from Ping Co. 20) Prepare the necessary general journal entries for July 16. Sold merchandise on account with an invoice price of $5,500 to Carter and Co. Answer: Accounts Receivable, Carter and Co. 5,500 Sales 5,500 Cost of Goods Sold Merchandise Inventory

2,750 2,750

Diff: 2 LO: 9-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

21) Prepare the necessary general journal entries for July 16. Sold merchandise on account with an invoice price of $6,000 to the Ping Co. Answer: Accounts Receivable, Ping Co. 6,000 Sales 6,000 Cost of Goods Sold Merchandise Inventory

3,000 3,000

Diff: 2 LO: 9-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 22) Prepare the necessary general journal entries for July 20. Answer: Sales Returns and Allowances 1,000 Accounts Receivable, Ping Co. 1,000 Merchandise Inventory Cost of Goods Sold

500 500

Diff: 3 LO: 9-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 23) Prepare the necessary general journal entry for July 25. Answer: Cash 5,455 Sales Discounts 55 Accounts Receivable, Carter and Co. 5,500 Diff: 3 LO: 9-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

24) Prepare the necessary general journal entry for July 28. Answer: Cash 5,000 Accounts Receivable, Ping Co. 5,000 Diff: 3 LO: 9-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements The Milk Co. had the following transactions involving the sale of merchandise. You are to prepare the necessary general journal entries. All sales are subject to a 6% sales tax. Terms of sale were n/30 for all credit sales. The company uses the perpetual inventory system. The cost of merchandise inventory is 60% of the sale price. April 13 Sold merchandise priced at $600 to James Ellsworth on account. April 14 Sold merchandise priced at $325 to a cash customer. April 15 Sold merchandise priced at $175 to Dana Carter on account. April 16 Sold merchandise priced at $700 to a cash customer. April 20 The customer of April 14 returned merchandise with a $50 sale price for a cash refund. April 25 Received full payment from Dana Carter. April 30 Paid the amount of sales tax to the state. 25) Prepare the necessary general journal entries for April 13. Answer: Accounts Receivable, James Ellsworth 636.00 Sales 600.00 Sales Tax Payable 36.00 Cost of Goods Sold Merchandise Inventory

360.00 360.00

Diff: 2 LO: 9-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

26) Prepare the necessary general journal entries for April 14. Answer: Cash 344.50 Sales 325.00 Sales Tax Payable 19.50 Cost of Goods Sold Merchandise Inventory

195 195

Diff: 2 LO: 9-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 27) Prepare the necessary general journal entries for April 15. Answer: Accounts Receivable, Dana Carter 185.50 Sales 175.00 Sales Tax Payable 10.50 Cost of Goods Sold Merchandise Inventory

105.00 105.00

Diff: 2 LO: 9-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 28) Prepare the necessary general journal entries for April 16. Answer: Cash 742.00 Sales 700.00 Sales Tax Payable 42.00 Cost of Goods Sold Merchandise Inventory

420.00 420.00

Diff: 2 LO: 9-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

29) Prepare the necessary general journal entries for April 20. Answer: Sales Returns and Allowances 50.00 Sales Tax Payable 3.00 Cash 53.00 Merchandise Inventory Cost of Goods Sold

30.00 30.00

Diff: 2 LO: 9-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 30) Prepare the necessary general journal entry for April 25. Answer: Cash 185.50 Accounts Receivable, Dana Carter 185.50 Diff: 2 LO: 9-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 31) Prepare the necessary general journal entry for April 30. Answer: Sales Tax Payable 105.00 Cash 105.00 Diff: 2 LO: 9-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

32) The following are transactions for Bill’s Sport Shop for the month of November. The company uses the perpetual inventory system. The cost of merchandise inventory is 40% of the sale price. Indicate how the following transactions would be recorded by completing the necessary journal entries as appropriate (omit explanations). Also post journal entries to the General Ledger and record journal entries to the Accounts Receivable Subsidiary Ledger as appropriate. Find ending balances in all accounts. Nov. 1 Bill invested $20,000 in his business. Nov. 2 Bill purchased $2,000 of merchandise inventory using cash. Nov. 3 Sold $2,500 of merchandise inventory on account to H. Baxter, sales invoice No. 1, terms 1/10, n/30. Nov. 5 Sold $1,200 of merchandise inventory on account to T. Toms, sales invoice No. 2, terms 1/10, n/30. Nov. 13 Received cash from H. Baxter in payment for November 3 transaction, less the discount. Nov. 14 Issued credit memorandum No. 1 to T. Toms for $100 for sale value of merchandise returned from November 5 sale on account. Nov. 15 Received cash from T. Toms for the amount due, less the return and discount.

Date

GENERAL JOURNAL Account Titles and Description PR

Debit

Credit

Answer: Date Nov. 1

GENERAL JOURNAL Account Titles and Description PR Cash 101 Bill, Capital 301

Debit 20,000

Credit 20,000

Merchandise Inventory Cash

104 101

2,000

Accounts Receivable, H. Baxter Sales

102/✓ 401

2,500

Cost of Goods Sold Merchandise Inventory

404 104

1,000

Accounts Receivable, T. Toms Sales

102/✓ 401

1,200

Cost of Goods Sold Merchandise Inventory

404 104

480

Cash Sales Discount Accounts Receivable, H. Baxter

101 402 102/✓

2,475 25

Sales Returns & Allowances Accounts Receivable, T. Toms

403 102/✓

100

Merchandise Inventory Cost of Goods Sold

104 404

Cash Sales Discount Accounts Receivable, T. Toms

101 402 102/✓

1,089 11

2,000

2,500

1,000

1,200

480

2,500

100

1,100

Diff: 3 LO: 9-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

College Accounting, 15e (Slater) Chapter 10 Purchases and Cash Payments Learning Objective 10-1 1) A debit memorandum decreases which account on the buyer's books? A) Accounts Payable B) Sales C) Sales Discount D) Accounts Receivable Answer: A Diff: 2 LO: 10-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 2) An Invoice Approval Form has all of the following EXCEPT a(n) ________. A) Purchase Order check. B) Receiving Report check. C) Approval date. D) Invoice check. Answer: C Diff: 2 LO: 10-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 3) We Company purchased Merchandise Inventory on account for $5,000. The seller paid freight charges of $50 with terms F.O.B. shipping point, and added the $50 to the sales invoice. We Company uses the perpetual inventory system. The journal entry for the transaction would be: A) debit Accounts Payable for $5,050; credit Merchandise Inventory for $5,050 B) debit Merchandise Inventory for $5,050; credit Account Payable for $5,050 C) debit Merchandise Inventory for $5,000 and Freight-in for $50; credit Account Payable for $5,050 D) debit Accounts Payable for $5,050; credit Merchandise Inventory for $5,000 and Freight-in for $50 Answer: B Diff: 2 LO: 10-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

4) A buyer uses the perpetual inventory system for merchandise purchases. A debit memorandum decreases which account on the buyer's books? A) Sales Returns and Allowances B) Merchandise Inventory C) Accounts Receivable D) Sales Discount Answer: B Diff: 2 LO: 10-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 5) Under the perpetual inventory system, the normal balance for Merchandise Inventory is: A) a debit. B) a credit. C) zero. D) It does not have a normal balance. Answer: A Diff: 2 LO: 10-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 6) In the perpetual inventory system, freight charges added to the buyer's invoice are debited to ________ for the buyer. A) Sales Discount B) Merchandise Inventory C) Sales Returns and Allowances D) Freight in Answer: B Diff: 2 LO: 10-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 7) If a display rack was purchased on account for a retail store, which of the following accounts would be increased? A) Store Equipment B) Merchandise Inventory C) Capital D) Supplies Answer: A Diff: 2 LO: 10-1 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

8) Joy Company uses the perpetual inventory system. When merchandise is bought for resale on account, which of the following accounts would be increased? A) Store Equipment B) Merchandise Inventory C) Accounts Receivable D) Supplies Expense Answer: B Diff: 2 LO: 10-1 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 9) Tim returned $600 of merchandise, purchased on account, before he paid for the merchandise. Tim uses the perpetual inventory system. The entry to record the return is to: A) debit Merchandise Inventory for $600; credit Accounts Payable for $600. B) debit Merchandise Inventory for $600; credit Sales for $600. C) debit Accounts Payable for $600; credit Merchandise Inventory for $600. D) debit to Accounts Payable for $600; credit Sales for $600. Answer: C Diff: 2 LO: 10-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 10) Under the perpetual inventory system, Merchandise Inventory is what type of account? A) Liability B) Asset C) Equity D) Contra-asset Answer: B Diff: 2 LO: 10-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 11) A company uses the perpetual inventory system. When merchandise is bought for resale with cash, which of the following accounts would be decreased? A) Store Equipment B) Accounts Payable C) Cash D) B and C are correct Answer: C Diff: 2 LO: 10-1 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

12) Supplies are a(n): A) liability. B) asset. C) contra-revenue. D) contra-asset. Answer: B Diff: 2 LO: 10-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 13) An invoice approval form is used by the: A) purchasing department. B) receiving department. C) shipping department. D) accounting department. Answer: D Diff: 2 LO: 10-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 14) A characteristic of Merchandise Inventory is: A) it has a normal debit balance. B) it decreases for the buyer when merchandise is returned. C) it is an asset. D) All of the above are correct. Answer: D Diff: 2 LO: 10-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 15) Shoes Plus bought some new shoes for its fashion line and is required to pay the freight costs. The freight terms are: A) F.O.B. destination. B) F.O.B. shipping point. C) 3/10, n/30. D) B and C are correct. Answer: B Diff: 2 LO: 10-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

16) When the term F.O.B. shipping point is used, title passes: A) when goods reach the halfway point. B) when goods reach the destination. C) when goods are shipped and leave the seller’s place of business. D) when the buyer signs for the product. Answer: C Diff: 2 LO: 10-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 17) A receiving report includes: A) quantity received. B) condition of goods. C) goods received. D) All of the above are correct. Answer: D Diff: 2 LO: 10-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 18) F.O.B. shipping point means: A) the buyer pays for the freight. B) the seller pays for the freight. C) the title passes at time of shipment. D) Both A and C are correct. Answer: D Diff: 2 LO: 10-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 19) On October 31, Janoch's Dog Kennel purchased $1400 of merchandise on account from the Ganster Company. The goods were shipped F.O.B. shipping point. The freight charge of $40 was paid by Ganster Company and added to the invoice. Janoch’s Dog Kennel uses the perpetual inventory system. The amount to record in the Merchandise Inventory account is: A) $1400. B) $1440. C) $1360. D) $1350. Answer: B Diff: 2 LO: 10-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

20) Under the perpetual inventory system, the entry to record a purchase of merchandise for $13,000 on account, terms of 2/10, n/30, would include a: A) credit to Merchandise Inventory for $13,000. B) credit to Accounts Payable for $13,000. C) debit to Accounts Payable for $13,000. D) credit to Cash for $13,000. Answer: B Diff: 2 LO: 10-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 21) Under the perpetual inventory system, Purchase Discounts are taken on: A) shipping expense. B) Merchandise Inventory returned. C) Merchandise Inventory after returns are taken out. D) Both A and C are correct. Answer: C Diff: 2 LO: 10-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 22) A form used within a business by the requesting department asking the purchasing department to buy specific goods is called a(n): A) purchase order. B) purchase requisition. C) credit memorandum. D) employee memorandum. Answer: B Diff: 2 LO: 10-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 23) Before paying an invoice, the accounting department must check: A) the purchase order. B) the invoice. C) the receiving report. D) All of the above are correct. Answer: D Diff: 2 LO: 10-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

24) The term F.O.B. means: A) free on board. B) freight or bill. C) freight order billing. D) freight on board. Answer: A Diff: 2 LO: 10-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 25) Under the perpetual inventory system, a payment within the discount period for merchandise purchased on account for $12,000, with terms 5/10, net 30, would be recorded as: A) debit to Accounts Receivable $12,000; credit to Merchandise Inventory $12,000. B) debit to Merchandise Inventory $11,400; credit to Accounts Receivable $11,400. C) debit to Accounts Payable $12,000; credit to Merchandise Inventory $600; credit to Cash $11,400. D) debit to Merchandise Inventory $11,400; credit to Accounts Payable $11,400. Answer: C Explanation: Purchase Discount $12,000 x 5% = $600 Diff: 3 LO: 10-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 26) Office Supplies (not used for resale) bought on account were returned for credit and recorded with a debit to Accounts Payable and a credit to Merchandise Inventory. This error will cause: A) total assets to be overstated. B) total liabilities to be understated. C) no effect on total assets. D) total assets to be understated. Answer: C Explanation: Office Supplies and Merchandise Inventory are both assets, so the error has no effect on total assets. Diff: 3 LO: 10-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

27) The return of merchandise, purchased on account and unpaid for, was recorded as a debit to Accounts Receivable and a credit to Merchandise Inventory. Using the perpetual inventory system, this error will cause: A) net income to be overstated. B) net income to be understated. C) total liabilities to be understated. D) total assets to be overstated. Answer: D Diff: 3 LO: 10-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 28) A form used in business to place an order for the buying of goods from a seller is: A) purchase requisition. B) purchase order. C) purchase demand. D) purchases returns. Answer: B Diff: 2 LO: 10-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 29) A discount on a purchase was taken when paying within the discount period for merchandise purchased on account. The perpetual inventory system was used. The journal entry should include a: A) debit Merchandise Inventory. B) credit Merchandise Inventory. C) debit Purchase Discounts. D) credit Purchase Discounts. Answer: B Diff: 3 LO: 10-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 30) The shipping costs on goods purchased F.O.B. Shipping Point were not recorded. The purchase was made on account, and the seller prepaid the shipping costs. Under the perpetual inventory method, this error will cause on the buyer’s records: A) total assets to be overstated. B) Purchases to be understated. C) total liabilities to be understated. D) total liabilities to be overstated. Answer: C Diff: 3 LO: 10-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 8 Copyright © 2023 Pearson Education, Inc.

31) Purchased office supplies on account. This will be recorded with: A) a debit to Accounts Payable 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 Accounts Payable. D) a debit to Supplies and a credit to Purchases. Answer: C Diff: 1 LO: 10-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 32) Under the perpetual inventory method, when purchasing merchandise inventory on account: A) a debit entry is made to Merchandise Inventory. B) a credit entry is made to Merchandise Inventory. C) a credit entry is made to Accounts Payable. D) A and C are correct. Answer: D Diff: 2 LO: 10-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 33) Which of the following transactions will cause one asset to be debited and another to be credited when the perpetual inventory system is in use? A) Purchased merchandise inventory on account B) Purchased merchandise inventory for cash C) Purchased office supplies on account D) Returned merchandise inventory purchased on account for credit Answer: B Diff: 2 LO: 10-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 34) Which of the following transactions will cause a liability to be credited and an asset account to be debited when the perpetual inventory system is in use? A) Recorded the adjustment for depreciation B) Recorded the adjustment for the consumption of supplies C) Purchased merchandise inventory on account D) Purchased office supplies with cash Answer: C Diff: 2 LO: 10-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

35) Under the perpetual inventory method, a purchase of merchandise inventory for cash: A) decrease liabilities. B) increase liabilities. C) increases assets. D) has no effect on total assets. Answer: D Diff: 2 LO: 10-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 36) Under the perpetual inventory method, when a 2% purchase discount is taken by a buyer, there is a(n): A) increase in Merchandise Inventory. B) decrease in Merchandise Inventory. C) increase accounts payable. D) decrease accounts payable. Answer: B Diff: 2 LO: 10-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 37) Under the perpetual inventory method, when a buyer returns merchandise that has been previously purchased on credit, and payment has not made, there is a(n): A) decrease in expenses. B) decrease in assets. C) increase accounts payable. D) increase in assets. Answer: B Diff: 2 LO: 10-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 38) The term used when the purchaser is responsible for the cost of freight when a purchase is in transit is: A) F.O.B. shipping point. B) F.O.B. destination. C) Freight-In. D) Purchases. Answer: A Diff: 2 LO: 10-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

39) The term used when the seller is responsible for the cost of freight when sold goods are in transit is: A) F.O.B. shipping point. B) F.O.B. destination. C) Freight-In. D) Purchases. Answer: B Diff: 2 LO: 10-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 40) Joy's Accessories bought 74 necklaces for $12 each on account. The payment terms are 1/10, n/30. In addition, 12 necklaces were returned prior to payment. Joy’s Accessories uses the perpetual inventory method. The entry to record the initial purchase would include: A) a debit to Accounts Payable for $744. B) a debit to Accounts Payable for $888. C) a debit to Merchandise Inventory for $888. D) a debit to Merchandise Inventory for $744. Answer: C Explanation: 74 × 12 = 888 Diff: 2 LO: 10-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 41) Using the perpetual inventory system, the purchase of merchandise on account would include a: A) debit to Merchandise Inventory and a credit to Accounts Payable. B) debit to Accounts Payable and a credit to Merchandise Inventory. C) debit to Sales and a credit to Accounts Payable. D) debit to Sales and a credit to Accounts Receivable. Answer: A Diff: 2 LO: 10-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 42) A buyer purchased merchandise on account. The return of merchandise to the supplier for credit, before payment, using the perpetual inventory system would include a: A) debit to Accounts Receivable and a credit to Accounts Payable. B) debit to Accounts Payable and a credit to Merchandise Inventory. C) debit to Sales Returns and Allowances and a credit to Merchandise Inventory. D) debit to Accounts Payable and a credit to Sales Returns and Allowances. Answer: B Diff: 3 LO: 10-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 11 Copyright © 2023 Pearson Education, Inc.

43) For a buyer, the recording of the cost of freight-in under the perpetual inventory system would include a: A) debit to Freight-In. B) credit to Merchandise Inventory. C) debit to Merchandise Inventory. D) credit to Freight-Out. Answer: C Diff: 2 LO: 10-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 44) We returned merchandise purchased on account before payment. The perpetual inventory method is used. This will be recorded with: A) a debit to Accounts Payable and a credit to Sales Returns and Allowances. B) a debit to Sales Returns and Allowances and a credit to Merchandise Inventory. C) a credit to Accounts Payable and a debit to Merchandise Inventory. D) a debit to Accounts Payable and a credit to Merchandise Inventory. Answer: D Diff: 2 LO: 10-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 45) The Merchandise Inventory account normally has a credit balance. Answer: FALSE Diff: 2 LO: 10-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 46) Under the perpetual inventory method, the account Freight-In accumulates the shipping costs to the seller. Answer: FALSE Diff: 2 LO: 10-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 47) When the terms are F.O.B. shipping point, the buyer is responsible for the cost of shipping from the seller's shipping point to the purchaser's location, but the title does not pass until it is delivered. Answer: FALSE Diff: 2 LO: 10-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

48) Purchase Discounts are taken on the purchased merchandise plus freight costs. Answer: FALSE Diff: 2 LO: 10-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 49) Under the perpetual inventory method, a buyer taking a discount for early payment on merchandise purchased on account is recorded as a credit to Merchandise Inventory. Answer: TRUE Diff: 2 LO: 10-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 50) A receiving report is used to notify the company of the quantity and condition of the goods received. Answer: TRUE Diff: 2 LO: 10-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 51) The seller's sales invoice is the same as the buyer's purchase order. Answer: FALSE Diff: 2 LO: 10-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 52) The payment for merchandise inventory purchased does not require approval before payment is made. Answer: FALSE Diff: 2 LO: 10-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 53) Purchase discounts from the supplier are given to the buyer for motivation to increase the quantity purchased. Answer: FALSE Diff: 2 LO: 10-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

54) An invoice approval form is used by the accounting department to check the invoice before approving it for payment. Answer: TRUE Diff: 2 LO: 10-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 55) On October 6, Mark purchased merchandise for his store. The invoice was for $40,000 plus freight of $850, terms 1/15, n/30. The freight was included in the invoice price. On October 10, Mark returned merchandise for $5,000 credit. On October 19, Mark paid the amount owed. Mark uses the perpetual inventory method. Fill in the blanks below. a) The credit to Accounts Payable on October 6 is ________. b) The debit to Merchandise Inventory on October 6 is ________. c) The debit to Accounts Payable on October 10 is ________. d) The credit to Merchandise Inventory on October 10 is _______. Answer: a) $40,850 b) $40,850 c) $5,000 d) $5,000 Diff: 2 LO: 10-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 56) Explain the difference between F.O.B. shipping point and F.O.B. destination. Answer: F.O.B. destination means the seller pays or is responsible for the cost of freight to the buyer's location or destination. Title to the merchandise changes hands at the buyer's location. F.O.B. shipping point means the buyer pays or is responsible for the shipping costs from the seller's shipping point to the buyer's location. Title to the merchandise changes hands at the seller's shipping point. Diff: 2 LO: 10-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

57) On October 1, Susan purchased merchandise for her music store. The invoice was for $30,000 plus freight of $500, terms 1/15, n/30. The freight was included on the invoice, and prepaid by the seller. On October 10, Susan returned merchandise for $4,000 credit. Susan uses the perpetual inventory method. Journalize the transactions for October 1 and 10. Omit explanations. Answer: Oct. 1 Merchandise Inventory 30,000 Merchandise Inventory — Freight Charges 500 Accounts Payable 30,500 Oct. 10 Accounts Payable Merchandise Inventory

4,000 4,000

Diff: 3 LO: 10-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

Learning Objective 10-2 1) On February 12, Clare purchased $450 of merchandise on account from Larsen's Accessories, terms 3/10, n/30. The goods were shipped F.O.B. destination. The freight charge was $80, and paid by the seller. The amount to be recorded in the Accounts Payable Subsidiary ledger is: (Round your calculation to the nearest whole dollar.) A) $437. B) $464. C) $450. D) $530. Answer: C Diff: 2 LO: 10-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 2) An entry to record the payment to a vendor was correctly recorded and posted to the general ledger but it was not recorded to the subsidiary ledger. This error will cause: A) net income to be overstated. B) the vendor’s account total in the Accounts Payable subsidiary ledger to be correctly stated. C) the balance in the accounts payable controlling account to not agree with the sum of the account balances in the Accounts Payable subsidiary ledger. D) the balance in the accounts receivable controlling account to not agree with the sum of the account balances in the Accounts Receivable subsidiary ledger. Answer: C Diff: 3 LO: 10-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

3) To prove the sum of the account balances in the Accounts Payable subsidiary ledger agrees with the Accounts Payable controlling account balance, complete a: A) trial balance. B) schedule of accounts payable. C) purchase order. D) schedule of accounts receivable. Answer: B Diff: 2 LO: 10-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 4) Which account is the controlling account for the amounts owed to individual creditors? A) Accounts Payable in the general ledger B) Purchases in the general ledger C) Accounts Receivable in the subsidiary ledger D) Accounts Payable in the subsidiary ledger Answer: A Diff: 2 LO: 10-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 5) Excalibur Company uses the perpetual inventory method. The entry to record returned merchandise, originally purchased on credit, to Vine Company is: A) debit Merchandise Inventory; credit Accounts Receivable, Vine Company in the general ledger. B) debit Accounts Payable, Vine Company; credit Supplies. C) debit Accounts Payable, Vine Company; credit Merchandise Inventory. D) debit Merchandise Inventory; credit Accounts Payable, Vine Company. Answer: C Diff: 2 LO: 10-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 6) Jeff purchased $520 of goods and received credit terms of 2/10, n/30. How much did he pay if payment was made during the discount period? (Round any intermediate calculations to the nearest cent, and your final answer to the nearest dollar.) A) $468 B) $530 C) $520 D) $510 Answer: D Explanation: $520 - ($520 × 2%) = $510 Diff: 2 LO: 10-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 16 Copyright © 2023 Pearson Education, Inc.

7) ABC Company uses the perpetual inventory method. The entry to record a payment within the 5% discount period for inventory purchased on account for $600 would include a: A) debit to Accounts Payable for $570. B) debit to Accounts Payable for $600. C) debit to Merchandise Inventory for $570. D) debit to Cash for $600. Answer: B Diff: 2 LO: 10-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 8) Returned merchandise purchased on account under the perpetual inventory method. This will be recorded with: A) a debit to Accounts Payable and a credit to Purchases Returns and Allowances. B) a debit to Merchandise Inventory and a credit to Cash. C) a credit to Accounts Payable and a debit to Merchandise Inventory. D) a debit to Accounts Payable and a credit to Merchandise Inventory. Answer: D Diff: 2 LO: 10-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 9) John bought goods for $310 on credit. John returned $10 worth of goods. Terms of the sale were 3/10, n/30. If John pays the amount owed within the discount period, what is the amount he should pay? (Round intermediary and final calculations to the nearest whole dollar.) A) $310 B) $309 C) $291 D) $300 Answer: C Explanation: $310 - $10 = $300 — ($300 × 3%) = $291 Diff: 2 LO: 10-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

10) A buyer returned merchandise already paid for within the discount period. The merchandise was originally purchased on account and the buyer will receive a cash refund for the return. The purchaser uses the perpetual inventory method. This will be recorded by the buyer with: A) a debit to an asset and a credit to a liability. B) a credit to an asset and a credit to a liability. C) a debit to a liability and a credit to an asset. D) a debit to an asset and a credit to an asset. Answer: D Explanation: Debit Cash; Credit Merchandise Inventory Diff: 2 LO: 10-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 11) Jim's Accessories bought 120 necklaces for $50 each on account. Payment terms are n/30. In addition, 15 necklaces were returned prior to payment. Jim’s Accessories uses the perpetual inventory method. The entry to record the return would include: A) a debit to Accounts Payable for $750. B) a debit to Accounts Payable for $728. C) a debit to Merchandise Inventory for $750. D) a debit to Merchandise Inventory for $728. Answer: A Explanation: $50 × 15 = $750; Debit Accounts Payable $750; Credit Merchandise Inventory $750 Diff: 2 LO: 10-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 12) The accounts payable subsidiary ledger: A) lists accounts alphabetically. B) lists accounts for which the company owes money. C) has a controlling account in the general ledger. D) All of the above are correct. Answer: D Diff: 2 LO: 10-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

13) Jack's Online Service on April 30 has the following transactions: Merchandise Inventory purchased Merchandise Inventory returned

$30,000 15,000

If Jack's pays the invoice in time to receive a 2% discount, what is the amount Jack owes? A) $14,700 B) $15,000 C) $29,400 D) $30,000 Answer: A Explanation: ($30,000 - $15,000) × 98% = $14,700 Diff: 2 LO: 10-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 14) Sam's Online Service on April 30 has the following transactions: Merchandise Inventory purchased Merchandise Inventory returned

$22,000 7000

If Sam's pays the invoice in time to receive a 5% discount, what is the amount Sam owes? A) $15,000 B) $7000 C) $22,000 D) $14,250 Answer: D Explanation: ($22,000 - $7000) x 95% = $14,250 Diff: 2 LO: 10-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 15) Bob's Restoration purchased merchandise inventory of $70,000. If Bob returned merchandise inventory of $20,000 and was able to take a discount of 2%, what is the total amount owed? A) $69,000 B) $70,000 C) $49,000 D) $20,000 Answer: C Explanation: ($70,000 - $20,000) x 98% =$49,000 Diff: 2 LO: 10-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

16) B & J Lumber Restoration purchased merchandise inventory of $51,000. If B and J returned merchandise inventory of $12,000 and was able to take a discount of 5%, what is the total amount owed? A) $39,000 B) $51,000 C) $33,900 D) $37,050 Answer: D Explanation: ($51,000 - $12,000) x 95% = $37,050 Diff: 2 LO: 10-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 17) Sam's Online Service on April 30 has the following transactions: Merchandise Inventory purchased Merchandise Inventory returned

$20,000 7000

If Sam's is offered a 4% discount, but does not pay the invoice in time to receive the discount, how much does Sam owe? A) $13,000 B) $7000 C) $20,000 D) $12,480 Answer: A Explanation: $20,000 - $7000 = $13,000 Diff: 2 LO: 10-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 18) B & J Lumber Restoration purchased merchandise inventory of $51,000. Seller paid freight charges of $130 with terms F.O.B. shipping point. If B & J returned merchandise inventory of $14,000and was able to take a discount of 4%, what is the total amount owed? A) $37,000 B) $37,130 C) $34,960 D) $35,650 Answer: D Explanation: ($51,000 - $14,000) x 96% + $130 = $35,650 Diff: 2 LO: 10-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

19) Merchandise Inventory is what type of account? A) Asset B) Liability C) Expense D) Cost Answer: A Diff: 2 LO: 10-1, 10-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 20) The buyer returned merchandise purchased on account. The merchandise was not paid for yet. The perpetual inventory system is in use. This will be recorded with: A) a debit to a liability and a credit to an expense. B) a debit to an asset and a credit to an expense. C) a debit to a liability and a credit to an asset. D) a debit to an expense and a credit to a liability. Answer: C Explanation: Debit Accounts Payable; Credit Merchandise Inventory Diff: 2 LO: 10-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 21) A payment was made for merchandise purchased on account. No purchase discount was offered. The perpetual inventory method is used. The journal entry would include: A) a debit to a liability and a credit to an asset. B) a debit to an asset and a credit to an asset. C) a debit to an expense and a credit to a liability. D) a debit to an expense and a credit to an asset. Answer: A Explanation: Debit Accounts Payable; Credit Cash Diff: 2 LO: 10-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 22) The Schedule of Accounts Payable is listed by highest to lowest dollar value. Answer: FALSE Diff: 2 LO: 10-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

23) A Schedule of Accounts Payable is a list of customer accounts that owe the company money. Answer: FALSE Diff: 2 LO: 10-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 24) The controlling account for all accounts payable is found in the subsidiary ledger. Answer: FALSE Diff: 2 LO: 10-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 25) Accounts Receivable and Accounts Payable in the General Ledger are both controlling accounts. Answer: TRUE Diff: 2 LO: 10-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 26) The sum of the account balances in the accounts payable subsidiary ledger should equal the balance of the Accounts Payable controlling account in the general ledger. Answer: TRUE Diff: 2 LO: 10-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 27) When individual accounts are recorded in the Accounts Payable Subsidiary Ledger, we put a check in the PR column of the general journal. Answer: TRUE Diff: 2 LO: 10-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 28) The buyer issues a debit memorandum to indicate that a previous purchase amount is being reduced because goods were returned, or an allowance was requested. Answer: TRUE Diff: 2 LO: 10-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

29) If a debit memorandum is issued, the buyer will reduce their accounts receivable. Answer: FALSE Diff: 2 LO: 10-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 30) Determine the amount to be paid within the discount period for purchase with an invoice price of $25,000, subject to credit terms of 2/10, n/30. $ ________ Answer: $24,500 Explanation: $25,000 — ($25,000 × .02) = $24,500 Diff: 2 LO: 10-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 31) Determine the total cost of a purchase paid for within the discount period with an invoice price of $7,000 and credit terms of 1/10, n/30 when $1,500 has already been returned for credit. The goods were purchased with freight terms of F.O.B shipping point and freight of $50. $ ________ Answer: $5,495 Explanation: $7,000 - $1,500 = $5,500 $5,500 — ($5,500 × .01) + $50 = $5,495 Diff: 2 LO: 10-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 32) Determine the amount to be paid within the discount period for a purchase with an invoice price of $15,000 and credit terms of 2/10, n/30 when $1,500 has already been returned for credit. $ ________ Answer: $13,230 Explanation: $15,000 - $1,500 = $13,500 $13,500 – ($13,500 × .02) = $13,230 Diff: 2 LO: 10-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

33) Determine the amount of cash to be received on a full return of merchandise purchased with an invoice price of $5,000 and credit terms of 2/10, n/30, when full payment was made within the discount period. $ ________ Answer: $4,900 Explanation: $5,000 – ($5,000 × .02) = $4,900 Diff: 2 LO: 10-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 34) Determine the amount to be paid to the vendor within the discount period for purchase with an invoice price of $6,000 and credit terms of 2/10, n/30 when $500 has already been returned for credit. The goods were purchased with freight terms of F.O.B shipping point and freight of $50 was included on the invoice. $ ________ Answer: $5,440 Explanation: $6,000 - $500 = $5,500 $5,500 – ($5,500 × .02) + $50 = $5,440 Diff: 2 LO: 10-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 35) For each of the following, identify in Column 1 the category to which the account belongs, in Column 2 the normal balance for the account, and in Column 3 the financial statement that the account in which the account balance is reported. Column 1

Column 2

Column 3

Column 1

Column 2

Column 3 balance sheet balance sheet

Merchandise Inventory Accounts Payable Answer: Merchandise Inventory Accounts Payable

asset liability

debit credit

Diff: 2 LO: 10-1, 10-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

36) On June 15, Melo Park purchased merchandise for the race track. The invoice was for $6,000, terms 2/10, n/30. On June 20, Melo Park returned $300 of merchandise for credit. On June 25, it paid the amount owed. Melo Park uses the perpetual inventory method. Fill in the blanks below. a) The debit to Merchandise Inventory on June 15 is ________. b) The credit to Accounts Payable on June 15 is ________. c) The credit to Merchandise Inventory on June 20 is ________. d) The credit to Cash on June 25 is ________. e) The credit to Merchandise Inventory on June 25 is ________. Answer: a) $6,000 b) $6,000 c) $300 d) $5,586 = ($6,000 - $300) × 98% = $5,586 e) $114 = $5,700 × 2% Diff: 3 LO: 10-1, 10-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements Journalize the following transactions. All purchases are on account and subject to terms of 2/10, n/30. The perpetual inventory method is used. Omit explanations. Nov. 3 Nov. 5 Nov. 7 Nov. 10 Nov. 12 Nov. 23

Purchased merchandise with a price of $4,000 from the Bart Inc. Purchased merchandise from the Thies and Co. with a price of $2,000. Purchased merchandise with a price of $2,000 from the Montana Supply Co. Paid the amount due to Bart Inc. Paid the amount due to Thies and Co. Paid the amount due to Montana Supply Co.

37) Journalize the Nov. 3 transaction. Answer: Nov. 3 Merchandise Inventory Accounts Payable, Bart Inc.

4,000 4,000

Diff: 2 LO: 10-1, 10-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

38) Journalize the Nov. 5 transaction. Answer: Nov. 5 Merchandise Inventory Accounts Payable, Thies and Co.

2,000 2,000

Diff: 2 LO: 10-1, 10-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 39) Journalize the Nov. 7 transaction. Answer: Nov. 7 Merchandise Inventory Accounts Payable, Montana Supply Co.

2,000 2,000

Diff: 2 LO: 10-1, 10-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 40) Journalize the Nov. 10 transaction. Answer: Nov. 10 Accounts Payable, Bart Inc. Merchandise Inventory Cash

4,000 80 3,920

Diff: 3 LO: 10-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 41) Journalize the Nov. 12 transaction. Answer: Nov. 12 Accounts Payable, Thies and Co. Merchandise Inventory Cash

2,000 40 1,960

Diff: 3 LO: 10-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

42) Journalize the Nov. 23 transaction. Answer: Nov. 23 Accounts Payable, Montana Supply Co. Cash

2,000 2,000

Diff: 3 LO: 10-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements Prepare the general journal entries to record the following transactions. All purchases are on account and subject to terms of 2/10, n/30. The perpetual inventory method is in use. Omit explanations. May 5 Purchased merchandise from the Jackson Inc. with a price of $17,000. May 9 Returned $1,500 of merchandise purchased on May 5 to Jackson Inc. May 14 Paid the amount due to Jackson Inc. 43) Prepare the general journal entry for the May 5 transaction. __________________________________________ __________ __________ __________________________________________ __________ __________ __________________________________________ __________ __________ Answer: May 5 Merchandise Inventory 17,000 Accounts Payable, Jackson Inc. 17,000 May 9 Accounts Payable, Jackson Inc. Merchandise Inventory

1,500

May 14 Accounts Payable, Jackson Inc. Merchandise Inventory Cash

15,500

1,500

310 15,190

Diff: 3 LO: 10-1, 10-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

The Bixby Co. had the following transactions involving the purchase of merchandise. Prepare the necessary general journal entries. Any applicable freight costs are prepaid by the seller. The perpetual inventory method is in use. Omit explanations. June 16 Purchased merchandise having a price of $6,000 from the Shelby Manufacturing Co. on account with credit terms 2/10, n/30. Transportation terms F.O.B destination. June 16 Purchased merchandise having a price of $9,000 from the Ajax Supply House on account with credit terms 2/10, n/30. Transportation terms F.O.B shipping point. The freight costs of $175 were added to the invoice. Merchandise was shipped June 16. June 17 Received the goods from Shelby. June 17 Received the goods from Ajax. June 20 Returned for credit merchandise with an invoice price of $800 to Ajax. June 25 Paid Shelby the amount owed. June 28 Paid Ajax the amount owed. June 30 Returned for cash, merchandise with an invoice price of $400 to Shelby. 44) Prepare the necessary general journal entry for June 16. Purchased merchandise having a price of $6,000 from the Shelby Manufacturing Co. on account with credit terms 2/10, n/30. Transportation terms F.O.B destination. Answer: No journal entry is required June 16; title does not pass until June 17 when goods are received. Diff: 2 LO: 10-1, 10-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 45) Prepare the necessary general journal entry for June 16. Purchased merchandise having a price of $9,000 from the Ajax Supply House on account with credit terms 2/10, n/30. Transportation terms F.O.B shipping point. The freight costs were $175. Answer: June 16 Merchandise Inventory 9,000 Merchandise Inventory — freight charges 175 Accounts Payable, Ajax Supply House 9,175 Diff: 2 LO: 10-1, 10-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 46) Prepare the necessary general journal entry for June 17. Received the goods from Shelby. Answer: June 17 Merchandise Inventory 6,000 Accounts Payable, Shelby Manufacturing Co. 6,000 Diff: 2 LO: 10-1, 10-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 28 Copyright © 2023 Pearson Education, Inc.

47) Prepare the necessary general journal entry for June 17. Received the goods from Ajax. Answer: No entry needed; the freight was prepaid by Ajax and billed to Bixby, so it was journalized on June 16. Diff: 2 LO: 10-1, 10-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 48) Prepare the necessary general journal entry for June 20. Answer: June 20 Accounts Payable, Ajax Supply House 800 Merchandise Inventory

800

Diff: 2 LO: 10-1, 10-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 49) Prepare the necessary general journal entry for June 25. Answer: June 25 Accounts Payable, Shelby Manufacturing Co. Merchandise Inventory Cash

6,000 120 5,880

Diff: 3 LO: 10-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 50) Prepare the necessary general journal entry for June 28. Answer: June 28 Accounts Payable, Ajax Supply House 8,375 Cash

8,375

Diff: 3 LO: 10-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

51) Prepare the necessary general journal entry for June 30. Answer: June 30 Cash ($400 × .98) 392 Merchandise Inventory

392

Diff: 3 LO: 10-1, 10-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 52) Compare and contrast the controlling account Accounts Payable to the Accounts Payable Subsidiary Ledger. Discuss why the balance of the controlling account, Accounts Payable, equals the sum of the account balances in the Accounts Payable Subsidiary Ledger at the end of the month. Answer: The controlling account, Accounts Payable, and the accounts in the Accounts Payable Subsidiary Ledger have normal credit balances and must be balanced to each other at the end of the month. They both represent the amounts owed to creditors. Journal entries in the general journal are posted to the controlling account for Accounts Payable. The Accounts Payable Subsidiary Ledger is a book or file that lists alphabetically the amounts owed to creditors from purchases on account. Journal entries in the general journal are also recorded in the subsidiary ledger for Accounts Payable by supplier name. The Accounts Payable Subsidiary Ledger provides more details about Accounts Payable than the controlling account. The Accounts Payable Subsidiary Ledger provides details about the purchases and payments made to each supplier. The Accounts Payable controlling account balance and the sum of the balances for the accounts in the Accounts Payable Subsidiary Ledger balance will agree at the end of the month because the same information is posted to the Accounts Payable controlling account and recorded to the Accounts Payable Subsidiary Ledger. Diff: 3 LO: 10-2 AACSB: Written and Oral Communication Learning Outcome: Define accounting terms, accounting concepts and principles

College Accounting, 15e (Slater) Chapter 11 Preparing a Worksheet for a Merchandise Company Learning Objective 11-1 1) Which inventory method is being used when current balances of each inventory account are being kept track of after each sale or purchase. A) Periodic B) Perpetual C) Interim D) Cost of Goods Sold Answer: B Diff: 2 LO: 11-1 AACSB: Reflective Thinking Learning Outcome: Explain and apply inventory costing methods 2) Using the perpetual inventory method, the ________ account is decreased when there is inventory shrinkage. A) Cost of Goods Sold B) Merchandise Inventory C) Supplies D) Sales Answer: B Diff: 2 LO: 11-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 3) Using the perpetual inventory method, the ________ account is increased when there is inventory shrinkage. A) Cost of Goods Sold B) Merchandise Inventory C) Supplies D) Sales Answer: A Diff: 2 LO: 11-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

4) Ben’s Wholesale shows a balance of $20,000 in merchandise inventory in the General Ledger. A physical count shows the balance is $21,000. Using the perpetual inventory method, what account increases when recording this adjustment? A) Cost of Goods Sold B) Merchandise Inventory C) Supplies D) Sales Answer: B Diff: 2 LO: 11-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 5) Ben’s Wholesale shows a balance of $20,000 in merchandise inventory in the General Ledger. A physical count shows the balance is $21,000. Using the perpetual inventory method, what account decreases when recording this adjustment? A) Cost of Goods Sold B) Merchandise Inventory C) Supplies D) Sales Answer: A Diff: 2 LO: 11-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 6) Jones Company shows a balance of $10,000 in merchandise inventory in the General Ledger. A physical count shows the balance is $12,000. Using the perpetual inventory method, which account is debited when recording this adjustment? A) Cost of Goods Sold B) Merchandise Inventory C) Supplies D) Sales Answer: B Diff: 2 LO: 11-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

7) Jones Company shows a balance of $10,000 in merchandise inventory in the General Ledger. A physical count shows the balance is $12,000. Using the perpetual inventory method, which account is credited when recording this adjustment? A) Cost of Goods Sold B) Merchandise Inventory C) Supplies D) Sales Answer: A Diff: 2 LO: 11-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 8) Smith Company shows a balance of $14,000 in merchandise inventory in the General Ledger. A physical count shows the balance is $12,000. Using the perpetual inventory method, which account is debited when recording this adjustment? A) Cost of Goods Sold B) Merchandise Inventory C) Supplies D) Sales Answer: A Diff: 2 LO: 11-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 9) Smith Company shows a balance of $14,000 in merchandise inventory in the General Ledger. A physical count shows the balance is $12,000. Using the perpetual inventory method, which account is credited when recording this adjustment? A) Cost of Goods Sold B) Merchandise Inventory C) Supplies D) Sales Answer: B Diff: 2 LO: 11-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

10) The beginning Merchandise Inventory is: A) the amount of goods sold. B) the cost of goods on hand in a company at the start of the accounting period. C) the amount of adjustment for any shrinkage. D) all of the above. Answer: B Diff: 2 LO: 11-1 AACSB: Reflective Thinking Learning Outcome: Define and record adjusting entries 11) A company uses the perpetual inventory method. The adjustment when there is more physical inventory than the Merchandise Inventory account balance in the General Ledger shows includes: A) a debit to Merchandise Inventory. B) a credit to Merchandise Inventory. C) a debit to Income Summary. D) None of these is correct. Answer: A Diff: 2 LO: 11-1 AACSB: Reflective Thinking Learning Outcome: Define and record adjusting entries 12) Unearned Rent is what type of account? A) Asset B) Revenue C) Liability D) Contra-Asset Answer: C Diff: 2 LO: 11-1 AACSB: Reflective Thinking Learning Outcome: Define and record adjusting entries 13) As Unearned Rent Revenue is earned, it becomes: A) an asset. B) a revenue. C) a liability. D) an expense. Answer: B Diff: 2 LO: 11-1 AACSB: Reflective Thinking Learning Outcome: Define and record adjusting entries

14) Sam received $8,000 in advance for renting part of his building. What is the entry to record the receipt? A) Debit Cash; credit Rent Expense B) Debit Cash; credit Prepaid Rent Expense C) Debit Cash; credit Unearned Rent D) Debit Cash; credit Rental Income Answer: C Diff: 2 LO: 11-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 15) Tim received $3,000 in advance for renting part of his building for 4 months. What is the entry to record the adjustment after one month has passed? A) Debit Cash; credit Rental Income B) Debit Cash; credit Unearned Rent C) Debit Unearned Rent, credit Rental Income D) Debit Unearned Rent, credit Cash Answer: C Diff: 2 LO: 11-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 16) When the adjustment for Unearned Rent is made: A) liabilities decrease. B) revenue increases. C) assets decrease. D) Both A and B are correct. Answer: D Diff: 2 LO: 11-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 17) Which of the following accounts is NOT a liability? A) Accounts Payable B) Salaries Payable C) Unearned Rent D) All of the above answers are liabilities. Answer: D Diff: 2 LO: 11-1 AACSB: Reflective Thinking Learning Outcome: Compare and contrast cash-basis accounting and accrual accounting

18) Rental Income is what type of account? A) Asset B) Revenue C) Expense D) Contra-Sales Answer: B Diff: 2 LO: 11-1 AACSB: Reflective Thinking Learning Outcome: Compare and contrast cash-basis accounting and accrual accounting 19) The normal balance for Unearned Rent is: A) a credit. B) a debit. C) zero. D) dependent on circumstances. Answer: A Diff: 2 LO: 11-1 AACSB: Reflective Thinking Learning Outcome: Compare and contrast cash-basis accounting and accrual accounting 20) Unearned Rent results because: A) no fee has been paid, and the service is not complete. B) the fee is earned but not collected. C) the fee has been collected before the service has been provided. D) the fee has been paid, and the service is complete. Answer: C Diff: 2 LO: 11-1 AACSB: Reflective Thinking Learning Outcome: Compare and contrast cash-basis accounting and accrual accounting 21) As the Unearned Rent is earned: A) the liability account is decreased, and the revenue account is increased. B) the asset account is increased, and the revenue account is decreased. C) the liability account is decreased, and the revenue account is not affected. D) the liability account is not affected, but the revenue account is decreased. Answer: A Diff: 2 LO: 11-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries

22) From the following items, which would most likely cause the recording of unearned revenue? A) Receipt of a purchase order B) Purchase of merchandise on account C) Legal fees collected after work is performed D) Subscriptions collected in advance for a magazine Answer: D Diff: 2 LO: 11-1 AACSB: Reflective Thinking Learning Outcome: Define and record adjusting entries 23) The financial statement on which Unearned Rent would appear is: A) the income statement. B) the balance sheet. C) the owner's equity statement. D) the trial balance. Answer: B Diff: 2 LO: 11-1 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 24) The financial statement on which Rental Income would appear is the: A) income statement. B) owner's equity statement. C) balance sheet. D) trial balance. Answer: A Diff: 2 LO: 11-1 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 25) The normal balance of Rental Income is: A) a credit. B) a debit. C) zero. D) dependent on the circumstances. Answer: A Diff: 2 LO: 11-1 AACSB: Reflective Thinking Learning Outcome: Compare and contrast cash-basis accounting and accrual accounting

26) The adjustment for Unearned Rent is recorded when: A) cash is received. B) rent is provided to customer and earned. C) revenue is received. D) payment is made for rent. Answer: B Diff: 2 LO: 11-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 27) On November 1, Call Center received $4800 for two years' rent in advance from Garrett Company. The November 30 adjusting entry that Call Center should make is to: A) debit Rental Income; credit Unearned Rent $4800. B) debit Cash; credit Rental Income $4800. C) debit Unearned Rent; credit Rental Income $200. D) debit Unearned Rent; credit Rent Expense $200. Answer: C Explanation: $4800 / 24 = $200 Diff: 2 LO: 11-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 28) Under the perpetual inventory method, the goods a company has available to sell to customers are called: A) Supplies. B) Supplies Expense. C) Cost of Goods Sold. D) Merchandise Inventory. Answer: D Diff: 1 LO: 11-1 AACSB: Reflective Thinking Learning Outcome: Compare and contrast cash-basis accounting and accrual accounting 29) The physical count of inventory was incorrect, which overstated the ending inventory. This would cause: A) Cost of Goods Sold to be overstated. B) Cost of Goods Sold to be understated. C) gross profit to be understated. D) operating expenses to be understated. Answer: B Diff: 3 LO: 11-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 8 Copyright © 2023 Pearson Education, Inc.

30) At the start of the year, Southern Lights had merchandise with a cost of $5,000. Using the perpetual inventory method, this Merchandise is called: A) Cost of Goods Sold. B) beginning merchandise inventory. C) ending merchandise inventory. D) Purchases. Answer: B Diff: 1 LO: 11-1 AACSB: Reflective Thinking Learning Outcome: Compare and contrast cash-basis accounting and accrual accounting 31) The perpetual inventory method: A) is used to update inventories every time a transaction takes place. B) is not used by many companies today. C) is used by fewer companies today due to the high cost of computers and technology. D) does not ever require a physical inventory. Answer: A Diff: 2 LO: 11-1 AACSB: Reflective Thinking Learning Outcome: Compare and contrast cash-basis accounting and accrual accounting 32) Cost of goods sold is the total cost of goods that are purchased. Answer: FALSE Diff: 2 LO: 11-1 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 33) In the perpetual inventory system, it is not necessary to take a physical inventory at the end of the period. Answer: FALSE Diff: 2 LO: 11-1 AACSB: Reflective Thinking Learning Outcome: Compare and contrast cash-basis accounting and accrual accounting 34) Rental Income is a balance sheet account. Answer: FALSE Diff: 2 LO: 11-1 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

35) Unearned Rent is a balance sheet account. Answer: TRUE Diff: 2 LO: 11-1 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 36) Unearned Rent Revenue is a liability account used to record rent fees received in advance. Answer: TRUE Diff: 2 LO: 11-1 AACSB: Reflective Thinking Learning Outcome: Define and record adjusting entries 37) Under the perpetual inventory system, an adjustment is not made on the worksheet for merchandise inventory. Answer: FALSE Diff: 2 LO: 11-1 AACSB: Reflective Thinking Learning Outcome: Define and record adjusting entries 38) Under the perpetual inventory method, the ending merchandise inventory is adjusted by debiting Income Summary and crediting Merchandise Inventory. Answer: FALSE Diff: 2 LO: 11-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 39) Under the perpetual inventory method, the beginning and ending inventories are combined and an average is calculated to determine the balance sheet inventory amount. Answer: FALSE Diff: 2 LO: 11-1 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

40) Marie's Law Firm's unadjusted trial balance includes the following: Cash Unearned Legal Fees Legal Fees Revenue

$5,000 2,200 14,200

Using the above data, record the adjusting entry for $1,000 of the unearned legal fees earned. Answer: Unearned Legal Fees 1,000 Legal Fees Revenue 1,000 Diff: 2 LO: 11-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 41) Prepare the general journal entry, using the perpetual inventory method, to record the adjustment for merchandise inventory given the following independent situations: A. The Merchandise Inventory account has a balance of $10,000 in the General Ledger. A physical inventory showed a balance of $11,000. B. The Merchandise Inventory account has a balance of $13,000 in the General Ledger. A physical inventory showed a balance of $11,000. Answer: A. Merchandise Inventory 1,000 Cost of Goods Sold 1,000 B. Cost of Goods Sold Merchandise Inventory

2,000 2,000

Diff: 3 LO: 11-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries

Learning Objective 11-2 1) When completing a worksheet using the perpetual inventory method: A) the ending merchandise inventory amount appears in the balance sheet debit column. B) the ending merchandise inventory amount appears in the income statement credit column. C) the ending merchandise inventory amount appears in the income statement debit column. D) the beginning merchandise inventory amount appears in the balance sheet debit column. Answer: A Diff: 2 LO: 11-2 AACSB: Reflective Thinking Learning Outcome: Define and record adjusting entries 11 Copyright © 2023 Pearson Education, Inc.

2) The balance sheet columns on the worksheet prepared for Cleveland Goods had subtotals as follows: debit column, $13,000, and credit column, $10,600. This information indicates that: A) the company reported a net income of $2400. B) the company reported a net loss of $2400. C) an error was made when preparing the adjustments in the worksheet. D) the unadjusted trial balance has an error. Answer: A Explanation: $13,000 - $10,600 = $2400 Net income Diff: 2 LO: 11-2 AACSB: Analytical Thinking Learning Outcome: Compare and contrast cash-basis accounting and accrual accounting 3) The income statement columns on a worksheet have subtotals as follows: debit column, $12,000, and credit column, $9300. This indicates that: A) the company incurred a net loss of $2700. B) the company earned a net income of $2700. C) there was an error in the unadjusted trial balance columns. D) there was an error in the income statement columns. Answer: A Explanation: $12,000 - $9300 = $2700 Net loss Diff: 2 LO: 11-2 AACSB: Analytical Thinking Learning Outcome: Compare and contrast cash-basis accounting and accrual accounting 4) During the preparation of the worksheet, the $5000 balance of the Sam, Withdrawals account was extended as a debit to the income statement columns. This error will: A) overstate net income $5000. B) understate net income $5000. C) overstate net income $10,000. D) understate net income $10,000. Answer: B Diff: 3 LO: 11-2 AACSB: Analytical Thinking Learning Outcome: Compare and contrast cash-basis accounting and accrual accounting

5) The adjustment for supplies used would be to: A) debit Supplies Expense; credit Supplies. B) debit Supplies; credit Cash. C) debit Supplies Expense; credit Merchandise Inventory. D) debit Merchandise Inventory; credit Supplies. Answer: A Diff: 2 LO: 11-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 6) The adjustment for Accrued Salaries would be to: A) debit Salaries Expense; credit Cash. B) debit Salaries Payable; credit Prepaid Salaries. C) debit Salaries Expense; credit Salaries Payable. D) debit Salaries Payable; credit Cash. Answer: C Diff: 2 LO: 11-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 7) Accumulated Depreciation, Buildings should be shown on the: A) Income Statement debit column of the worksheet. B) Balance Sheet credit column of the worksheet. C) Income statement credit column of the worksheet. D) Balance Sheet debit column of the worksheet. Answer: B Diff: 2 LO: 11-2 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 8) Depreciation Expense, Buildings should be shown on the: A) Income Statement debit column of the worksheet. B) Balance Sheet credit column of the worksheet. C) Income statement credit column of the worksheet. D) Balance Sheet debit column of the worksheet. Answer: A Diff: 2 LO: 11-2 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

9) Salaries Payable should be shown on the: A) Income Statement debit column of the worksheet. B) Balance Sheet credit column of the worksheet. C) Income statement credit column of the worksheet. D) Balance Sheet debit column of the worksheet. Answer: B Diff: 2 LO: 11-2 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 10) Which of the following items generally has a credit balance in the income statement columns of the worksheet? A) Rental Income B) Unearned Rent C) Accumulated Depreciation D) Accounts Payable Answer: A Diff: 2 LO: 11-2 AACSB: Reflective Thinking Learning Outcome: Compare and contrast cash-basis accounting and accrual accounting 11) Under the perpetual inventory method, which account appears in the balance sheet debit column of the worksheet? A) Merchandise Inventory B) Rental Income C) Supplies Expense D) Cost of Goods Sold Answer: A Diff: 2 LO: 11-2 AACSB: Reflective Thinking Learning Outcome: Compare and contrast cash-basis accounting and accrual accounting 12) The adjusted trial balance on the worksheet: A) contains balances from the permanent accounts only. B) contains balances from the temporary accounts only. C) contains balances for all permanent and temporary accounts with balances. D) contains balances for all accounts requiring adjustments. Answer: C Diff: 2 LO: 11-2 AACSB: Reflective Thinking Learning Outcome: Compare and contrast cash-basis accounting and accrual accounting

13) The trial balance columns on the worksheet are populated using the: A) general journal. B) general ledger. C) subsidiary ledger. D) None of the above Answer: B Diff: 2 LO: 11-2 AACSB: Reflective Thinking Learning Outcome: Compare and contrast cash-basis accounting and accrual accounting 14) Sales would be found on the worksheet in the: A) income statement debit column. B) income statement credit column. C) balance sheet debit column. D) balance sheet credit column. Answer: B Diff: 2 LO: 11-2 AACSB: Reflective Thinking Learning Outcome: Compare and contrast cash-basis accounting and accrual accounting 15) Sales Returns and Allowances would be found on the worksheet in the: A) income statement debit column. B) income statement credit column. C) balance sheet debit column. D) balance sheet credit column. Answer: A Diff: 2 LO: 11-2 AACSB: Reflective Thinking Learning Outcome: Compare and contrast cash-basis accounting and accrual accounting 16) Owner's Withdrawals would be found on the worksheet in the: A) income statement debit column. B) income statement credit column. C) balance sheet debit column. D) balance sheet credit column. Answer: C Diff: 2 LO: 11-2 AACSB: Reflective Thinking Learning Outcome: Compare and contrast cash-basis accounting and accrual accounting

17) Owner's Capital would be found on the worksheet in the: A) income statement debit column. B) income statement credit column. C) balance sheet debit column. D) balance sheet credit column. Answer: D Diff: 2 LO: 11-2 AACSB: Reflective Thinking Learning Outcome: Compare and contrast cash-basis accounting and accrual accounting 18) As prepaid insurance expires, it becomes: A) an asset. B) a liability. C) an expense. D) revenue Answer: C Diff: 1 LO: 11-2 AACSB: Reflective Thinking Learning Outcome: Compare and contrast cash-basis accounting and accrual accounting 19) As supplies are used, they become: A) inventory. B) a liability. C) an expense. D) contra-asset. Answer: C Diff: 1 LO: 11-2 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 20) An account never used in an adjusting entry is: A) Consulting Fees-Revenue. B) Interest Payable. C) Cash. D) Accumulated Depreciation - Equipment. Answer: C Diff: 2 LO: 11-2 AACSB: Reflective Thinking Learning Outcome: Define and record adjusting entries

21) Doug paid $3000 on a one-year insurance policy on March 1. The entry included a debit to Prepaid Insurance. The adjusting entry on December 31 of Year 1 would include a: A) debit to Prepaid Insurance for $2500; and a credit to Cash for $2500. B) debit to Insurance Expense for $2500; and a credit to Prepaid Insurance for $2500. C) debit to Insurance Expense for $3000; and a credit to Prepaid Insurance for $3000. D) debit to Cash for $3000; and a credit to Prepaid Insurance for $3000. Answer: B Explanation: ($3000 / 12) × 10 = $2500 Diff: 2 LO: 11-2 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 22) Green Realty paid $6000 rent on a building in advance for two years on May 1. The amount that should be recorded as rent expense as of December 31 at the end of Year 1 is: A) $2000. B) $6000. C) $3000. D) $1750. Answer: A Explanation: ($6000 / 24) × 8 = $2000 Diff: 2 LO: 11-2 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 23) The adjustment for salaries is necessary: A) because the employer did not have enough cash to write the paychecks. B) to recognize the revenue in the period earned. C) to recognize the expense in the period incurred. D) only in the month of a holiday. Answer: C Diff: 2 LO: 11-2 AACSB: Reflective Thinking Learning Outcome: Define and record adjusting entries 24) When the adjustment for depreciation is made: A) total assets decrease. B) total expenses decrease. C) total liabilities increase. D) total revenue decreases. Answer: A Diff: 2 LO: 11-2 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 17 Copyright © 2023 Pearson Education, Inc.

25) The adjustment for accrued wages was NOT done; this would cause: A) liabilities to be overstated. B) liabilities to be understated. C) assets to be understated. D) net income to be understated. Answer: B Diff: 2 LO: 11-2 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 26) When counting supplies, several boxes were missed. This would cause: A) Supplies to be overstated. B) Supplies Expense to be overstated. C) net income to be overstated. D) Merchandise Inventory to be understated. Answer: B Diff: 3 LO: 11-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 27) The adjustment for depreciation expense was omitted; this would: A) overstate the period's expenses and overstate the period end liabilities. B) overstate the period's expenses and understate the period end liabilities. C) understate the period's expenses and overstate the period's assets. D) understate the period's expenses and understate the period's assets. Answer: C Diff: 3 LO: 11-2 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 28) Depreciation on equipment was recorded twice this period. This would cause: A) expenses to be overstated and total assets to be overstated. B) expenses to be overstated and total assets to be understated. C) expenses to be understated and total assets to be overstated. D) expenses to be understated and total assets to be understated. Answer: B Diff: 2 LO: 11-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries

29) Recording the adjustment for supplies used will: A) increase the total liability and increase the total expenses. B) increase the total assets and increase the total liabilities. C) decrease the total assets and increase the total expenses. D) decrease the merchandise inventory and decrease the total expenses. Answer: C Diff: 2 LO: 11-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 30) Interest Expense: A) is a cost of borrowing money. B) is a nonoperating expense. C) has a normal debit balance. D) All of the above are correct. Answer: D Diff: 2 LO: 11-2 AACSB: Reflective Thinking Learning Outcome: Compare and contrast cash-basis accounting and accrual accounting 31) Mortgage Payable: A) has a debit balance. B) has a credit balance. C) shows the amount expected to be paid within the current period. D) is an asset. Answer: B Diff: 2 LO: 11-2 AACSB: Reflective Thinking Learning Outcome: Compare and contrast cash-basis accounting and accrual accounting 32) During March, $600 of salaries have been earned (accrued) but not paid yet. The adjusting journal entry would be: A) debit to Salaries Expense; and a credit to Cash. B) debit to Salaries Expense; and a credit to Salaries Payable. C) debit to Salaries Payable; and a credit to Cash. D) debit to Salaries Payable; and a credit to Salaries Expense. Answer: B Diff: 2 LO: 11-2 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries

33) During March, $1,600 of depreciation expense occurred on the equipment. The adjusting journal entry would be: A) debit to Depreciation Expense, Equipment; and a credit to Accumulated Depreciation, Equipment. B) debit to Depreciation Expense, Equipment; and a credit to Equipment. C) debit to Accumulated Depreciation, Equipment; and a credit to Cash. D) debit to Equipment; and a credit to Depreciation Expense, Equipment. Answer: A Diff: 2 LO: 11-2 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 34) When the adjustment is made for depreciation, the Depreciation Expense account is increased and the Accumulated Depreciation account is decreased. Answer: FALSE Diff: 2 LO: 11-2 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 35) The amount of supplies used causes an increase in Supplies and a decrease in Supplies Expense. Answer: FALSE Diff: 2 LO: 11-2 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 36) Mortgage Payable is a contra-liability account. Answer: FALSE Diff: 1 LO: 11-2 AACSB: Reflective Thinking Learning Outcome: Compare and contrast cash-basis accounting and accrual accounting 37) Mortgage Payable is found on the balance sheet. Answer: TRUE Diff: 1 LO: 11-2 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 38) Equipment is credited when depreciation expense is recorded. Answer: FALSE Diff: 2 LO: 11-2 AACSB: Reflective Thinking Learning Outcome: Compare and contrast cash-basis accounting and accrual accounting 20 Copyright © 2023 Pearson Education, Inc.

39) The adjusted trial balance represents the combination of the unadjusted trial balance and the adjustments columns. Answer: TRUE Diff: 2 LO: 11-2 AACSB: Reflective Thinking Learning Outcome: Define and record adjusting entries 40) On the worksheet, accumulated depreciation appears in the income statement columns. Answer: FALSE Diff: 2 LO: 11-2 AACSB: Reflective Thinking Learning Outcome: Compare and contrast cash-basis accounting and accrual accounting 41) On the worksheet, the Merchandise Inventory account is found in the debit column of the Balance Sheet. Answer: TRUE Diff: 2 LO: 11-2 AACSB: Reflective Thinking Learning Outcome: Compare and contrast cash-basis accounting and accrual accounting

42) Use the following information to complete the partial worksheet for Robert's Company. Robert’s Company uses the perpetual inventory method. Record the appropriate adjusting entries using the data below and extend the balances over to the adjusted trial balance columns. (A) Merchandise Inventory–ending, physical count (B) Store supplies on hand (C) Depreciation on store equipment (D) Accrued salaries

$30 4 1 2

Robert's Company Partial Worksheet For the Year Ended December 31, 20XX Account Titles Merchandise Inventory Store Supplies Store Equipment Accumulated Depreciation, Store Equipment Salaries Payable Salaries Expense Cost of Goods Sold Depreciation Expense, Store Equipment Store Supplies Expense

Adjusted Trial Trial Balance Adjustments Balance Debit Credit Debit Credit Debit Credit 24 10 20 6 10 20

Answer: Robert's Company Partial Worksheet For the Year Ended December 31, 20XX Account Titles Merchandise Inventory Store Supplies Store Equipment Accumulated Depreciation, Store Equipment Salaries Payable Salaries Expense Cost of Goods Sold Depreciation Expense, Store Equipment Store Supplies Expense

Adjusted Trial Trial Balance Adjustments Balance Debit Credit Debit Credit Debit Credit 24 (A) 6 30 10 (B) 6 4 20 20 6 (C) 1 7 (D) 2 2 10 (D) 2 12 20 (A) 6 14 (C) 1 1 (B) 6 6

43) Use the following information to complete the partial worksheet for Gene's Company. Gene’s Company uses the perpetual inventory method. Record the appropriate adjusting entries using the data below and extend the balances over to the adjusted trial balance columns. (A) Merchandise Inventory–ending, physical count (B) Store supplies on hand (C) Depreciation on store equipment (D) Accrued salaries

$10 3 2 1

Gene's Company Partial Worksheet For the Year Ended December 31, 20XX Account Titles Merchandise Inventory Store Supplies Store Equipment Accumulated Depreciation, Store Equipment Salaries Payable Salaries Expense Cost of Goods Sold Depreciation Expense, Store Equipment Store Supplies Expense

Adjusted Trial Trial Balance Adjustments Balance Debit Credit Debit Credit Debit Credit 15 10 20 6 10 30

Answer: Gene's Company Partial Worksheet For the Year Ended December 31, 20XX Account Titles Merchandise Inventory Store Supplies Store Equipment Accumulated Depreciation, Store Equipment Salaries Payable Salaries Expense Cost of Goods Sold Depreciation Expense, Store Equipment Store Supplies Expense

Adjusted Trial Trial Balance Adjustments Balance Debit Credit Debit Credit Debit Credit 15 (A)5 10 10 (B) 7 3 20 20 6 (C) 2 8 (D) 1 1 10 (D) 1 11 30 (A) 5 35 (C) 2 2 (B) 7 7

44) Discuss how the Cost of Goods Sold is used in the adjustment process in the perpetual inventory system. Answer: The value of merchandise inventory in the General Ledger may not accurately represent the value of merchandise inventory actually on hand. To verify the accuracy of the accounting records, a physical inventory should be performed at the end of the reporting period. This is usually done near year end. If the count does not match the records, an adjustment must be made to bring the merchandise inventory to its correct balance. This is done by debiting Merchandise Inventory if the physical inventory is more than the amount shown in the Merchandise Inventory account, or crediting Merchandise Inventory if the physical inventory is less than the amount shown in the Merchandise Inventory account. The offsetting entry then is to Cost of Goods Sold. Diff: 2 LO: 11-1, 11-2 AACSB: Written and Oral Communication Learning Outcome: Compare and contrast cash-basis accounting and accrual accounting Assume a company uses a worksheet to prepare the financial statements, under the perpetual inventory method. For each of the following, identify in Column 1 the balance the account will have in the adjusted trial balance columns (debit or credit), in Column 2 the financial statement column(s) in which the account balance will be found (income statement or balance sheet), and in Column 3 the effect the account will have on the determination of net income (increase, decrease, or none). 45) Column 1

Column 2

Column 3

Column 1

Column 2 balance sheet

Column 3

Petty Cash Answer: Petty Cash

debit

none

Diff: 3 LO: 11-2 AACSB: Reflective Thinking Learning Outcome: Compare and contrast cash-basis accounting and accrual accounting 46) Column 1

Column 2

Column 3

Column 1

Column 2

Column 3

Merchandise Inventory Answer: Merchandise Inventory

debit

balance sheet

none

47) Column 1

Column 2

Column 3

Column 1

Column 2 balance sheet

Column 3

Prepaid Insurance Answer: Prepaid Insurance

debit

none

Diff: 3 LO: 11-2 AACSB: Reflective Thinking Learning Outcome: Compare and contrast cash-basis accounting and accrual accounting 48) Column 1

Column 2

Column 1 credit

Column 2 balance sheet

Column 3

Unearned Rent Answer: Unearned Rent

Column 3 none

Diff: 3 LO: 11-2 AACSB: Reflective Thinking Learning Outcome: Compare and contrast cash-basis accounting and accrual accounting 49) Column 1

Column 2

Column 3

Column 1 Accumulated Depreciation, Equip. credit

Column 2

Column 3

Accumulated Depreciation, Equip. Answer:

balance sheet

none

Diff: 3 LO: 11-2 AACSB: Reflective Thinking Learning Outcome: Compare and contrast cash-basis accounting and accrual accounting

50) Column 1

Column 2

Column 1 credit

Column 2 balance sheet

Column 3

Salaries payable Answer: Salaries payable

Column 3 none

Diff: 3 LO: 11-2 AACSB: Reflective Thinking Learning Outcome: Compare and contrast cash-basis accounting and accrual accounting 51) Column 1

Column 2

Column 3

Salaries Expense Answer: Column 1 Salaries Expense

debit

Column 2 income statement

Column 3 decrease

Diff: 3 LO: 11-2 AACSB: Reflective Thinking Learning Outcome: Compare and contrast cash-basis accounting and accrual accounting 52) Column 1

Column 2

Column 3

Payroll Tax Expense Answer: Column 1 Payroll Tax Expense debit

Column 2 income statement

Column 3 decrease

Diff: 3 LO: 11-2 AACSB: Reflective Thinking Learning Outcome: Compare and contrast cash-basis accounting and accrual accounting

53) Column 1

Column 2

Column 3

Rental Income Answer: Rental Income

Column 1 credit

Column 2 income statement

Column 3 increase

Diff: 3 LO: 11-2 AACSB: Reflective Thinking Learning Outcome: Compare and contrast cash-basis accounting and accrual accounting 54) Column 1

Column 2

Column 3

Interest Expense Answer: Column 1 Interest Expense

debit

Column 2 income statement

Column 3 decrease

Diff: 3 LO: 11-2 AACSB: Reflective Thinking Learning Outcome: Compare and contrast cash-basis accounting and accrual accounting 55) Column 1

Column 2

Column 3

Sales Answer: Sales

Column 1 credit

Column 2 income statement

Column 3 increase

Diff: 3 LO: 11-2 AACSB: Reflective Thinking Learning Outcome: Compare and contrast cash-basis accounting and accrual accounting

56) Column 1

Column 2

Column 1 credit

Column 2 balance sheet

Column 3

SUTA Tax Payable Answer: SUTA Tax Payable

Column 3 none

Diff: 3 LO: 11-2 AACSB: Reflective Thinking Learning Outcome: Compare and contrast cash-basis accounting and accrual accounting 57) Column 1

Column 2

Column 3

Column 1

Column 2

Column 3

Depreciation expense, Equipment Answer: Depreciation expense, Equipment

debit

income statement

decrease

Diff: 3 LO: 11-2 AACSB: Reflective Thinking Learning Outcome: Compare and contrast cash-basis accounting and accrual accounting 58) Column 1

Column 2

Column 3

Supplies expense Answer: Column 1 Supplies expense

debit

Column 2 income statement

Column 3 decrease

Diff: 3 LO: 11-2 AACSB: Reflective Thinking Learning Outcome: Compare and contrast cash-basis accounting and accrual accounting

59) From the following trial balance and adjustments data, complete the worksheet. The company uses the perpetual inventory method. (A) Merchandise Inventory–ending, physical count (B) Fees Earned (C) Insurance Expired (D) Prepaid Rent Expired (E) Depreciation Expense, Equipment (F) Salaries Payable

$400 200 100 300 100 500

Answer:

Diff: 3 LO: 11-2 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries

College Accounting, 15e (Slater) Chapter 12 Completion of the Accounting Cycle for a Merchandise Company Learning Objective 12-1 1) The income statement is prepared from the: A) Post-Closing Trial Balance. B) worksheet. C) general journal. D) unadjusted Trial Balance. Answer: B Diff: 1 LO: 12-1 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 2) To determine how much merchandise was returned from a company's customers, the company should review the: A) Sales Discount Account. B) Merchandise Inventory Account. C) Sales Returns and Allowances Account. D) Freight-in. Answer: C Diff: 1 LO: 12-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 3) Net Sales are: A) Gross Sales + Sales Discounts + Sales Returns and Allowances. B) Gross Sales - Sales Discounts - Sales Returns and Allowances. C) Revenue - Sales Discounts + Sales Returns and Allowances. D) Gross Sales + Sales Discounts - Sales Returns and Allowances. Answer: B Diff: 1 LO: 12-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

4) Net Sales + Sales Discounts + Sales Returns and Allowances equals: A) Net Income. B) Gross Sales. C) Net Income from Operations. D) None of the above Answer: B Diff: 1 LO: 12-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 5) Johnson Supplies has $570,000 in net sales and $210,000 in gross profit. Cost of Goods Sold equals: A) $780,000. B) $210,000. C) $360,000. D) None of these is correct. Answer: C Explanation: Net sales less Gross Profit = Cost of Goods Sold, $570,000 - $210,000 = $360,000 Diff: 1 LO: 12-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 6) Net Sales - Cost of Goods Sold is equal to: A) Net Income from Operations. B) Operating Expenses. C) Gross Profit. D) Selling Expenses. Answer: C Diff: 1 LO: 12-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 7) Gross profit + Cost of Goods Sold is equal to: A) Net Loss. B) Net Income. C) Net Income from Operations. D) Net sales Answer: D Diff: 2 LO: 12-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

8) Under the perpetual inventory method, Cost of Goods Sold is found on the: A) Post-Closing Trial Balance. B) Trial Balance. C) Income Statement. D) B and C. Answer: D Diff: 1 LO: 12-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 9) Under the perpetual inventory method, Gross Profit equals: A) Net sales - Net Purchases. B) Sales - Sales Returns and Allowances - Sales Discounts - Cost of Goods Sold. C) Cost of Goods Sold - Other Expenses. D) Cost of Goods Sold - Operating Expenses. Answer: B Diff: 1 LO: 12-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 10) Net Income from Operations minus _______ equals Net Income. A) Operating Expenses. B) Cost of Goods Sold. C) Other Income. D) Other Expenses and Income Tax Expense. Answer: D Diff: 2 LO: 12-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 11) Gross Profit – Operating expenses is equal to: A) Net Income. B) Net Income from Operations. C) Gross Profit. D) Net Sales. Answer: B Diff: 2 LO: 12-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

12) The calculation of Net Sales does NOT include: A) Sales Returns and Allowances. B) Sales Discounts. C) Gross Sales. D) Merchandise Inventory. Answer: D Diff: 2 LO: 12-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 13) Which of the following is NOT an operating expense? A) Payroll Tax Expense B) Merchandise Inventory C) Supplies Expense D) Depreciation Expense, Office Equipment Answer: B Diff: 2 LO: 12-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 14) What is the name of the primary revenue account used by merchandise companies? A) Sales B) Interest Income C) Merchandise Inventory D) Rental Income Answer: A Diff: 2 LO: 12-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 15) Which of the following is an operating expense? A) Salaries Expense B) Payroll Tax Expense C) Cost of Goods Sold. D) Both A and B are correct. Answer: D Diff: 2 LO: 12-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

16) Under the perpetual inventory method, which income statement line item is directly found on the worksheet? A) Cost of Goods Sold B) Gross Profit C) Net Sales D) None of the above Answer: A Diff: 2 LO: 12-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 17) For a merchandising company, in which section does Interest Revenue appear in the Income Statement? A) Other Income B) Other Expense C) Revenue D) Administrative Expenses Answer: A Diff: 2 LO: 12-1 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 18) Which of the following is an operating expense? A) Interest Expense B) Sales Returns and Allowances C) Salaries Expense D) Prepaid Insurance Answer: C Diff: 2 LO: 12-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 19) Using the perpetual inventory system, Merchandise Inventory would appear: A) on the income statement as an operating expense. B) on the income statement as an other expense. C) on the balance sheet as an asset. D) on the balance sheet as a liability. Answer: C Diff: 2 LO: 12-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

20) Selling expenses include: A) Advertising Expense. B) Cost of Goods Sold. C) Office Supplies Expense. D) Sales Returns and Allowances. Answer: A Diff: 2 LO: 12-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 21) Administrative Expenses include: A) Sales Salaries Expense. B) Delivery Expense. C) Advertising Expense. D) Accounting Staff Salaries Expenses. Answer: D Diff: 2 LO: 12-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 22) For a merchandising company, Other Income on the income statement is used to: A) record payments from customers. B) record any revenue from activities other than sales. C) record all revenue. D) record owner investments. Answer: B Diff: 2 LO: 12-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 23) For a merchandising company, Other Expense on the income statement is used to record: A) selling expenses. B) administrative expenses. C) operating expenses. D) interest expenses. Answer: D Diff: 2 LO: 12-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

24) If a company uses a worksheet to prepare the financial statements, the information to prepare the Statement of Owner's Equity comes from the: A) income statement columns on the worksheet. B) adjustments columns on the worksheet. C) balance sheet columns on the worksheet. D) statement of owner’s equity columns on the worksheet. Answer: C Diff: 2 LO: 12-1 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 25) A classified balance sheet provides more information about the company to: A) owners. B) creditors. C) suppliers. D) All of the above answers are correct. Answer: D Diff: 2 LO: 12-1 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 26) An item that can be converted into cash or used up during the normal operating cycle is: A) a current asset. B) Revenue. C) a current liability. D) an expense. Answer: A Diff: 2 LO: 12-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 27) Liquidity is: A) the ability to pay current debts quickly. B) how easily an asset can be converted to cash. C) how much cash a company has on its balance sheet. D) how quickly customers pay their bills. Answer: B Diff: 2 LO: 12-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

28) Plant and Equipment on a balance sheet includes which of the following? A) Mortgage Payable B) Supplies C) Accumulated Depreciation on Equipment D) All of these are correct. Answer: C Diff: 2 LO: 12-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 29) In what category on a classified balance sheet is Accounts Receivable found? A) Plant, Property and Equipment B) Current Liabilities C) Current Assets D) Long Term Assets Answer: C Diff: 2 LO: 12-1 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 30) A company paid next month's rent in advance. This would be classified on a balance sheet as a(n): A) Current asset. B) Expense. C) Revenue. D) Contra-Asset. Answer: A Diff: 2 LO: 12-1 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 31) Capital assets are usually listed: A) in alphabetical order. B) in order of liquidity, with Land listed last. C) by how long they will last, with Land listed first. D) lowest to highest dollar values. Answer: C Diff: 2 LO: 12-1 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

32) The ending merchandise inventory was overstated. The company uses the perpetual inventory system. This error would cause: A) net income to be understated. B) revenue to be understated. C) net income to be overstated. D) Cost of Goods Sold to be overstated. Answer: C Diff: 2 LO: 12-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 33) The ending merchandise inventory was understated. The company uses the perpetual inventory method. This error would cause: A) total assets to be understated. B) total assets to be overstated. C) net income to be understated. D) Cost of Goods Sold to be understated. Answer: A Diff: 2 LO: 12-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 34) Obligations that will come due within 1 year or within the operating cycle, whichever is longer, are referred to as: A) long-term liabilities. B) current liabilities. C) capital assets. D) current assets. Answer: B Diff: 2 LO: 12-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 35) The excess of net sales over the cost of goods sold is called: A) operating income. B) net loss. C) net income. D) gross profit. Answer: D Diff: 2 LO: 12-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

36) If Net Sales is $10,700, Cost of Goods Sold is $5500, Gross Profit is $5200 and Operating Expenses are $1000, what is the Net Income from Operations? A) $6200 B) $4200 C) $1000 D) $5200 Answer: B Explanation: $10,700 - $5500 - $1000 = $4200 Diff: 2 LO: 12-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 37) To determine how much a merchandising company has reduced sales for early payments from customers, it should review the: A) Net Sales. B) Change in the Merchandise Inventory balance. C) Sales Returns & Allowances account. D) Sales Discounts account. Answer: D Diff: 2 LO: 12-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 38) Merchandise purchased for resale under the perpetual inventory method is added to: A) Merchandise Inventory. B) Supplies. C) Purchases. D) Inventory Expense. Answer: A Diff: 2 LO: 12-1 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 39) Sales discount is: A) found on the balance sheet and normally has a debit balance. B) found on the income statement and normally has a debit balance. C) found on the balance sheet and normally has a credit balance. D) found on the income statement and normally has a credit balance. Answer: B Diff: 2 LO: 12-1 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

40) In what category on a classified balance sheet is Store Equipment found? A) Plant and Equipment B) Current Liabilities C) Current Assets D) Long Term Liabilities Answer: A Diff: 2 LO: 12-1 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 41) In what category in a classified balance sheet is Mortgage Payable found? A) Plant and Equipment B) Current Liabilities C) Long-term Liabilities D) Both B and C are correct. Answer: D Diff: 2 LO: 12-1 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 42) The left and right columns on the financial statements are used for debits and credits. Answer: FALSE Diff: 2 LO: 12-1 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 43) When using the perpetual inventory system, the account Cost of Goods Sold is found on the worksheet after Revenue. Answer: TRUE Diff: 2 LO: 12-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 44) On the Balance Sheet, Land is listed first under Plant and Equipment when using the perpetual inventory method. Answer: TRUE Diff: 2 LO: 12-1 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

45) The formal income statement can be prepared from the balance sheet columns of the worksheet. Answer: FALSE Diff: 2 LO: 12-1 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 46) Gross profit equals Net Sales minus Inventory Available for Sale. Answer: FALSE Diff: 2 LO: 12-1 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 47) The ending balance of capital found on the Statement of Owner's Equity is equal to the capital balance in the balance sheet section of the worksheet. Answer: FALSE Diff: 2 LO: 12-1 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 48) Administration expenses are found in the Operating Expense section of the income statement. Answer: TRUE Diff: 2 LO: 12-1 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 49) A balance sheet where assets and liabilities are broken down into more detail is called a comprehensive balance sheet. Answer: FALSE Diff: 2 LO: 12-1 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 50) The Withdrawals account is found in the debit column of the Balance Sheet section of the Worksheet. Answer: TRUE Diff: 2 LO: 12-1 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

51) The average time it takes to buy and sell merchandise and collect Accounts Receivable is the sales cycle for a business. Answer: FALSE Diff: 2 LO: 12-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 52) The Statement of Owner's Equity is the same for a service business as for a merchandise business. Answer: TRUE Diff: 2 LO: 12-1 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 53) When using the perpetual inventory method, Cost of Goods Sold must be calculated on the income statement. Answer: FALSE Diff: 2 LO: 12-1 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 54) The following amounts are on the John's Clothing worksheet for the month ended March 31 Required: Calculate the following: a) Net sales b) Gross profit Account Sales Sales Returns and Allowances Sales Discounts Cost of Goods Sold

Income Statement Debit Credit 50 4 2 12

Answer: a) $44 ($50 - $4 - $2 = $44) b) $32 ($44 - $12 = $32) Diff: 2 LO: 12-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

55) The following amounts are on the Bear Sporting Goods worksheet for the month ended October 31. Required: Calculate the following: a) Net sales b) Gross profit c) Net Income from Operations d) Net Income Account Sales Sales Returns and Allowances Sales Discounts Cost of Goods Sold Operating Expenses Rental Income Interest Expense

Income Statement Debit Credit 60 6 2 30 10 2 1

Answer: a) $52 ($60 - $6 - $2 = $52) b) $22 ($52 - $30 = $22) c) $12 ($22 - $10 = $12) d) $13 ($12 + $2 - $1 = $13) Diff: 2 LO: 12-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

56) The following accounts are on the Balance Sheet section of Scents Galore worksheet for the month ended November 30, 202X. Please prepare a Classified Balance Sheet using the information below. Additional information: Net Income for the month is $12. The current portion of the Mortgage Payable is $1. Account Cash Accounts Receivable Merchandise Inventory Store Equipment Accumulated Depreciation, Store Equipment Accounts Payable Mortgage Payable Schmidt, Capital Schmidt, Withdrawals

Balance Sheet Debit 6 15 14 30

Balance Sheet Credit

6 19 24 8 4

Answer: Scents Galore Balance Sheet November 30, 202X Assets Current Assets: Cash Accounts Receivable Merchandise Inventory Total Current Assets

$6 15 14 $35

Plant and Equipment: Store Equipment Less: Accumulated Depreciation Total Assets Liabilities Current Liabilities: Accounts Payable Mortgage Payable (current) Total Current Liabilities Long-Term Liabilities Mortgage Payable Total Liabilities

$30 6

24 $59

$19 1 $20 23 $43

Owner's Equity Schmidt, Capital Total Liabilities and Owner's Equity

16 $59

Beg. Bal. Capital $8 + Net Income $12 — Withdrawals $4 = End. Bal. Capital $16 Diff: 2 LO: 12-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

57) The following accounts are on the Balance Sheet section of Great Plains Camping worksheet for the month ended January 31, 202X. Required: Prepare a classified balance sheet. Account Cash Accounts Receivable Merchandise Inventory Store Equipment Accumulated Depreciation, Store Equipment Accounts Payable Mortgage Payable Smith, Capital Smith, Withdrawals

Balance Sheet Debit 2 20 2 6

Balance Sheet Credit

2 9 16 2 2

Additional information: Net Income for the month is $3. The current portion of the Mortgage Payable is $1.

Answer: Great Plains Camping Balance Sheet January 31, 202X Assets Current Assets: Cash Accounts Receivable Merchandise Inventory Total Current Assets

$2 20 2

Plant and Equipment: Store Equipment Less: Accumulated Depreciation Total Assets

$6 2

$24

Liabilities Current Liabilities: Accounts Payable Mortgage Payable (current) Total Current Liabilities Long-Term Liabilities Mortgage Payable Total Liabilities

4 $28

$9 1 $10 15 $25

Owner's Equity Smith, Capital Total Liabilities and Owner's Equity

3 $28

Beg. Bal. Capital $2 + Net Income $3 — Withdrawals $2 = End. Bal. Capital $3 Diff: 3 LO: 12-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

58) Identify the category(s) of each of the accounts below. Current Asset Plant and Equipment Current Liabilities Long-Term Liabilities Item Category 0) Cash Current Asset a) Supplies ________ b) Accounts Payable ________ c) Mortgage Payable ________ d) Building ________ e) Prepaid Insurance ________ Answer: Item Category a) Current Asset b) Current Liabilities c) Current Liabilities, Long-term Liabilities d) Plant and Equipment e) Current Asset Diff: 2 LO: 12-1 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 59) Identify the category(s) of each of the accounts below. Current Asset Plant and Equipment Current Liabilities Long-Term Liabilities Item Category 0. Cash Current Asset a) Equipment ________ b) Accumulated Depreciation, Equipment ________ c) FUTA Payable ________ d) Salaries Payable ________ e) Merchandise Inventory ________ Answer: Item Category a) Plant and Equipment b) contra account to Plant and Equipment c) Current Liabilities d) Current Liabilities e) Current Asset Diff: 2 LO: 12-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 19 Copyright © 2023 Pearson Education, Inc.

60) Discuss the purpose of a detailed income statement. Briefly describe the major kinds of business activities covered on a detailed income statement. Answer: A detailed income statement provides information as to how well the business has performed. It reports the company's net sales, sales value of merchandise returned by customers, sales discounts taken by customers, and the cost of goods sold. It also breaks down operating expenses into those directly related to selling activities and those related to administrative or office activity. Income and expenses not directly related to the business's main activities are shown in separate categories, and are labeled Other Income and Other Expenses. Diff: 3 LO: 12-1 AACSB: Written and Oral Communication Learning Outcome: Describe the components of and prepare the four basic financial statements 61) Discuss the purpose of a classified balance sheet. Include a description of the major balance sheet classifications including current assets, plant and equipment, current liabilities, and long-term liabilities. Answer: A classified balance sheet provides more detail about the firm's assets and liabilities. The major categories included for assets are current assets, and plant and equipment. Current assets are cash and other assets that will be converted into cash or used up during the normal operating cycle or one year, whichever is longer. Plant and equipment are long-lived assets that are used in the production or sale of goods or services. The major categories included for liabilities are current liabilities and long-term liabilities. Current liabilities are debts or obligations that must be satisfied within one year or one operating cycle, whichever is longer. Long-term liabilities are debts that are not due for a comparatively long period, usually for more than one year or one operating cycle, whichever is longer. A classified balance sheet can provide information about a company’s ability to pay debts, both current and long-term. If total current assets exceed total current liabilities, then the company has enough current assets to pay current liabilities. If total current assets exceed total liabilities, then the company has enough current assets to pay all the liabilities. In addition, a classified balance sheet provides a more complete picture of a company’s financial condition. For example, if Total Current Assets exceeds Plant and Equipment, then the company is very liquid and not capital-intensive. This provides financial flexibility. If Plant and Equipment exceeds Long-term Liabilities, then the company is not heavily burdened with debt. This also provides financial flexibility. Diff: 3 LO: 12-1 AACSB: Written and Oral Communication Learning Outcome: Describe the components of and prepare the four basic financial statements

62) Determine the ending Capital amount of a business having: Beginning Capital amount of $25,000 Withdrawals of $ 2,500 Net Income of $250,000 $ ________ Answer: $272,500 ($25,000 + $250,000 - $2,500) Diff: 3 LO: 12-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 63) Determine the ending Capital balance of a business having: Beginning Capital of $75,000 Additional Capital Investment of $25,000 Withdrawals of $10,000 Net Income of $107,000 $ ________ Answer: $197,000 ($75,000 + $25,000 - $10,000 + $107,000) Diff: 3 LO: 12-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

64) The following amounts are on the Bear Sporting Goods worksheet, a merchandising business, for the month ended October 31. Prepare the income statement for the month. Account Gross Sales Sales Returns and Allowances Sales Discounts Cost of Goods Sold Operating Expenses Rental Income Interest Expense

Income Statement Debit Credit 100 6 2 32 10 2 1

Answer: Bear Sporting Goods Income Statement For the Month Ended October 31 Revenues Gross Sales Less: Sales Returns and Allowances Sales Discounts Net Sales Cost of Goods Sold Gross Profit Operating Expenses Net Income from Operations Other Income: Rental Income Other Expenses: Interest Expense Net Income

$100 $6 2

8 $92 32 $60 10 $50

2 1

1 $51

Diff: 3 LO: 12-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

Learning Objective 12-2 1) How is Income Summary closed if the company had a net loss? A) Credit Income Summary; debit Capital B) Debit Income Summary; credit Capital C) Debit Capital; credit Revenue D) Debit Withdrawals; credit Capital Answer: A Diff: 2 LO: 12-2 AACSB: Reflective Thinking Learning Outcome: Define and record adjusting entries 2) How is Income Summary closed if the company had a net income? A) Debit Capital; credit Income Summary B) Debit Income Summary; credit Capital C) Debit Capital; credit Withdrawals D) Debit Withdrawals; credit Capital Answer: B Diff: 2 LO: 12-2 AACSB: Reflective Thinking Learning Outcome: Define and record adjusting entries 3) Adjusting entries from the worksheet: A) are journalized and posted to the ledger. B) are not journalized, but are posted directly to the ledger. C) affect only balance sheet accounts. D) affect only income statement accounts. Answer: A Diff: 2 LO: 12-2 AACSB: Reflective Thinking Learning Outcome: Define and record adjusting entries 4) The goals of closing entries do NOT include: A) to clear revenue and expense accounts to zero. B) to update the Capital account balance. C) to clear the Withdrawals account to zero. D) to clear the Cash account to zero. Answer: D Diff: 2 LO: 12-2 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

5) The first step in the closing process is to: A) close all balances on the income statement debit column of the worksheet by credits. Then debit the total to the Income Summary account. B) transfer the balance from the Income Summary Account to the Capital Account. C) close all balances on the income statement credit column of the worksheet by debits. Then credit the total to the Income Summary account. D) transfer the balance of the Owner's Withdrawals Account to Capital. Answer: C Diff: 2 LO: 12-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 6) After the closing entries have been journalized and posted: A) the temporary accounts are zeroed out. B) the Capital account includes the current period’s net profit or loss. C) the post-closing trial balance is prepared. D) All of these answers are correct. Answer: D Diff: 2 LO: 12-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 7) Using the perpetual inventory method, the amount shown in the balance sheet debit column of the worksheet for Merchandise Inventory is: A) the Cost of Goods Sold. B) net purchases + beginning merchandise inventory. C) the ending merchandise inventory based on a physical count. D) the beginning merchandise inventory based on a physical count. Answer: C Diff: 2 LO: 12-2 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 8) Income Summary, before closing to Capital, contains a debit balance of $150 and a credit balance of $240. What is the entry to close Income Summary to Capital? A) Debit Income Summary $150; credit Capital $150 B) Debit Income Summary $240 credit Capital $240 C) Debit Capital $90; credit Income Summary $90 D) Debit Income Summary $90; credit Capital $90 Answer: D Explanation: $240 - $150 = $90 Diff: 3 LO: 12-2 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 24 Copyright © 2023 Pearson Education, Inc.

9) Using the perpetual inventory system, the amount shown in the adjustments credit column for Merchandise Inventory on the worksheet is the: A) amount of inventory shrinkage. B) ending Merchandise Inventory. C) beginning Merchandise Inventory. D) Cost of Goods Sold. Answer: A Diff: 2 LO: 12-2 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 10) Closing entries: A) are posted to the general ledger. B) are done to update Cash. C) can be done before adjusting entries. D) are recorded to the subsidiary ledger. Answer: A Diff: 2 LO: 12-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 11) The entry to close the Income Summary account to Capital was omitted, and there was a net income for the period. The company uses the perpetual inventory method. This error would cause: A) the Capital account to be understated. B) Merchandise Inventory to be overstated. C) Revenue to be understated. D) the Capital account to be overstated. Answer: A Diff: 2 LO: 12-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 12) The entry to close the Withdrawals account to Capital was omitted. This error would cause: A) the Capital account to be understated. B) Withdrawals to be understated. C) Revenue to be understated. D) the Capital account to be overstated. Answer: D Diff: 3 LO: 12-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

13) The entry to close the expense account(s) was entered in reverse—Income Summary was credited, and the expense account(s) was/were debited. This error would cause: A) assets to be overstated. B) liabilities to be overstated. C) the Capital account to be understated. D) the Capital account to be overstated. Answer: D Diff: 3 LO: 12-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 14) The entry to close the Withdrawals account was entered in reverse—the Withdrawals account was debited, and Capital credited. This error would cause: A) the Income Summary account to have a debit balance. B) net income to be overstated. C) net income to be understated. D) Withdrawals to be overstated. Answer: D Diff: 3 LO: 12-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 15) The entry to adjust salaries was done twice. This error would cause: A) assets to be understated. B) liabilities to be overstated. C) revenue to be understated. D) assets to be overstated. Answer: B Explanation: Debit Salaries Expense; Credit Salaries Payable; Salaries Payable is a liability. Diff: 3 LO: 12-2 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 16) Assuming normal balances, which of the following accounts would be closed with a credit to Income Summary? A) Sales Returns and Allowances B) Sales Discount C) Sales D) Unearned Revenue Answer: C Diff: 3 LO: 12-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 26 Copyright © 2023 Pearson Education, Inc.

17) A company uses the perpetual inventory system. Assuming normal balances, which of the following accounts would be closed with a debit to Income Summary? A) Unearned Rent B) Merchandise Inventory C) Sales Returns and Allowances D) Sales Answer: C Diff: 2 LO: 12-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 18) A company uses the perpetual inventory method. The entry to close the Sales account will include which of the following? A) Debit to Merchandise Inventory B) Debit to Income Summary C) Debit to Sales D) Credit to Sales Answer: C Diff: 2 LO: 12-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 19) The entry to close the owner's Withdrawals account will include which of the following? A) A debit to Income Summary B) A credit to Capital C) A credit to Withdrawals D) A debit to Withdrawals Answer: C Diff: 2 LO: 12-2 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 20) Which of the following situations could cause the Income Summary account to be debited and Capital to be credited? A) The business earned a net loss for the period. B) The business earned a net income for the period. C) To close out Owner’s Withdrawals account with a debit balance. D) To close out Salaries Expense, Rent Expense, and Depreciation Expense. Answer: B Diff: 2 LO: 12-2 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

21) The post-closing trial balance contains: A) assets and liabilities. B) all accounts with balances. C) only permanent accounts. D) All of these answers are correct. Answer: D Diff: 2 LO: 12-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 22) The post-closing trial balance is prepared from: A) the income statement column on the worksheet. B) the balance sheet columns on the worksheet. C) the trial balance columns on the worksheet. D) the general ledger. Answer: D Diff: 2 LO: 12-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 23) Which of the following accounts will NOT appear on the post-closing trial balance? A) Accounts Receivable B) Cash C) Accounts Payable D) Revenue Answer: D Diff: 2 LO: 12-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 24) Which of the following accounts will appear on the post-closing trial balance? A) Capital B) Sales C) Supplies Expense D) Withdrawals Answer: A Diff: 2 LO: 12-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

25) The trial balance is used to prepare the post-closing trial balance. Answer: FALSE Diff: 2 LO: 12-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 26) The post-closing trial balance would include Supplies Expense and Cost of Goods Sold. Answer: FALSE Diff: 2 LO: 12-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 27) All adjusting journal entries still need to be journalized and posted after the worksheet is completed; otherwise, the account balances in the general ledger will not be correct. Answer: TRUE Diff: 2 LO: 12-2 AACSB: Reflective Thinking Learning Outcome: Define and record adjusting entries 28) The adjusting entry to record Service Revenue that has been earned would involve a debit to Service Revenue and a credit to Unearned Service Revenue. Answer: FALSE Diff: 2 LO: 12-2 AACSB: Reflective Thinking Learning Outcome: Define and record adjusting entries 29) The entry to record the adjustment for depreciation on equipment would be a debit to Depreciation Expense, Equipment and a credit to Equipment. Answer: FALSE Diff: 2 LO: 12-2 AACSB: Reflective Thinking Learning Outcome: Define and record adjusting entries 30) Smith, Withdrawals is found in the Debit column of the Income Statement section of the worksheet. Answer: FALSE Diff: 2 LO: 12-2 AACSB: Reflective Thinking Learning Outcome: Define and record adjusting entries

31) Smith, Capital is found in the Credit column of the Balance Sheet section of the worksheet. Answer: TRUE Diff: 2 LO: 12-2 AACSB: Reflective Thinking Learning Outcome: Define and record adjusting entries 32) After the closing process, the permanent accounts are set back to zero. Answer: FALSE Diff: 2 LO: 12-2 AACSB: Reflective Thinking Learning Outcome: Define and record adjusting entries 33) In the process of closing entries, the Income Summary account is closed to the Capital account before Withdrawals. Answer: TRUE Diff: 2 LO: 12-2 AACSB: Reflective Thinking Learning Outcome: Define and record adjusting entries For each of the following, identify in Column 1 the category to which the account belongs, in Column 2 the normal balance for the account, in Column 3 the financial statement on which the account balance is reported, and in Column 4 the account's nature (permanent/temporary). 34) Column 1

Column 2

Column 3

Column 4

Column 1 asset

Column 2 debit

Column 3 balance sheet

Column 4 permanent

Cash Answer: Cash

Diff: 2 LO: 12-1, 12-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

35) Column 1

Column 2

Column 3

Column 4

Column 1 asset

Column 2 debit

Column 3 balance sheet

Column 4 permanent

Supplies Answer: Supplies

Diff: 2 LO: 12-1, 12-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 36) Column 1

Column 2

Column 3

Column 4

Column 1

Column 2

Column 3

Column 4

Accounts Payable Answer: Accounts Payable

liability

credit

balance sheet

permanent

Diff: 2 LO: 12-1, 12-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 37) Column 1

Column 2

Column 3

Column 4

Column 1

Column 2

Column 3

Column 4

Merchandise Inventory Answer: Merchandise Inventory

asset

debit

balance sheet

permanent

Diff: 2 LO: 12-1, 12-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

38) Column 1

Column 2

Column 3

Column 4

Column 1 asset

Column 2 debit

Column 3 balance sheet

Column 4 permanent

Prepaid Rent Answer: Prepaid Rent

Diff: 2 LO: 12-1, 12-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 39) Column 1

Column 2

Column 3

Column 4

Column 1 asset

Column 2 debit

Column 3 balance sheet

Column 4 permanent

Equipment Answer: Equipment

Diff: 2 LO: 12-1, 12-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 40) Column 1

Column 2

Column 3

Column 4

Column 1

Column 2

Column 3

Column 4

Accumulated Depreciation, Equipment Answer: Accumulated Depreciation, Equipment

contra-asset

credit

balance sheet

permanent

Diff: 2 LO: 12-1, 12-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

41) Column 1

Column 2

Column 3

Column 4

Column 1 liability

Column 2 credit

Column 3 balance sheet

Column 4 permanent

Wages Payable Answer: Wages Payable

Diff: 2 LO: 12-1, 12-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 42) Column 1

Column 2

Column 1 Wages Expense expense

Column 2 debit

Column 3

Column 4

Wages Expense Answer: Column 3 Column 4 income statement temporary

Diff: 2 LO: 12-1, 12-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 43) Column 1

Column 2

Column 1 revenue

Column 2 credit

Column 3

Column 4

Sales Answer: Sales

Column 3 Column 4 income statement temporary

Diff: 2 LO: 12-1, 12-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

44) Column 1

Column 2

Column 3

Column 4

Column 1

Column 2

Column 3

Column 4

Sales Returns and Allowances Answer: Sales Returns and Allowances contra-revenue

debit

income statement temporary

Diff: 2 LO: 12-1, 12-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 45) Column 1

Column 2

Column 1 contra-revenue

Column 2 debit

Column 3

Column 4

Sales Discounts Answer: Sales Discounts

Column 3 Column 4 income statement temporary

Diff: 2 LO: 12-1, 12-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 46) Column 1

Column 2

Column 3

Column 4

Column 1

Column 2

Column 3

Column 4

Depreciation Expense, Equipment Answer: Depreciation Expense, Equipment

expense

debit

income statement temporary

Diff: 2 LO: 12-1, 12-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

47) Prepare the closing entries from the following information on the PC Pros Company’s worksheet, income statement columns. The owner, Mr. Smith, made withdrawals of $5 during the month.

Sales Sales Discount Sales Returns and Allowances Insurance Expense Office Salaries Expense

Income Statement Debit Credit 28 5 1 3 1

Answer: Sales Income Summary

28 28

Income Summary Insurance Expense Office Salaries Expense Sales Discount Sales Returns and Allowances

Income Summary Smith, Capital

Smith, Capital Smith, Withdrawals

3 1 5 1

Diff: 3 LO: 12-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

48) Prepare closing entries from the following information on the Warner Brooks’ worksheet, income statement columns. The owner, Warner Brooks, withdrew $4 during the month.

Sales Sales Discount Sales Returns and Allowances Salaries Expense Rent Expense

Income Statement Debit Credit 50 3 2 3 15

Answer: Sales Income Summary

50 50

Income Summary Rent Expense Salaries Expense Sales Discount Sales Returns and Allowances

Income Summary Brooks, Capital

Brooks, Capital Brooks, Withdrawals

15 3 3 2

Diff: 3 LO: 12-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

Learning Objective 12-3 1) Which of the following could appear in an adjusting entry, closing entry, and reversing entry? A) Salary Expense B) Withdrawals C) Depreciation Expense, Buildings D) Cash Answer: A Diff: 2 LO: 12-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

2) Reversing entries occur at the beginning of the accounting period and: A) help to reduce potential errors. B) simplify the bookkeeping associated with accruals from the prior period. C) reverse the prior period’s adjusting entries. D) All of the above are correct. Answer: D Diff: 3 LO: 12-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 3) Which of the following could be recorded as a reversing entry? A) Depreciation of building B) Accrual of salary expense C) Allocation of prepaid rent in the current period D) Cash payment Answer: B Diff: 3 LO: 12-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 4) Which of the following adjustments may be reversed? A) The adjustment to Record Depreciation Expense B) The adjustment to Allocate Prepaid Insurance to the current period C) The adjustment to Accrue Salaries Payable D) The adjustment for Petty Cash replenishment Answer: C Diff: 3 LO: 12-3 AACSB: Reflective Thinking Learning Outcome: Define and record adjusting entries 5) The reversing entry for Salaries is: A) debit Salaries Expense; credit Salaries Payable. B) debit Salaries Payable; credit Capital. C) debit Salaries Payable; credit Salaries Expense. D) debit Salaries Expense; credit Accounts Payable. Answer: C Diff: 3 LO: 12-3 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

6) Reversing entries are done when assets or liabilities are increasing and have no previous balance. Answer: TRUE Diff: 2 LO: 12-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 7) Reversing entries are the opposite of adjusting entries. Answer: TRUE Diff: 2 LO: 12-3 AACSB: Reflective Thinking Learning Outcome: Define and record adjusting entries 8) Not all adjusting entries can be reversed. Answer: TRUE Diff: 2 LO: 12-3 AACSB: Reflective Thinking Learning Outcome: Define and record adjusting entries 9) Reversing entries are recorded on the third day of the new accounting period. Answer: FALSE Diff: 2 LO: 12-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

10) Prepare the following closing and adjusting entries. 20X1 December 31 Salaries are adjusted for $500. 31 Closing entry was prepared for Salaries Expense for balance of $900. 20X2 January 1 A reversing entry for salaries was made 6 Salaries of $1,200 are paid. Answer: 20X1 Dec. 31 Salaries Expense 500 Salaries Payable 500 31

20X2 Jan. 1

Income Summary Salaries Expense

900

Salaries Payable Salaries Expense

500

Salaries Expense Cash

900

500 1,200 1,200

Diff: 3 LO: 12-2, 12-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

College Accounting, 15e (Slater) Chapter 13 Accounting for Bad Debts Learning Objective 13-1 1) An expense incurred as a result of sales on credit or on account is: A) Bad Debts Expense B) Prepaid Rent C) Insurance Expense D) Allowance for Doubtful Accounts Answer: A Diff: 1 LO: 13-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 2) What type of account is an Allowance for Doubtful Accounts? A) Asset B) Contra-asset C) Revenue D) Contra-revenue Answer: B Diff: 1 LO: 13-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 3) Which financial statement reports an Allowance for Doubtful Accounts? A) Statement of owner's equity B) Income statement C) Balance Sheet D) None of these answers is correct. Answer: C Diff: 1 LO: 13-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 4) What type of account is a Bad Debts Expense? A) Asset B) Expense C) Contra Asset D) Liability Answer: B Diff: 1 LO: 13-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 1 Copyright © 2023 Pearson Education, Inc.

5) Current assets listed on the balance sheet include: A) Land. B) Buildings. C) Allowance for Doubtful Accounts. D) Sales. Answer: C Diff: 1 LO: 13-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 6) The allowance method requires: A) an estimated entry to Bad Debts Expense. B) a known individual account to write off bad debts. C) a known uncollectible amount to write off bad debts. D) All of these answers are correct. Answer: D Diff: 1 LO: 13-1 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued 7) Which of the following is a contra-revenue account? A) Bad Debts Expense B) Accounts Receivable C) Allowance for Doubtful Accounts D) None of these answers is correct. Answer: D Diff: 1 LO: 13-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 8) Which of the following is considered a temporary account? A) Accounts Receivable B) Merchandise Inventory C) Allowance for Doubtful Accounts D) Bad Debts Expense Answer: D Diff: 1 LO: 13-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

9) The Net Realizable Value of Accounts Receivable can be defined as: A) the Gross Accounts Receivable. B) the Current Bad Debts Expense. C) the amount of Accounts Receivable you do not expect to collect. D) the Gross Accounts Receivable minus the Allowance for Doubtful Accounts. Answer: D Diff: 1 LO: 13-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 10) Mercury Holdings estimates it will collect $4,200 of the $5,620 owed by customers. The $4,200 is: A) the Net Realizable Value. B) the Bad Debts Allowance. C) the Allowance for Doubtful Accounts. D) the Gross Accounts Receivable. Answer: A Diff: 1 LO: 13-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 11) Mercury Holdings estimates it will collect $8,930 of the $10,000 owed by customers. The difference of $1,070 represents the: A) Gross Accounts Receivable. B) the Net Realizable Value. C) Allowance for Doubtful Accounts. D) Value of the Current Unpaid Receivables. Answer: C Diff: 1 LO: 13-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 12) Before the accounts are adjusted and closed at the end of the year, Accounts Receivable has a normal balance of $600,000 and Allowance for Doubtful Accounts has a credit balance of $40,000. What is the net realizable value of accounts receivable? A) $560,000 B) $640,000 C) $600,000 D) $40,000 Answer: A Diff: 2 LO: 13-1 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued

13) Before the accounts are adjusted and closed at the end of the year, Accounts Receivable has a normal balance of $510,000 and Allowance for Doubtful Accounts has a credit balance $3000. What is the net realizable value of the accounts receivable? A) $513,000 B) $507,000 C) $510,000 D) $504,000 Answer: B Explanation: Accounts Receivable $510,000 - $3,000 = $507,000 Diff: 2 LO: 13-1 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued 14) Which of the following is considered a permanent account? A) Allowance for Doubtful Accounts B) Sales Returns and Allowances C) Bad Debts Expense D) Sales Answer: A Diff: 1 LO: 13-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 15) Under the allowance method, the Allowance for Doubtful Accounts is adjusted: A) each time a customer is granted credit. B) each time a customer's debt is satisfied. C) within one year of granting credit to a customer. D) at the end of each accounting period. Answer: D Diff: 2 LO: 13-1 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued 16) Uncollectible accounts receivable could: A) affect accounts payable. B) ease credit restrictions. C) decrease cash shortages. D) be an expense of selling goods on account. Answer: D Diff: 2 LO: 13-1 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued

17) Under the allowance method, the Accounts Receivable subsidiary ledger is: A) updated when an account is identified as uncollectible. B) credited when an account is identified as uncollectible. C) debited when an account is identified as uncollectible. D) Both A and B Answer: D Diff: 2 LO: 13-1 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued 18) Bad Debts Expense is: A) not included in Cost of Goods Sold. B) considered an expense matched with revenues. C) listed on the income statement. D) All of the above. Answer: D Diff: 1 LO: 13-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 19) Under the allowance method, when a customer's account is written off: A) net realizable value of the Accounts Receivable remains the same. B) net realizable value of the Accounts Receivable decreases. C) net realizable value of the Accounts Receivable increases. D) None of the above Answer: A Diff: 3 LO: 13-1 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued

20) A company uses the allowance method and has estimated $28,000 as uncollectible. The journal entry to record the estimated bad debts is: A) Allowance for Doubtful Accounts $28,000 Bad Debts Expense $28,000 B) Allowance for Doubtful Accounts Accounts Receivable

$28,000

C) Accounts Receivable Allowance for Doubtful Accounts

$28,000

D) Bad Debts Expense Allowance for Doubtful Accounts

$28,000

Answer: D Diff: 2 LO: 13-1 AACSB: Analytical Thinking Learning Outcome: Describe and illustrate the allowance methods for accounting for bad debts 21) A company uses the allowance method and has determined a customer's bill for $6,000 must be written off. The journal entry to record the write off is: A) Allowance for Doubtful Accounts $6,000 Bad Debts Expense $6,000 B) Allowance for Doubtful Accounts Accounts Receivable

$6,000

C) Accounts Receivable Allowance for Doubtful Accounts

$6,000

D) Bad Debts Expense Allowance for Doubtful Accounts

$6,000

22) The Allowance for Doubtful Accounts is shown on the balance sheet as a contra-asset. Answer: TRUE Diff: 1 LO: 13-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 23) The normal balance of the Allowance for Doubtful Accounts account is a debit. Answer: FALSE Diff: 1 LO: 13-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 24) The normal balance of the Bad Debts Expense account is a debit. Answer: TRUE Diff: 1 LO: 13-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 25) Bad Debts Expense is a contra-revenue account. Answer: FALSE Diff: 1 LO: 13-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 26) Under the allowance method, the adjusting entry for uncollectible Accounts Receivable is based on an estimate. Answer: TRUE Diff: 1 LO: 13-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 27) The Allowance for Doubtful Accounts is a contra-asset account. Answer: TRUE Diff: 1 LO: 13-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

28) A debit balance in Allowance for Doubtful Accounts indicates the estimate for Bad Debts was too low. Answer: TRUE Diff: 3 LO: 13-1 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 29) Prepare a partial balance sheet for Tangiers Industries at December 31, 202X, from the following information (assume normal balances): Accounts Receivable Sales Revenue Prepaid Rent Prepaid Insurance Bad Debt Expense Allowance for Doubtful Accounts Cash Merchandise Inventory

$10,400 22,970 640 450 3,290 1,500 19,320 5,222

Answer: Tangiers Industries Balance Sheet December 31, 202X Current Assets Cash Accounts Receivable Less: Allow. for Doubtful Accts. Merchandise Inventory Prepaid Insurance Prepaid Rent Total Current Assets

$19,320 $10,400 1,500

8,900 5,222 450 640 $34,532

Diff: 3 LO: 13-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

30) Prepare a partial balance sheet for the Swanson Company at December 31, 202X, from the following information (assume normal balances): Accounts Receivable Prepaid Rent Allowance for Doubtful Accounts Bad Debts Expense Cash Merchandise Inventory

$8,560 800 750 2,000 12,500 3,700

Answer: Swanson Company Balance Sheet December 31, 202X Current Assets Cash Accounts Receivable Less: Allow. for Doubtful Accts. Merchandise Inventory Prepaid Rent Total Current Assets

$12,500 $8,560 750

7,810 3,700 800 $24,810

Diff: 3 LO: 13-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

Learning Objective 13-2 1) Gross Accounts Receivable is $39,000. Allowance for Doubtful Accounts has a credit balance of $300. Net credit sales for the year are $190,000. In the past, 2% of net credit sales had proved uncollectible. What would be the adjusted balance of the Allowance account under the income statement approach? A) $4880 B) $4100 C) $3800 D) $3500 Answer: B Explanation: $300 + (2% × $190,000) = $4100 Diff: 2 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Describe and illustrate the allowance methods for accounting for bad debts

2) Gross Accounts Receivable is $18,000. Allowance for Doubtful Accounts has a credit balance of $300. Net credit sales for the year are $150,000. In the past, 2% of net credit sales had proved uncollectible, and an aging of the receivables indicates $2100 as uncollectible. What would be the adjusted balance of the Allowance account under the balance sheet approach? A) $1800 B) $3300 C) $2100 D) $2400 Answer: C Diff: 2 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Describe and illustrate the allowance methods for accounting for bad debts 3) A method that estimates the amount of Bad Debts Expense based on a percentage of net credit sales for the period is called: A) direct write off method. B) income statement approach. C) balance sheet approach. D) None of these answers is correct. Answer: B Diff: 1 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 4) At December 31, 202X, Aaron's Produce unadjusted Allowance for Doubtful Accounts showed a credit balance of $520. An aging of the Accounts Receivable indicates probable uncollectible accounts of $4000. The year-end adjusting entry for Bad Debts Expense: A) includes a credit to the Allowance account for $3480. B) includes a debit to the Allowance account for $520. C) includes a debit to the Allowance account for $4000. D) includes a credit to the Allowance account for $4520. Answer: A Diff: 2 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries

5) The method based on the Accounts Receivable amount and the aging process is called: A) income statement approach. B) direct write off method. C) balance sheet approach. D) None of these answers is correct. Answer: C Diff: 1 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 6) Ellen's Candies estimates that approximately $2.15 out of every $100 of credit sales proves to be uncollectible. Ellen's Candies calculates Bad Debts Expense using the: A) balance sheet approach. B) aging of Accounts Receivable approach. C) direct write-off method. D) income statement approach. Answer: D Diff: 2 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued 7) The process of classifying accounts of individual customers by age group, where age is the number of days elapsed from due date is specifically called: A) equity approach. B) income statement approach. C) direct write-off method. D) aging of Accounts Receivable approach. Answer: D Diff: 1 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 8) Joe's Auto Repair estimates that approximately 3% of net credit sales are uncollectible. Joe's calculates Bad Debts Expense using the: A) direct write-off method. B) income statement method. C) gross method. D) balance sheet method. Answer: B Diff: 1 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued

9) Gross Accounts Receivable is $23,000. Allowance for Doubtful Accounts has a credit balance of $500. Net credit sales for the year are $140,000. In the past, 3% of net credit sales had proved uncollectible, and an aging of the receivables indicates $1700 is doubtful. Under the income statement approach, Bad Debts Expense for the year is: A) $2200. B) $4700. C) $4200. D) $1200. Answer: C Explanation: $140,000 × 3% = $4200 Diff: 2 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Describe and illustrate the allowance methods for accounting for bad debts 10) Gross Accounts Receivable is $21,000. Allowance for Doubtful Accounts has a credit balance of $600. Net credit sales for the year are $132,000. In the past, 3% of net credit sales had proved uncollectible, and an aging of the receivables indicates $1800 is doubtful. Under the balance sheet approach, Bad Debts Expense for the year is: A) $2400. B) $4560. C) $3960. D) $1200. Answer: D Diff: 2 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Describe and illustrate the allowance methods for accounting for bad debts 11) Milling Direct uses the aging of Accounts Receivable balance sheet approach to estimate uncollectible accounts. The total percentage of not yet due accounts deemed uncollectible are $930, 1-30 days past due accounts deemed uncollectible are $1210, and over 30 days past due accounts deemed uncollectible are $710. If the company has a credit balance in Allowance for Doubtful Accounts of $850, what is the bad debts expense adjusting entry amount? A) $2000 B) $2850 C) $850 D) $3700 Answer: A Explanation: $930 + $1210 + $710 - $850 = $2000 Diff: 2 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Describe and illustrate the allowance methods for accounting for bad debts

12) Milling Direct uses the aging of Accounts Receivable balance sheet approach to estimate uncollectible account. The total percentage of not yet due accounts deemed uncollectible are $1000, 1-30 days past due accounts deemed uncollectible are $1220, and over 30 days past due accounts deemed uncollectible are $730. If the company has a debit balance in Allowance for Doubtful Accounts of $800, what is the bad debts expense adjusting entry amount? A) $800 B) $2950 C) $3750 D) $2150 Answer: C Explanation: $1000 + $1220 + $730 + $800 = $3750 Diff: 2 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Describe and illustrate the allowance methods for accounting for bad debts 13) Aircraft Engine Parts' Allowance for Doubtful Accounts had an unadjusted credit balance of $680. The manager estimates that $700 of the Accounts Receivable is uncollectible. Using the balance sheet approach, the year-end adjusting entry for Bad Debts Expense: A) includes a debit to the Bad Debt Expense account for $20. B) includes a debit to the Bad Debts Expense account for $700. C) includes a credit to the Bad Debts Expense account for $1380. D) includes a credit to the Bad Debts Expense account for $20. Answer: A Diff: 2 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Describe and illustrate the allowance methods for accounting for bad debts 14) The balance in the Allowance for Doubtful Accounts is ignored under which of the following approaches? A) Balance sheet approach B) Income statement approach C) Aging of Accounts Receivable approach D) All three approaches Answer: B Diff: 2 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Describe and illustrate the allowance methods for accounting for bad debts

15) Using the aging method, estimated uncollectible accounts are $3200. If the balance of Allowance for Doubtful Accounts is $550 credit before adjustment, what is Bad Debts Expense for the period? A) $3750 B) $2650 C) $3200 D) $550 Answer: B Explanation: $3200 - $550 = $2650 Diff: 2 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Describe and illustrate the allowance methods for accounting for bad debts 16) Under the allowance method, when a year-end adjustment is made for estimated bad debts: A) net income is increased. B) liabilities increase. C) net assets increase. D) net assets decrease. Answer: D Diff: 3 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Describe and illustrate the allowance methods for accounting for bad debts 17) Canteen Depot estimated uncollectible accounts in the amount of $900 for the period. There is a credit balance in the allowance account of $400. Under the aging of receivables method, the entry to record bad debts expense is: A) debit Bad Debts Expense $500; credit Accounts Receivable $500. B) debit Allowance for Doubtful Accounts $900; credit Bad Debts Expense $900. C) debit Bad Debts Expense $500; credit Allowance for Doubtful Accounts $500. D) debit Allowance for Doubtful Accounts $900; credit Accounts Receivable $900. Answer: C Diff: 2 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 18) The journal entry to record the estimate of uncollectible accounts includes a: A) debit Bad Debts Expense; credit Allowance for Doubtful Accounts. B) debit Bad Debts Expense; credit Accounts Receivable. C) debit Allowance for Doubtful Accounts; credit Bad Debts Expense. D) debit Sales; credit Bad Debts Expense. Answer: A Diff: 2 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 14 Copyright © 2023 Pearson Education, Inc.

19) Last year, Plants Unlimited had net credit sales of $690,000 and it had uncollectible accounts of $37,000. The company uses the income statement approach to estimate bad debts. Based on last year, what would the percent of estimated uncollectible accounts be this year? (Round the final answer to two decimal places.) A) 7.09% B) 5.67% C) 5.36% D) 18.65% Answer: C Diff: 2 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Describe and illustrate the allowance methods for accounting for bad debts 20) Sigma reports net credit sales of $480,000. There is a credit balance of $1700 in the Allowance for Doubtful Accounts. Uncollectible accounts are estimated to be 4% of net credit sales. Under the income statement approach, the adjusting entry would require a debit to Bad Debts Expense for: (Round your calculations to the nearest whole dollar.) A) $17,500. B) $19,200. C) $19,132. D) some other number. Answer: B Explanation: $480,000 × 4% = $19,200 Diff: 2 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Describe and illustrate the allowance methods for accounting for bad debts 21) What general ledger account is debited to write off a customer's account as uncollectible if using the allowance method for uncollectible receivables? A) Bad Debts Expense B) Accounts Receivable C) Allowance for Doubtful Accounts D) Bad Debts Recovered Answer: C Diff: 1 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued

22) What general ledger account is credited to write off a customer's account as uncollectible if using the allowance method for uncollectible receivables? A) Accounts Receivable B) Allowance for Doubtful Accounts C) Bad Debts Expense D) Bad Debts Recovered Answer: A Diff: 1 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued 23) Jones Consulting estimates uncollectible accounts to be $820. There is a credit balance in the allowance account of $390. The adjusting entry amount under the aging of receivable balance sheet approach is: A) $390. B) $820. C) $430. D) $1210. Answer: C Diff: 2 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued 24) As the past due time increases for an account, the likelihood of collecting that account: A) usually goes down. B) usually goes up. C) Time does not affect collectibility. D) None of the above Answer: A Diff: 1 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued 25) June Cleary estimates uncollectible accounts to be $2300. There is a debit balance in the allowance account of $520. The adjusting entry amount under the aging of receivable balance sheet approach is: A) $2300. B) $520. C) $2820. D) $1780. Answer: C Diff: 2 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Describe how short-term investments are recognized and valued

26) A detailed analysis of Accounts Receivable to determine how long each account has been outstanding is called: A) aging the Accounts Receivable. B) aging the uncollectible accounts. C) analyzing the Accounts Receivable. D) taking a percentage of sales on account. Answer: A Diff: 1 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 27) Harp Brewing received a bankruptcy notice from their customer Jerry. If using an allowance method, the entry to write-off his balance of $1,300 would be: A) Bad Debts Expense 1,300 Allowance for Doubtful Accounts 1,300 B) Allowance for Doubtful Accounts Accounts Receivable, Jerry

1,300

C) Accounts Receivable, Jerry Bad Debts Expense

1,300

D) None of the above Answer: B Diff: 1 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Describe and illustrate the allowance methods for accounting for bad debts

28) Barry Waterhouse uses the aging of Accounts Receivable balance sheet approach to estimate uncollectible accounts. Not yet due accounts are $260,000, with an estimated uncollectible percentage of 1%. 1-30 days past due accounts are $38,000, with an estimated uncollectible percentage of 5%. Over 30 days past due accounts are $10,700, with an estimated uncollectible percentage of 12%. If the company has a credit balance in Allowance for Doubtful Accounts of $1000, what is the bad debts expense adjusting entry amount? (Round any intermediate calculations and your final answer to the nearest dollar.) A) $5784 B) $6784 C) $4784 D) $2184 Answer: C Explanation: (1% × $260,000) + (5% × $38,000) + (12% × $10,700) - $1000 = $4784 Diff: 3 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Describe and illustrate the allowance methods for accounting for bad debts 29) Barry Waterhouse uses the aging of Accounts Receivable balance sheet approach to estimate uncollectible accounts. Not yet due accounts are $470,000, with an estimated uncollectible percentage of 1.5%. 1-30 days past due accounts are $100,000, with an estimated uncollectible percentage of 3%. Over 30 days past due accounts are $3900 with an estimated uncollectible percentage of 10%. If the company has a debit balance in Allowance for Doubtful Accounts of $950, what is the bad debts expense adjusting entry amount? (Round any intermediate calculations and your final answer to the nearest dollar.) A) $10,440 B) $11,390 C) $9490 D) $2440 Answer: B Explanation: (1.5% × $470,000) + (3% × $100,000) + (10% × $3900) + $950 = $11,390 Diff: 3 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Describe and illustrate the allowance methods for accounting for bad debts 30) The income statement approach estimates a percentage of Accounts Receivable that is uncollectible. Answer: FALSE Diff: 1 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued

31) Under the balance sheet approach, bad debts expense is $1,500 if the estimated amount of uncollectible accounts is $1,000 and the Allowance for Doubtful Accounts has a debit balance of $500. Answer: TRUE Diff: 2 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued 32) Using the balance sheet approach, the balance in Allowance for Doubtful Accounts is taken into consideration when finding the adjustment for Bad Debt Expense. Answer: TRUE Diff: 1 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued 33) Using the income statement approach, the balance in Allowance for Doubtful Accounts is taken into consideration when finding the adjustment for Bad Debt Expense. Answer: FALSE Diff: 1 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued 34) Under the balance sheet approach, bad debts expense is $1,000 if the estimated amount of uncollectible accounts is $1,200 and the Allowance for Doubtful Accounts has a credit balance of $200. Answer: TRUE Diff: 2 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued 35) The aging of Accounts Receivable is a balance sheet approach. Answer: TRUE Diff: 1 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Describe and illustrate the allowance methods for accounting for bad debts 36) Companies that feel aging of Accounts Receivable is too time-consuming may estimate Bad Debts based on a percentage of total Accounts Receivable. Answer: TRUE Diff: 1 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued

37) Bad Debts Expense is recorded in the year the sale was earned when using the income statement approach. Answer: TRUE Diff: 1 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued 38) Determine the amount of the adjustment for bad debts given: Bad debts are estimated to be 11% of net credit sales. Accounts receivable balance Allowance for bad debts balance (debit) Net Credit Sales

$810,000 $1,900 $470,000

$ ________ Answer: $51,700 Explanation: $470,000 × 11% = $51,700 Diff: 1 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Describe and illustrate the allowance methods for accounting for bad debts 39) Determine the amount of the adjustment for bad debts given: Bad debts are estimated to be 3% of net credit sales. Accounts receivable balance Allowance for bad debts balance (credit) Net Credit Sales

$600,000 $200 $215,000

$ ________ Answer: $6,450 Explanation: $215,000 × 3% = $6,450 Diff: 1 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Describe and illustrate the allowance methods for accounting for bad debts

40) Determine the amount of the adjustment for bad debts given: Bad debts are estimated to be 6% of accounts receivable. Accounts receivable balance Allowance for bad debts, balance (debit) Net Sales

$85,000 $240 $750,000

$ ________ Answer: $5,340 Explanation: $85,000 × 6% = $5,100 + $240 = $5,340 Diff: 2 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Describe and illustrate the allowance methods for accounting for bad debts 41) Determine the amount of the adjustment for bad debts given: Bad debts are estimated to be 8% of accounts receivable. Accounts receivable balance Allowance for bad debts, balance (credit) Net Credit Sales

$97,000 $550 $660,000

$ ________ Answer: $7,210 Explanation: $97,000 × 8% = $7,760 - $550 = $7,210 Diff: 2 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Describe and illustrate the allowance methods for accounting for bad debts 42) Determine the amount of the adjustment for bad debts given: Bad debts are estimated to be 7% of accounts receivable. Accounts receivable balance Allowance for bad debts, balance Net Sales

$112,000 $0 $593,000

$ ________ Answer: $7,840 Explanation: $112,000 × 7% = $7,840 Diff: 2 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Describe and illustrate the allowance methods for accounting for bad debts

43) On December 31 of the current year, Balloon Buddies had a balance in Accounts Receivable of $39,000. Net credit sales for the year were $334,000. The Allowance for Doubtful Accounts has a credit balance of $700. Journalize the recording of the bad debts expense under the income statement approach if 2.5% of net credit sales is deemed uncollectible. Answer: Dec 31 Bad Debts Expense 8,350 Allowance for Doubtful Accounts 8,350 $334,000 × 2.5% = $8,350 Diff: 2 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 44) On December 31 of the current year, Balloon Buddies had a balance in Accounts Receivable of $39,000. Net credit sales for the year were $334,000. The Allowance for Doubtful Accounts has a debit balance of $700. Journalize the recording of the bad debts expense under the income statement approach if 1.4% of net credit sales is deemed uncollectible. Answer: Dec 31 Bad Debts Expense 4,676 Allowance for Doubtful Accounts 4,676 $334,000 x 1.4% = $4,676 Diff: 2 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 45) On December 31 of the current year, Balloon Buddies had a balance in Accounts Receivable of $39,000. Net credit sales for the year were $334,000. The Allowance for Doubtful Accounts has a credit balance of $700. Journalize the recording of the bad debts expense under the balance sheet approach if $1,360 is the estimated amount of uncollectible accounts. Answer: Dec 31 Bad Debts Expense 660 Allowance for Doubtful Accounts 660 $1,360 - $700 = $660 Diff: 2 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries

46) On December 31 of the current year, Balloon Buddies had a balance in Accounts Receivable of $39,000. Net credit sales for the year were $334,000. The Allowance for Doubtful Accounts has a debit balance of $700. Journalize the recording of the bad debts expense under the balance sheet approach if $1,360 is the estimated amount of uncollectible accounts. Answer: Dec 31 Bad Debts Expense 2,060 Allowance for Doubtful Accounts 2,060 $1,360 + $700 = $2,060 Diff: 2 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 47) Prepare the adjusting journal entry for Bad Debts Expense from the following information using the balance sheet approach. The Allowance for Doubtful Accounts has a debit balance of $4,000.

Answer: Bad Debts Expense Allowance for Doubtful Accounts

18,246 18,246

(1% × $30,400) + (3% × $20,600) + (20% × $15,000) + (58% × $17,800) + $4,000 = $18,246 Diff: 3 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 48) Prepare the adjusting journal entry for Bad Debts Expense from the following information using the balance sheet approach. The Allowance for Doubtful Accounts has a credit balance of $3,000.

Answer: Bad Debts Expense Allowance for Doubtful Accounts

11,246 11,246

(1% × $30,400) + (3% × $20,600) + (20% × $15,000) + (58% × $17,800) - $3,000 = $11,246 Diff: 3 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 23 Copyright © 2023 Pearson Education, Inc.

49) The Allowance for Doubtful Accounts has a credit balance of $5,000. Net credit sales for the year were $900,000. Four percent is the estimated uncollectible percent based on net credit sales. Calculate the amount of the adjustment, for the allowance for doubtful accounts, using the income statement approach. Amount of the adjustment ________ Answer: $36,000 Explanation: $900,000 × .04 = $36,000 Diff: 2 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Describe and illustrate the allowance methods for accounting for bad debts 50) The general ledger controlling account for Accounts Receivable shows a debit balance of $222,000. The Allowance for Doubtful Accounts has a credit balance of $7,320. An aging report of accounts receivable accounts resulted in an estimate of $42,000 of uncollectible accounts receivable. Calculate the amount of the adjustment, for the allowance for doubtful accounts, using the balance sheet approach. Amount of the adjustment ________ Answer: $34,680 Explanation: $42,000 - $7,320 = $34,680 Diff: 2 LO: 13-2 AACSB: Analytical Thinking Learning Outcome: Describe and illustrate the allowance methods for accounting for bad debts 51) Evaluate the differences of the effect on the financial statements between the income statement approach and the balance sheet approach for estimating bad debts expense on the financial statement presentation. Answer: The income statement approach places its major emphasis on the matching principle. This approach calculates the amount of bad debts expense for the year based on a percentage of net credit sales. The balance in Allowance for Doubtful Accounts is ignored. A carryover balance in the Allowance account represents a carryover of potential bad debts from prior years. The balance sheet approach places its major emphasis on values reported on the balance sheet and the principle of conservatism. It is assumed that the longer an account has been due and not paid, the more likely it is that it is not going to be paid. The estimated uncollectible accounts in the accounts receivable are estimated by an analysis of the accounts according to how many days they are past due and applying percentages based on previous loss or collection experience. To determine Bad Debts Expense, the estimated uncollectible accounts are adjusted for the current balance in the Allowance for Doubtful Accounts. As a result, this method results in a more precise estimate of the Allowance for Doubtful Accounts, and as a result, the net realizable value of Accounts Receivable. Diff: 3 LO: 13-2 AACSB: Written and Oral Communication Learning Outcome: Describe how receivables are recognized and valued

Learning Objective 13-3 1) When writing off a specific customer account using the allowance method: A) Allowance for Doubtful Accounts decreases and Bad Debts Expense increases. B) Bad Debts Expense increases and Accounts Receivable decreases. C) Accounts Receivable increases and Allowance for Doubtful Accounts increases. D) Allowance for Doubtful Accounts decreases and Accounts Receivable decreases. Answer: D Diff: 2 LO: 13-3 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued 2) The journal entry to write off an uncollectible account under the allowance method would include a credit to: A) Sales. B) Accounts Receivable. C) Allowance for Doubtful Accounts. D) Bad Debts Expense. Answer: B Diff: 2 LO: 13-3 AACSB: Analytical Thinking Learning Outcome: Describe and illustrate the allowance methods for accounting for bad debts 3) Town and Country Saddle learns the account receivable for a customer is uncollectible. The journal entry under the allowance method to write off an account is to: A) debit Allowance for Doubtful Accounts; credit Bad Debts Expense. B) debit Sales; credit Allowance for Doubtful Accounts. C) debit Bad Debts Expense; credit Accounts Receivable. D) debit Allowance for Doubtful Accounts; credit Accounts Receivable. Answer: D Diff: 2 LO: 13-3 AACSB: Analytical Thinking Learning Outcome: Describe and illustrate the allowance methods for accounting for bad debts

4) In what situation would the following journal entry appear on Arial Company's records? Arial Company uses the allowance method. Allowance for Doubtful Accounts Accounts Receivable, Ellen Gibbons

320 320

A) It is a reversing entry. B) The firm is writing off a specific account. C) The firm is making a collection of a previously written-off account. D) The firm is estimating its uncollectible accounts. Answer: B Diff: 2 LO: 13-3 AACSB: Analytical Thinking Learning Outcome: Describe and illustrate the allowance methods for accounting for bad debts 5) An entry reinstating an account that was previously written off under the allowance method would show a(n): A) decrease to Bad Debts Expense and a decrease to Accounts Receivable. B) increase to Accounts Receivable and a decrease to Allowance for Doubtful Accounts. C) increase to Accounts Receivable and an increase to Allowance for Doubtful Accounts. D) decrease to Bad Debts Expense and an increase to Allowance for Doubtful Accounts. Answer: C Diff: 2 LO: 13-3 AACSB: Analytical Thinking Learning Outcome: Describe how short-term investments are recognized and valued 6) The net realizable value of a company's Accounts Receivable is: A) increased at the time of a specific write-off of an account. B) decreased at the time of a specific write-off of an account. C) unchanged at the time of a specific write-off of an account. D) the guaranteed amount the company will collect from its customers. Answer: C Diff: 2 LO: 13-3 AACSB: Analytical Thinking Learning Outcome: Describe and illustrate the allowance methods for accounting for bad debts

7) A customer pays on a specific account that the company had previously written off as uncollectible. The journal entry to record the reinstatement under the allowance method includes a(n): A) decrease to Cash. B) decrease to Sales. C) increase to Allowance for Doubtful Accounts. D) decrease to Bad Debts Expense. Answer: C Diff: 2 LO: 13-3 AACSB: Analytical Thinking Learning Outcome: Describe and illustrate the allowance methods for accounting for bad debts 8) When a specific customer account is written off under the allowance method, Bad Debts Expense is: A) debited. B) not affected. C) credited. D) None of these answers is correct. Answer: B Diff: 1 LO: 13-3 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued 9) Ohio Company uses the Allowance Method. When Ohio writes off an uncollectible account, there is: A) an increase in Accounts Receivable. B) a decrease in Accounts Receivable. C) an increase in the Allowance Account. D) None of these answers is correct. Answer: B Diff: 1 LO: 13-3 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued 10) The direct write-off method prescribes that a previously written off account will be reinstated when the customer: A) sends the full amount to pay off the account. B) sends any amount to pay on their account. C) is declared bankrupt. D) None of the above Answer: B Diff: 1 LO: 13-3 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued

11) The two methods of accounting for uncollectible receivables are the direct write-off method and the: A) equity method. B) cash method. C) interest method. D) allowance method. Answer: D Diff: 1 LO: 13-3 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued 12) Ray Lumber Company collects $500 on an account that had been directly written off earlier in the same year in the amount of $1,000. The direct write-off method is used. The journal entry to record the reinstatement transaction would include a: A) $1,000 debit to Accounts Receivable. B) $500 debit to Accounts Receivable. C) $500 debit to Bad Debts Recovered. D) $1,000 debit to Bad Debts Expense. Answer: B Diff: 1 LO: 13-3 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued 13) In the direct write-off method, writing off an account causes: A) a decrease in expense and an increase in an asset. B) an increase in expense and a decrease in an asset. C) a decrease in the Allowance account and a decrease in expense. D) an increase in Accounts Receivable and a decrease to revenue. Answer: B Diff: 2 LO: 13-3 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued 14) Pittsburgh Tours collected $190 on an account that had been written off in the previous year. The direct write-off method was used. The journal entry to record the transaction would include: A) a debit to Allowance for Doubtful Accounts. B) a credit to Bad Debts Recovered. C) a debit to Bad Debts Recovered. D) a credit to Bad Debts Expense. Answer: B Diff: 2 LO: 13-3 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued

15) A company is not able to reasonably estimate its bad debts expense. The method it may use is: A) net realizable value method. B) direct write-off method. C) aging method. D) income statement method. Answer: B Diff: 1 LO: 13-3 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued 16) Molten Manufacturing collects $350 on an account that had been written off in the previous year in the amount of $630. The direct write-off method is used. The journal entry to record the transaction would include a: A) $350 credit to Bad Debts Expense. B) $350 credit to Bad Debts Recovered. C) $630 debit to Accounts Receivable. D) $630 credit to Accounts Receivable. Answer: B Diff: 1 LO: 13-3 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued 17) What would be the basis for the following entry on a firm's records? Bad Debt Expense 300 Allowance for Doubtful Accounts

300

A) The firm is using the direct write-off method. B) The firm is writing off an uncollectible account. C) The firm is using the allowance method for estimating bad debts. D) None of these answers is correct. Answer: C Diff: 2 LO: 13-3 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued

18) Sonny's Service Bureau is able to collect an amount previously written off last year under the direct write-off method. The journal entry will: A) decrease Bad Debts Expense. B) increase Bad Debts Recovered. C) decrease Loss on Bad Debts. D) decrease Cash. Answer: B Diff: 2 LO: 13-3 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued 19) If the direct write-off method is used, the debit account to write off an uncollectible account is: A) Accounts Receivable. B) Bad Debt Expense. C) Allowance for Doubtful Accounts. D) Sales. Answer: B Diff: 2 LO: 13-3 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued 20) Open Range Foods writes off a bad debt of $400 on a specific customer account. The journal entry for this transaction under the allowance method would include: A) a debit to Bad Debts Expense. B) a credit to Bad Debts Expense. C) a credit to Allowance for Doubtful Accounts. D) a debit to Allowance for Doubtful Accounts. Answer: D Diff: 1 LO: 13-3 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued 21) Open Range Foods writes off a bad debt of $400 on a specific customer account. The journal entry for this transaction under the direct write-off method would include: A) a credit to Allowance for Doubtful Accounts. B) a credit to Bad Debts Expense. C) a debit to Bad Debts Expense. D) a debit to Allowance for Doubtful Accounts. Answer: C Diff: 1 LO: 13-3 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued

22) To record receipt of money after an account has been written off in the previous year, using the direct write-off method you would need to: A) credit Sales. B) debit the allowance account. C) credit Bad Debts Recovered. D) credit Cash. Answer: C Diff: 2 LO: 13-3 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued 23) When an account receivable is written off as uncollectible using the direct write-off method, it increases Bad Debts Expense. Answer: TRUE Diff: 1 LO: 13-3 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued 24) Bad Debts Recovered is a revenue account usually reported in Other Income on the Income Statement. Answer: TRUE Diff: 1 LO: 13-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 25) If there were an uncollectible account write-off reversal in the same year as the write off, Bad Debts Recovered would be used rather than Bad Debts Expense. Answer: FALSE Diff: 1 LO: 13-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 26) When a specific account receivable is written off as uncollectible under the direct write off method, it decreases the Allowance for Doubtful Accounts. Answer: FALSE Diff: 1 LO: 13-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

27) Under the allowance method, the entry to record a specific uncollectible account write off is a debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable for the specific customer. Answer: TRUE Diff: 2 LO: 13-3 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued Use the account code numbers to identify how the following transactions would be journalized. [1] Accounts Receivable [2] Allowance for Doubtful Accounts [3] Cash [4] Bad Debts Recovered [5] Bad Debts Expense 28) Collect an account previously written off. The company uses the allowance method. What are two journal entries? Debit account ________ Credit account ________ Answer: debit 1, credit 2 debit 3, credit 1 Diff: 2 LO: 13-3 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued 29) Wrote off an account using the direct write off method. Debit account ________ Credit account ________ Answer: debit 5, credit 1 Diff: 2 LO: 13-3 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued 30) Record bad debt expense using the allowance method. Debit account ________ Credit account ________ Answer: debit 5, credit 2 Diff: 2 LO: 13-3 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued 31) Wrote off an account using the allowance method. Debit account ________ Credit account ________ Answer: debit 2, credit 1 Diff: 2 LO: 13-3 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued 32 Copyright © 2023 Pearson Education, Inc.

For each of the following, identify in column 1 the category to which the account belongs, in column 2 the normal balance for the account, in column 3 the financial statement that the account in which the account balance is reported, and in column 4 the account's nature. 32) Column 1

Column 2

Column 3

Column 4

Column 1

Column 2

Column 3

Column 4

Allowance for doubtful accounts Answer: Allowance for doubtful accounts

contra-asset

credit

balance sheet

permanent

Diff: 3 LO: 13-1, 13-2, 13-3 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued 33) Column 1

Column 2

Column 3

Column 4

Column 1

Column 2

Column 3

Column 4

Bad debts expense Answer: Bad debts expense

expense

debit

income statement temporary

Diff: 3 LO: 13-1, 13-2, 13-3 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued

34) Column 1

Column 2

Column 3

Column 4

Column 1

Column 2

Column 3

Column 4

Bad debts recovered Answer: Bad debts recovered

revenue

credit

income statement temporary

Diff: 3 LO: 13-1, 13-2, 13-3 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued 35) Army Supply uses the allowance method of accounting for uncollectible accounts. Record journal entries for the transactions listed below: April 2 April 12 April 17 Answer: April 2 April 12 April 17

Received $1,400 from Billie in payment of her $2,000 account. Wrote off the balance of Billie's account. Received $250 from Jason to pay off his account in full. Cash

1,400

Accounts Receivable, Billie Allowance for Doubtful Accounts Accounts Receivable, Billie Cash Accounts Receivable, Jason

1,400 600 600 250 250

Diff: 3 LO: 13-3 AACSB: Analytical Thinking Learning Outcome: Describe and illustrate the allowance methods for accounting for bad debts

36) Prepare general journal entries to record the following transactions for Elliott Consulting. (The company uses the income statement approach for recording bad debts expense.) 20X1 Dec. 31 Recorded Bad Debts Expense, $ 2,010 20X2 Jan. 9 Wrote off Summer's account as uncollectible, $435 Mar. 12 Wrote off Manny's account as uncollectible, $650 Jul. 8 Recovered $100 from Manny Aug. 19 Wrote off Jared's account as uncollectible, $215 Answer: 20X1 Dec. 31 Bad Debts Expense 2,010 Allowance for Doubtful Accounts 2,010 20X2 Jan. 9

Mar. 12

Jul. 8

Aug. 19

Allowance for Doubtful Accounts Accounts Receivable, Summer

435

Allowance for Doubtful Accounts Accounts Receivable, Manny

650

Accounts Receivable, Manny Allowance for Doubtful Accounts

100

Cash Accounts Receivable, Manny

100

Allowance for Doubtful Accounts Accounts Receivable, Jared

215

435

650

100

215

Diff: 3 LO: 13-3 AACSB: Analytical Thinking Learning Outcome: Describe and illustrate the allowance methods for accounting for bad debts

37) Prepare general journal entries to record the following transactions for the Smith Company. (The company uses the balance sheet approach for recording bad debts expense.) 20X1 Dec. 31 Recorded Bad Debts Expense, $900 20X2 Jan. 3 Wrote off Jal's account as uncollectible, $260 Mar. 4 Wrote off Hall's account as uncollectible, $95 Jul. 5 Recovered $55 from Hall Aug. 19 Wrote off M. Wilson's account as uncollectible, $50 Nov. 7 Recovered $45 from Jal Answer: 20X1 Dec. 31 Bad Debts Expense 900 Allowance for Doubtful Accounts 20X2 Jan. 3

Mar. 4

Jul. 5

Aug. 19

Nov. 7

Allowance for Doubtful Accounts Accounts Receivable, Jal

260

Allowance for Doubtful Accounts Accounts Receivable, Hall

Accounts Receivable, Hall Allowance for Doubtful Accounts

Cash Accounts Receivable, Hall

Allowance for Doubtful Accounts Accounts Receivable, M. Wilson

Accounts Receivable, Jal Allowance for Doubtful Accounts

Cash Accounts Receivable, Jal

900

260

Diff: 3 LO: 13-3 AACSB: Analytical Thinking Learning Outcome: Describe and illustrate the allowance methods for accounting for bad debts

38) Plumbing Unlimited uses the direct write-off method for uncollectible accounts. The company uses the perpetual inventory method. Record the following transactions in general journal form. Aug 15 Sept 15 Sept 30 Oct 15 Answer: Aug 15

Aug 15

Sept 15

Sold merchandise on account to Maureen Townsend for $3,500. The cost to Plumbing Unlimited for the merchandise is $1,000. Received $1,200 cash payment from Maureen Townsend on her account. Received $800 cash payment from Maureen Townsend on her account. Wrote off the balance due on Maureen's account as uncollectible. Accounts Receivable, Townsend Sales

3,500

Cost of Goods Sold Merchandise Inventory

1,000

Cash

1,200

3,500

1,000

Accounts Receivable, Townsend Sept 30

Cash

1,200 800

Accounts Receivable, Townsend Oct 15

Bad Debts Expense Accounts Receivable, Townsend

800 1,500 1,500

Diff: 3 LO: 13-3 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued

39) American Contractors uses the direct write-off method for uncollectible accounts. The company uses the perpetual inventory system. Record the following transactions in general journal form. Feb 11

Sold merchandise on account to Leslie Noonan for $8,400. The cost to American for the merchandise is $4,500. Mar 8 Received $2,650 cash payment from Leslie Noonan on her account. Apr 10 Wrote off the balance due on Leslie's account as uncollectible. May 3 Unexpectedly received $3,900 cash payment from Leslie Noonan on her account. Payment was received in the same period as the write off. Answer: Feb 11 Accounts Receivable, Noonan 8,400 Sales 8,400 Feb 11

Mar 8

Cost of Goods Sold Merchandise Inventory

4,500

Cash

2,650

4,500

Accounts Receivable, Noonan Apr 10

May 3

2,650

Bad Debts Expense Accounts Receivable, Noonan

5,750

Accounts Receivable, Noonan Bad Debt Expense

3,900

Cash

3,900 Accounts Receivable, Noonan

5,750

3,900

Diff: 3 LO: 13-3 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued

40) Describe and contrast the procedures for estimating uncollectible accounts under the (a) income statement approach, (b) the balance sheet approach, and (c) the direct write-off approach. Answer: (a) Under the income statement approach, bad debts expense is associated with the current year's sales. Based on the past several years, a company will calculate the average bad debts expense as a percent of net credit sales. It will then apply this percentage to the current year's sales to estimate its future bad debt losses. (b) Under the balance sheet approach, the firm uses accounts receivable on the balance sheet as its basis to estimate bad debts expense. It is assumed the longer an account has been due and not paid, the more likely it is that it is not going to be collected. The procedure includes preparing a schedule based on an analysis of Accounts Receivable according to how many days past due the accounts are. This is called aging the Accounts Receivable. A sliding scale of percentages, based on previous experience, is applied to the total amount of receivables due in each time period. The calculation then serves as the basis for the total amount required in the Allowance for Doubtful Accounts account. (c) Under the direct write-off approach, an account that is determined to be uncollectible is directly written off to the current year's Bad Debts Expense account without regard to when the original sale was made. Diff: 3 LO: 13-2, 13-3 AACSB: Written and Oral Communication Learning Outcome: Describe and illustrate the allowance methods for accounting for bad debts

College Accounting, 15e (Slater) Chapter 14 Notes Receivable and Notes Payable Learning Objective 14-1 1) A written promise to pay a certain sum of money to another person or company on a predetermined date is a(n): A) Accounts Payable. B) Note Payable. C) Accounts Receivable. D) Note Receivable. Answer: B Diff: 1 LO: 14-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 2) John borrowed $1,030 from Melanie. John promised in writing that he would repay the money to Melanie on April 21, 202X. At the time of the loan, Melanie records the transaction as a(n): A) Accounts Receivable. B) Accounts Payable. C) Note Receivable. D) Note Payable. Answer: C Diff: 1 LO: 14-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 3) An advantage of a promissory note receivable over an account receivable is that it: A) establishes formal proof against the borrower to establish a stronger legal claim. B) has a specified interest rate and maturity date. C) collects interest revenue from the borrower. D) All of these answers are correct. Answer: D Diff: 1 LO: 14-1 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued

4) A promissory note from the payee's point of view is a(n): A) Notes Receivable. B) Notes Payable. C) Accounts Receivable. D) Accounts Payable. Answer: A Diff: 1 LO: 14-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 5) The person or company promising to pay the note plus interest when it comes due is known as the A) drawee. B) creditor. C) maker. D) payee. Answer: C Diff: 1 LO: 14-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 6) Jane borrowed $1,000 from West Bank and signed a promissory note. West Bank is: A) the payee. B) the drawee. C) the drawer. D) the maker. Answer: A Diff: 1 LO: 14-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 7) Feinstein Analytics is borrowing $12,400 at 8% interest for one year. The $12,400 is the: A) principal. B) discounted amount. C) amount of interest. D) net amount. Answer: A Diff: 1 LO: 14-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

8) Interest due on a $19,000, 11%, 125-day note is: (Use a 360-day year. Do not round any intermediate calculations. Round your final answer to the nearest dollar.) A) $19,000. B) $19,726. C) $726. D) $2,090. Answer: C Explanation: $19,000 × 11% × 125/360 = $726 Diff: 1 LO: 14-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 9) Sarah borrowed $2,200 from Cassandra. Sarah promised in writing that she would repay the money to Cassandra on June 18, 202X. At the time of the loan, Sarah records the transaction as a(n): A) Accounts Receivable. B) Accounts Payable. C) Note Payable. D) Note Receivable. Answer: C Diff: 1 LO: 14-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 10) Interest due the first year on a $26,200, 11%, 5.5-year note is: (Do not round any intermediate calculations. Round your final answer to the nearest dollar.) A) $2,882. B) $42,051. C) $15,851. D) $26,200. Answer: A Explanation: $26,200 × 11% = $2,882 Diff: 1 LO: 14-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 11) The due date of a promissory note is known as the: A) discount date. B) issue date. C) interest note. D) maturity date. Answer: D Diff: 1 LO: 14-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 3 Copyright © 2023 Pearson Education, Inc.

12) The basic formula for calculating the interest on a note is: A) Interest = Principal × Rate × Time. B) Interest = (Principal × Rate) - Time. C) Interest = (Principal × Time) + Rate. D) Interest = Principal × Rate/ Time. Answer: A Diff: 1 LO: 14-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 13) The principal amount on a $1,800, 9%, 60-day promissory note is: (Do not round any intermediate calculations. Round your final answer to the nearest cent.) A) $27.00 B) $1,800 C) $162 D) $1,827.00 Answer: B Diff: 1 LO: 14-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 14) Principal refers to: A) the amount of interest to be paid. B) the original amount - the discount. C) the original amount loaned or borrowed. D) the maturity value. Answer: C Diff: 1 LO: 14-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 15) Interest calculated for one year on a $7,000, 8% promissory note is: A) $5.60. B) $560. C) $56. D) some other amount. Answer: B Explanation: $7,000 × 8% = $560 Diff: 1 LO: 14-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

16) Interest on a $3,000, 10% promissory note for six months is: A) $150. B) $15.00. C) $1,500. D) $1.50. Answer: A Explanation: $3,000 × 10% × 6/12 = $150 Diff: 1 LO: 14-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 17) Using a 360-day year, interest calculated for 90 days on a $4,000, 10% promissory note is: A) $100. B) $400. C) $300. D) some other amount. Answer: A Explanation: $4,000 × 10% × 90/360 = $100 Diff: 1 LO: 14-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 18) Given a 360-day year, the interest expense on a $9,000, 6%, 90-day promissory note payable is: (Do not round any intermediate calculations.) A) $135. B) $540. C) $405. D) some other amount. Answer: A Explanation: $9,000 × 6% × 90/360 = $135 Diff: 1 LO: 14-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

19) Interest due on a $18,000, 10%, 10-month note is: (Do not round any intermediate calculations. Round your final answer to the nearest dollar.) A) $1,500 B) $1,800 C) $19,500 D) $18,000 Answer: A Explanation: $18,000 × 10% ×10/12 = $1,500 Diff: 1 LO: 14-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 20) The maturity date for a 94-day note dated April 19 is: A) July 21. B) July 16. C) July 22. D) July 24. Answer: C Explanation: April 11 days + May 31 days + June 30 days + July 22 days = 94 days Diff: 2 LO: 14-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 21) The maturity date for a four-month note dated May 31 is: A) September 1. B) September 30. C) September 31. D) October 1. Answer: B Diff: 1 LO: 14-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 22) Interest due on a $3,000, 10%, 9-month note is: A) $225. B) $3,000. C) $3,225. D) $2,775. Answer: A Explanation: $3,000 × 10% × 9/12 = $225 Diff: 1 LO: 14-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 6 Copyright © 2023 Pearson Education, Inc.

23) The maturity date during a leap year for a 95-day note dated February 2 is: A) May 8. B) May 6. C) May 7. D) May 5. Answer: C Explanation: February 29 – 2 = 27 days + March 31 days + April 30 days + May 7 days = 95 days Diff: 1 LO: 14-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 24) In the interest calculation formula for notes, time is expressed: A) in days only. B) in years or fraction of a year. C) in months only. D) in years only. Answer: B Diff: 1 LO: 14-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 25) A $2,000, 5% note is dated July 6 and is due in 120 days. Using a 360-day year, the interest payment would be: (Do not round any intermediate calculations. Round your final answer to the nearest dollar.) A) $50. B) $100. C) $67. D) $33. Answer: D Explanation: $2,000 × 5% × 120/360 = $33 Diff: 1 LO: 14-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

26) Millionaires Bank accepts a promissory note for $6,000 from a customer on February 1, to be repaid in eight months plus 4% interest. The interest due on the note is: (Do not round any intermediate calculations. Round your final answer to the nearest dollar.) A) $160. B) $240. C) $80. D) $120. Answer: A Explanation: $6,000 × 4% × 8/12 = $160 Diff: 1 LO: 14-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 27) The formula for calculating interest on a note is: principal × rate × time. Answer: TRUE Diff: 1 LO: 14-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 28) A Notes Payable is a formal promise by a borrower to pay the payee a certain amount of money by a fixed, future date. Answer: TRUE Diff: 1 LO: 14-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 29) The maturity date of a 60-day note dated March 8 is May 8. Answer: FALSE Explanation: Maturity date is May 7. March has 23 days, April has 30 days and May has 7 days. Diff: 1 LO: 14-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 30) The interest payment for a $24,000, 84-day note at 8% interest is $24,448. Answer: FALSE Diff: 1 LO: 14-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

31) The payee is the party to whom the note is payable. Answer: TRUE Diff: 1 LO: 14-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 32) The due date of a promissory note is the maturity date. Answer: TRUE Diff: 1 LO: 14-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 33) A note is also called a promissory note. Answer: TRUE Diff: 1 LO: 14-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 34) The maker accepts payment on a note from a payee. Answer: FALSE Diff: 1 LO: 14-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 35) A 90-day note dated July 9 would be due on October 7. Answer: TRUE Diff: 1 LO: 14-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 36) Using a 360-day year, the interest payment for a $17,000, 67-day note at 10% interest is $316.39. Answer: TRUE Explanation: $17,000 × 10% × 67/360 = $316.39 Diff: 1 LO: 14-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

37) Calculate the simple interest for the following notes (using 360 days for a year): a) $13,500, 11%, 112 days b) $8,200, 6%, 5 months c) $19,250, 7.5%, 1 year Answer: a) $462 = $13,500 x 11% x 112/360 b) $205 = $8,200 x 6% x 5/12 c) $1,443.75 = $19,250 x 7.5% Diff: 2 LO: 14-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 38) Find the maturity dates for the following: a) A 95-day note dated February 18, no leap year. b) A 5-month note dated June 30. c) A 1-year note dated April 10, 2023. Answer: a) May 24 February 10 days + March 31 days + April 30 days + May 24 days = 95 days b) November 30 c) April 10, 2024 Diff: 2 LO: 14-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 39) On April 4, Noreen Cox negotiated a $14,000 bank loan for 240 days at an interest rate of 6%. Required (show your calculations): a) Determine the maturity date of the note. b) Calculate the amount of interest charged by the bank (using 360 days for a year). Answer: a) November 30 (April 26 days, May 31 days, June 30 days, July 31 days, August 31 days, September 30 days, October 31 days, November 30 days) b) $14,000 × .06 × 240/360 = $560 Diff: 3 LO: 14-1 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

40) Scott Moore is considering accepting a $10,000, 60-day, 12% promissory note from Cory Gregor to extend additional time to settle a past-due account. Discuss some of the reasons why Moore would accept a promissory note from Cory Gregor. Answer: a) To have a stronger legal claim for collecting the past-due account. In this case, the note acts as formal proof of the transaction. b) To collect a fee for the use of Moore's money over a period of time. The interest on the note will be $200. c) Moore has the option of discounting Cory Gregor's note at the bank for an earlier receipt of cash. Diff: 3 LO: 14-1 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued 41) Describe (a) the function of a promissory note and (b) explain its various parts and features. Answer: a) A promissory note is a written promise by a borrower to pay a certain sum of money to the lender at a fixed future date. b) 1. The amount borrowed is called the principal. 2. The interest rate is the percentage of interest charged for the use of money. It is the annual rate of interest. 3. The maturity date is the due date of the promissory note. 4. The maker is the one promising to pay the note. The maker must sign the note to make it valid. 5. The payee is the one to whom the note is payable. 6. The note must state that the maker promises to pay a certain sum to the payee on a certain determinable date. Diff: 2 LO: 14-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

Learning Objective 14-2 1) Additional time given to the payer to settle an account with issuance of a note, results in a transfer of: A) assets from Notes Receivable to Accounts Receivable. B) assets from Accounts Receivable to Notes Receivable. C) liabilities from Notes Payable to Accounts Payable. D) liabilities from Accounts Payable to Notes Payable. Answer: B Diff: 1 LO: 14-2 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued

2) A buyer pays a 3-month note in full on its maturity date. No interest has been accrued on the note. The buyer would record a: A) debit to Cash; credit to Interest Income; credit to Notes Receivable. B) debit to Interest Expense; credit to Cash; credit to Notes Payable. C) debit to Notes Receivable; credit to Cash; credit to Interest Income. D) debit to Interest Expense; debit to Notes Payable; credit to Cash. Answer: D Diff: 2 LO: 14-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 3) Martin Company needs additional time to pay its accounts payable to Boster Company. Martin makes a written promise to pay Boster the amount on a certain date. Martin records this transaction as follows: A) debit Notes Payable; credit Accounts Payable, Boster Company. B) debit Cash; credit Accounts Payable, Boster Company. C) debit Accounts Payable, Boster Company; credit Notes Payable. D) debit Notes Payable; credit Cash. Answer: C Diff: 2 LO: 14-2 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued 4) Brooke Company grants James Decorating additional time to pay its past due account. James makes a written promise to pay Brooke the past due amount on a certain date. Brooke Company records this transaction as follows: A) debit Notes Receivable; credit Accounts Receivable, James Decorating. B) debit Cash; credit Accounts Receivable, James Decorating. C) debit Accounts Receivable, James Decorating; credit Notes Receivable. D) debit Accounts Payable; credit Notes Payable. Answer: A Diff: 2 LO: 14-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 5) Jeff Company issues a promissory note to David Company to get extended time to pay an account payable. Jeff Company records this transaction as follows: A) debit Accounts Receivable, David Co.; credit Notes Receivable. B) debit Notes Receivable; credit Accounts Receivable, David Co. C) debit Notes Payable; credit Accounts Payable, David Co. D) debit Accounts Payable,David Co.; credit Notes Payable. Answer: D Diff: 2 LO: 14-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 12 Copyright © 2023 Pearson Education, Inc.

6) ______ is a current liability and ________ is a current asset on the balance sheet. A) Accounts Payable; Notes Payable B) Accounts Receivable; Notes Receivable C) Notes Payable; Notes Receivable D) Notes Receivable; Notes Payable Answer: C Diff: 1 LO: 14-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 7) Failure of a maker to pay the maturity value of a note when due is considered a(n): A) honored note. B) equipment exchange. C) default. D) None of the above. Answer: C Diff: 1 LO: 14-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 8) On April 3, Angel Express issued a 12%, 90-day, $7,000 promissory note. Angel Express should record the payment of the note on the maturity day as: (Use a 360-day year. Do not round any intermediate calculations. Round your final answers to the nearest dollar.) A) debit Notes Payable $7,210; credit Cash $7,210. B) debit Notes Payable $7,000; debit Interest Expense $210; credit Cash $7,210. C) debit Notes Payable $7,000; debit Interest Payable $210; credit Cash $7,210. D) debit Notes Payable $7,000; credit Cash $7,000. Answer: B Explanation: $7,000 × 12% × 90/360 = $210 Diff: 2 LO: 14-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

9) Straight Company sold merchandise to Cross Company and received a promissory note from Cross. Straight Company uses the perpetual inventory method. Straight should record the transaction as: A) debit Notes Receivable and credit Sales for the principal amount of the note; debit Cost of Goods Sold and credit Merchandise Inventory for the cost of the merchandise. B) debit Notes Receivable and credit Sales for the maturity value of the note; debit Cost of Goods Sold and credit Merchandise Inventory for the cost of the merchandise. C) debit Accounts Receivable and credit Sales for the maturity amount of the note; debit Cost of Goods Sold and credit Merchandise Inventory for the cost of the merchandise. D) debit Accounts Receivable and credit Sales for the principal amount of the note; debit Cost of Goods Sold and credit Merchandise Inventory for the cost of the merchandise. Answer: A Diff: 2 LO: 14-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 10) Tricia's Decor purchased merchandise from House Beautiful and issued a promissory note. Tricia should record the transaction as: A) debit Merchandise Inventory and credit Notes Payable for the principal amount of the note. B) debit Merchandise Inventory and credit Notes Payable for the maturity value of the note. C) debit Merchandise Inventory and credit Accounts Payable for the face amount of the note. D) debit Merchandise Inventory and credit Accounts Payable for the maturity value of the note. Answer: A Diff: 2 LO: 14-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 11) Barrel Enterprises was unable to collect a $2,700 note receivable plus $50 interest on the maturity date, but hoped to collect the amount in the future. Barrel Enterprises should record this event on the maturity date as: A) debit Bad Debts Expense $2,700; credit Notes Receivable $2,700. B) debit Allowance for Doubtful Accounts $2,750; credit Notes Receivable $2,750. C) debit Accounts Receivable $2,700; debit Interest Income $50; credit Cash $2,750. D) debit Accounts Receivable $2,750; credit Interest Income $50; credit Notes Receivable $2,700. Answer: D Diff: 2 LO: 14-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

12) A purchaser defaults on a note but pays the interest due. The purchaser gives a new note on the maturity date of the old note. The seller would: A) debit to Notes Receivable (new); debit to Notes Receivable (old); credit to Cash; credit to Interest Income. B) debit to Notes Receivable (old); debit to Cash; debit to Notes Receivable (new); credit to Interest Income. C) debit to Notes Receivable (new); debit to Cash; credit to Notes Receivable (old); credit to Interest Income. D) debit to Notes Receivable (old); debit to Interest Income; credit to Notes Receivable (new); credit to Cash. Answer: C Diff: 2 LO: 14-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 13) A buyer defaults on a note but pays the interest due on the note. The buyer also issues a new note on the maturity date of the original note. The buyer would: A) debit to Notes Payable (new); debit to Notes Payable (old); credit to Cash; credit to Interest Expense. B) debit to Notes Payable (old); debit to Cash; credit to Notes Payable (new); credit to Interest Expense. C) debit to Notes Payable (old); credit to Notes Payable (new); credit to Cash; credit to Interest Expense. D) debit to Notes Payable (old); debit to Interest Expense; credit to Cash; credit to Notes Payable (new). Answer: D Diff: 2 LO: 14-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 14) If a buyer pays off an interest-bearing note at maturity, Interest Income would increase for the buyer. Answer: FALSE Diff: 1 LO: 14-2 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued 15) To obtain an extension of time for the payment of an account, a customer may issue a note for any portion of the amount due. Answer: TRUE Diff: 1 LO: 14-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

16) When a buyer receives a time extension by giving the seller a note, Accounts Payable is debited for the buyer. Answer: TRUE Diff: 1 LO: 14-2 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued 17) When an account receivable is exchanged for a note receivable, a shift in liability occurs. Answer: FALSE Diff: 2 LO: 14-2 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued 18) A seller may accept a note from a buyer as a result of an exchange for an equipment sale. Answer: TRUE Diff: 1 LO: 14-2 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued 19) Prepare the journal entries for Shirts Plus for the following transactions: a) Shirts Plus sold $8,100 of merchandise to Beck Company on account. The cost of the sale to Shirts Plus is $4,500. The company uses the perpetual method. b) Shirts Plus received a 60-day, $8,100, 9% note for a time extension of past-due account of Beck Company. c) Collected Beck Company's note on the maturity date (calculate to the nearest cent using 360 days for a year). Answer: a) Accounts Receivable, Beck Co. 8,100 Sales 8,100 Cost of Goods Sold 4,500 Merchandise Inventory 4,500 b) Notes Receivable Accounts Receivable, Beck Co. c) Cash

8,100 8,100 8,221.50

Interest Income Notes Receivable

121.50 8,100

Interest Income = $8,100 × 9% × 60/360 = $121.50 Diff: 2 LO: 14-2 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued 16 Copyright © 2023 Pearson Education, Inc.

20) Prepare the journal entries for the following transactions for Dobson Industries Company. a) Dobson sold $8,000 of merchandise, with a cost of $4,000, to Bolt Imports Company on account. The company uses the perpetual inventory method. b) Dobson accepted a 90-day, 7% note from Bolt in settlement of its account. c) Bolt defaulted on its note on the maturity date. d) Collected the previously defaulted Bolt note plus $25 additional interest. Answer: a) Accounts Receivable, Bolt Imports Co. 8,000 Sales 8,000 Cost of Goods Sold 4,000 Merchandise Inventory 4,000 b) Notes Receivable Accounts Receivable, Bolt Imports Co.

8,000

c) Accounts Receivable, Bolt Imports Co. Interest Income Notes Receivable

8,140

d) Cash

8,165 Interest Income Accounts Receivable, Bolt Imports Co.

8,000

140 8,000

25 8,140

Diff: 3 LO: 14-2 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued

21) Prepare journal entries for the following transactions for Design Imports. a) Purchased $7,800 of merchandise (perpetual inventory method) from Serial Material Company on account. b) Gave Serial Material Company a 120-day, 5% note in settlement of the account payable. c) Design Imports defaulted on its note on the maturity date. d) Design Imports paid the previously defaulted note plus $115 additional interest. Answer: a) Merchandise Inventory 7,800 Accounts Payable, Serial Material Co. 7,800 b) Accounts Payable, Serial Material Co. Notes Payable

7,800

c) Notes Payable Interest Expense Accounts Payable, Serial Material Co.

7,800 130

d) Accounts Payable, Serial Material Co. Interest Expense Cash

7,930 115

7,800

7,930

8,045

Diff: 3 LO: 14-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 22) Prepare journal entries for the following transactions for Mission Company: June 1 Purchased equipment from Carry, Inc. for $9,400, giving a 3-month, 10% note Sept. 1 Paid amount due on note Answer: June 1 Equipment 9,400 Notes Payable 9,400 Sept. 1

Notes Payable Interest Expense Cash

9,400 235 9,635

Diff: 3 LO: 14-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

Learning Objective 14-3 1) The process of endorsing a note and transferring it to a financial institution before the maturity date is known as: A) dishonoring a note receivable. B) discounting a note receivable. C) cosigning a note receivable. D) collecting a note receivable. Answer: B Diff: 1 LO: 14-3 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued 2) When a note receivable is discounted, the business that endorses the note becomes potentially liable to the bank. This type of liability is called a: A) dependent liability. B) contingent liability. C) potential liability. D) conditional liability. Answer: B Diff: 1 LO: 14-3 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 3) A $2,800, 10% note dated March 20 for 85 days was discounted on May 9 at 12%. The number of days in the discount period (using a 365-day year) is: A) 50 days. B) 85 days. C) 35 days. D) some other number. Answer: C Explanation: Due date of note: May 31; Bank holds note May 2 to May 31, which is 29 days Diff: 2 LO: 14-3 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued

4) A $5,000, 10% note dated May 20 for 78 days was discounted on June 23 at 12%. The amount of the discount (using a 360-day year) is: (Do not round intermedieary calculations and round the final answers to the nearest cent.) A) $109.92. B) $131.59. C) $111.15. D) $74.92. Answer: D Explanation: Bank holds note 44 days (June 23 to August 6). Interest on note $5,000× 10% × 78/360 = $108.33; Bank discount fee = ($5,000 + $108.33) × 12% × 44/360 = $74.92 Diff: 2 LO: 14-3 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued 5) The proceeds from discounting a note receivable at the bank are the: A) principal + bank discount. B) maturity value - bank discount. C) principal - bank discount. D) maturity value minus principal. Answer: B Diff: 1 LO: 14-3 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued 6) The discount period on a discounted note is: A) the same as the original period of the note. B) the time between the original date and the discount date. C) the time between the discount date and the maturity date. D) the original note period minus 10 days. Answer: C Diff: 1 LO: 14-3 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued

7) The amount the bank charges when it discounts a note is calculated as: A) bank discount = note principal × bank discount rate × (discount period /360 days). B) bank discount = maturity value × bank discount rate × (original note period /360 days). C) bank discount = maturity value × bank discount rate + original interest rate × (discount period /360 days). D) bank discount = maturity value × bank discount rate × (discount period /360 days). Answer: D Diff: 1 LO: 14-3 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued 8) Canton Graphics issues a $29,000, 8%, 8-month note to Bowden Corporation. Interest on the note is _________ and the maturity value is __________. (Do not round intermedieary calculations and round the final answers to the nearest cent.) A) $1,547; $29,000 B) $1,547; $30,547 C) $30,547; $1,547 D) $29,000; $1,547 Answer: B Explanation: ($29,000 × 8% × 8/12) = $1,547 Interest; Maturity Value = $29,000 + $1,547 = $30,547 Diff: 2 LO: 14-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 9) Canton Graphics issues a $17,000, 11.5%, 2-year note to Bowden Corporation. Interest on the note is _________ and the maturity value is __________. A) $3,910; $20,910 B) $3,910; $17,000 C) $20,910; $3,910 D) $17,000; $3,910 Answer: A Explanation: Interest $17,000 × 11.5% × 2 = $3,910; Maturity Value = $3,910 + $17,000 = $20,910 Diff: 2 LO: 14-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

10) Marble Company discounts a customer's 10%, $5,000, 90-day note dated April 1, on May 16. The discount period is 45 days, and the bank discount rate is 15%. The maturity value of the note is $5,125. The bank discount is: (Use a 360-day year. Do not round any intermediate calculations. Round your final answer to the nearest dollar.) A) $16. B) $192. C) $96. D) $125. Answer: C Explanation: $10 × 15% × 45/360 = $96 Diff: 2 LO: 14-3 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued 11) Mountain Site discounts a customer's 10%, $1,000, 90-day note dated April 1, on May 16. The discount period is 45 days, and the bank discount rate is 16%. The maturity value of the note is $1,025. The bank discount is $21. The proceeds of the note are: A) $1,025. B) $1,004. C) $979. D) $1,000. Answer: B Explanation: $1,025 - $21 = $1,004 Diff: 2 LO: 14-3 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued 12) Ross, immediately after receiving a note from a customer, discounted it at the bank and received the proceeds. Ross's entry on his books would include a: A) credit to Cash. B) debit to Interest Income. C) credit to Notes Receivable. D) All of the above Answer: C Diff: 2 LO: 14-3 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued

13) Melon Industries issues a $24,000, 7%, 135-day note to Apple Communications. Interest on the note is _________ and the maturity value is __________. (Use a 360-day year. Do not round any intermediate calculations. Round your final answers to the nearest dollar.) A) $1,680; $25,680 B) $6,300; $30,300 C) $630; $24,630 D) $63; $24,063 Answer: C Explanation: Interest $24,000 × 7% × 135/360 = $630; Maturity Value = $24,000 + $630 = $24,063 Diff: 2 LO: 14-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 14) The maturity value of a $15,000, 7%, 9-month note is: A) $788. B) $15,000. C) $15,788. D) $14,212. Answer: C Explanation: Interest $15,000 × 7% × 9/12 = $788; Maturity Value $15,000 + $788 = $15,788 Diff: 1 LO: 14-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 15) Bill's Bikes discounts a customer's 90-day, 10%, $9,000 note at a bank at 12%. The discount period is 45 days. Bill's Bikes records the proceeds as: (Use a 360-day year. Do not round any intermediate calculations. Round your final answers to the nearest dollar.) A) debit Cash $9,087; credit Notes Receivable $9,000; credit Interest Income $87. B) debit Cash $9,495; credit Notes Receivable $9,225; credit Interest Income $270. C) debit Cash $9,138; credit Notes Receivable $9,000; credit Interest Income $138. D) debit Cash $9,087; credit Notes Receivable $9,000; credit Interest Expense $87. Answer: A Explanation: Maturity Value = $9,000 + ($9,000 × 10% × 90/360) = $9,225; Discount = $9,225 × 12% × 45/360 = $138; Proceeds = $9,225 - $138 = $9,087 Diff: 2 LO: 14-3 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued 16) The maturity value for a $10,000, 72-day note at 7% interest is $10,140. Answer: TRUE Explanation: Maturity Value = $10,000 + ($10,000 × 7% × 72/360) = $10,140 Diff: 1 LO: 14-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 23 Copyright © 2023 Pearson Education, Inc.

17) A $4,800, 10% note dated June 2 for 90 days was discounted on August 19 at 13%. The number of days in the discount period is 15 days. Answer: FALSE Explanation: Maturity date calculation: June 28 days, July 31 days, August 31 days; Maturity Date is August 31; Bank held note from August 19 to August 31, which is 12 days. Diff: 1 LO: 14-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 18) The discount period is the amount of time the bank holds a note that was discounted until the maturity date. Answer: TRUE Diff: 1 LO: 14-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 19) The journal entry to record the payment of a discounted note at maturity is a debit to Notes Payable and Interest Expense, and a credit to Cash. Answer: FALSE Diff: 2 LO: 14-3 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 20) The proceeds received from discounting a note could be more than the face value. Answer: TRUE Diff: 1 LO: 14-3 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 21) The maturity value for a $8,000, 81-day note at 10% interest is $180. Answer: FALSE Explanation: Maturity Value = $8,000 + ($8,000 x 10% x 81/360) = $8,180 Diff: 1 LO: 14-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

22) On June 1, Mike's Motorcycle Shop accepted a 90-day, 10%, $8,000 note for a customer from the sale of a motorcycle. The cost of the motorcycle was $6,000, and Mike’s Motorcycle Shop uses the perpetual inventory method. On July 21, after 50 days, Mike discounted the note at First Bank at 8%. Record the journal entries for Mike's Motorcycles (take calculations to the nearest cent). Answer: June 1 Notes Receivable 8,000 Sales 8,000 Cost of Goods Sold 6,000 Merchandise Inventory 6,000 July 21

Cash

8,127.11 Notes Receivable Interest Income

8,000.00 127.11

Interest: $8,000 × 10% × 90/360 = $200.00 Maturity Value: $8,000 + $200.00 = $8,200 Bank Discount: $8,200 × 8% × 40/360 = $72.89 Proceeds: $8,200 - $72.89 = $8,127.11 Diff: 2 LO: 14-3 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued 23) On June 1, Mike's Motorcycle Shop accepted a 90-day, 10%, $10,000 note from a customer from the sale of a motorcycle. On July 21, after 50 days, Mike discounted the note at First Bank at 8%. Take calculations to the nearest cent.) a. What is the amount of bank discount? b. What is the amount of proceeds received from the bank after the discounting process? Answer: a. $91.11 Interest: $10,000 × 10% × 90/360 = $250.00 Maturity Value: $10,000 + $250.00 = $10,250 Bank Discount: $10,250 × 8% × 40/360 = $91.11 b. $10,158.89 Proceeds: $10,250 - $91.11 = $10,158.89 Diff: 2 LO: 14-3 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued

Learning Objective 14-4 1) The adjusting entry for accrued interest on a notes receivable would include: A) a debit to Interest Income. B) a credit to Accrued Interest Receivable. C) a credit to Interest Income. D) a debit to Accrued Interest Payable. Answer: C Diff: 2 LO: 14-4 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 2) What is the adjustment to Interest Income on December 31 if Pristine Company (the holder of the note) receives a $26,000, 90-day, 10% note on December 10th from Elegant Company (debtor)? (Use a 360-day year. Do not round any intermediate calculations. Round your final answer to the nearest dollar.) A) $650 B) $2,600 C) $159 D) $152 Answer: D Explanation: $26,000 × 21/360 × 10% = $152 Diff: 2 LO: 14-4 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

3) What is the adjusting entry to record interest for Pristine Company (the holder of the note) as of December 31 if they receive a $29,000, 90-day, 11% note on December 10th from Elegant Company

(debtor)? (Use a 360-day year. Do not round any intermediate calculations. Round your final answer to the nearest dollar.) A) Debit to Interest Income of $186; credit to Interest Receivable of $186. B) Debit to Interest Expense of $798; credit to Interest Payable of $798. C) Debit to Interest Payable of $798; credit to Interest Expense of $798. D) Debit to Interest Receivable of $186; credit to Interest Income of $186. Answer: D Explanation: $29,000 × 11% × 21/360 = $186 Diff: 3 LO: 14-4 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

4) What is the adjusting entry to record interest for Elegant Company (the debtor) as of December 31 if Pristine Company (the holder of the note) receives a $22,000, 90-day, 12% note on December 10th from Elegant Company (debtor)? (Use a 360-day year. Do not round any intermediate calculations. Round your final answer to the nearest dollar.) A) Debit to Interest Income of $660; credit to Interest Receivable of $660. B) Debit to Interest Payable of $154; credit to Interest Expense of $154. C) Debit to Interest Expense of $154; credit to Interest Payable of $154. D) Debit to Interest Receivable of $660; credit to Interest Income of $660. Answer: C Explanation: $22,000 × 12% × 21/360 = $154 Diff: 3 LO: 14-4 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

5) What is the adjustment to Interest Expense on December 31 if Elegant Company (debtor) owes Pristine Company (the holder of the note) a $16,000, 60-day, 5% note on December 12th? (Use a 360-day year. Do not round any intermediate calculations. Round your final answers to the nearest dollar.) A) $800 B) $42 C) $133 D) $22 Answer: B Explanation: $16,000 × 5% × 19/360 = $42 Diff: 2 LO: 14-4 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

6) Aaron Company borrows $3,000 by giving the bank its own 10%, 90-day note. The bank discounts the interest. The effective interest rate is: (Use a 360-day year. Do not round any intermediate calculations. Round your final answer two decimal places, X.XX%.) A) 9.75%. B) 10.26%. C) 10.00%. D) 10.51%. Answer: B Explanation: Interest = (90/360) × 10% × $3,000 = ($3,000× 10%) / $2,925 = 10.26% Diff: 3 LO: 14-4 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

7) What is the holder of the note's entry to record the proceeds of a note received, with interest accrued in the previous year (assume there is no reversing entry)? A) Debit Cash; credit Interest Receivable; credit Notes Receivable; credit Interest Income B) Debit Notes Payable; debit Interest Expense; debit Interest Payable; credit Cash C) Debit Cash; debit Interest Expense; credit Notes Payable D) Debit Notes Receivable; debit Interest Income; credit Cash Answer: A Diff: 2 LO: 14-4 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 8) What is the debtor's entry to record a note paid, with interest accrued in the previous year (assume there is no reversing entry)? A) Debit Cash; credit Interest Receivable; credit Notes Receivable; credit Interest Income B) Debit Notes Payable; debit Interest Expense; debit Interest Payable; credit Cash C) Debit Cash; debit Interest Expense; credit Notes Payable D) Debit Notes Receivable; debit Interest Income; credit Cash Answer: B Diff: 2 LO: 14-4 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 9) To calculate an adjustment for interest accrued on a note payable during a period, a company needs to: A) calculate interest on the note. B) calculate the number of days the note has been outstanding until December 31. C) calculate interest incurred for the number of days the note has been outstanding until December 31. D) All of the above are correct. Answer: D Diff: 1 LO: 14-4 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 10) An adjustment to interest from a note payable, incurred during the period, but not paid or recorded, is called: A) Notes Payable. B) Accrued Interest Income. C) Accrued Interest Expense. D) Discount Payable Liability. Answer: C Diff: 1 LO: 14-4 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries

11) On December 8, Kerrin Company deducted $300 interest from a note payable, after discounting their own note payable at the bank. What adjusting entry should record the interest incurred at the end of December? A) Debit Interest Income; credit Discount on Notes Receivable B) Debit Interest Expense; credit Discount on Notes Payable C) Debit Interest Expense; credit Cash D) Debit Interest Income; credit Discount on Notes Payable Answer: B Diff: 2 LO: 14-4 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 12) Accrued interest on a note payable would: A) increase total liabilities. B) increase owner's equity. C) increase total assets. D) None of these answers is correct. Answer: A Diff: 2 LO: 14-4 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 13) What is the holder of the note's entry to record the collection of a note, with interest accrued in the previous year (assume there is a reversing entry)? A) Debit Cash; credit Interest Receivable; credit Notes Receivable; credit Interest Income B) Debit Notes Payable; debit Interest Expense; debit Interest Payable; credit Cash C) Debit Notes Payable; debit Interest Expense; credit Cash D) Debit Cash; credit Interest Income; credit Notes Receivable Answer: D Diff: 2 LO: 14-4 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 14) What is the debtor's entry to record the payment of a note, with interest accrued in the previous year (assume there is a reversing entry)? A) Debit Cash; credit Interest Receivable; credit Notes Receivable; credit Interest Income B) Debit Notes Payable; debit Interest Expense; debit Interest Payable; credit Cash C) Debit Cash; credit Interest Income; credit Notes Receivable D) Debit Notes Payable; debit Interest Expense; credit Cash Answer: D Diff: 2 LO: 14-4 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 29 Copyright © 2023 Pearson Education, Inc.

15) Julius Juices borrows $31,000 by giving the bank its own 10%, 120-day note. The bank discounts the interest. The effective interest rate is: (Use a 360-day year. Round any intermediate calculations to two decimal places. Round your final answer two decimal places, X.XX%.) A) 10.00%. B) 10.34%. C) 9.67%. D) 10.69%. Answer: B Explanation: Interest (120/360) × 10% × $31,000 = ($31,000 × 10%) / $29,967 = 10.34% Diff: 3 LO: 14-4 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 16) Paying the principal on a note plus interest would: A) increase total liabilities. B) decrease total assets. C) increase owner's equity. D) B and C could be correct. Answer: B Diff: 2 LO: 14-4 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 17) An adjustment that must be made for the accrued interest on a note receivable would include a: A) debit to Note Receivable. B) credit to Interest Receivable. C) debit to Interest Receivable. D) credit to Note Receivable. Answer: C Diff: 2 LO: 14-4 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 18) An adjustment that must be made for the accrued interest on a note payable would include a: A) credit to Interest Expense. B) debit to Interest Expense. C) debit to Interest Payable. D) credit to Notes Payable. Answer: B Diff: 2 LO: 14-4 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 30 Copyright © 2023 Pearson Education, Inc.

19) On November 6, an 10%, 90-day, $5,000 note was accepted by Carmen in exchange for merchandise sold. What entry does Carmen make on December 31 to recognize the interest? (Use a 360-day year. Do not round any intermediate calculations. Round your final answer to the nearest cent.) A) Debit Interest Income; credit Interest Receivable for $76.39 B) Debit Interest Receivable; credit Interest Income for $76.39 C) Debit Interest Receivable; credit Interest Income for $500.00 D) None of these answers is correct. Answer: B Explanation: $5,000 × 10% × 55/360 = $76.39 Diff: 2 LO: 14-4 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 20) Johnson issues a $2,000, 5%, 100-day promissory note to Adam on November 1. What is the adjusting entry made by Johnson on December 31 to recognize the interest (using a 360-day year)? (Do not round any intermediate calculations. Round your final answer to the nearest cent.) A) Debit Interest Expense; credit Interest Payable for $16.67 B) Debit Interest Expense; credit Interest Payable for $8.33 C) Debit Interest Receivable; credit Interest Income for $16.67 D) Debit Interest Receivable; credit Interest Income for $8.33 Answer: A Explanation: $5 × 2,000% × 60/360 = $16.67 Diff: 2 LO: 14-4 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 21) The journal entry for accrued interest on a note receivable includes: A) debiting Interest Income. B) debiting Interest Expense. C) crediting Interest Expense. D) crediting Interest Income. Answer: D Diff: 2 LO: 14-4 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

22) Delivery Plus discounts its own 120-day, 9%, $10,000 notes receivable. It records the proceeds as: (Use a 360-day year. Round any intermediate calculations and your final answer to the nearest dollar.) A) debit Cash $9,700; debit Discount on Notes Payable $300; credit Notes Payable $10,000. B) debit Cash $10,000; credit Discount on Notes Payable $300; credit Notes Payable $9,700. C) debit Cash $9,100; debit Discount on Notes Payable $900; credit Notes Payable $10,000. D) debit Cash $9,700; credit Notes Payable $9,700. Answer: A Explanation: Discount = (120/360) × 10,000 × 9% = $300 $10,000 - $300 = $9,700 cash received Diff: 2 LO: 14-4 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 23) For notes payable issued in one period and due in the next period, accrued interest payable must be recorded at the beginning of the next period. Answer: FALSE Diff: 2 LO: 14-4 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries 24) When a commercial bank discounts a note on the date of issue, the interest is deducted when the note matures. Answer: FALSE Diff: 1 LO: 14-4 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 25) Accrued Interest Expense adjusts for interest incurred during the period but has not been paid or recorded because payment is not yet due. Answer: TRUE Diff: 1 LO: 14-4 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 26) The nominal interest rate on a note is more than the effective interest rate on a company’s own discounted note payable. Answer: FALSE Diff: 2 LO: 14-4 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

Given the following accounts: [1] Cash [2] Notes receivable [3] Accounts receivable [4] Interest receivable [5] Notes payable [6] Accounts payable [7] Interest payable [8] Discount on notes payable [9] Interest expense [10] Interest income [11] Sales Indicate the account(s) to be debited and credited to record the following transactions. 27) Recording an adjusting entry for interest on the books of the seller (holder of the note). Debit ________ Credit ________ Answer: Debit 4, Credit 10 Diff: 2 LO: 14-2, 14-4 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 28) A promissory note received after granting a time extension to a customer who purchased merchandise on account. Debit ________ Credit ________ Answer: Debit 2, Credit 3 Diff: 2 LO: 14-2, 14-4 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 29) Paying the principal plus accrued interest on a note. Debit ________ & ________ Credit ________ Answer: Debit 5 & 7, Credit 1 Diff: 2 LO: 14-2, 14-4 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

30) Accrued interest on a note payable. Debit ________ Credit ________ Answer: Debit 9, Credit 7 Diff: 2 LO: 14-2, 14-4 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements For each of the following, identify in Column 1 the category to which the account belongs, in Column 2 the normal balance for the account, in Column 3 the financial statement that the account in which the account balance is reported, and in Column 4 the account's nature (temporary/permanent). 31) Column 1

Column 2

Column 3

Column 4

Column 1 Interest payable liability

Column 2 credit

Column 3 balance sheet

Column 4 permanent

Interest payable Answer:

Diff: 2 LO: 14-3, 14-4 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 32) Column 1

Column 2

Column 3

Column 4

Column 1

Column 2

Column 3

Column 4

Interest receivable Answer: Interest receivable

asset

debit

balance sheet

permanent

Diff: 2 LO: 14-3, 14-4 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

33) Column 1

Column 2

Column 3

Column 4

Column 1

Column 2

Column 3

Column 4

Discount on notes payable Answer: Discount on notes payable

contra-liability

debit

balance sheet

permanent

Diff: 2 LO: 14-3, 14-4 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 34) Column 1

Column 2

Column 3

Column 4

Column 1

Column 2

Column 3

Column 4

Merchandise Inventory Answer: Merchandise Inventory

asset

debit

balance sheet

permanent

Diff: 2 LO: 14-3, 14-4 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 35) Column 1

Column 2

Column 1 Interest expense expense

Column 2 debit

Column 3

Column 4

Interest expense Answer: Column 3 Column 4 income statement temporary

Diff: 2 LO: 14-3, 14-4 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

36) Column 1

Column 2

Column 3

Column 4

Column 1 liability

Column 2 credit

Column 3 balance sheet

Column 4 permanent

Notes payable Answer: Notes payable

Diff: 2 LO: 14-3, 14-4 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 37) Column 1

Column 2

Column 3

Column 4

Column 1

Column 2

Column 3

Column 4

Accounts receivable Answer: Accounts receivable

asset

debit

balance sheet

permanent

Diff: 2 LO: 14-3, 14-4 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 38) Column 1

Column 2

Column 1 revenue

Column 2 credit

Column 3

Column 4

Interest income Answer: Interest income

Column 3 Column 4 income statement temporary

Diff: 2 LO: 14-3, 14-4 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

39) Column 1

Column 2

Column 3

Column 4

Column 1 Notes receivable asset

Column 2 debit

Column 3 balance sheet

Column 4 permanent

Notes receivable Answer:

Diff: 2 LO: 14-3, 14-4 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 40) Column 1

Column 2

Column 3

Column 4

Column 1 asset

Column 2 debit

Column 3 balance sheet

Column 4 permanent

Cash Answer: Cash

Diff: 2 LO: 14-3, 14-4 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 41) Column 1

Column 2

Column 3

Column 4

Column 1

Column 2

Column 3

Column 4

Accounts payable Answer: Accounts payable

liability

credit

balance sheet

permanent

Diff: 2 LO: 14-3, 14-4 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

42) Why is it necessary to adjust Interest Expense and Interest Income? Answer: Because interest-bearing notes are often taken out and then paid off in different accounting periods. Interest is owed but not yet due in the period before payment. The interest liability needs to be recorded to update the records and correctly state the liabilities. Interest expense also needs to be recorded to correctly state expenses for the income statement. Adjusting entries for interest expense and interest revenue demonstrate accrual accounting. Diff: 2 LO: 14-4 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 43) Why is the effective rate of interest always higher than the stated interest rate on a note for a discounted note? Assume the note holder discounts their own note at the bank. Answer: The effective rate of interest is higher because the interest is based on the proceeds of the discounted note and not on the face value of the note. The proceeds are less than the face value of the note. So, if the denominator is smaller, the rate will be higher. Diff: 2 LO: 14-4 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 44) How would you compute the accrued interest expense on December 31 for a $3,600 note payable for 80 days at 12% interest dated November 10? (Use a 360-day year.) Answer: $3,600 × .12 × (51/360) = $61.20 Diff: 2 LO: 14-4 AACSB: Analytical Thinking Learning Outcome: Define and record adjusting entries

45) Bert Morrison negotiated a $40,000 bank loan for 180 days at a bank rate of 14%. The bank deducted the interest in advance. Assume a 360-day year. Required (show your calculations): a) Calculate the amount of interest charged by the bank. b) Calculate the amount of cash Bert received from the bank. c) Calculate the effective interest rate charged by the bank. d) Prepare Bert's journal entry for the transaction. Answer: a) $40,000 × .14 × 180/360 = $2,800 b) $40,000 - $2,800 = $37,200 c) ($40,000 × 0.14)/$37,200 = 15.05%. d) Cash 37,200 Discount on Note Payable 2,800 Notes Payable 40,000 Diff: 3 LO: 14-4 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities 46) Prepare general journal entries for the Bell Company for the following transactions: Mar. 31 Received a $30,000, 2-month, 11% note from Farming Consultant Service in settlement of its account. Apr. 30 Recorded the adjustment for interest. May. 31 Farming paid the note and interest at maturity. Answer: Mar 31 Notes Receivable 30,000 Accounts Receivable, Farming Consultant Service 30,000 Apr 30

May 31

Interest Receivable Interest Income

275 275

Cash

30,550 Interest Receivable Interest Income Notes Receivable

Diff: 3 LO: 14-4 AACSB: Analytical Thinking Learning Outcome: Describe how receivables are recognized and valued

275 275 30,000

47) Prepare general journal entries for Huckabee Corporation for the following transactions: 20X1 Dec.

1 Discounted its own $30,000, 4-month, 7% note at Colo Bank. 31 Recorded the interest expense on the discounted note.

20X2 Apr. 1 Paid the discounted note. Answer: 20X1 Dec. 1 Cash Discount on Notes Payable Notes Payable ($30,000 Dec. 31

20X2 Apr. 1

29,300 700 × 7% × 4/12 = $700)

Interest Expense Discount on Notes Payable ($700/4

Notes Payable Cash Interest Expense Discount on Notes Payable

30,000 175

= $175)

175

30,000

Diff: 3 LO: 14-4 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

30,000 525 525

College Accounting, 15e (Slater) Chapter 15 Accounting for Merchandise Inventory Learning Objective 15-1 1) In a perpetual inventory system: A) Merchandise Inventory is debited every time inventory is purchased. B) Cost of Goods Sold is credited every time inventory is sold. C) a physical inventory is never performed. D) All of the above. Answer: A Diff: 1 LO: 15-1 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 2) Under the perpetual system, when merchandise is sold, the journal entry or entries would include a: A) debit to Merchandise Inventory; a credit to Accounts Payable or Cash. B) debit to Cost of Goods Sold; a credit to Merchandise Inventory. C) debit to Accounts Receivable or Cash and a credit to Sales. D) Both B and C are correct. Answer: D Diff: 2 LO: 15-1 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 3) The journal entry to record the purchase of inventory under the perpetual system includes: A) a debit to Cost of Goods Sold and a credit to Merchandise Inventory. B) a debit to Merchandise Inventory and a credit to Accounts Payable or Cash. C) a debit to Accounts Receivable or Cash and a credit to Sales. D) Both A and C are correct. Answer: B Diff: 2 LO: 15-1 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 4) The journal entry to record a purchase of inventory on credit under the perpetual system includes: A) a credit to Merchandise Inventory. B) a debit to Cash. C) a credit to Accounts Payable. D) Both A and C are correct. Answer: C Diff: 2 LO: 15-1 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 1 Copyright © 2023 Pearson Education, Inc.

5) The journal entry to record the return of inventory under the periodic system includes a: A) debit to Sales. B) credit to Purchases Returns and Allowances. C) credit to Merchandise Inventory. D) credit to Sales. Answer: B Diff: 2 LO: 15-1 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 6) Which of the following would be used to record the payment for purchases under the periodic system? A) Debit to Accounts Payable B) Debit to Purchase Discounts C) Credit to Accounts Payable D) Debit to Cash Answer: A Diff: 2 LO: 15-1 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 7) Which of the following accounts is only used with a periodic inventory system? A) Sales B) Sales Discounts C) Purchases Returns and Allowances D) All of these answers are correct. Answer: C Diff: 2 LO: 15-1 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 8) Under the perpetual inventory system, which of the following accounts is debited with a merchandise purchase? A) Sales B) Purchases C) Purchase Returns and Allowances D) Merchandise Inventory Answer: D Diff: 2 LO: 15-1 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods

9) Sales Returns & Allowances is reported on the: A) Balance Sheet. B) Statement of owner's equity. C) Income Statement. D) None of these is correct. Answer: C Diff: 1 LO: 15-1 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 10) Merchandise Inventory is reported on the: A) Balance Sheet. B) Statement of owner's equity. C) Income Statement. D) None of these is correct. Answer: A Diff: 1 LO: 15-1 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 11) Under the perpetual inventory system, in addition to making the entry to record a return of goods from a customer, a company would: A) debit Merchandise Inventory and credit Cost of Goods Sold. B) debit Cost of Goods Sold and credit Merchandise Inventory. C) debit Sales and credit Cost of Goods Sold. D) debit Purchases and credit Cost of Goods Sold. Answer: A Diff: 2 LO: 15-1 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 12) A credit customer purchased $800 worth of items at retail value. Four days later, the customer returned $100 worth of those items at retail value. The entry or entries to record this under the perpetual inventory method would include: A) a debit to Sales Returns and Allowances $100. B) a credit to Merchandise Inventory at cost. C) a debit to Cost of Goods Sold at cost. D) a credit to Sales Returns and Allowances $100. Answer: A Diff: 2 LO: 15-1 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods

13) The perpetual inventory system is a system which: A) updates the Merchandise Inventory account only at the end of each accounting period. B) uses only the LIFO method. C) needs a physical inventory taken at least once a year. D) Both A and B are correct. Answer: C Diff: 1 LO: 15-1 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 14) The company returned $500 of damaged merchandise purchased on credit. The entry to record this under the periodic inventory system is: A) debit Cost of Goods Sold $500; credit Accounts Payable $500. B) debit Merchandise Inventory $500; credit Accounts Payable $500. C) debit Accounts Payable $500; credit Purchase Returns and Allowances $500. D) debit Accounts Payable $500; credit Merchandise Inventory $500. Answer: C Diff: 2 LO: 15-1 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 15) Which method keeps track of the amount and cost of merchandise inventory every time a unit is sold or purchased? A) A periodic inventory system B) A perpetual inventory system C) A retail inventory system D) All of the above are correct Answer: B Diff: 1 LO: 15-1 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 16) Mack Industries uses the perpetual inventory system. What is(are) the entry(ies) to record a $300 sale on account to customer Jake Sanders, with a $100 cost of sale? A) Debit Accounts Receivable, Sanders for $300; credit Sales for $300; debit Cost of Goods Sold for $100; credit Merchandise Inventory for $100. B) Debit Accounts Receivable, Sanders for $300; credit Sales for $300; debit Cost of Goods Sold for $300; credit Merchandise Inventory for $300. C) Debit Accounts Receivable, Sanders for $300; credit Sales for $300. D) Debit Sales for $300; credit Accounts Receivable, Sanders for $300. Answer: A Diff: 2 LO: 15-1 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 4 Copyright © 2023 Pearson Education, Inc.

17) Mack Industries uses the periodic inventory system. What is the entry to record a $300 sale on account to customer Jake Sanders, with a $100 cost of sale? A) Debit Accounts Receivable, Sanders for $300; credit Sales for $300; debit Cost of Goods Sold for $100; credit Merchandise Inventory for $100. B) Debit Accounts Receivable, Sanders for $100; credit Sales for $100; debit Cost of Goods Sold for $300; credit Merchandise Inventory for $300. C) Debit Sales for $300; credit Accounts Receivable, Sanders for $300. D) Debit Accounts Receivable, Sanders for $300; credit Sales for $300. Answer: D Diff: 2 LO: 15-1 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 18) Mack Industries uses the perpetual inventory system. What is the entry to record a $450 merchandise purchase on account from Nickel Corporation? A) Debit Accounts Payable, Nickel Corp. for $450; credit Sales for $450. B) Debit Purchases for $450; credit Accounts Payable, Nickel Corp. for $450. C) Debit Purchases for $450; credit Merchandise Inventory for $450. D) Debit Merchandise Inventory for $450; credit Accounts Payable, Nickel Corp. for $450. Answer: D Diff: 2 LO: 15-1 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 19) Mack Industries uses the periodic inventory system. What is the entry to record a $450 merchandise purchase on account from Nickel Corporation? A) Debit Accounts Payable, Nickel Corp. for $450; credit Sales for $450. B) Debit Purchases for $450; credit Accounts Payable, Nickel Corp. for $450. C) Debit Purchases for $450; credit Merchandise Inventory for $450. D) Debit Merchandise Inventory for $450; credit Accounts Payable, Nickel Corp. for $450. Answer: B Diff: 2 LO: 15-1 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods

20) Mack Industries uses the perpetual inventory system. What is(are) the entry(ies) to record $250 of returned merchandise, sold on account, with a cost of $100, from customer Jake Sanders? A) Debit Sales Returns & Allowances for $250; credit Accounts Receivable, Sanders for $250. B) Debit Sales Returns & Allowances for $250; credit Accounts Receivable, Sanders for $250; debit Purchases for $100; credit Purchase Returns & Allowances for $100. C) Debit Sales Returns & Allowances for $250; credit Accounts Receivable, Sanders for $250; debit Merchandise Inventory for $100; credit Cost of Goods Sold for $100. D) Debit Sales Returns & Allowances for $250; credit Cash for $100; credit Sales for $150. Answer: C Diff: 2 LO: 15-1 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 21) Mack Industries uses the periodic inventory system. What is the entry to record $250 of returned merchandise, sold on account, with a cost of $100, from customer Jake Sanders? A) Debit Sales Returns & Allowances for $250; credit Accounts Receivable, Sanders for $250; debit Merchandise Inventory for $100; credit Cost of Goods Sold for $100. B) Debit Sales Returns & Allowances for $250; credit Accounts Receivable, Sanders for $250; debit Purchases for $100; credit Purchase Returns & Allowances for $100. C) Debit Sales Returns & Allowances for $250; credit Cash for $100; credit Sales for $150. D) Debit Sales Returns & Allowances for $250; credit Accounts Receivable, Sanders for $250. Answer: D Diff: 2 LO: 15-1 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 22) When using a periodic inventory system, a physical inventory is required. Answer: TRUE Diff: 1 LO: 15-1 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 23) In a perpetual inventory system, Merchandise Inventory is credited when recording the cost of a sale. Answer: TRUE Diff: 1 LO: 15-1 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods

24) In a periodic inventory system, Purchases, Freight-In, and Purchase Returns and Allowances accounts are used. Answer: TRUE Diff: 1 LO: 15-1 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 25) In a perpetual inventory system, Sales Returns and Allowances is credited by the seller when a sales return occurs. Answer: FALSE Diff: 1 LO: 15-1 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 26) When merchandise is sold, the periodic inventory system requires a debit to Cost of Goods Sold and a credit to Merchandise Inventory. Answer: FALSE Diff: 1 LO: 15-1 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 27) Merchandise Inventory is a liability account. Answer: FALSE Diff: 1 LO: 15-1 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 28) Under a perpetual inventory system, inventory purchases are entered in the Merchandise Inventory account at cost. Answer: TRUE Diff: 1 LO: 15-1 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 29) Under the ________ inventory system, cost of goods sold and the amount of merchandise inventory on hand are updated only at the end of the accounting period. Answer: periodic Diff: 1 LO: 15-1 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods

30) Under the perpetual or periodic inventory system, customer merchandise returns are recorded to ___________ and Accounts Receivable (or Cash). Answer: Sales Returns & Allowances Diff: 1 LO: 15-1 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 31) Under the ________ inventory system, entries are made to the merchandise inventory or cost of goods sold account continuously during the year. Answer: perpetual Diff: 1 LO: 15-1 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 32) Under the _________ inventory system, every sale has a corresponding cost entry. Answer: perpetual Diff: 1 LO: 15-1 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 33) Under the periodic inventory method, when a purchase is made, the ________account is debited. Answer: Purchases Diff: 1 LO: 15-1 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods

Given the following accounts: [1] Cash [2] Accounts receivable [3] Merchandise inventory [4] Supplies [5] Accounts payable [6] Sales [7] Sales returns and allowances [8] Sales discounts [9] Cost of goods sold [10] Purchases [11] Purchase returns and allowances [12] Purchase discounts [13] Freight-in Indicate the account(s) to be debited and credited to record the following transactions. 34) Purchased merchandise on credit; terms of n/30. - Perpetual Debit ________ Credit ________ Answer: Debit 3, Credit 5 Diff: 2 LO: 15-1 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 35) Purchased merchandise on credit; terms of n/30. - Periodic Debit ________ Credit ________ Answer: Debit 10, Credit 5 Diff: 2 LO: 15-1 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 36) Paid for merchandise purchased on account with terms n/30. — Perpetual Debit ________ Credit ________ Answer: Debit 5, Credit 1 Diff: 2 LO: 15-1 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods

37) Sold merchandise in exchange for cash. - Periodic Debit ________ Credit ________ Answer: Debit 1, Credit 6 Diff: 2 LO: 15-1 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 38) Returned merchandise inventory for cash - Periodic Debit ________ Credit ________ Answer: Debit 1, Credit 11 Diff: 2 LO: 15-1 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 39) Paid for freight charges. — Perpetual Debit ________ Credit ________ Answer: Debit 3, Credit 1 Diff: 2 LO: 15-1 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 40) Paid for freight charges. — Periodic Debit ________ Credit ________ Answer: Debit 13, Credit 1 Diff: 2 LO: 15-1 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 41) Sold merchandise in exchange for cash. - Perpetual Debit ________ & ________ Credit ________ & ________ Answer: Debit 1 & 9, Credit 3 & 6 Diff: 2 LO: 15-1 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods

42) Customer returned goods purchased on credit - Periodic Debit ________ Credit ________ Answer: Debit 7, Credit 2 Diff: 2 LO: 15-1 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 43) Customer returned goods purchased on credit - Perpetual Debit ________ & ________ Credit ________ & ________ Answer: Debit 3 & 7, Credit 2 & 9 Diff: 2 LO: 15-1 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 44) Prepare journal entries for the following transactions for Mark Machine Parts applying the perpetual inventory system. Omit explanations. July 9 Purchased on account 4 tires for a total of $700. 11 Returned 1 tire for $175 credit. 15 Sold 2 tires for $1,500 cash, cost $350. 19 Paid the balance due on account. Answer: July 9 Merchandise Inventory 700 Accounts Payable 11

Accounts Payable Merchandise Inventory Cash

175 175 1,500

Sales 15

700

1,500

Cost of Goods Sold Merchandise Inventory

350

Accounts Payable Cash

525

350

525

Diff: 3 LO: 15-1 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods

45) Prepare journal entries for the following transactions for HO Train Shop applying the perpetual inventory system. Omit explanations. Nov. 2 Purchased on account 300 model engines for a total of $3,000. 12 Returned 30 engines for full credit. 19 Sold 40 of the engines to R. Holmes for a total of $800 cash. 25 Paid the balance due on the engines. Answer: Nov. 2 Merchandise Inventory 3,000 Accounts Payable 3,000 12

Accounts Payable Merchandise Inventory

300

Cash

800

300

Sales 19

800

Cost of Goods Sold Merchandise Inventory Accounts Payable Cash

400 400 2,700 2,700

Diff: 3 LO: 15-1 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods

46) Journalize the following assuming periodic inventory system. June 20 Made purchases of inventory for $4,500 on account. June 21 Made sales of $3,500 cash and $2,500 credit. June 22 We returned $2,000 of purchases for defects. Answer: June 20 Purchases 4,500 Accounts Payable 4,500 June 21 Cash Accounts Receivable Sales

3,500 2,500

June 22 Accounts Payable Purchase Returns and Allowances

2,000

6,000

2,000

Diff: 3 LO: 15-1 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods

47) The following transactions took place during August of the current year for Roadhouse School Supplies. August 6 August 8 August 12 August 17 August 21

Purchased merchandise on account from Abe's Papermill for $10,000. Paid freight charges of $600 on merchandise purchased on the 6th.

Sold merchandise on account to Johnson Elementary for $2,500. The cost of the merchandise was $500. Received a credit memo from Abe's Papermill for merchandise returned, $1,000 Issued a credit memo to Johnson Elementary for merchandise returned, $400. The cost of the merchandise is $150.

Journalize the above transactions using the periodic inventory system. Answer: Aug 6 Purchases 10,000 Accounts Payable, Abe’s Papermill Aug 8 Freight-In Cash

10,000

600 600

Aug 12 Accounts Receivable, Johnson Elementary Sales

2,500

Aug 17 Accounts Payable, Abe’s Papermill Purchase Returns and Allowances

1,000

Aug 21 Sales Returns and Allowance Accounts Receivable, Johnson Elementary

2,500

1,000 400

Diff: 3 LO: 15-1 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods

400

48) Joe owns an auto parts store called Joe's Auto Care. The following transactions took place during July of the current year. July 8 July 10 July 12 July 16 July 22

Purchased merchandise on account from Wheeler Auto for $6,000 Paid freight charges of $400 on merchandise purchases on the 8th.

Sold merchandise on account to Lancaster Auto Sales for $5,500. The cost of the merchandise was $3,500 Received a credit memo from Wheeler for merchandise returned, $900 Issued a credit memo to Lancaster Auto Sales for merchandise returned, $1,000. The cost of the merchandise is $550.

Journalize the above transactions using the perpetual inventory system. Answer: July 8 Merchandise Inventory 6,000 Accounts Payable, Wheeler Auto July 10 Merchandise Inventory Cash

6,000

400 400

July 12 Accounts Receivable, Lancaster Auto Sales Sales Cost of Goods Sold Merchandise Inventory July 16 Accounts Payable, Wheeler Auto Merchandise Inventory July 22 Sales Returns and Allowances Accounts Receivable, Lancaster Auto Sales Merchandise Inventory Cost of Goods Sold

5,500 5,500 3,500 3,500 900 900 1,000 1,000 550

Diff: 3 LO: 15-1 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods

550

Learning Objective 15-2 1) Individual inventory items are tracked in the: A) accounts receivable ledger. B) purchases journal C) accounts payable ledger. D) subsidiary ledger for inventory. Answer: D Diff: 1 LO: 15-2 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 2) When there is more than one product in inventory: A) only one inventory record is used to track both inventory items. B) a separate inventory record tracks each individual product. C) the Merchandise Inventory ledger is not updated. D) the Accounts Payable will be less than the subsidiary ledger. Answer: B Diff: 1 LO: 15-2 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 3) A purchases journal may be used to track inventory. Answer: FALSE Diff: 1 LO: 15-2 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 4) The controlling account for Merchandise Inventory is not used to track details about the quantities and costs of merchandise inventory. Answer: TRUE Diff: 1 LO: 15-2 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods

5) From the following transactions, complete a subsidiary ledger for Product A and Product B using the perpetual system. Also, calculate the ending balance in the Merchandise Inventory account. Use the letter indicated for the transaction as the date. a. Bought 10 of Product A at $5 each. b. Sold 6 of Product A for $7 each. c. Bought 6 of Product A at $5 each. d. Bought 11 of Product B at $3 each. e. Sold 5 of Product A at $7 each f. Sold 7 of Product B at $6 each. Answer: Product A Date Purchases Sold a 10 @ $5 b 6 @ $5 c 6 @ $5 e 5 @ $5

Date d f

Product B Purchases 11 @ $3

Sold 7 @ $3

Balance $50 $20 $50 $25

Balance $33 $12

Ending Merchandise Inventory is $25 + $12 = $37 Diff: 3 LO: 15-2 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods

Learning Objective 15-3 1) The weighted-average method: A) calculates an average unit cost by dividing the total cost of goods sold by the total units sold. B) calculates an average unit cost by dividing the total cost of goods available for sale by the total units of goods available for sale. C) calculates an average unit cost by adding the total cost of goods available for sale to the total units of goods available for sale. D) None of these answers is correct. Answer: B Diff: 1 LO: 15-3 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods

2) A disadvantage of the LIFO method is that: A) it doesn't match physical flow of goods. B) ending inventory is valued at very old costs. C) it matches current selling prices and current costs. D) Both A and B are correct. Answer: D Diff: 2 LO: 15-3 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 3) This method assumes that the oldest goods are sold first. A) LIFO B) FIFO C) Specific invoice method D) Weighted-average method Answer: B Diff: 1 LO: 15-3 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 4) The inventory method where the cost of ending inventory is assigned by identifying each item in ending inventory and finding the original purchase price is: A) LIFO. B) specific invoice. C) weighted-average. D) FIFO. Answer: B Diff: 1 LO: 15-3 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 5) The inventory method that matches most recently acquired costs with current selling prices is: A) LIFO. B) FIFO. C) weighted-average. D) specific invoice. Answer: A Diff: 1 LO: 15-3 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods

6) An advantage of the weighted-average method is that: A) it assigns an equal cost to each unit so net income does not fluctuate as much as with other methods. B) it takes into account the number of units purchased at each cost amount, not a simple average cost. C) it matches current selling prices and current costs. D) Both A and B are correct. Answer: D Diff: 1 LO: 15-3 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 7) A disadvantage of the FIFO method is that: A) recent sales are not matched with recent costs. B) the cost flow tends to follow the physical flow. C) the figure for ending inventory is made up of current costs on the income statement. D) None of the above is correct. Answer: A Diff: 1 LO: 15-3 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 8) Which of the following should be included in the ending inventory: A) goods purchased in transit F.O.B. shipping point. B) merchandise held on consignment for the consignor. C) damaged or obsolete merchandise on hand. D) All of the above should be included in the inventory. Answer: A Diff: 1 LO: 15-3 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 9) A disadvantage of the weighted-average method is that: A) current prices have no more significance than prices of goods bought a month earlier. B) net income will not fluctuate as much as with other methods. C) it takes into account the number of units purchased at each cost amount, not a simple average cost. D) All of the above is correct. Answer: A Diff: 1 LO: 15-3 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods

10) An advantage of the specific invoice method is that: A) costs are matched with the sales they helped to produce. B) it is simple to use if company has small amounts of high-cost goods. C) flow of goods and flow of costs are the same. D) All of the above are correct. Answer: D Diff: 2 LO: 15-3 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 11) The principle of consistency states that: A) changes in accounting methods should occur from one fiscal period to the next. B) a company cannot change from one inventory valuation method to another. C) a company should switch from LIFO to FIFO every other period. D) by using the same inventory method from one fiscal period to another, the financial statements are more meaningful. Answer: D Diff: 1 LO: 15-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 12) The full disclosure principle says that if a change is made to the inventory valuation method, the company should: A) disclose the change. B) show the effects of the change on profit and inventory valuation. C) show justification for the change in a footnote on the financial reports. D) All of these answers are correct. Answer: D Diff: 1 LO: 15-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 13) An advantage of the FIFO method is that: A) the figure for ending inventory is made up of current costs on the balance sheet. B) the cost flow tends to follow the physical flow. C) it matches current selling prices and current costs. D) Both A and B are correct. Answer: D Diff: 1 LO: 15-3 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods

14) Which of the following items should NOT be included in merchandise inventory? A) Goods that are damaged or obsolete B) Goods that are purchased in transit, F.O.B. shipping point. C) Merchandise out on consignment, at the consignee’s place of business. D) All of the above are included in inventory. Answer: A Diff: 1 LO: 15-3 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 15) Barry's Books uses a periodic inventory system. Barry's Books sold 40 copies of Helpful Hints during September. Other data for September include: Sep. 1 8 17 25

Balance Purchased Purchased Purchased

10 books @ $19 15 books @ $22 20 books @ $28 20 books @ $27

Ending inventory under the FIFO method is: A) $475. B) $520. C) $680. D) $675. Answer: C Explanation: (20 × $27) + (5 × $28) = $680 Diff: 2 LO: 15-3 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods

16) Barry's Books uses a periodic inventory system. Barry's Books sold 40 copies of Helpful Hints during September. Other data for September include: Sep. 1 8 17 25

Balance Purchased Purchased Purchased

10 books @ $21 15 books @ $22 20 books @ $29 20 books @ $27

Cost of goods sold under the FIFO method is: A) $840. B) $975. C) $1660. D) some other number. Answer: B Explanation: (10 × $21) + (15 × $22) + (15 × $29) = $975 Diff: 2 LO: 15-3 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 17) Prescott Plates uses a periodic inventory system. Prescott sold 35 dining sets during September. Other data for September include: Sep. 1 6 12

Balance Purchased Purchased

12 @ $230 19 @ $270 20 @ $360

Prescott sold 10 units from the Sept 1 balance, 15 from the Sept 6 purchase, and 10 from the Sept 12 purchase. Cost of Goods Sold under the Specific Invoice method is: A) $5140. B) $9950. C) $9330. D) $11,250. Answer: B Explanation: (10 × $230) + (15 × $270) + (10 × $360) = $9950 Diff: 2 LO: 15-3 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods

18) Lois's Furniture uses a periodic inventory system. Lois sold 60 tables during August. Other data for August include: Aug. 1 9 18

Balance Purchased Purchased

10 @ $150 22 @ $160 30 @ $200

Cost of Goods Sold under the LIFO method is: A) $10,720. B) $6000. C) $10,620. D) $5600. Answer: A Explanation: (8 × $150) + (22 × $160) + (30 × $200) = $10,720 Diff: 2 LO: 15-3 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 19) Prescott Plates uses a periodic inventory system. Prescott sold 35 dining sets during September. Other data for September include: Sept. 1 6 12

Balance Purchased Purchased

12 @ $310 19 @ $350 20 @ $380

Prescott sold 10 units from the Sept 1 balance, 15 from the Sept 6 purchase, and 10 from the Sept 12 purchase. Ending Inventory under the Specific Invoice method is: A) $12,150. B) $6080. C) $5820. D) $5120. Answer: C Explanation: (2 × $310) + (4 × $350) + (10 × $380) = $5820 Diff: 2 LO: 15-3 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods

20) Shayla's Design uses a periodic inventory system. Shayla sold 33 artist kits during January. Other data for January include: Jan.

1 11 25

Balance Purchased Purchased

12 kits @ $31 20 kits @ $34 26 kits @ $42

Cost of Goods Sold under the LIFO method is: A) $1330. B) $1094. C) $1050. D) $814. Answer: A Explanation: (26 × $42) + (7 × $34) = $1330 Diff: 2 LO: 15-3 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 21) Sterling Supply uses a periodic inventory system. Sterling Supply sold 35 globes during March. Other data for March include: Mar. 1 11 25

Balance Purchased Purchased

20 @ $12 15 @ $19 30 @ $9

Round per unit cost to two decimal places. Ending inventory under the weighted-average method is: A) $367. B) $270. C) $428. D) $525. Answer: A Explanation: 65 available — 35 sold = 30 left; (20 × $12) + (15 × $19) + (30 × $9) = $775; Wtd. Average cost /65 = $12.23 per unit; Ending Inventory $12.23 × 30 = $367 Diff: 2 LO: 15-3 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods

22) Lois's Furniture uses a periodic inventory system. Lois sold 45 tables during August. Other data for August include: Aug. 1 9 18

Balance Purchased Purchased

10 @ $140 22 @ $180 30 @ $90

Ending inventory under the LIFO method is: A) $6530. B) $5400. C) $2660. D) $1530. Answer: C Explanation: 62 units — 45 units = 17 units in Ending Inventory; (10 × $140) + (7 × $180 = $2660 Diff: 2 LO: 15-3 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 23) Hall Novelty Shop uses a periodic inventory system. It sold 85 balloons during April. Other data for April include: Apr. 1 11 25

Balance Purchased Purchased

45 @ $2 50 @ $7 30 @ $9

Cost of goods sold under the weighted-average method (rounded to the nearest dollar) is: A) $227. B) $710. C) $483. D) $170. Answer: C Explanation: Cost of goods available for sale = (45 × $2) + (50 × $7) + (30 × $9) = Wtd. average cost per unit / 125 = $5.68; Cost of goods sold = $5.68 × 85 = $483 Diff: 2 LO: 15-3 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods

24) Goods that are consigned to another party: A) belong to the other party because title has passed. B) belong to the company that has consigned them, the consignor. C) belong to the consignee. D) Both B and C are correct. Answer: B Diff: 1 LO: 15-3 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 25) Which of the following should be included in inventory costs? A) Goods that are not resalable B) Goods held on consignment on behalf of consignor C) Goods for sale at a value that is greater than cost D) Both A and B are correct. Answer: C Diff: 1 LO: 15-3 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 26) The inventory method where unit cost is found by dividing the cost of goods available for sale by the total number of units for sale is: A) LIFO. B) specific invoice. C) FIFO. D) weighted-average. Answer: D Diff: 1 LO: 15-3 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 27) Which of the following goods should Blake Company include in its December 31, 2023, count? A) Goods held on consignment for Goodson Automotive B) Goods sold to Denning, F.O.B. destination, and arrival date scheduled for February 10, 2024 C) Goods in transit purchased F.O.B. destination D) Goods that are not salable Answer: B Diff: 2 LO: 15-3 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods

28) The inventory method where items in the ending inventory will be valued at the costs shown on the most recent invoices is: A) LIFO. B) specific invoice. C) FIFO. D) weighted-average. Answer: C Diff: 1 LO: 15-3 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 29) Which is NOT a good reason to use the specific invoice method? A) The flow of goods and flow of cost are the same. B) It can be used with goods with large sales volume. C) It is simple to use if there is a small amount of high-cost ,unique goods. D) Costs are matched with the sales they helped to produce. Answer: B Diff: 1 LO: 15-3 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 30) Under the specific invoice method, actual costs are matched with individual sale items. Answer: TRUE Diff: 1 LO: 15-3 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 31) The first-in-first-out method assumes the oldest goods are sold first. Answer: TRUE Diff: 1 LO: 15-3 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 32) The weighted-average method assumes each item is assigned a different unit cost. Answer: FALSE Diff: 1 LO: 15-3 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods

33) LIFO reflects the oldest costs for inventory on the balance sheet. Answer: TRUE Diff: 1 LO: 15-3 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 34) LIFO provides an up-to-date ending inventory on the balance sheet because it uses the latest purchases to calculate ending inventory. Answer: FALSE Diff: 1 LO: 15-3 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 35) A company should use the specific invoice method to value items that are in large quantities and are low-cost goods. Answer: FALSE Diff: 1 LO: 15-3 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 36) In assigning a cost to ending inventory, the cost flow has to follow the physical flow. Answer: FALSE Diff: 1 LO: 15-3 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 37) If a change is made in the inventory valuation method used by a company, no disclosure is necessary. Answer: FALSE Diff: 1 LO: 15-3 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 38) The ________ is the one who consigns and owns the merchandise. Answer: consignor Diff: 1 LO: 15-3 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods

39) The _________ method assumes the goods purchased first are sold first. Answer: FIFO Diff: 1 LO: 15-3 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 40) Items that are very similar, such as grains and fuels, would be costed using the ________ system of inventory valuation. Answer: weighted-average Diff: 1 LO: 15-3 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 41) A beginning inventory and purchases of computer parts follow: Beginning inventory First purchase Second purchase

30 @ $4 16 @ $7 25 @ $12

The company sold 20 units from beginning inventory, 5 units from the first purchase, and 18 units from the second purchase. Required: Determine the (a) cost of an ending inventory and (b) Cost of Goods Sold under the specific invoice method. Round to two decimal places if required. Answer: a) Ending Inventory: (10 × $4) + (11 × $7) + (7 × $12) = $201 b) COGS: (20 × $4) + (5 × $7) + (18 × $12) = $331 Diff: 2 LO: 15-3 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods

42) A beginning inventory and purchases of desks follow: Beginning inventory First purchase Second purchase

15 @ $10 22 @ $17 27 @ $23

The company sold 11 units from beginning inventory, 16 units from the first purchase, and 21 units from the second purchase. Required: Determine the (a) cost of an ending inventory and (b) Cost of Goods Sold under the specific invoice method. Round to two decimal places if required. Answer: a) Ending Inventory: (4 × $10) + (6 × $17) + (6 × $23) = $280 b) COGS: (11 × $10) + (16 × $17) + (21 × $23) = $865 Diff: 2 LO: 15-3 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 43) Calculate the ending inventory under each of the following methods given the information below about purchases and sales during the year. Assume a periodic inventory system. Round to four decimal places. April 11 21

Beginning inventory Purchases Purchases

60 units @ $30 80 units @ $32 30 units @ $35

Sales for April: 115 units a) ________ FIFO b) ________ LIFO c) ________ Weighted-average Answer: Available for sale = 60 + 80 + 30 = 170; ending inventory = 170 - 115 = 55 units a) FIFO (30 × $35) + (25 × $32) = $1,850 b) LIFO (55 × $30) = $1,650 c) Weighted-average [(60 × $30) + (80 × $32) + (30 × $35)] = $5,410/170 × 55 = $1,750.29 Diff: 3 LO: 15-3 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods

44) Calculate the cost of goods sold under each of the following methods given the information below about purchases and sales during the year. Assume a periodic inventory system. Use four decimal places. March 2 8 12

Beginning inventory Purchases Purchases

50 units @ $25 65 units @ $30 20 units @ $31

Sales for March: 95 units a) ________ FIFO b) ________ LIFO c) ________ Weighted-average Answer: a) FIFO (50 × $25) + (45 × $30) = $2,600 b) LIFO (20 × $31) + (65 × $30) + (10 × $25) = $2,820 c) Weighted-average [(50 × $25) + (65 × $30) + (20 × $31)] = $3,820/135 × 95 = $2,688.15 Diff: 3 LO: 15-3 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods

Learning Objective 15-4 1) A method that uses average gross profit rate and net sales to compute inventory is: A) the retail method. B) the gross profit method. C) the weighted-average method. D) None of these answers is correct. Answer: B Diff: 1 LO: 15-4 AACSB: Analytical Thinking Learning Outcome: Calculate the gross profit percentage and use the gross profit method to estimate ending inventory 2) The retail method: A) determines the cost of the ending inventory using a cost-to-retail ratio. B) is often used for interim financial reports. C) determines the cost of the ending inventory using a predetermined gross profit rate. D) Both A and B are correct. Answer: D Diff: 1 LO: 15-4 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods

3) Hard Candy has a beginning inventory with a cost of $1000 and a retail value of $2200. The cost of June purchases was $3400, with a retail value of $4800, and retail sales were $4600. What is the June 30 estimated ending inventory at cost under the retail method? (Round any percentages to two decimal places, X.XX%, and your final answer to the nearest dollar.) A) $2400 B) $629 C) $2893 D) $1510 Answer: D Explanation: Beginning Inventory at Cost $1000 + Purchases at Cost $3400 = $4400 Beginning Inventory at Retail $2200 + Purchases at Retail $4800 = $7000 Ratio $4400 / $7000 = (0.629 x 100)%; Goods Available for Sale at Retail $7000 — Sales at Retail $4600 = Ending Inventory at Retail $2400; Ending Inventory at Cost $2400 × (0.629 x 100)% = $1510 Diff: 2 LO: 15-4 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 4) Inlet Inc. has a normal gross profit rate of 25%. The current year's beginning inventory was $4500, purchases were $11,000, and retail sales were $19,000. The cost of estimated ending inventory under the gross profit method is: A) $15,250. B) $8250. C) $1250. D) $2750. Answer: C Explanation: Cost of Goods Available for Sale = Beginning Inventory $4500 + Purchases $11,000 = $15,500; Cost of Goods Sold $19,000 × 75% = $14,250; Ending Inventory = $15,500 - $14,250 = $1250 Diff: 2 LO: 15-4 AACSB: Analytical Thinking Learning Outcome: Calculate the gross profit percentage and use the gross profit method to estimate ending inventory 5) An incorrect calculation of ending inventory affects: A) cost of goods sold. B) gross profit. C) net income. D) All of the above are correct. Answer: D Diff: 1 LO: 15-4 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods

6) Emile Landscaping had the following data for April:

Beginning inventory Purchases Sales

Cost $2300 3700

Retail $3800 4500 4800

The cost of the estimated inventory on April 30 under the retail method is: (Round any percentages to two decimal places, X.XX%, and your final answer to the nearest dollar.) A) $3500. B) $3470. C) $2530. D) $1200. Answer: C Explanation: Beginning Inventory at Cost $2300 + Purchases at Cost $3700 = $6000; Beginning Inventory at Retail $3800 + Purchases at Retail $4500 = $8300 Ratio $6000 / $8300 = (0.7229 x 100)%; Goods Available for Sale at Retail $8300 — Sales at Retail $4800 = Ending Inventory at Retail $3500; Ending Inventory at Cost $3500 × (0.7229 x 100)% = $2530 Diff: 2 LO: 15-4 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 7) Chocolate Heaven had the following data for November:

Beginning inventory Purchases Sales

Cost $8600 18,100

Retail $13,000 25,000 30,600

The cost of the estimated inventory on November 30 under the retail method is: (Round any percentages to two decimal places, X.XX%, and your final answer to the nearest dollar.) A) $5199. B) $7400. C) $21,500. D) $3900. Answer: A Explanation: Beginning Inventory at Cost $8600 + Purchases at Cost $18,100 = $26,700; Beginning Inventory at Retail $25,000 + Purchases at Retail $25,000 = $38,000; Ratio $26,700/$38,000 = (0.7026 x 100)%; Goods Available for Sale at Retail $38,000 — Sales at Retail $30,600 = Ending Inventory at Retail $7400; Ending Inventory at Cost $7400 × (0.7026 x 100)% = $5199 Diff: 2 LO: 15-4 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods

8) Compute the cost of ending inventory using the retail method when goods available for sale at cost are $13,000, retail is $30,000, and sales at retail equal $24,000. What will the cost ratio be? What will the cost of ending inventory be? (Round ratio to nearest whole number.) A) Cost ratio 43%; ending inventory $6000 B) Cost ratio 54%; ending inventory $17,000 C) Cost ratio 80%; ending inventory $10,420 D) Cost ratio 43%; ending inventory $2580 Answer: D Explanation: Ratio $13,000/$30,000 = 43%; Goods Available for Sale at Retail $30,000 — Sales $24,000 = Ending Inventory at Retail, $6000; Ending Inventory at Cost = $6000 × 43% = $2580 Diff: 2 LO: 15-4 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 9) An understatement of ending inventory in one period results in: A) an overstatement of net income for the next period. B) no effect on net income for the next period. C) an overstatement of the ending inventory for the next period. D) an understatement of net income for the next period. Answer: A Diff: 2 LO: 15-4 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 10) Bert Logistics has the following company information for August: goods available for sale at cost are $17,000, retail is $25,500, and sales at retail equal $18,500. The cost of estimated ending inventory under the retail method is: (Round any percentages to two decimal places, X.XX%, and your final answer to the nearest dollar.) A) $4667. B) $5079. C) $4900. D) $2100. Answer: A Explanation: Ratio $17,000/$25,500 = (0.6667 x 100)%; Goods Available for Sale at Retail $25,500 — Sales $18,500 = Ending Inventory at Retail = $7000; Ending Inventory at Cost = $70001 × (0.6667 x 100)% = $4667 Diff: 2 LO: 15-4 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods

11) Bert Logistics has the following company information for August: cost of goods available for sale is $20,000, and sales are $23,000. Bert has a normal gross profit of 35%. The cost of estimated ending inventory under the gross profit method is: (Round any percentages to two decimal places, X.XX%, and your final answer to the nearest dollar.) A) $7,000. B) $11,950. C) $4,550. D) $5,050. Answer: D Explanation: Cost of Goods Available for Sale = $20,000; Cost of Goods Sold $23,000 × 65% = $14,950; Ending Inventory = $20,000 - $14,950 = 5,050 Diff: 2 LO: 15-4 AACSB: Analytical Thinking Learning Outcome: Calculate the gross profit percentage and use the gross profit method to estimate ending inventory 12) When ending inventory is understated: A) cost of goods sold is overstated and net profit is understated. B) beginning inventory is overstated and net profit is understated. C) cost of goods sold is understated and net profit is understated. D) cost of goods sold is overstated and net profit is overstated. Answer: A Diff: 1 LO: 15-4 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 13) The beginning inventory of this year is understated. This error would cause: A) the year's net income to be overstated. B) the year's net income to be understated. C) the year's ending assets to be understated. D) None of these is correct. Answer: A Diff: 2 LO: 15-4 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

14) American Lumber has the following company information for October: goods available for sale at cost are $25,000, retail is $35,500, and sales at retail equal $27,500. The cost of estimated ending inventory under the retail method is: (Round any percentages to two decimal places, X.XX%, and your final answer to the nearest dollar.) A) $5634. B) $6197. C) $5600. D) $2400. Answer: A Explanation: Ratio $25,000 / $35,500 = (0.7042 x 100)%; Goods Available for Sale at Retail $35,500 — Sales $27,500 = Ending Inventory at Retail = $8000; Ending Inventory at Cost = $8000 × (0.7042 x 100)% = $5634 Diff: 2 LO: 15-4 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 15) American Lumber has the following company information for October: cost of goods available for sale $27,000, and sales equal $35,200. American Lumber has a normal gross profit of 30%. The cost of estimated ending inventory under the gross profit method is: (Round any percentages to two decimal places, X.XX%, and your final answer to the nearest dollar.) A) $8000. B) $16,440. C) $5600. D) $2360. Answer: D Explanation: Cost of Goods Available for Sale = $27,000; Cost of Goods Sold $43,200 × 70% = $30,240; Ending Inventory = $27,000 - $30,240 = $2360 Diff: 2 LO: 15-4 AACSB: Analytical Thinking Learning Outcome: Calculate the gross profit percentage and use the gross profit method to estimate ending inventory 16) A business uses the retail inventory method to estimate the cost of the ending inventory. For the month of June, the cost of goods available for sale is $15,800 at cost and $21,800 at retail. The cost ratio is: A) 72.5%. B) 27.52%. C) 38%. D) None of these is correct. Answer: A Explanation: $15,800 / $21,800 = 72.5% Diff: 1 LO: 15-4 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 36 Copyright © 2023 Pearson Education, Inc.

17) The ending inventory for this year is overstated. This error would cause: A) the period's net income to be overstated. B) the period's net income to be understated. C) the period's ending assets to be understated. D) None of these is correct. Answer: A Diff: 2 LO: 15-4 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 18) A business has sales of $168,270 and a normal gross profit of 45%. The estimated cost of goods sold is: (Round your answer to the nearest dollar.) A) $168,270. B) $75,722. C) $92,549. D) Cannot be determined. Answer: C Explanation: $168,270 × 55% = $92,549 Diff: 1 LO: 15-4 AACSB: Analytical Thinking Learning Outcome: Calculate the gross profit percentage and use the gross profit method to estimate ending inventory 19) The gross profit method: A) determines the cost of the ending inventory using a cost-to-retail ratio. B) is often used for interim financial reports. C) determines the cost of the ending inventory using a predetermined gross profit rate. D) Both A and B are correct. Answer: C Diff: 1 LO: 15-4 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 20) To use the gross profit method to estimate inventory, you do not need to know the goods available for sale at retail. Answer: TRUE Diff: 1 LO: 15-4 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods

21) The gross profit method is used to determine the cost of beginning inventory using a predetermined gross profit rate. Answer: FALSE Diff: 1 LO: 15-4 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 22) The retail method is often used for interim financial reports. Answer: TRUE Diff: 1 LO: 15-4 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 23) The retail method is used by many manufacturing businesses to estimate the amount of sales. Answer: FALSE Diff: 1 LO: 15-4 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 24) An incorrect ending inventory figure will affect the balance sheet. Answer: TRUE Diff: 2 LO: 15-4 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

25) Determine the estimated cost of the ending inventory for Market Surplus as of September 30 by the retail method from the following data (use four decimal places for the percent).

Sep. 1

Beginning inventory September purchases September sales

Cost Retail $750 $1,000 4,500 5,500 4,000

Answer: Cost Retail $ 750 $1,000 4,500 5,500 $5,250 $6,500 4,000 $2,500

Beginning inventory Purchases Goods available for sale Less: Sales Ending inventory at retail Ratio $5,250/$6,500 = 80.7692% 80.7692% × $2,500 = $2,019.23 Estimated cost of Ending Inventory Diff: 2 LO: 15-4 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 26) Tack Room Clothing uses the retail method to estimate cost of ending inventory for its interim reports. From the following facts, estimate Tack Room's ending inventory at cost at August 31. August 1 inventory at cost August 1 inventory at retail Net purchases at cost Net purchases at retail Net sales at retail

$900 1,200 9,000 12,000 12,500

Answer: Beginning inventory Purchases Goods available for sale Less: Sales Ending inventory at retail

Cost Retail $900 $1,200 9,000 12,000 $9,900 $13,200 12,500 $ 700

$9,900/$13,200 × $700 = $525.00 Estimated cost of Ending Inventory Diff: 2 LO: 15-4 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods

27) Nicki's Pet Supply needs to estimate its ending inventory. Using the data below, compute Nicki's estimated cost of ending inventory for the month of April using the gross profit method. Beginning inventory April 1 Purchases for April Retail sales during April Normal gross profit average

$6,000 10,000 15,000 30%

Answer: Beginning inventory Purchases Cost of Goods available for sale COGS Net sales at retail Cost percentage (100% - 30%) Less: Estimated cost of goods sold Estimated cost of ending inventory

$6,000 10,000 $16,000 $15,000 x .70 10,500 $5,500

Diff: 3 LO: 15-4 AACSB: Analytical Thinking Learning Outcome: Explain and apply inventory costing methods 28) Assume that in Year 1, the ending merchandise inventory is overstated by $30,000. If this is the only error in Year 1, fill in the items below, indicating which items will be understated(U), overstated(O), or correctly(C) stated for Year 1. Ending merchandise inventory Year 1 ________ Beginning merchandise inventory Year 1 ________ Cost of goods sold Year 1 ________ Gross profit Year 1 ________ Net income Year 1 ________ Ending owner's capital Year 1 ________ Answer: Ending merchandise inventory Year 1 O Beginning merchandise inventory Year 1 C Cost of goods sold Year 1 U Gross profit Year 1 O Net income Year 1 O Ending owner's capital Year 1 O Diff: 3 LO: 15-4 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

29) Assume that in Year 1, the ending merchandise inventory is overstated by $30,000. If this is the only error in Years 1 and 2, fill in the items below, indicating which items will be understated(U), overstated(O), or correctly(C) stated for Year 2. Ending merchandise inventory Year 2 ________ Beginning merchandise inventory Year 2 ________ Cost of goods sold Year 2 ________ Gross profit Year 2 ________ Net income Year 2 ________ Ending owner's capital Year 2 ________ Answer: Ending merchandise inventory Year 2 C Beginning merchandise inventory Year 2 O Cost of goods sold Year 2 O Gross profit Year 2 U Net income Year 2 U Ending owner's capital Year 2 C Diff: 3 LO: 15-4 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

College Accounting, 15e (Slater) Chapter 16 Accounting for Property, Plant, Equipment, and Intangible Assets Learning Objective 16-1 1) Which of the following assets would be classified as property, plant, and equipment? A) Patent B) Copyright C) Goodwill D) Equipment Answer: D Diff: 1 LO: 16-1 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 2) The amount to include in the entry to record the cost of an asset from the property, plant, and equipment category would NOT include: A) acquisition cost. B) routine maintenance costs. C) installation. D) All of these answers are correct. Answer: B Diff: 1 LO: 16-1 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 3) The entry to record the purchase of a machine on account that costs $11,000, installation costs, $1100, and freight, $600, would be: A) debit Machinery $11,000; credit Accounts Payable $11,000. B) debit Machinery $11,000; debit Expenses $1700; credit Accounts Payable $12,700. C) debit Machinery $12,700; credit Accounts Payable $12,700. D) debit Machinery $12,100; debit Freight Expense $600; credit Accounts Payable $12,700. Answer: C Diff: 2 LO: 16-1 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method

4) Which of the following is NOT an example of a land improvement? A) Shrubbery B) Fences C) Land D) All of these answers are correct. Answer: C Diff: 1 LO: 16-1 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 5) Mount Company purchased a machine at an invoice cost of $21,000 subject to terms of 2/10, n/30. The discount was taken. Additional costs were installation, $1200; insurance on the machine after it was in operation, $300. The total cost to be added to the machinery account is: A) $20,700. B) $21,780. C) $22,500. D) $22,200. Answer: B Explanation: ($21,000 × .98) + $1200 = $21,780 Diff: 2 LO: 16-1 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 6) Ben's Supreme purchased new baking equipment for $18,000 subject to terms 3/15, n/45. The discount was taken. Additional costs included sales tax $400 and installation $300. The total cost to be added to the equipment account is: A) $18,000. B) $17,760. C) $18,160. D) $17,860. Answer: C Explanation: ($18,000 × .97) + $400 + $300 = $18,160 Diff: 1 LO: 16-1 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method

7) A company purchased new machinery and incurred freight, assembly, and installation costs in addition to the invoice cost of the machinery. These additional costs should be debited to: A) Miscellaneous Expense. B) Machinery. C) Installation Expense. D) Machinery Expense. Answer: B Diff: 2 LO: 16-1 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 8) Which of the following is a non-depreciable asset? A) Building B) Land C) Equipment D) All are depreciated Answer: B Diff: 1 LO: 16-1 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 9) The cost of land does not include: A) fences added after purchase of land. B) survey fees. C) commissions. D) title searches. Answer: A Diff: 2 LO: 16-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 10) The cost of a plant asset did NOT include installation costs that were expensed. This error would cause: A) the period's net income to be overstated. B) the period's net income to be understated. C) the period's ending assets to be understated. D) Both B and C are correct. Answer: D Diff: 2 LO: 16-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 3 Copyright © 2023 Pearson Education, Inc.

11) Assets that are NOT expected to provide benefits for a number of accounting periods are called: A) current assets. B) fixed assets. C) long-term assets. D) property, plant, and equipment. Answer: A Diff: 1 LO: 16-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 12) Tangible assets include: A) building. B) equipment. C) land. D) All of the above are correct. Answer: D Diff: 1 LO: 16-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 13) Incidental costs or assessments that should be charged to the Land account include: A) installing a fence. B) survey fees. C) clearing the property. D) Both B and C are correct. Answer: D Diff: 1 LO: 16-1 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 14) A company purchased new computer equipment from a local vendor. An employee offered to pick up the equipment and received a speeding ticket on his way back to the office. The cost of the speeding ticket should be charged to the cost of the equipment. Answer: FALSE Diff: 2 LO: 16-1 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method

15) Assembly costs, and any other costs necessary to get a machine ready for operation, including freight costs, would be added to the cost of the machine. Answer: TRUE Diff: 1 LO: 16-1 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 16) There are repairs needed to a machine, due to the negligence of the installer, while installing the machine. The repair costs should not be charged to the cost of the machine. Answer: TRUE Diff: 1 LO: 16-1 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 17) Land Improvements is an asset account that records improvements to land that have a limited life. Answer: TRUE Diff: 1 LO: 16-1 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 18) A purchase of land and buildings would require the use of two asset accounts, Land and Buildings. Answer: TRUE Diff: 1 LO: 16-1 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 19) Land is not depreciated. Answer: TRUE Diff: 1 LO: 16-1 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method

20) R.J. Berkshire incurred the following expenditures to buy new equipment: Invoice, subject to 4% discount (discount will be taken) Installation cost Insurance for equipment after installation Sales tax

$22,000 1,500 300 1,200

The amount the Equipment account will be debited for is ________. Answer: $23,820 ($22,000 × .96) + $1,500 + $1,200 Diff: 2 LO: 16-1 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 21) Burlington Industries purchased a plant asset to be used in its business. The expenditures included: Cost of machine Special concrete base to support machine Freight charges Repair cost of damage incurred during installation

$12,000 400 1,500 500

The Machine account will be debited for ________. Answer: $13,900 ($12,000 + $400 + $1,500) Diff: 2 LO: 16-1 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method

Learning Objective 16-2 1) The cost of equipment is expensed: A) at the time it is paid. B) over the periods that it benefits the company. C) in the period it is purchased. D) in the period it is sold. Answer: B Diff: 1 LO: 16-2 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method

2) In the last year of useful life, the salvage value was ignored using double declining-balance depreciation. This error would cause: A) the period's ending assets to be overstated. B) the period's depreciation expense to be understated. C) the period's ending assets to be understated. D) the period's ending liabilities to be understated. Answer: C Diff: 2 LO: 16-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 3) When calculating double declining balance depreciation, the straight-line rate was used instead of double the straight-line rate. In the first year of ownership, this error would cause: A) the period's ending assets to be overstated. B) the period's depreciation expense to be overstated. C) the period's ending assets to be understated. D) None of these is correct. Answer: A Diff: 2 LO: 16-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 4) Residual value was ignored when originally calculating the units-of-production depreciation. This error would cause: A) the period's net income to be overstated. B) the period's net income to be understated. C) the period's ending assets to be overstated. D) the expenses to be understated. Answer: B Diff: 2 LO: 16-2 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 5) The depreciation method which charges more expense in earlier years than in later years is the: A) straight-line method. B) double declining-balance method. C) units-of-production method. D) All of the above are correct. Answer: B Diff: 2 LO: 16-2 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 7 Copyright © 2023 Pearson Education, Inc.

6) The depreciation method in which an even amount of depreciation expense is taken each year is called: A) straight-line method. B) double declining-balance method. C) units-of-production method. D) All of the above are correct. Answer: A Diff: 1 LO: 16-2 AACSB: Reflective Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 7) The depreciation method that does not base the expense on the passage of time but on the level of use is: A) units-of-production. B) straight-line. C) modified accelerated cost recovery. D) double declining-balance. Answer: A Diff: 1 LO: 16-2 AACSB: Reflective Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 8) Which depreciation method deducts residual value when computing depreciation expense? A) Units-of-production B) Straight-line C) Double declining-balance D) Both A and B are correct. Answer: D Diff: 1 LO: 16-2 AACSB: Reflective Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 9) Which depreciation method uses twice the straight-line rate? A) Units-of-production B) Modified accelerated cost recovery C) Straight-line D) Double declining-balance Answer: D Diff: 1 LO: 16-2 AACSB: Reflective Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 8 Copyright © 2023 Pearson Education, Inc.

10) Assuming a useful life of five years, which of the following GAAP methods would most likely result in the most depreciation in the first year? A) Straight-line B) Units-of-production C) Double declining-balance D) None of these answers is correct. Answer: C Diff: 2 LO: 16-2 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 11) Which depreciation method is also known as the accelerated depreciation method? A) Straight-line B) Double declining-balance C) Units-of-production D) Both A and C Answer: B Diff: 1 LO: 16-2 AACSB: Reflective Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 12) The book value of an asset is calculated by taking the: A) market value of the asset less its accumulated depreciation. B) cost of the asset less its accumulated depreciation. C) residual value of the asset less its accumulated depreciation. D) salvage value of the asset less its accumulated depreciation. Answer: B Diff: 1 LO: 16-2 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method

13) Jim Kindel purchased equipment for $46,000 on January 1. Its residual value is $4600 with a useful life of 10 years. The amount of depreciation expense in the first year under the double declining-balance method is: A) $8280. B) $9200. C) $4600. D) $4140. Answer: B Explanation: $46,000 × 2/10 = $9200 Diff: 2 LO: 16-2 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 14) Lacy purchased equipment for $75,000 on January 1. Its residual value is $7000 with a useful life of 9 years. The amount of depreciation expense in the first year under the straight-line method is: (Round your answer to the nearest dollar.) A) $7556. B) $8334. C) $16,667. D) $9111. Answer: A Explanation: ($75,000 - $7000)/9 =$7556 Diff: 2 LO: 16-2 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 15) Sam Moore purchased computer equipment for $4000 on January 1, 2022. It has a residual value of $300 with a useful life of 8 years. After the appropriate adjusting entries have been made, the balance in Accumulated Depreciation account for this asset on January 1, 2024, under the straight-line method, should be: (Round any intermediate calculations to the nearest cent, and your final answer to the nearest dollar.) A) $462.5. B) $925. C) $1387.5. D) $1850. Answer: B Explanation: ($4000 - $300)/8 = $1,425 × 2 years = $925 Diff: 3 LO: 16-2 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method

16) J. Pohl purchased office equipment for $7000 on January 1, 2023. It has a residual value of $700 with a useful life of 5 years. After the appropriate adjusting entry is made, the book value of the asset on December 31, 2023, under the double declining-balance method, is: A) $3500. B) $4200. C) $2800. D) $4900. Answer: B Explanation: 2023 Depreciation: $7000 × 2/5 = $2800; Book Value = $7000 - $2800 = $4200 Diff: 2 LO: 16-2 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 17) Double declining-balance depreciation is used in the first year when straight-line depreciation should be used. This error would cause: A) the period's net income to be overstated. B) the period's net income to be understated. C) the period's ending assets to be overstated. D) None of the above answers are correct. Answer: B Diff: 2 LO: 16-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 18) What would the depreciation expense be in year 6 for a computer system using the straight-line method when cost is $18,000, residual value is $2000, and the expected life is 7 years? (Round your answer to the nearest dollar.) A) $2286 B) $3600 C) $3200 D) $1143 Answer: A Explanation: ($18,000 - $2000) / 7 = $2286 Diff: 2 LO: 16-2 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method

19) What would be the depreciation expense using double declining-balance for year 2 of a machine costing $10,000, when residual value is $5000, and useful life is 4 years? (Round any intermediate calculations to four decimal places, and your final answer to the nearest dollar.) A) $1250 B) $1500 C) $2500 D) $5000 Answer: C Explanation: Year 1: $10,000 × (2 / 4) = $5000.00 Year 2: ($10,000 - $5000.00) × $0.5 = $1500 Diff: 2 LO: 16-2 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 20) What would be the depreciation expense in year 1, using units-of-production, for a molding machine that cost $18,000, had a useful life of 5 years, no residual value, and an estimated total machine hours of 50,000? Production in year 1 was 9000 hours. (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.) A) $3240 B) $3951 C) $6480 D) $9000 Answer: A Explanation: $18,000 / 50,000 = $0.36 per machine hour; Year 1 Depreciation Expense: $0.36 × 9000 = $3240 Diff: 2 LO: 16-2 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method

21) What would be the depreciation expense in year 1, using units-of-production, for a molding machine that cost $21,000, had a useful life of 9 years, and an estimated total machine hours of 30,000? The salvage value is $3000 and production in year 1 was 8000 hours. (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.) A) $2333 B) $5600 C) $5000 D) $4800 Answer: D Explanation: ($21,000 - $3000) /30,000 = $0.60 per machine hour, Year 1 Depreciation Expense $0.60 x 8000 = $4800 Diff: 2 LO: 16-2 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 22) Talarico's Subs purchased a new van for $26,000, its estimated useful life at 120,000 miles, residual value of $2,600. The van was driven 13,000 miles in year 1. What is the depreciation expense in year 1? (Round any intermediate calculations to three decimal places, and your final answer to the nearest dollar.) A) $2,535 B) $2,600 C) $2,817 D) $5,850 Answer: A Explanation: ($26,000 - $2,600) / 120,000 = $0.195 per mile; Year 1 Depreciation Expense $0.195 x 13,000 = $2,535 Diff: 2 LO: 16-2 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 23) Straight-line method is used in the first year when double declining-balance should be used. This error would cause: A) the period's net income to be overstated. B) the period's net income to be understated. C) the period's ending assets to be understated. D) None of these is correct. Answer: A Diff: 2 LO: 16-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

24) What would be the accumulated depreciation balance at the end of year 4 for a piece of equipment using the straight-line method when the cost is $13,000, residual value is $1000, and the expected life is 10 years? (Round any intermediate calculations to the nearest cent, and your final answer to the nearest dollar.) A) $5200 B) $4800 C) $1200 D) $7200 Answer: B Explanation: ($13,000 - $1000) / 10 = $1200.00 per year, Year 4 Accumulated Depreciation = $1200.00 x 4 = $4800 Diff: 3 LO: 16-2 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 25) A plant asset is fully depreciated when the book value is: A) greater than the salvage value. B) greater than the market value. C) equal to the salvage value. D) equal to the market value. Answer: C Diff: 2 LO: 16-2 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 26) What would the book value be at the end of year 8 for a piece of equipment using the straight-line depreciation method when cost is $13,000, residual value is $800, and the expected life is 12 years? (Round any intermediate calculations to the nearest cent, and your final answer to the nearest dollar.) A) $4333 B) $8133 C) $4867 D) $4067 Answer: C Explanation: Annual depreciation — ($13,000 - $800) /12 = $1016.67; Year 8 Accumulated Depreciation $1016.67 x 8 = $8133; Year 6 Book Value = $13,000 - $8133 = $4867 Diff: 3 LO: 16-2 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method

27) Using MACRS rates for a 15 and 20-year property, what is the percentage for the depreciation rate and the depreciation method? A) 200 percent declining balance B) 150 percent declining balance C) 125 percent declining balance D) 100 percent declining balance Answer: B Diff: 1 LO: 16-2 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 28) According to the MACRS tax rate table, the following classes do NOT use straight-line depreciation: A) residential rental property. B) automobiles. C) nonresidential real property. D) All of the above use straight-line depreciation. Answer: B Diff: 1 LO: 16-2 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 29) Under MACRS, which of the following classes of property uses the straight-line depreciation method? A) 39-year property B) 25-year property C) 27.5-year property D) All of the above are correct. Answer: D Diff: 1 LO: 16-2 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method

30) A tractor costing $200,000 is depreciated using MACRS. The tractor qualifies as a 3-year property, and has a scrap value of $19,000. The depreciation rates are: Year 1: Year 2: Year 3: Year 4:

33.33% 45.45% 14.81% 7.41%

What is the depreciation expense for year 3? A) $29,620 B) $40,218 C) $44,440 D) $26,806 Answer: A Explanation: 14.81% × $200,000 = $29,620 Diff: 1 LO: 16-2 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 31) For the purposes of tax return preparation, the IRS requires the use of: A) straight-line method. B) units-of-production method. C) modified accelerated cost recovery method. D) double declining-balance method. Answer: C Diff: 1 LO: 16-2 AACSB: Reflective Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 32) For tax purposes, equipment is depreciated using the straight-line method under MACRS. Answer: FALSE Diff: 1 LO: 16-2 AACSB: Reflective Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method

33) Under MACRS, office furniture is depreciated over seven years. Answer: TRUE Diff: 1 LO: 16-2 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 34) The double declining-balance method is an accelerated depreciation method. Answer: TRUE Diff: 1 LO: 16-2 AACSB: Reflective Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 35) The units-of-production method does not take into account the passage of time. Answer: TRUE Diff: 1 LO: 16-2 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 36) To calculate the double declining-balance rate, you would use half the straight-line rate. Answer: FALSE Diff: 2 LO: 16-2 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 37) Net income is affected by the depreciation method used. Answer: TRUE Diff: 2 LO: 16-2 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 38) The depreciation method that ignores the salvage value until the end of a depreciable asset’s life is ________. Answer: double declining-balance Diff: 2 LO: 16-2 AACSB: Reflective Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 17 Copyright © 2023 Pearson Education, Inc.

39) For tax purposes, ________ establishes the guidelines and the percentages for depreciation. Answer: MACRS Diff: 2 LO: 16-2 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 40) Accumulated depreciation is a contra ________ account and is reported on the ________. Answer: asset, balance sheet Diff: 2 LO: 16-2 AACSB: Reflective Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 41) Tender Years purchased a new van on January 1, 202X, for $60,000. The life of the van is 5 years or 100,000 miles, with an estimated residual value of $5,000. During the first year, the van was driven 22,000 miles. Compute the depreciation expense for the first year applying each of the methods below. a) ________ Straight-line b) ________ Units-of-production c) ________ Double declining-balance Answer: a) $11,000 = ($60,000 - $5,000)/5 = $11,000 b) $12,100 = ($60,000 - $5,000)/100,000 = $0.55 per mile × 22,000 miles = $12,100 c) $24,000 = $60,000 × 2/5 = $24,000 Diff: 2 LO: 16-2 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method

42) Bobson Company purchased a $60,000 machine on January 1. The machine is expected to have a useful life of 10 years or 60,000 operating hours and a residual value of $5,000. The machine was used for 6,000 hours in the first year and 4,400 hours in the second year. Compute the amount of depreciation expense for the first and second years under each of the methods below. Use four decimal places for fractions. Year 1 Year 2 Method a) $ ________ $ ________ Straight-line b) $ ________ $ ________ Units-of-production c) $ ________ $ ________ Double declining-balance Answer: Year 1 Year 2 a) $5,500.00 $5,500.00 b) $5,500.20 $4,033.48 c) $12,000.00 $9,600.00 Explanation: Straight-line: ($60,000 - $5,000)/10 = $5,500; Units of production Year 1: ($60,000 - $5,000)/60,000 = $.9167 × 6,000 miles = $5,500.20; Units of production Year 2: $.9167 × 4,400 miles = $4,033.48; Double declining balance Year 1: $60,000 × 2/10 = $12,000; Double declining balance Year 2: ($60,000 - $12,000) × 2/10 = $9,600 Diff: 2 LO: 16-2 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 43) Assume an asset costing $90,000 is expected to produce 400,000 units and have a salvage value of $2,000. During year 1, 75,000 units were produced; during year 2, 68,000 units were produced; and during year 3, 70,000 units were produced. Using units-of-production, compute the depreciation expense for each of the three years. Answer: Year 1: $16,500 [($90,000 - $2,000)/400,000] × 75,000 Year 2: $14,960 [($90,000 - $2,000)/400,000] × 68,000 Year 3: $15,400 [($90,000 - $2,000)/400,000] × 70,000 Diff: 2 LO: 16-2 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method

44) A car is purchased for $30,000 on January 1. It has a 5-year life and a salvage value of $2,000. Compute the annual depreciation expense using the double declining-balance method for all 5 years. Answer: Year 1: $12,000 ($30,000 × .4) Year 2: $7,200 ($18,000 ×. 4) Year 3: $4,320 ($10,800 × .4) Year 4: $2,592 ($6,480 × .4) Year 5: $1,888 ($3,888 - $2,000) Diff: 3 LO: 16-2 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 45) A piece of equipment is purchased for $78,000 on January 1. It has a 5-year life and a salvage value of $8,000. Compute the annual depreciation expense using the double declining-balance method for all 5 years. Answer: Year 1: $31,200 ($78,000 × .4) Year 2: $18,720 ($46,800 × .4) Year 3: $11,232 ($28,080 × .4) Year 4: $6,739.20 ($16,848 × .4) Year 5: $2,108.80 ($10,108.80 - $8,000) Diff: 3 LO: 16-2 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method

46) A company purchased a new delivery van on January 1 of the current year for $25,000. The company expects to use the van for 5 years and then sell it for $5,000. Complete the following depreciation table assuming straight-line depreciation:

End of Year 1 2 3 4 5

Accumulated Depreciation, End Book Value, End of of Year Year

Cost of Delivery Van

Depreciation Expense

Cost of Delivery Van $25,000 $25,000 $25,000 $25,000 $25,000

Accumulated Depreciation Depreciation, End Book Value, End of Expense of Year Year $4,000 $4,000 $21,000 $4,000 $8,000 $17,000 $4,000 $12,000 $13,000 $4,000 $16,000 $9,000 $4,000 $20,000 $5,000

Answer: End of Year 1 2 3 4 5

Diff: 3 LO: 16-2 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method

Learning Objective 16-3 1) Capital expenditures would include: A) additions. B) betterments. C) extraordinary repairs. D) All of these answers are correct. Answer: D Diff: 1 LO: 16-3 AACSB: Reflective Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method

2) Revenue expenditures do NOT include: A) additions to existing plant assets. B) changing tires on a car. C) changing oil in a car. D) All of the above are revenue expenditures. Answer: A Diff: 1 LO: 16-3 AACSB: Reflective Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 3) A company incorrectly records revenue expenditures as capital expenditures on its books. As a result, which of the following will be true? A) Net income will be overstated for the year. B) Owner's equity will be understated at year-end. C) Total assets will be understated at year-end. D) None of the above answers are correct. Answer: A Diff: 2 LO: 16-3 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 4) What is the difference between an extraordinary repair and a betterment? A) A betterment extends the life of the asset; an extraordinary repair does not. B) An extraordinary repair is a capital expenditure; a betterment is not. C) An extraordinary repair extends the life of the asset; a betterment does not. D) None of these answers is correct. Answer: C Diff: 1 LO: 16-3 AACSB: Reflective Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 5) The entry to record the payment of an extraordinary repair of $8000 that will extend the life of the machine by 5 years, when the machine cost $35,000, and has accumulated depreciation of $31,000, is to: A) debit Machinery $8000; credit Accumulated Depreciation, Machinery $8000. B) debit Accumulated Depreciation, Machinery $8000; credit Cash $8000. C) debit Accumulated Depreciation, Machinery $1600; credit Cash $1600. D) debit Machinery $1600; credit Cash $1600. Answer: B Diff: 2 LO: 16-3 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 22 Copyright © 2023 Pearson Education, Inc.

6) A company installed a new engine in their delivery vehicle. This is an example of a(n): A) addition. B) betterment. C) extraordinary repair. D) revenue expenditure. Answer: C Diff: 2 LO: 16-3 AACSB: Reflective Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 7) Equipment and furniture are: A) capital expenses. B) capital expenditures. C) general expenses. D) revenue expenditures. Answer: B Diff: 1 LO: 16-3 AACSB: Reflective Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 8) The journal entry to record a loss when selling a plant asset would include: A) a credit to accumulated depreciation. B) a debit to loss on sale of plant asset. C) a debit to the plant asset account. D) None of the above answers are correct. Answer: B Diff: 2 LO: 16-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 9) When equipment that is fully depreciated is discarded: A) debit the original cost of the asset. B) credit the balance of Accumulated Depreciation, Equipment. C) debit Accumulated Depreciation, Equipment and credit Equipment. D) None of the above answers are correct. Answer: C Diff: 2 LO: 16-3 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 23 Copyright © 2023 Pearson Education, Inc.

10) A gain on disposal of a plant asset is listed as: A) a liability on the balance sheet. B) an asset on the balance sheet. C) other expense on the income statement. D) other income on the income statement. Answer: D Diff: 1 LO: 16-3 AACSB: Reflective Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 11) A loss on the sale of a plant asset is listed as: A) a liability on the balance sheet. B) an asset on the balance sheet. C) other expense on the income statement. D) other income on the income statement. Answer: C Diff: 1 LO: 16-3 AACSB: Reflective Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 12) A gain on the sale of a plant asset occurs when: A) the cash received is less than the book value of the asset. B) the book value is equal to the cost of the asset, and the cash received is less than the cost of the asset. C) the cash received is greater than the book value of the asset. D) the accumulated depreciation is less than the asset's cost. Answer: C Diff: 1 LO: 16-3 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 13) A loss on the sale of a plant asset would occur when: A) the cash received is less than the book value of the asset. B) the cash received is equal to the book value of the asset. C) the cash received is greater than the book value of the asset. D) None of the above answers are correct. Answer: A Diff: 1 LO: 16-3 AACSB: Reflective Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 24 Copyright © 2023 Pearson Education, Inc.

14) The entry to record the disposal of a laptop computer with a cost of $2000 and an accumulated depreciation of $1500 would be: A) debit Depreciation Expense $2000; credit Equipment $2000. B) debit Accumulated Depreciation, Equipment $1500; debit Loss on Disposal of a Plant Asset $500; credit Equipment $2000. C) debit Equipment $2000; credit Accumulated Depreciation, Equipment $2000. D) debit Cash $2000; credit Equipment $2000. Answer: B Diff: 2 LO: 16-3 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 15) Hello Online disposed of a van that cost $23,000 with accumulated depreciation of $16,000. The journal entry would include a: A) credit to Van $23,000. B) debit to Accumulated Depreciation, Van $16,000. C) debit to Loss on Disposal of Plant Asset $7000. D) All of these answers are correct. Answer: D Diff: 2 LO: 16-3 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 16) Myers Corporation exchanged an old machine costing $18,000, with an accumulated depreciation of $15,000, and cash of $6,000 for a new machine with a fair market value of $22,000. The transaction has commercial substance. What is the journal entry? A) Debit Machinery $21,000; debit Accumulated Depreciation, Machinery $15,000; credit Machinery $21,000; credit Cash $15,000 B) Debit Machinery $16,000; debit Accumulated Depreciation, Machinery $15,000; debit Loss on Exchange of Machinery $3,000; credit Machinery $18,000; credit Cash $16,000 C) Debit Machinery $22,000; debit Accumulated Depreciation, Machinery $15,000; credit Machinery $18,000; credit Cash $6,000; credit Gain on Exchange of Machinery $13,000 D) None of these answers is correct. Answer: C Explanation: New asset fair market value = $22,000; Old asset fair market value = $22,000 - $6,000; Cash paid = $16,000; Gain on old asset = Fair market value $16,000 - Book value $3,000 = $13,000 Diff: 2 LO: 16-3 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method

17) Corbin Corporation has a plant asset with a cost of $38,000 that is exchanged for a similar, new asset with a fair market value of $75,000. Assuming accumulated depreciation of $18,000 on the old asset and a cash payment of $13,000, what is the cost basis for the new asset? The transaction has commercial substance. The fair market value of the old asset is $26,000. A) $38,000. B) $106,000. C) $93,000. D) $75,000. Answer: D Diff: 2 LO: 16-3 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 18) A task station that originally cost $3000 has no estimated salvage value and was depreciated at the rate of 20% per year (straight-line depreciation). At the end of the second year, it was sold for $1500 cash. The transaction would result in a: A) loss on sale of $150. B) gain on sale of $150. C) loss on sale of $300. D) gain on sale of $300. Answer: C Explanation: Cost $3000 - Accumulated Deprecation ($600 x 2) = $6000 Book Value; Selling Price $1500; Loss on Sale = $6000 Book Value - $1500 Selling Price = $300 Diff: 3 LO: 16-3 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 19) A truck that cost $24,000 has been owned for 3 years and is exchanged for another truck for the same purpose. Total accumulated depreciation at the time of exchange is $17,000. The transaction has commercial substance. The fair market value of the old truck is $9000 and the new truck has a fair market value of $34,000. The old truck owner paid $22,000 cash. The new truck would be recorded at: A) $34,000. B) $32,000. C) $36,000. D) $22,000. Answer: A Diff: 3 LO: 16-3 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method

20) Equipment that originally cost $1000 with no salvage value has accumulated depreciation of $800. The equipment is discarded. The transaction to record the discarding of the equipment would result in a: A) loss of $1000. B) gain of $1000. C) loss of $200. D) loss of $800. Answer: C Explanation: $1000 Cost - $800 Accumulated Depreciation = $200 Diff: 2 LO: 16-3 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 21) If an asset is being sold or exchanged, the gain or loss is always computed by comparing the: A) fair market value and cost. B) book value and salvage value. C) fair market value and salvage value. D) fair market value and book value. Answer: D Diff: 2 LO: 16-3 AACSB: Reflective Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 22) Pace Works exchanged a plant asset with a cost of $25,000 and accumulated depreciation of $22,000 for a new, similar asset with a fair market value of $68,000. The transaction has commercial substance. Assuming the old plant asset has a fair market value of $3400, and $65,900 cash was paid by Pace Works, the cost basis of the new asset is: A) $64,600. B) $68,000. C) $71,000. D) $67,600. Answer: B Diff: 3 LO: 16-3 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method

23) Expenditures for changing oil in a machine or repainting a car would be: A) added to the cost of the asset. B) added as a capital expenditure. C) charged to an expense account. D) added as a betterment. Answer: C Diff: 1 LO: 16-3 AACSB: Reflective Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 24) The Loss on Disposal of Plant Asset account is classified as another revenue account. Answer: FALSE Diff: 1 LO: 16-3 AACSB: Reflective Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 25) When exchanging plant assets with commercial substance, gains and losses from the exchange are recorded. Answer: TRUE Diff: 1 LO: 16-3 AACSB: Reflective Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 26) Gains from selling plant assets are always recognized. Answer: TRUE Diff: 1 LO: 16-3 AACSB: Reflective Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 27) Some of the past depreciation is canceled in recording an extraordinary repair to a depreciable asset. Answer: TRUE Diff: 1 LO: 16-3 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method

28) A capital expenditure is recorded in an equity account. Answer: FALSE Diff: 1 LO: 16-3 AACSB: Reflective Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 29) If a plant asset is fully depreciated and discarded, no ________ or ________ will be realized. Answer: gain; loss Diff: 2 LO: 16-3 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 30) The difference between a plant asset’s cost and accumulated depreciation is the ________. Answer: Book Value Diff: 1 LO: 16-3 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 31) A wing was added to a hospital. The wing is called a(n) ________ and a(n) _________. Answer: Capital expenditure, addition Diff: 1 LO: 16-3 AACSB: Reflective Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 32) Payments for the ordinary maintenance of a plant asset are called ________. Answer: revenue expenditures Diff: 1 LO: 16-3 AACSB: Reflective Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method

33) Ken Alberts owned equipment with an original cost of $45,000 and $38,000 of accumulated depreciation. The old equipment and cash of $53,000 was exchanged for new equipment with a fair market value of $60,000 The transaction has commercial substance. Determine the following. a. The book value of the old machine was ________. b. The loss on the exchange was ________. c. The cost basis on the books for the new machine is ________. Answer: a. $7,000 b. $0 c. $60,000 Explanation: a. Cost $45,000 – Accumulated Depreciation $38,000 = Book Value $7,000 b. Implied Fair Market Value of old Equipment = Fair Market Value of New Equipment $60,000 - $53,000 Cash Paid = $7,000; Fair Market Value of old Equipment $7,000 – Book Value of old Equipment $7,000 = 0 c. Fair market value of new equipment = $60,000 Diff: 2 LO: 16-3 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 34) The Cutcut Mower Service owned a truck with an original cost of $75,000 on which there is accumulated depreciation of $55,000. The truck is exchanged for a new truck with a fair market value of $90,000. Cutcut paid $78,000 cash. The transaction has commercial substance. The fair market value of the old truck is $12,000. a. The book value of the old truck is ________. b. The loss on the exchange is ________. c. The cost basis in the new truck is ________. Answer: a. $20,000 b. $8,000 c. $90,000 Explanation: a. Cost $75,000 – Accumulated Depreciation $55,000 = Book Value $20,000 b. Fair market value old truck $12,000 – Book value old truck $20,000 = $8,000 Loss c. Fair market value of new truck = $90,000 Diff: 2 LO: 16-3 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method

35) Journalize the following transactions for Pets R Us: Mar. 5

Sold a truck for $10,000 that cost $15,000 and had an accumulated depreciation of $12,000.

Mar. 10 A machine costing $13,000 with accumulated depreciation of $10,500 was destroyed in a fire. No claim was filed. May 15 Exchanged a machine costing $25,000, with $19,000 of accumulated depreciation, for a new machine with a fair value of $32,000 and paid $23,000 cash. The exchange has commercial substance. The machine given up has a fair market value of $9,000. Answer: Mar. 5 Cash 10,000 Accumulated Depreciation, Truck 12,000 Gain on Sale of Plant Asset 7,000 Truck 15,000 Mar. 10

May 15

Loss from Fire Accumulated Depreciation, Machine Machine

2,500 10,500

Machine (new) Accumulated Depreciation, Machine Machine (old) Cash Gain on Exchange of Machine

32,000 19,000

13,000

25,000 23,000 3,000

Explanation: May 15: Book Value old Machine $6,000 = Cost $25,000 — Accumulated Depreciation $19,000; Fair Market Value of old Machine $9,000; Gain = $9,000 Fair Market Value of old Machine $6,000 Book Value of old Machine = $3,000 Diff: 3 LO: 16-3 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method

36) Prepare journal entries for the following for Bo, Inc. May 11 Replaced the engine in a Van #1, paying cash of $6,500. May 18 Paid cash for a tune-up of the engine in Van #2 of $600. May 29 Paid cash to add a lift to Van #2 of $4,200 Answer: May 11 Accumulated Depreciation, Vans 6,500 Cash May 18

May 29

Repairs Expense Cash Vans Cash

6,500

600 600 4,200 4,200

Diff: 3 LO: 16-3 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 37) A computer server system, which had cost $250,000 and had accumulated depreciation of $170,000, was exchanged for a new system with a fair market value of $245,000. The old system and cash of $190,000 were given for the new system. The exchange had commercial substance. Prepare the journal entry for the exchange of these similar assets. Answer: Computer Server (new) 245,000 Accumulated Depreciation, Computer Server (old) 170,000 Loss on Exchange of Computer Equipment 25,000 Computer Server (old) 250,000 Cash 190,000 Book Value old Server = $250,000 - $170,000 = $80,000; Fair Market Value old Server = Fair Market Value new Server $245,000 — Cash paid $190,000 = $55,000; Loss = $80,000 - $55,000 = $25,000 Diff: 3 LO: 16-3 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method

38) A computer server system, which had cost $250,000 and had accumulated depreciation of $170,000, was exchanged for a new system with a fair market value of $245,000. The old system and cash of $210,000 were given for the new system. The exchange had commercial substance. Prepare the journal entry for the exchange of these similar assets. Answer: Computer Server (new) 245,000 Loss on Exchange of Computer Equipment 45,000 Accumulated Depreciation, Computer Server (old) 170,000 Cash 210,000 Computer Server (old) 250,000 Book Value old Server = $250,000 - $170,000 = $80,000; Fair Market Value old Server = Fair Market Value new Server $245,000 — Cash paid $210,000 = $35,000; Loss = $80,000 - $35,000 = $45,000 Diff: 3 LO: 16-3 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 39) Define and compare capital expenditures and revenue expenditures. Answer: Capital expenditures include the original cost of an asset as well as payments that improve on or enlarge existing assets. Capital expenditures after the initial acquisition may be classified into three categories: additions or enlargements, extraordinary repairs, and betterments. Revenue expenditures are payments made for ordinary maintenance of an asset or unnecessary or unreasonable situations. These expenditures occur on a regular basis and are recorded as expenses. Examples would include changing tires on a truck or repainting a van. Diff: 2 LO: 16-3 AACSB: Written and Oral Communication Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method

Learning Objective 16-4 1) Amortization of a patent was ignored in the current accounting period. This error would cause: A) the period's net income to be overstated. B) the period's net income to be understated. C) the period's ending assets to be understated. D) None of the above answers are correct. Answer: A Diff: 2 LO: 16-4 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

2) The credit portion of the adjustment for the depletion of a coal mine was credited to the Coal Mine account. This error would cause: A) the period's net income to be overstated. B) the period's net income to be understated. C) the period's ending assets to be overstated. D) None of the above answers are correct. Answer: D Diff: 2 LO: 16-4 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 3) Which if the following would NOT be an example of an intangible asset? A) A copyright B) A patent C) A franchise D) Land Answer: D Diff: 1 LO: 16-4 AACSB: Reflective Thinking Learning Outcome: Describe the accounting treatments for intangible assets 4) A company purchases a patent for $39,000. The patent will be amortized over 4 years. The entry to record the amortization in the first year is: A) debit Patents $39,000; credit Cash $39,000. B) debit Amortization Expense, Patents $39,000; credit Patents $39,000. C) debit Amortization Expense, Patents $9750; credit Patents $9750. D) debit Patents $13,000; credit Amortization Expense, Patents $13,000. Answer: C Explanation: $39,000 / 4 = $9750 Diff: 2 LO: 16-4 AACSB: Analytical Thinking Learning Outcome: Describe the accounting treatments for intangible assets 5) The process of using a natural resource over time is: A) depreciation. B) depletion. C) amortization. D) None of the above answers are correct. Answer: B Diff: 1 LO: 16-4 AACSB: Reflective Thinking Learning Outcome: Describe the accounting treatments for intangible assets

6) The exclusive right to produce and sell musical work is called a: A) copyright. B) franchise. C) patent. D) goodwill. Answer: A Diff: 1 LO: 16-4 AACSB: Reflective Thinking Learning Outcome: Describe the accounting treatments for intangible assets 7) The allocation of the cost of an intangible asset over time is known as: A) depreciation. B) depletion. C) amortization. D) accrual. Answer: C Diff: 1 LO: 16-4 AACSB: Reflective Thinking Learning Outcome: Describe the accounting treatments for intangible assets 8) Patents and copyrights are: A) depreciated. B) depleted. C) amortized. D) expensed. Answer: C Diff: 1 LO: 16-4 AACSB: Reflective Thinking Learning Outcome: Describe the accounting treatments for intangible assets 9) Which of the following is an example of an intangible asset? A) Land B) Goodwill C) Inventory D) Accounts Receivable Answer: B Diff: 1 LO: 16-4 AACSB: Reflective Thinking Learning Outcome: Describe the accounting treatments for intangible assets

10) An exclusive right given to the owner to sell or produce his or her discovery or invention is known as a: A) franchise. B) trademark. C) patent. D) copyright. Answer: C Diff: 1 LO: 16-4 AACSB: Reflective Thinking Learning Outcome: Describe the accounting treatments for intangible assets 11) If an intangible asset, such as a patent, is suddenly determined to be worthless, this is called: A) depreciation. B) amortization. C) impairment. D) deterioration. Answer: C Diff: 1 LO: 16-4 AACSB: Reflective Thinking Learning Outcome: Describe the accounting treatments for intangible assets 12) A coal mine was acquired for $6,000,000. No salvage value was expected and the number of tons of coal is estimated to be 3,000,000 tons. During for first year, 300,000 tons of coal was mined and sold. The first year of depletion expense is: A) $3,000,000. B) $300,000. C) $6,000,000. D) $600,000. Answer: D Explanation: ($6,000,000 / 3,000,000 ) = $2 per ton; Depletion Expense = $2 × 300,000 tons = $600,000 Diff: 2 LO: 16-4 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method 13) To record the depletion of natural resources, the most common method is to use the double decliningbalance method. Answer: FALSE Diff: 1 LO: 16-4 AACSB: Analytical Thinking Learning Outcome: Describe the accounting treatments for intangible assets

14) Patents, copyrights, and franchises are intangible assets with the same number of years of useful life. Answer: FALSE Diff: 1 LO: 16-4 AACSB: Reflective Thinking Learning Outcome: Describe the accounting treatments for intangible assets 15) Copyright protection expires 70 years after the author's death. Answer: TRUE Diff: 1 LO: 16-4 AACSB: Reflective Thinking Learning Outcome: Describe the accounting treatments for intangible assets 16) The portion of a natural resource's cost that is recognized as an expense is ________. Answer: depletion Diff: 1 LO: 16-4 AACSB: Analytical Thinking Learning Outcome: Describe the accounting treatments for intangible assets 17) The intangible asset that is recorded when a business is purchased for more than the fair value of the net assets is known as ________. Answer: goodwill. Diff: 1 LO: 16-4 AACSB: Reflective Thinking Learning Outcome: Describe the accounting treatments for intangible assets 18) The three terms used to allocate the cost of plant assets, natural resources, and intangible assets over their useful lives are ________, ________, and ________, respectively. Answer: Depreciation; Depletion; Amortization Diff: 1 LO: 16-4 AACSB: Analytical Thinking Learning Outcome: Use different methods to perform calculations related to plant assets and explain the advantages and disadvantages of each method

Column 2

Column 1 Loss on goodwill other expense

Column 2 debit

Column 3

Column 4

Loss on goodwill Answer: Column 3 Column 4 income statement temporary

Diff: 3 LO: 16-4 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 20) Column 1

Column 2

Column 3

Column 4

Column 1 asset

Column 2 debit

Column 3 balance sheet

Column 4 permanent

Coal deposit Answer: Coal deposit

Diff: 3 LO: 16-4 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 21) Column 1

Column 2

Column 3

Column 4

Column 1 Gain from sale of plant asset other income

Column 2

Column 3

Column 4

Gain from sale of plant asset Answer:

credit

income statement temporary

Diff: 3 LO: 16-4 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

22) Column 1

Column 2

Column 3

Column 4

Column 1 asset

Column 2 debit

Column 3 balance sheet

Column 4 permanent

Goodwill Answer: Goodwill

Diff: 3 LO: 16-4 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 23) Column 1

Column 2

Column 1 other expense

Column 2 debit

Column 3

Column 4

Loss from fire Answer: Loss from fire

Column 3 Column 4 income statement temporary

Diff: 3 LO: 16-4 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 24) Column 1

Column 2

Column 3

Column 4

Column 1 Amortization operating Expense, Patent expense

Column 2

Column 3

Column 4

Amortization Expense, Patent Answer:

debit

income statement temporary

Diff: 3 LO: 16-4 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

25) Column 1

Column 2

Column 3

Column 4

Column 1 Depletion of coal operating mine expense

Column 2

Column 3

Column 4

Depletion of coal mine Answer:

debit

income statement temporary

Diff: 3 LO: 16-4 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 26) Column 1

Column 2

Column 3

Column 4

Column 1 asset

Column 2 debit

Column 3 balance sheet

Column 4 permanent

Franchise Answer: Franchise

Diff: 3 LO: 16-4 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 27) Column 1

Column 2

Column 3

Column 4

Column 1

Column 2

Column 3

Column 4

Accumulated depletion, coal mine Answer: Accumulated depletion, coal mine

contra-asset

credit

balance sheet

permanent

Diff: 3 LO: 16-4 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

28) Column 1

Column 2

Column 3

Column 4

Column 1 asset

Column 2 debit

Column 3 balance sheet

Column 4 permanent

Diff: 3 LO: 16-4 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 29) Column 1

Column 2

Column 3

Column 4

Column 1 Loss on disposal of plant asset other expense

Column 2

Column 3

Column 4

Loss on disposal of plant asset Answer:

debit

income statement temporary

Diff: 3 LO: 16-4 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 30) Column 1

Column 2

Column 3

Column 4

Column 1 asset

Column 2 debit

Column 3 balance sheet

Column 4 permanent

Patent Answer: Patent

Diff: 3 LO: 16-4 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

31) Column 1

Column 2

Column 3

Column 4

Column 1 operating expense

Column 2

Column 3

Column 4

Depreciation expense Answer: Depreciation expense

debit

income statement temporary

Diff: 3 LO: 16-4 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 32) Column 1

Column 2

Column 3

Column 4

Column 1

Column 2

Column 3

Column 4

Accumulated depreciation Answer: Accumulated depreciation

contra-asset

credit

balance sheet

permanent

Diff: 3 LO: 16-4 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 33) Column 1

Column 2

Column 3

Column 4

Column 1 asset

Column 2 debit

Column 3 balance sheet

Column 4 permanent

Equipment Answer: Equipment

Diff: 3 LO: 16-4 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

34) Column 1

Column 2

Column 3

Column 4

Column 1

Column 2

Column 3

Column 4

Land improvements Answer: Land improvements

asset

debit

balance sheet

permanent

Diff: 3 LO: 16-4 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 35) Column 1

Column 2

Column 3

Column 4

Column 1 asset

Column 2 debit

Column 3 balance sheet

Column 4 permanent

Building Answer: Building

Diff: 3 LO: 16-4 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 36) Column 1

Column 2

Column 3

Column 4

Column 1 asset

Column 2 debit

Column 3 balance sheet

Column 4 permanent

Land Answer: Land

Diff: 3 LO: 16-4 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

37) On January 1, 202X, Maxwell Company bought a patent for $60,000. Its estimated useful life is six years. Record the amortization for the first two years. Answer: Year 1 Amortization Expense, Patents 10,000 Patent 10,000 Year 2 Amortization Expense, Patents Patent

10,000 10,000

Amortization Expense = $60,000/6 = $10,000 per year Diff: 2 LO: 16-4 AACSB: Reflective Thinking Learning Outcome: Describe the accounting treatments for intangible assets 38) If a coal deposit has 700,000 tons available and was purchased for $1,400,000, record the removal of 50,000 tons in year 1 and 70,000 tons in year 2. Answer: Year 1 Depletion Expense–Coal Deposit 100,000 Accumulated Depletion, Coal Deposit 100,000 Year 2 Depletion Expense–Coal Deposit Accumulated Depletion, Coal Deposit

140,000 140,000

Depletion rate = $1,400,000/700,000 = $2 per ton Year 1 Depletion Expense = $2 x 50,000 tons = $100,000 Year 2 Depletion Expense = $2 x 70,000 tons = $140,000 Diff: 2 LO: 16-4 AACSB: Analytical Thinking Learning Outcome: Describe the accounting treatments for intangible assets

College Accounting, 15e (Slater) Chapter 17 Partnership Learning Objective 17-1 1) Many associations, which include two or more persons that create a medical center or law firm could organize as a: A) sole proprietorship. B) corporation. C) partnership. D) Both B and C are correct. Answer: D Diff: 1 LO: 17-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 2) The accounting procedures are the same for sole proprietorships as for partnerships with the exception of: A) the asset section includes more than one cash account. B) the liability section. C) the revenue section. D) the capital section has separate capital sections for each partner. Answer: D Diff: 1 LO: 17-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 3) Articles of partnership: A) are required to form a partnership by federal law. B) are a formal written agreement that states the partners' relationship. C) may be an oral agreement. D) Both B and C are correct. Answer: B Diff: 1 LO: 17-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 4) Dissolution of a partnership can occur under the limited life characteristic if a partner: A) dies. B) becomes incapacitated. C) goes bankrupt. D) All of the above are correct. Answer: D Diff: 1 LO: 17-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

5) The characteristic that means the actions of one partner are binding on all the other partners in a partnership is known as: A) mutual agency. B) exclusive agency. C) unlimited life. D) limited liability. Answer: A Diff: 1 LO: 17-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 6) The characteristic that means if a partnership is unable to pay its obligations all general partners are individually liable is known as: A) limited life. B) unlimited liability. C) limited liability. D) mutual agreement. Answer: B Diff: 1 LO: 17-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 7) A partner that is personally liable for all of the debts of the partnership is known as: A) a limited partner. B) a general partner. C) a mutual partner. D) None of these answers is correct. Answer: B Diff: 1 LO: 17-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 8) Which of the following is true of a partnership? A) Actions of one partner are not binding on all the other partners. B) Each general partner is individually liable for partnership debts. C) The partnership itself pays taxes. D) Both A and B are correct. Answer: B Diff: 1 LO: 17-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

9) Bob and Sam formed a partnership. Bob invested $14,000, cash; Sam invested $7000 cash and equipment with a fair value of $11,000. The proper entry to record this is to: A) debit Cash $21,000; debit Equipment $11,000; credit Capital $32,000. B) debit Cash $21,000; debit Equipment $11,000; credit Accounts Payable $32,000. C) debit Cash $21,000; debit Equipment $11,000; credit Bob, Capital $14,000; and credit Sam, Capital $18,000. D) debit Cash $21,000; credit Bob, Capital $14,000; and credit Sam's Capital $7000. Answer: C Diff: 2 LO: 17-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 10) Tricia and Jennifer formed a partnership. Tricia invested $15,000 cash; Jennifer invested $10,000 cash, equipment with a fair value of $7000, and $4000 accounts payable. The proper entry to record this is: A) debit Cash $25,000; debit Equipment $7000; credit Accounts Payable $4000; credit Tricia, Capital $15,000; and credit Jennifer, Capital $13,000. B) debit Cash $25,000; debit Equipment $3000; debit Accounts Payable $4000; credit Tricia, Capital $16,000; and credit Jennifer, Capital $16,000. C) debit Cash $25,000; debit Equipment $7000; credit Tricia, Capital $16,000; and credit Jennifer, Capital $16,000. D) debit Cash $21,000; debit Equipment $7000; credit Tricia, Capital $15,000; and credit Jennifer, Capital $13,000. Answer: A Diff: 2 LO: 17-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 11) John, a partner of Jones Candle Store, invested furniture that was recorded at a value above the fair market value. This error would cause: A) the period's net income to be overstated. B) the period's ending capital balance to be understated. C) the period's ending assets balance to be overstated. D) the period's ending assets balance to be understated. Answer: C Diff: 3 LO: 17-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

12) In comparison with the sole proprietorship form of business organization, forming a partnership offers which of the following advantages? A) Limited life B) Legal liability of each partner for all of the debts C) Combination of ability and experience of the partners D) Simple transfer of interest in the partnership to outsiders Answer: C Diff: 1 LO: 17-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 13) When two proprietors decide to combine their businesses and form a partnership, GAAP usually requires that noncash assets be taken over at their: A) residual value on the date of the formation of the partnership. B) book value on the date of the formation of the partnership. C) fair market value on the date of the formation of the partnership. D) historical cost on the date of the formation of the partnership. Answer: C Diff: 1 LO: 17-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 14) Which of the following is NOT generally written into the articles of partnership agreement? A) How new partners are admitted B) How accounting records will be maintained C) The marital status of each partner D) All are written into the agreement. Answer: C Diff: 2 LO: 17-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 15) In a partnership, all partners are bound together in the agreement and each acts on the behalf of the partnership. Therefore, ________ has been established. A) limited life B) limited risk C) mutual agency D) unlimited liability Answer: C Diff: 1 LO: 17-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

16) Kim, a partner in Jones Candle Store, invested equipment in the partnership that has a market value exceeding book value; the equipment was recorded at its book value. This error would cause: A) future period's net income to be understated. B) this period’s ending assets balance to be understated. C) this period's ending assets balance to be overstated. D) None of these is correct. Answer: B Diff: 3 LO: 17-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 17) All assets held by a partnership are: A) co-owned by all partners. B) owned by the partner(s) who purchased the assets. C) owned by the partners based on investment percentage. D) personally owned by each partner. Answer: A Diff: 1 LO: 17-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 18) Jane's investment in a new partnership includes $6000 cash and equipment at a fair value of $8000. The new partnership is assuming $2200 of Jane's accounts payable. The partnership entry should be to: A) debit Jane, Capital $11,800; debit Accounts Payable $2200; credit Cash $6000; credit Equipment $8000. B) debit Cash $6000; debit Equipment $8000; credit Jane, Capital $14,000. C) debit Cash $6000; debit Equipment $8000; credit Accounts Payable $2200; credit Jane, Capital $11,800. D) debit Jane, Investment $14,000; credit Capital $14,000. Answer: C Diff: 2 LO: 17-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 19) Nathan Long is entering into a partnership with Terri. Nathan is investing $6000 cash and equipment currently on Nathan's books at $15,000 and accumulated depreciation of $5000. The equipment has a fair market value of $11,000. The entry to record Nathan's investment should be to: A) debit Cash $6000; debit Equipment $15,000; credit Accumulated Depreciation $5000; credit Long, Capital $16,000. B) debit Cash $6000; debit Equipment $11,000; credit Accumulated Depreciation $5000; credit Long, Capital $12,000. C) debit Long, Capital $11,000; debit Accumulated Depreciation $5000; credit Cash $6000; credit Equipment $10,000. D) debit Cash $6000; debit Equipment $11,000; credit Long, Capital $17,000. Answer: D Diff: 2 LO: 17-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

20) A partnership can be formed with an oral agreement. Answer: TRUE Diff: 1 LO: 17-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 21) The Uniform Partnership Act defines a partnership as "an association of two or more persons to carry on as co-owners of a business for profit." Answer: TRUE Diff: 1 LO: 17-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 22) General partners have liability only up to the amount they invested in the partnership. Answer: FALSE Diff: 1 LO: 17-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 23) Mutual agency means that the act of a single partner is binding on all the other partners. Answer: TRUE Diff: 1 LO: 17-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 24) If Sam invests $11,000 cash in a partnership, Cash is debited $11,000, and Sam, Capital is credited $11,000. Answer: TRUE Diff: 1 LO: 17-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

Given the following accounts: [1] Cash [2] Accounts receivable [3] Allowance for doubtful accounts [4] Merchandise inventory [5] Store supplies [6] Store equipment [7] Accumulated depreciation [8] Notes payable [9] Accounts payable [10] John Partner, Capital [11] Joy Partner, Capital [12] John Partner, withdrawals [13] Joy Partner, withdrawals [14] Income summary [15] Service revenue [16] Gain on realization [17] Loss on realization Indicate the account(s) to be debited and credited to record the following transactions. 25) John, a partner, invested cash in the business. Debit ________ Credit ________ Answer: Debit 1, Credit 10 Diff: 3 LO: 17-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 26) John accepted Joy into the partnership with an investment of cash, inventory, and store equipment with a fair value of $10,000. Debit ________ & ________ & ________ Credit ________ Answer: Debit 1 & 4 & 6, Credit 11 Diff: 3 LO: 17-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 27) The business paid on account. Debit ________ Credit ________ Answer: Debit 9, Credit 1 Diff: 3 LO: 17-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

28) The business bought store equipment on account. Debit ________ Credit ________ Answer: Debit 6, Credit 9 Diff: 3 LO: 17-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 29) The business provided services on credit. Debit ________ Credit ________ Answer: Debit 2, Credit 15 Diff: 3 LO: 17-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 30) Prepare the journal entry to record the partners' investment in the company. Palmer invests $3,000 cash and equipment on his books at $7,000 with accumulated depreciation of $500. The fair market value of the equipment is $6,000. Evans is investing $6,000 cash and $1,000 accounts payable. Answer: Accounts Debit Credit Cash 3,000 Equipment 6,000 Palmer, Capital 9,000 Cash

6,000 Accounts Payable Evans, Capital

1,000 5,000

Diff: 2 LO: 17-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

31) Prepare the journal entry to record the partners' investment in the company. Todd and Dillon combine their two businesses and enter into a partnership. Todd invests $10,000 cash and equipment on his books at $8,000 with accumulated depreciation of $3,000. The fair market value of the equipment is $7,000. Dillon is investing $6,000 cash, equipment with a fair market value of $2,000, and $500 accounts payable. Answer: Accounts Debit Credit Cash 10,000 Equipment 7,000 Todd, Capital 17,000 Cash Equipment Accounts Payable Dillon, Capital

6,000 2,000 500 7,500

Diff: 2 LO: 17-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 32) Jeff and Bob agreed on October 1, 202X to enter into a partnership. Jeff contributes $125,000 and Bob contributes $75,000. Journalize their initial investments. Answer: Accounts Debit Credit Cash 125,000 Jeff, Capital 125,000 Cash

75,000 Bob, Capital

75,000

Diff: 1 LO: 17-1 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

33) Discuss (a) the purpose of the articles of partnership, and (b) indicate the items that should be included. Answer: a) The purpose of the articles of partnership is to provide in writing the agreement set forth by the partnership to avoid any misunderstandings in the future. When two or more people agree orally or in writing to be partners, a contract results. Although the oral agreement is binding, it makes more sense to seek legal advice and have a formal written agreement prepared to protect the interests of the partners. b) Some of the items that should be included are: 1. Name and address of each partner, along with the date of the agreement. 2. Rights and responsibilities of each partner. 3. Amount that each partner is investing. 4. Specific manner in which partners' profits or losses will be shared. 5. Provisions for one or more partners quitting the partnership. 6. How new partners will be admitted. 7. How assets will be distributed if the business is completely terminated. 8. How accounting records will be maintained. Diff: 2 LO: 17-1 AACSB: Written and Oral Communication Learning Outcome: Define accounting terms, accounting concepts and principles 34) Discuss the following characteristics of partnerships: a) Limited life b) Mutual agency c) Unlimited liability Answer: a) A partnership has a limited life. Whenever there is a change in the ownership of a partnership, the partnership is dissolved. If a partnership is dissolved, a new partnership can be formed, and the business can continue to operate without any interruptions. b) Mutual agency means that the actions of one partner are binding on all the other partners. This is true as long as the action is within the scope of the business. All the partners are agents of the business. c) Unlimited liability means that if a partnership is unable to pay its obligations, each general partner is individually liable to cover, with his or her personal assets, the obligations the partnership cannot meet. New partners are generally not liable for pre-existing debts. Some states provide for limiting certain partners' liability to the amount of their investment. These people are called limited partners. Diff: 2 LO: 17-1 AACSB: Written and Oral Communication Learning Outcome: Define accounting terms, accounting concepts and principles

Learning Objective 17-2 1) A method of dividing net income or loss between the partners is known as a(n): A) salary allowance. B) interest allowance. C) payroll allowance. D) Both A and B are correct. Answer: D Diff: 1 LO: 17-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 2) Which method of allocation of profits and losses is based on a percent of initial investment of the partners? A) Salary allowance B) Salary expense C) Profit and loss ratio D) Interest allowance Answer: D Diff: 1 LO: 17-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 3) The agreed-upon ratio for dividing earnings or losses of a partnership is called: A) interest allowance. B) salary allowance. C) profit and loss ratio. D) profit and loss allowance. Answer: C Diff: 1 LO: 17-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 4) Sherry and Jim entered into a partnership agreement. However, the agreement did not state how income and losses would be divided. The law states that income will be divided: A) equally. B) according to investments. C) according to allocated salaries. D) None of these answers is correct. Answer: A Diff: 1 LO: 17-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

5) Using the interest allowance method to divide the partnership’s net income, each partner earns interest on their capital investment at a rate of 10%. Compute Julie and Jennifer's share of net income if Julie invested $50,000 and Jennifer invested $36,000. The remainder after distribution of interest on capital is to be divided equally. Net income was $12,000. A) Julie $5000; Jennifer $3600 B) Julie $6700; Jennifer $5300 C) Julie $6000; Jennifer $6000 D) None of these answers is correct. Answer: B Explanation: Julie: (10% × $52,000) + ($3,000 × ½) = $6,700 Jennifer: (10% × $38,000) + ($3,000 × ½) = $5,300 Diff: 2 LO: 17-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 6) What is the closing entry to allocate net income of $69,000 to Sara, Ellen, and Mary? Respective capital balances are $58,000, $87,000, and $21,000. No agreement was made for division of income. (Round any intermediate calculations to two decimal places, and your final answers to the nearest dollar.) A) Debit Income Summary $69,000; credit Sara, Capital $23,000; credit Ellen, Capital $23,000; credit Mary, Capital $23,000 B) Debit Income Summary $69,000; credit Sara, Capital $24,108; credit Ellen, Capital $36,163; credit Mary, Capital $8729 C) Debit Salary Expense $69,000; credit Salaries Payable $69,000 D) Net income cannot be allocated. Answer: A Explanation: $48,000/3 = $16,000 Diff: 3 LO: 17-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 7) What is the closing entry to allocate net income of $240,000 to Eric, Von, and Derek? Their respective capital balances are $23,000, $69,000, and $138,000. Net income is shared in a ratio of their capital balances. A) Debit Income Summary $240,000; credit Eric, Capital $24,000; credit Von, Capital $72,000; credit Derek, Capital $144,000 B) Debit Income Summary $240,000; credit Eric, Capital $80,000; credit Von, Capital $80,000; credit Derek, Capital $80,000 C) Debit Salary Expense $240,000; credit Salaries Payable $240,000 D) Net income cannot be allocated. Answer: A Explanation: Total Capital : $69,000 + $69,000 + $92,000 = $230,000 Eric, Capital: 69/230 × $210,000 = $63,000 Von, Capital: Same as Eric Derek, Capital: 92/230 × $210,000 = $84,000 Diff: 3 LO: 17-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

8) The journal entry to close net income to the partners is to: A) debit Income Summary; credit the capital accounts. B) debit the capital accounts; credit Income Summary. C) debit the capital accounts; credit Net Loss. D) debit Net Loss; credit the capital accounts. Answer: A Diff: 1 LO: 17-2 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 9) The original capital balances of partners Bridget and Emily are $9000 and $22,000, respectively. Bridget and Emily work full time in the business. The business earned net income of $13,000 for the period. The partners have agreed to share earnings based upon the percentage of original investment. Bridget's share of the net income is: (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.) A) $5318. B) $6500. C) $3770. D) indeterminable. Answer: C Explanation: Total Capital $9,000 + $19,000 = $28,000 Bridget Share of net income: $20,000 × 9/28 = $6,400 Diff: 2 LO: 17-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 10) The net income earned by the Brian, Bill, and Bob partnership is $21,000. Their respective capital balances are $26,000, $26,000, and $52,000. What is the closing entry to allocate the net income if no agreement was made for division of income? A) Debit Income Summary $21,000; credit Brian, Capital $7000; credit Bill, Capital $7000; credit Bob, Capital $7000 B) Debit Income Summary $21,000; credit Brian, Capital $5250; credit Bill, Capital $5250; credit Bob, Capital $10,500 C) Debit Brian, Capital $7000; debit Bill, Capital $7000; debit Bob, Capital $7000; credit Income Summary $21,000 D) Not enough information given to allocate Answer: A Diff: 2 LO: 17-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

11) Allison and Josh are partners in a business. Allison's capital is $130,000 and Josh's capital is $180,000. Profits for the year are $80,000. They agree to share profits and losses as follows:

Salaries Interest on capital Remaining profits and losses

Allison $21,000 10% 3/5

Josh $40,000 10% 2/5

What is the amount of net income allocated to Allison? (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.) A) $26,800 B) $59,129 C) $33,548 D) $11,400 Answer: A Explanation: Salary $21,000 + Interest $(130,000 * .1) – Share of Deficit (-$12,000 × 60%) = $26,800 Share of Deficit: $(80,000 - 40,000 - 21,000) - (130,000 *.1) - (180,000 *.1) Diff: 3 LO: 17-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 12) Allison and Josh are partners in a business. Allison's capital is $80,000 and Josh's capital is $190,000. Profits for the year are $90,000. They agree to share profits and losses as follows:

Salaries Interest on capital Remaining profits and losses

Allison $18,000 10% 3/5

Josh $46,000 10% 2/5

What is the amount of net income allocated to Josh? (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.) A) $45,630 B) $64,600 C) $26,667 D) $15,600 Answer: B Explanation: Salary $46,000 + Interest ($190,000 * 0.1) - Share of Deficit (-$1,000 × 40%) = $64,600 Share of Deficit: $(90,000 - 46,000 - 18,000) - (80,000 *.1) - (190,000*.1) Diff: 3 LO: 17-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

13) Alice and James are partners in a business. Alice's capital is $80,000 and James's capital is $120,000. Profits for the year are $90,000. They agree to share profits and losses as follows:

Salaries Interest on capital Remaining profits and losses

Alice $21,000 10% 50%

James $40,000 10% 50%

James's share of the profit is: A) $36,000. B) $45,000. C) $27,000. D) $55,600. Answer: D Explanation: Salary $120,000 + Interest ($120,000 * .1) + Excess ($9,000 × 50%) = $55,600 Excess Calculation: ($90,000 - 40,000 - 21,000) - ($80,000 * .1) - ($120,000 * .1) Diff: 3 LO: 17-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 14) Alice and James are partners in a business. Alice's capital is $100,000 and James's capital is $150,000. Profits for the year are $140,000. They agree to share profits and losses as follows:

Salaries Interest on capital Remaining profits and losses

Alice $25,000 10% 50%

James $40,000 10% 50%

Alice's share of the profit is: A) $56,000. B) $70,000. C) $60,000 D) $25,000 Answer: C Explanation: Salary $25,000 + Interest ($100,000 * .1) + Excess ($50,000 × 50%) = $60,000 Excess Calculation: ($140,000 - 40,000 - 25,000) - ($100,000 * .1) - ($150,000 * .1) Diff: 3 LO: 17-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

15) Using the interest allowance method, compute Taylor and Timmy's share of net income if Taylor invested $380,000 and Timmy invested $730,000 at a 6% interest rate, for each partner with the remainder to be divided equally. Net income was $110,000. A) Taylor, $37,658; Timmy, $72,342 B) Taylor, $55,000; Timmy, $55,000 C) Taylor, $44,500; Timmy, $65,500 D) None of these answers is correct. Answer: C Explanation: Taylor, Capital: $380,000 × 6% = $22,800 Timmy, Capital: $730,000 × 6% = $43,800 Taylor, Capital = $22,800+ 1/2($110,000 - $22,800 - $43,800) = $44,500 Timmy, Capital = $43,800 + ½ ($110,000 - $22,800- $43,800) = $65,500 Diff: 2 LO: 17-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 16) The basis on which profits and losses are shared is governed by: A) the SEC. B) the IRS. C) the partnership agreement. D) the partners and must be shared equally. Answer: C Diff: 1 LO: 17-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 17) The different partners are taxed on: A) the gross revenue of the partnership. B) the amount they withdraw from the partnership. C) the total amount of the net profit of the partnership. D) the partners' share of the net profit of the partnership. Answer: D Diff: 2 LO: 17-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 18) Two types of allowances that may be considered before the division of profits and losses are: A) interest and salary allowances. B) interest and bonus allowances. C) salary and bonus allowances. D) bonus and liquidation allowances. Answer: A Diff: 1 LO: 17-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

19) The income/loss agreement was ignored when closing the income summary and all income was distributed evenly. This error would cause: A) the total partners' equity to be overstated. B) the total partners' equity to be understated. C) the total partners' equity to be unaffected. D) the ending assets to be overstated. Answer: C Diff: 3 LO: 17-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 20) Applying the ratio based on beginning capital, compute Tom and Troy's share of net income if Tom invested $700,000 and Troy invested $600,000. Net income was $80,000. (Round any intermediate calculations to two decimal places, nd your final answers to the nearest dollar.) A) Tom, $20,000; Troy, $60,000 B) Tom, $40,000; Troy, $40,000 C) Tom, $43,200; Troy, $36,800 D) None of these answers is correct. Answer: C Explanation: Tom: $700,000/ ($700,000 + $600,000) = 0.54 × $80,000 = $43,200; Troy: $600,000 / ($700,000 + $600,000) = 0.46 × $80,000 = $36,800 Diff: 2 LO: 17-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 21) Partner B invested inventory using the retail selling price for valuation. Some of the inventory is unsold at the end of the accounting period. This error would cause: A) the period's net income to be overstated. B) the period's net income to be understated. C) the ending assets to be overstated. D) Both B and C are correct. Answer: D Diff: 3 LO: 17-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

22) Applying the profit and loss ratio method, compute Taylor and Timmy's share of net income if Taylor invested $400,000 and Timmy invested $800,000 and the profit and loss ratio is 3:2. Net income was $30,000. A) Taylor, $10,000; Timmy, $20,000 B) Taylor, $15,000; Timmy, $15,000 C) Taylor, $18,000; Timmy, $12,000 D) None of these answers is correct. Answer: C Explanation: Taylor $30,000 × 3/5 = $18,000; Timmy $30,000 × 2/5 = $12,000 Diff: 2 LO: 17-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 23) Kim and John formed a partnership three years ago. John invested $110,000 and Kim invested $50,000. The partnership had $150,000 in income during the current year. There is no agreement as to how income is divided. Kim and John's share is: A) Kim gets $150,000 and John gets $50,000. B) Kim gets $50,000 and John gets $150,000. C) Kim gets $75,000 and John gets $75,000. D) some other division. Answer: C Diff: 2 LO: 17-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 24) Partners Brian, Josh, and Chad have capital balances of $12,000, $10,000, and $87,000, respectively. The net loss for the year is $16,000. What will Josh's ending capital balance be if the three partners share profits and losses at a 2:2:6 ratio for Brian, Josh, and Chad, respectively? A) $6800 debit balance B) $8800 debit balance C) $3200 debit balance D) $6800 credit balance Answer: D Explanation: 2/10 × $16,000 Net Loss = $3200; $10,000 - $3200 = $6800 Diff: 3 LO: 17-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

25) Partners Brian, Josh, and Chad have average capital balances of $14,000, $6000, and $94,000, respectively. Net income for the year is $18,000. Salary allowances are $22,000 for Brian and $4000 for Josh. Chad gets 10% interest on his capital balance with the remainder being divided at a 1:1:2 ratio for Brian, Josh, and Chad, respectively. What is Brian's ending capital balance after distributing the net income? (Assume no change in capital balances during the year.) A) $31,650 credit balance B) $4500 debit balance C) $18,500 debit balance D) $14,000 debit balance Answer: A Explanation: Brian Salary $22,000; Josh Salary $4000; Chad Interest $(94,000 x 10%); Total $35,400. Net income is $18,000 so $17,400 deficit must be distributed. Brian gets ¼ × $17,400 = $4350. Brian Change to Capital: $22,000 - $4350 = $17,650 Brian Ending Capital: $14,000 Beg. Bal. + $17,650 = $31,650 Deficit: $18,000 - $35,400 = $17,400 Diff: 3 LO: 17-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 26) Partners Jessica and Jill receive salary allowances of $11,000 and $13,000, respectively. They share income and losses in a 3:1 ratio for Jessica and Jill, respectively. If the partnership suffers a $25,000 net loss, by how much would Jessica's capital decrease? A) $18,750 B) $7750 C) $14,000 D) $25,750 Answer: D Explanation: Jessica Salary $11,000; Jill Salary $13,000; Total $24,000 + $25,000 Net Loss = $49,000 deficit Jessica receives $49,000 × ¾ = $36,750; Jill receives $49,000 × ¼ = $12,250 Jessica’s Capital account = $11,000 Salary - $36,750 Deficit = ($25,750) Diff: 3 LO: 17-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 27) Jan and Ben are partners, with beginning capital balances of $70,000 and $58,000 respectively. During the year, Jan withdrew $15,000 and Ben withdrew $20,000. The year's net income of $50,000 was distributed $21,000 to Jan and $29,000 to Ben. Calculate the ending balances in the capital accounts. A) Jan, $55,000; Ben, $38,000 B) Jan, $76,000; Ben, $67,000 C) Jan, $89,000; Ben, $89,000 D) Jan, $70,000; Ben, $58,000 Answer: B Explanation: Jan: Beg. Capital $70,000 + Net income $21,000 – Withdrawals $15,000 = $76,000 Ben: Beg. Capital $58,000 + Net income $29,000 – Withdrawals $20,000 = $67,000 Diff: 2 LO: 17-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

28) A cash withdrawal of a partner was recorded the same as paying payroll. This error would cause: A) the period's net income to be understated. B) the period's net income to be overstated. C) the period's ending assets to be overstated. D) the period's ending assets to be understated. Answer: A Diff: 3 LO: 17-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 29) A statement of partner's equity is the same as a statement of owner's equity except: A) there is a capital account for each partner. B) net income is assigned to one partner. C) no additional investment by partners is shown on the statement. D) There is no difference in the statements. Answer: A Diff: 2 LO: 17-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 30) Partnerships are subject to federal income tax. Answer: FALSE Diff: 1 LO: 17-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 31) The statement of partners' equity reveals each partner's ownership by indicating each partner’s amount of capital. Answer: TRUE Diff: 2 LO: 17-2 AACSB: Reflective Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 32) Partners are required to report their share of partnership earnings on their personal tax return. Answer: TRUE Diff: 1 LO: 17-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

33) After calculating salary and interest allowances, it is necessary to determine whether partnership net income will cover these allowances. Answer: TRUE Diff: 2 LO: 17-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 34) The profit or loss is required to be divided equally between the partners if not stated otherwise. Answer: TRUE Diff: 1 LO: 17-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 35) A deficit occurs when net income is not large enough to cover salary and interest allowances for the partners. Answer: TRUE Diff: 2 LO: 17-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 36) An interest allowance is based on a partner's individual investment of capital. Answer: TRUE Diff: 1 LO: 17-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 37) A profit and loss ratio must be based on capital contributions. Answer: FALSE Diff: 2 LO: 17-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 38) An interest allowance can be based on the beginning capital balance of each partner. Answer: TRUE Diff: 1 LO: 17-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

Given the following accounts: [1] Cash [2] Accounts receivable [3] Allowance for doubtful accounts [4] Merchandise inventory [5] Store supplies [6] Store equipment [7] Accumulated depreciation [8] Notes payable [9] Accounts payable [10] John Partner, Capital [11] Joy Partner, Capital [12] John Partner, withdrawals [13] Joy Partner, withdrawals [14] Income summary [15] Service revenue [16] Gain on realization [17] Loss on realization Indicate the account(s) to be debited and credited to record the following transactions. 39) John, a partner, withdrew cash from the business. Debit ________ Credit ________ Answer: Debit 12, Credit 1 Diff: 3 LO: 17-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 40) Closed the income summary to the partners' accounts with a net income. Debit ________ Credit ________ & ________ Answer: Debit 14, Credit 10 & 11 Diff: 3 LO: 17-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 41) Closed the income summary, there is a net loss. Debit ________ & ________ Credit ________ Answer: Debit 10 & 11, Credit 14 Diff: 3 LO: 17-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

42) The partnership of Smith and Jones, who have average capital balances of $17,000 and $23,000, respectively, earned $90,000 net income. Under each of the following independent situations, calculate the distribution of the $90,000. a) No agreement was established. b) Share based on their average capital balances. Answer: a) Smith, $45,000; Jones, $45,000 b) Smith, $38,250; Jones, $51,750 Smith: 17/40 × $90,000 = $38,250; Jones: 23/40 × $90,000 = $51,750 Diff: 2 LO: 17-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 43) Jan and Bill have average capital balances of $35,000 and $20,000, respectively. The partners have agreed to allow $20,000 salary allowances. The partners will share income and losses in a 1:2 ratio for Jan and Bill, respectively. How much will each partner's capital account change if net income is $130,000? Answer: Jan Bill Total Salary $20,000 $20,000 40,000 1:2 30,000 60,000 $90,000 Share of Net Income $50,000 $80,000 $130,000 Diff: 2 LO: 17-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 44) Jean and Joy are partners, with beginning capital balances of $100,000 and $70,000 respectively. During the year, Jean withdrew $20,000 and Joy withdrew $15,000. The year's net income of $40,000 was distributed $15,000 to Jean and $25,000 to Joy. Prepare a statement of Partners' equity for the year ended December 31, 20XX. Answer: Jean and Joy Statement of Partners' Equity For the year ended December 31, 20XX Jean Joy Capital Balances, January 1, 20XX $100,000 $70,000 Add: Net Income $15,000 $25,000 Subtotals $115,000 $95,000 Less: Withdrawals $20,000 $15,000 Capital Balances, December 31, 20XX $95,000 $80,000 Diff: 3 LO: 17-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

45) Partners Brian, Josh, and Chad have average capital balances of $20,000, $10,000, and $70,000, respectively. Net income for the year is $90,000. Salary allowances are $20,000 for Brian and $20,000 for Josh. Each partner gets 10% interest on his capital balance with the remainder being divided at a 1:1:2 ratio for Brian, Josh, and Chad, respectively. What is the amount of net income distributed to each partner? (Assume no change in capital balances during the year.) Answer: Brian Josh Chad Total Salary $20,000 $20,000 $0 $40,000 Interest on Capital Investment (10%) 2,000 1,000 7,000 10,000 Remainder 1:1:2 10,000 10,000 $20,000 $40,000 Share of Net Income to Partners $32,000 $31,000 $27,000 $90,000 Diff: 3 LO: 17-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

Learning Objective 17-3 1) Jim wants to invest cash so that he will have a one-third interest in Tom and Steve's company. The capital balances are $10,000 Tom, $27,000 Steve. The admission of Jim would be to: A) debit Cash $9000; credit Jim, Capital $9000. B) debit Cash $12,333; credit Jim, Capital $12,333. C) debit Cash $18,500; credit Jim, Capital $18,500. D) debit Cash $20,000; credit Jim, Capital $20,000. Answer: C Diff: 3 LO: 17-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 2) The Ben and Jill partnership agree to admit Fred with a one-third interest for $14,000. Ben and Jill's capital balances are $12,000, and $16,000, respectively, and they share profits and losses equally. The entry to admit Fred would include: A) debit Cash $14,000; credit Fred, Capital $14,000. B) debit Cash $14,000; credit Ben, Capital $3,500; debit Jill, Capital $3,500; credit Fred, Capital $7,000. C) debit Cash $28,000; credit Ben, Capital $14,000; credit Jill Capital $14,000. D) debit Cash $28,000; debit Ben, Capital $7,000; credit Jill, Capital $7,000; credit Fred, Capital $14,000. Answer: A Diff: 3 LO: 17-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

3) Mary sold Jill all of her equity in the Mary and Jill partnership for $25,000. If both Mary and Jill had a $15,000 capital balance, the entry to record this transaction would be to: A) debit Cash $25,000; credit Jill, Capital $25,000. B) debit Mary, Capital $15,000; credit Jill, Capital $15,000. C) debit Cash $15,000; credit Mary, Capital $15,000. D) debit Jill, Capital $15,000; credit Mary, Capital $15,000. Answer: B Diff: 2 LO: 17-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 4) When a partnership is worth more than the amounts recorded, an incoming partner may: A) be required to pay a bonus to the other partners. B) pay a smaller amount as an initial investment. C) have to pay the same as other partners. D) None of these answers is correct. Answer: A Diff: 2 LO: 17-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 5) A bonus paid by an incoming partner to the old partners is shared: A) equally. B) by the salary method. C) on the basis of old partners' profit and loss ratio. D) by the interest method. Answer: C Diff: 2 LO: 17-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 6) When recording a bonus to a new partner, the new partner will: A) pay more than what the new partner's capital account will reflect. B) pay the same as the other partners' capital accounts. C) pay less than the new partner will receive in the capital account. D) have no bonus recorded as a bonus cannot be paid to new partners. Answer: C Diff: 2 LO: 17-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

7) A bonus is paid to the old partners when: A) the old partner believes the business is worth less than the amounts recorded in the accounting records. B) the equity of a partnership is worth more than what is recorded in the accounting records. C) the company's earnings records are less than expected. D) None of these answers is correct. Answer: B Diff: 2 LO: 17-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 8) When a partner withdraws from a partnership, the partnership can: A) audit the accounting records and adjust the assets to fair market value. B) credit the account of the partner that withdrew and debit Cash. C) share any loss or profit from the historical value of assets less book value. D) None of the above answers is correct. Answer: A Diff: 2 LO: 17-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 9) Carrie withdrew from the partnership of Carrie, Carl, and Van, and accepted $17,000 cash. Her capital balance was $22,100 and the difference will be shared in a ratio of 2:1 for Carl and Van, respectively. The entry would be to: A) debit Cash $17,000; credit Van, Capital $17,000. B) debit Van, Capital $22,100; credit Cash $22,100. C) debit Carrie, Capital $22,100; credit Cash $17,000; credit Carl, Capital $3400; credit Van, Capital $1700. D) debit Cash $22,100; debit Van, Capital $3400; debit Carl, Capital $1700; credit Carrie, Capital $27,200. Answer: C Diff: 3 LO: 17-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 10) An investment by a new partner was debited to the existing partners' capital balances instead of Cash. This error would cause: A) the new partner's capital account to be understated. B) the period's ending partners' equity to be understated. C) the period's ending assets to be overstated. D) None of these is correct. Answer: B Diff: 3 LO: 17-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

11) A partnership admits a new partner. The new partner invests $75,000 in the business and receives a credit of $90,000 to his capital account. The difference of $15,000 is called a(n): A) admission fee. B) partnership expense. C) bonus. D) illegal activity. Answer: C Diff: 1 LO: 17-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 12) When a partner withdraws, the partnership may have an audit to adjust the assets to their: A) historic cost. B) depreciated value. C) fair market value. D) book value. Answer: C Diff: 1 LO: 17-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 13) Carl, Brian, and Ann share profits and losses in a 2:1:1 ratio, respectively, in their partnership. The assets are to be reduced $16,000 in value when Brian wishes to leave the partnership. If each partner had a capital balance of $32,000 before Brian's notification of withdrawal, what amount should Brian be allowed to withdraw from the partnership? A) $32,000 B) $28,000 C) $16,000 D) $36,000 Answer: B Explanation: Brian reduction to capital: $16,000 × ¼ = $4000; $32,000 - $4000 = $28,000 Diff: 3 LO: 17-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

14) Tom and Barb are partners who share profits and losses in the ratio of 3:2 for Tom and Barb, respectively. Their capital balances are $51,000 and $33,000, respectively. If Jane is admitted to the partnership for a $27,000 investment for a one-fourth interest, her capital balance will be: A) $37,000. B) $18,000. C) $27,000. D) $27,750. Answer: D Explanation: ($51,000 + $33,000 + $27,000) / 4 = $27,750 Diff: 3 LO: 17-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 15) Allan and Rick are partners who share profits and losses in the ratio of 3:2 for Allan and Rick, respectively. They have capital balances of $39,000 and $43,000, respectively. If Tammy invests $35,000 for an one-third interest, Tammy's capital balance will be: (Round your answer to the nearest dollar.) A) $39,000. B) $27,333. C) $35,000. D) $23,400. Answer: A Explanation: ($39,000 + $43,000 + $35,000)/3 = $39,000 Diff: 3 LO: 17-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 16) Nathan invests $2800 for 10% interest in a partnership that has total capital of $23,000 after admitting Nathan. Which of the following is true? A) Nathan's capital is $2300. B) The original partners received a bonus of $280. C) Nathan received a bonus of $280. D) The original partners' capital in the business was $25,800 before admitting Nathan. Answer: A Diff: 3 LO: 17-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

17) Sue invests $7000 for a one-fourth interest in a partnership in which the other partners have capital totaling $27,000 before admitting Sue. After distribution of the bonus, Sue's capital is: A) $7000. B) $6750. C) $5000. D) $8500. Answer: D Explanation: ($27,000 + $7000)/4 = $8500 Diff: 3 LO: 17-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 18) Bill pays Steve $17,000 for his $14,000 interest in a partnership. On the partnership books: A) Bill will have capital of $14,000. B) Bill will have capital of $17,000. C) Bill will have capital of $31,000. D) None of these answers is correct. Answer: A Diff: 2 LO: 17-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 19) Joan and Helen are partners who have agreed to allow Carol to purchase Helen's share for a direct payment of $36,000 to Helen. Joan and Helen's previous capital balances were $18,000 and $17,000, respectively. What will be the amount in Carol's capital account? A) $17,000 B) $18,000 C) $36,000 D) Some other number Answer: A Diff: 3 LO: 17-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

20) Sol and Joe are partners sharing profits and losses in a 3:2 ratio for Sol and Joe, respectively. Their capital balances are $13,000 and $24,000, respectively. The partners agree to admit Dan for $16,000 for a 25% interest in the partnership. Joe's capital balance after admitting Dan is: A) $13,000. B) $21,200. C) $2750. D) $8000. Answer: C Explanation: Dan, Capital: ($13,000 + $24,000 + $16,000) / 4 = $13,250; Bonus to old Partners = $16,000 - $13,250 = $2750; Joe, Capital: $24,000 + ($2750 × 2/5) = $2750 Diff: 3 LO: 17-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 21) When a partnership is dissolved: A) it is implied that the business cannot form a different ownership structure. B) it is implied that the business cannot continue with a new group of partners. C) it is implied that it must be dissolved with any change in partnership structure. D) it is implied that the business will not halt operations. Answer: C Diff: 2 LO: 17-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 22) "Limited life" in a partnership agreement means: A) a partnership is limited in the amount of debt it is liable for in the course of the business. B) a partnership is limited to the amount of revenue it can earn. C) a partnership may be dissolved if the location of the business has changed. D) a partnership may be dissolved as the result of any change in the ownership. Answer: D Diff: 2 LO: 17-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 23) Bernstein is brought into the partnership. His capital is equal to his net assets that he brings to the partnership. He brings assets with a fair market value of $168,000 and liabilities of $32,000. His capital balance will be: A) $32,000. B) $168,000. C) $200,000. D) $136,000. Answer: D Diff: 2 LO: 17-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

24) A partnership can be joined by a new partner by: A) investing into the business. B) purchasing an equity interest in the business. C) buying out one of the partners and taking over their interest (by mutual agreement). D) All of the above are correct. Answer: D Diff: 1 LO: 17-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 25) A partner may withdraw from a partnership and take assets valued at more than book equity if: A) the remaining partners are anxiously awaiting the partner's retirement. B) the partnership assets are overvalued. C) the partnership assets are undervalued. D) Both A and C are correct. Answer: C Diff: 2 LO: 17-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 26) A new partner was admitted, but the assets weren't revalued. A revaluation would have decreased the equity of the new partner and partnership. This error would cause: A) the old partners' capital to be understated. B) the future periods' net income to be overstated. C) this period's ending assets to be understated. D) the new partner's capital to be overstated. Answer: D Diff: 3 LO: 17-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 27) If the retiring partner's interest is sold to one of the remaining partners, the retiring partner's equity is split equally between the remaining partners. Answer: FALSE Diff: 2 LO: 17-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 28) When the equity of a partnership is less than amounts recorded in the accounting records, an incoming partner may have to pay a bonus. Answer: FALSE Diff: 2 LO: 17-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

Given the following accounts: [1] Cash [2] Accounts receivable [3] Allowance for doubtful accounts [4] Merchandise inventory [5] Store supplies [6] Store equipment [7] Accumulated depreciation [8] Notes payable [9] Accounts payable [10] John Partner, Capital [11] Joy Partner, Capital [12] John Partner, withdrawals [13] Joy Partner, withdrawals [14] Income summary [15] Service revenue [16] Gain on realization [17] Loss on realization Indicate the account(s) to be debited and credited to record the following transactions. 29) Closed Joy Partner's withdrawals. Debit ________ Credit ________ Answer: Debit 11, Credit 13 Diff: 3 LO: 17-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 30) Ann and Bill's partnership capital balances are $50,000 and $70,000, respectively. They share profits and losses in a ratio of 1:3 for Ann and Bill, respectively. Robin is admitted to the partnership, invests $65,000 for a 40% interest, and is awarded a bonus. Prepare the journal entry to admit Robin to the partnership. Answer: Cash 65,000 Ann, Capital 2,250 Bill, Capital 6,750 Robin, Capital 74,000 Total capital = $50,000 + $70,000 + $65,000 = $185,000 40% × $185,000 = $74,000 $74,000 - $65,000 = $9,000 bonus to Robin Ann = 1/4 × $9,000 = $2,250 Bill = 3/4 × $9,000 = $6,750 Diff: 3 LO: 17-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

31) Jones and James' partnership capital balances are $65,000 and $85,000, respectively. They share profits and losses in a 1:3 ratio for Jones and James, respectively. Johnson is admitted to the partnership and invests $55,000 for a one-fourth interest, with a bonus to the old partners. Prepare the journal entry to admit Johnson to the partnership. Answer: Cash 55,000.00 Johnson, Capital 51,250.00 Jones, Capital 937.50 James, Capital 2,812.50 Total capital = $65,000 + $85,000 + $55,000 = $205,000 1/4 × $205,000 = $51,250 $55,000 - $51,250 = $3,750 bonus to old partners Jones = 1/4 × $3,750 = $937.50 James = 3/4 × $3,750 = $2,812.50 Diff: 3 LO: 17-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 32) Sue and Jill, who have ending capital balances of $80,000 and $60,000 respectively, agree to admit two new partners. Carlos will buy 1/2 of Sue's interest for $20,000 and 1/4 of Jill's interest for $25,000 directly from the partners. Carmen will invest $40,000 for a $40,000 equity interest. Journalize the entry to admit Carlos and Carmen. Answer: Accounts Debit Credit Sue, Capital ($80,000 x ½) 40,000 Carlos, Capital 40,000 Jill, Capital ($60,000 x 1/4) Carlos, Capital

15,000

Cash

40,000 Carmen, Capital

15,000

40,000

Diff: 3 LO: 17-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

33) Carl, Brian, and Ann share profits and losses in a 2:1:1 ratio, respectively, in their partnership. The assets are to be reduced $12,000 in value when Brian wishes to leave the partnership. If each partner had a capital balance of $36,000 before Brian's notification of withdrawal, what would be the journal entry for Brian’s withdrawal from the partnership assuming he receives cash for his capital balance after the revaluation? Answer: Brian, Capital 33,000 Cash 33,000 Brian: Reduction in capital = $12,000 x ¼ = $3,000 Brian: Revised capital = $36,000 - $3,000 = $33,000 Diff: 3 LO: 17-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 34) Carl, Brian, and Ann share profits and losses in a 2:1:1 ratio, respectively, in their partnership. Brian wishes to leave the partnership. Each partner had a capital balance of $36,000 after the revaluation of assets. Brian has agreed to accept $33,000 cash for his capital balance. What would be the journal entry for Brian’s withdrawal from the partnership? Answer: Brian, Capital 36,000 Cash 33,000 Carl, Capital 2,000 Ann, Capital 1,000 Excess to remaining partners = $36,000 - $33,000 = $3,000 Carl’s share: $3,000 x 2/3 = $2,000 Ann’s share: $3,000 x 1/3 = $1,000 Diff: 3 LO: 17-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

Learning Objective 17-4 1) When a partnership is terminated, the assets are sold for cash and the obligations are paid. This process is called: A) dissolution. B) termination. C) liquidation. D) None of the above. Answer: C Diff: 1 LO: 17-4 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

2) The last step taken in liquidating a partnership is to: A) sell the assets. B) divide profits on assets with partners. C) pay creditors. D) distribute the remaining cash according to partners' capital balances. Answer: D Diff: 1 LO: 17-4 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 3) The sale of noncash assets of a partnership for liquidation purposes is called a: A) sheriff's sale. B) dissolution. C) net liquidation. D) realization. Answer: D Diff: 1 LO: 17-4 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 4) Partners Randy and Mary each have $5000 capital balances and share income and losses in a 2:1 ratio for Randy and Mary, respectively. Cash equals $8000, noncash assets total $17,000, and liabilities are $12,000. If all the noncash assets are sold for $10,000, Mary's capital account will: (Round your answer to the nearest dollar.) A) increase by $10,000. B) decrease by $2333. C) decrease by $2667. D) increase by $5000. Answer: B Explanation: Loss on noncash assets = $17,000 - $10,000 = $7000 Mary’s share: $7000 × 1/3 = $2333 Diff: 3 LO: 17-4 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

5) Partners Eric and Jeremy each have $6000 capital balances and share income and losses in a 2:1 ratio for Eric and Jeremy, respectively. Cash equals $3000, noncash assets are $18,000, and liabilities are $9000. If all the noncash assets are sold for $6000, and each partner is personally insolvent, Jeremy eventually will receive cash of: A) $0. B) $3000. C) $4000. D) $6000. Answer: A Explanation: Loss on noncash assets = $16,000 - $2,000 = $14,000 Eric’s share of loss = $14,000 × 2/3 = $9,333 Jeremy’s share of loss = $14,000 × 1/3 = $4,667 Eric’s new capital balance = $7,000 - $9,333 = ($2,333) Jeremy’s new capital balance = $7,000 - $4,667 = $2,333 Jeremy absorbs deficit of $2,333 from Eric. Jeremy’s revised capital balance = $2,333 - $2,333 = 0 Diff: 3 LO: 17-4 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 6) Which of the following is an incorrect step in the process of partnership liquidation? A) Pay any liabilities B) Sell the assets C) Allocate gains and losses to partners D) None of the above Answer: D Diff: 2 LO: 17-4 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 7) A partnership can be terminated by which of the following? A) Bankruptcy B) Death of a partner C) Agreement by partners D) All of the above Answer: D Diff: 1 LO: 17-4 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

8) The last entry to liquidate a partnership would probably include: A) debit to Capital (for each partner); credit to Cash. B) debit to Cash; debit or credit to Loss or Gain from Realization; credit to individual assets sold. C) debit to individual assets sold; credit to Cash. D) None of the above. Answer: A Diff: 2 LO: 17-4 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 9) When a partnership is liquidated, the journal entry to pay the claims of creditors would include: A) a debit to partners' equity accounts. B) a debit to each individual creditor. C) a credit to cash. D) Both B and C. Answer: D Diff: 2 LO: 17-4 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 10) When a partnership is liquidated, the noncash assets are sold and the cash realized is applied first to the: A) claims of creditors. B) partner with the largest investment. C) partners' equity accounts. D) partners according to their ownership interests. Answer: A Diff: 2 LO: 17-4 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 11) The last step in a partnership liquidation is to apply cash to creditor claims. Answer: FALSE Diff: 2 LO: 17-4 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 12) After all liabilities have been paid, the remaining assets are distributed based on an equal share to each partner, no matter how the income or losses are divided based on the partnership agreement. Answer: FALSE Diff: 2 LO: 17-4 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

13) A Loss or Gain from Realization account is credited when the assets are sold at a loss during the liquidation process. Answer: FALSE Diff: 2 LO: 17-4 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 14) When the assets are sold at a loss and one partner cannot make up the deficit in his/her capital account, the other partners have no liability to make up the deficit. Answer: FALSE Diff: 2 LO: 17-4 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles Given the following accounts: [1] Cash [2] Accounts receivable [3] Allowance for doubtful accounts [4] Merchandise inventory [5] Store supplies [6] Store equipment [7] Accumulated depreciation [8] Notes payable [9] Accounts payable [10] John Partner, Capital [11] Joy Partner, Capital [12] John Partner, withdrawals [13] Joy Partner, withdrawals [14] Income summary [15] Service revenue [16] Gain on realization [17] Loss on realization Indicate the account(s) to be debited and credited to record the following transactions. 15) During liquidation, the partnership realized less than book value for the store equipment. Debit ________ & ________ & ________ Credit ________ Answer: Debit 1 & 7 & 16, Credit 6 Diff: 3 LO: 17-4 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

16) During liquidation, the partnership realized more than book value for the merchandise inventory. Debit ________ Credit ________ & ________ Answer: Debit 1, Credit 4 & 16 Diff: 3 LO: 17-4 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 17) The partnership of Rick and Allan is being liquidated. All gains and losses are shared in a 3:5 ratio, respectively. Before liquidation, their balance sheet balances are as follows: Cash Other Assets Liabilities Rick, Capital Allan, Capital

$10,000 8,000 4,000 7,000 7,000

If the Other Assets are sold for $10,000, how much will each partner receive upon liquidation? Answer: Rick $7,750 [$7,000 + ($2,000* × 3/8)] Allan $8,250 [$7,000 + ($2,000* × 5/8)] *Other Assets sold at $2,000 gain ($10,000 selling price – $8,000 book value). Diff: 3 LO: 17-4 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

18) The partnership of Brandon and Ryan is being liquidated. All gains and losses are shared in a 3:1 ratio, respectively. Before liquidation, their balance sheet balances are as follows: Cash Other Assets Liabilities Brandon, Capital Ryan, Capital

$10,000 7,000 3,000 7,000 7,000

a) If the Other Assets are sold for $10,000, how much capital will each partner have before paying liabilities and distributing the remaining assets? b) If the Other Assets are sold for $7,000, how much capital will each partner have before paying liabilities and distributing the remaining assets? c) If the Other Assets are sold for $6,000, how much capital will each partner have before paying liabilities and distributing the remaining assets? Answer: a) Brandon $9,250 = $7,000 + ($3,000 × ¾) Ryan $7,750 = $7,000 + ($3,000 × ¼) b) Brandon $7,000 Ryan $7,000 c) Brandon $6,250 = $7,000 – ($1,000 × ¾) Ryan $6,750 = $7,000 – ($1,000 × ¼) Diff: 3 LO: 17-4 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

19) After several years of business, Abel, Barney, and Cole are liquidating. The following are post-closing account balances. Cash Merchandise Inventory Other assets Accounts Payable Abel, Capital Barney, Capital Cole, Capital

38,000 73,000 137,000 61,000 50,000 50,000 87,000

Noncash assets are sold for $270,000. Profits and losses are shared equally. Record the sale of the noncash items. Answer: Cash Merchandise Inventory Other Assets Loss or Gain from Realization

270,000 73,000 137,000 60,000

Diff: 3 LO: 17-4 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 20) After several years of business, Abel, Barney, and Cole are liquidating. The following are post-closing account balances. Cash Merchandise Inventory Other assets Accounts Payable Abel, Capital Barney, Capital Cole, Capital

18,000 73,000 157,000 61,000 50,000 50,000 87,000

Noncash assets are sold for $275,000. Profits and losses are shared equally. Record the payment of the liabilities. Answer: Accounts Payable 61,000 Cash

61,000

Diff: 3 LO: 17-4 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

21) After several years of business, Abel, Barney, and Cole are liquidating. The following are post-closing account balances. Cash Merchandise Inventory Other assets Accounts Payable Abel, Capital Barney, Capital Cole, Capital

18,000 73,000 157,000 61,000 50,000 50,000 87,000

Noncash assets are sold for $305,000. Profits and losses are shared equally. After all liabilities are paid, divide the remaining cash amongst the partners. Answer: Abel, Capital 75,000 Barney, Capital 75,000 Cole, Capital 112,000 Cash 262,000 Gain on Realization = $305,000 – ($73,000 + $157,000) = $75,000 Distribution of Gain = $25,000 to each partner Abel, Capital = $50,000 + $25,000 = $75,000 Barney, Capital = $50,000 + $25,000 = $75,000 Cole, Capital = $87,000 + $25,000 = $112,000 Diff: 3 LO: 17-4 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

College Accounting, 15e (Slater) Chapter 18 Corporations: Organizations and Stock Learning Objective 18-1 1) The document granted by the state authorizing the creation of a corporation is known as: A) the articles of incorporation. B) the certificate of achievement. C) the certificate of incorporation. D) the minutes book. Answer: C Diff: 1 LO: 18-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 2) Articles of incorporation contain all of the following except: A) the purpose of the business. B) the types of stock to be offered. C) the name of the president. D) organizational structure. Answer: C Diff: 1 LO: 18-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 3) Characteristics of a corporation include: A) stockholders having limited liability. B) direct management by the stockholders. C) mutual agency. D) Both A and C are correct. Answer: A Diff: 1 LO: 18-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 4) Stockholders: A) own stock in the corporation. B) are officers elected to represent the company. C) establish policies for the company. D) are a government agency. Answer: A Diff: 1 LO: 18-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 1 Copyright © 2023 Pearson Education, Inc.

5) Officers of the corporation are: A) appointed by the stockholders. B) stockholders of the corporation. C) appointed by the board of directors. D) None of these answers is correct. Answer: C Diff: 1 LO: 18-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 6) Which of the following is a characteristic of a corporation? A) Ease of raising capital B) No mutual agency C) Unlimited life D) All of the above are correct. Answer: D Diff: 1 LO: 18-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 7) A board of directors: A) are officers elected by the government to represent the company. B) establish policies for the company. C) may not include stockholders in the corporation. D) All of the above are correct. Answer: B Diff: 1 LO: 18-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 8) A major disadvantage of a corporation is the: A) difficulty in transferring ownership. B) limited life. C) difficulty in raising capital. D) double taxation of income to the corporation and of dividends paid to shareholders. Answer: D Diff: 1 LO: 18-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

9) Stockholders in a corporation have limited liability, which means they: A) are relieved from personal liability for obligations of the corporation. B) can only lose their investment amount in the business. C) are personally liable for the obligations of the corporation. D) Both A and B are correct. Answer: D Diff: 1 LO: 18-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 10) An advantage of a corporation would be: A) limited liability for the shareholders. B) limited life. C) double taxation (income of corporation and dividends to shareholders). D) both A and B are correct. Answer: A Diff: 1 LO: 18-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 11) The financial loss that each stockholder in a corporation can incur is limited. Answer: TRUE Diff: 1 LO: 18-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 12) The corporation's charter and the articles of incorporation are available for the public to view. Answer: TRUE Diff: 1 LO: 18-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 13) The stockholders of a corporation have mutual agency. Answer: FALSE Diff: 1 LO: 18-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

14) When shares of stock are sold by a stockholder, the sale has an effect on the company's assets and liabilities. Answer: FALSE Diff: 1 LO: 18-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 15) Stockholders cannot sell or transfer their stock. Answer: FALSE Diff: 1 LO: 18-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 16) An advantage of a corporation is ease of raising capital. Answer: TRUE Diff: 1 LO: 18-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 17) Double taxation is a disadvantage of a corporation. Answer: TRUE Diff: 1 LO: 18-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 18) List and discuss the (a) advantages and (b) disadvantages of the corporation form of business. Answer: (a) The advantages of a corporation include: 1. Limited liability–stockholders are not personally liable for the debts of the corporation. 2. Unlimited life—life is perpetual unless bankruptcy, mergers, or vote of stockholders occurs. 3. Ease of transferring ownership interest—stockholders can sell or transfer shares through a broker in organized exchanges. 4. No mutual agency—individual stockholders cannot bind the corporation to contracts. 5. Ease of raising capital stock can be sold to a large number of investors. (b) Disadvantages of the corporate structure include: 1. Government regulations and difficulty in forming the corporation—legal aspects of setting up corporation charter can become expensive; there are many state and federal regulations covering corporations. 2. Corporate taxation—corporations pay tax on net income, and stockholders pay taxes on dividends received. Therefore, there is double taxation on corporation profits. Diff: 2 LO: 18-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 4 Copyright © 2023 Pearson Education, Inc.

Learning Objective 18-2 1) Paid-in capital represents: A) the cumulative earnings of the company. B) the investments of the owners into the company. C) the undistributed earnings of the company. D) None of the above. Answer: B Diff: 1 LO: 18-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 2) The maximum number of shares of capital stock that a corporation can sell is known as: A) issued capital stock. B) outstanding capital stock. C) authorized capital stock. D) treasury capital stock. Answer: C Diff: 1 LO: 18-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 3) The two major components of the Stockholders' Equity section of the balance sheet are: A) Paid-in Capital and Retained Earnings. B) Stock and Retained Earnings. C) Stock and Paid-in Capital. D) Common Stock and Preferred Stock. Answer: A Diff: 1 LO: 18-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

4) What is a right a preferred stockholder often gives up when purchasing preferred stock? A) Voting rights B) Preemptive rights C) Ability to sell stock D) A and B are correct. Answer: D Diff: 1 LO: 18-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 5) Retained earnings: A) are the same thing as cash. B) are not a part of stockholders' equity. C) are accumulated profits that are kept in the corporation. D) represent what stockholders have invested into the corporation. Answer: C Diff: 1 LO: 18-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 6) Preemptive rights allow a stockholder to: A) share in profits first. B) maintain the same proportionate ownership interest in a corporation after a new stock issue as before the new stock issue. C) vote at the annual meeting based on one vote per share. D) dispose or sell their stock without notice. Answer: B Diff: 1 LO: 18-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 7) Which of the following is a characteristic of common stock? A) The right to share in profits by receiving dividends B) The right to vote C) The right to sell their stock D) All of the above are correct. Answer: D Diff: 1 LO: 18-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

8) Preferred stockholders have what right over common stockholders? A) More risk than common stockholders B) Voting rights C) Prior claim to dividends D) Preemptive rights Answer: C Diff: 1 LO: 18-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 9) Preferred stock that entitles its holders to any undeclared dividends accumulated before common stockholders receive dividends is: A) non-participating. B) non-cumulative. C) cumulative. D) participating. Answer: C Diff: 1 LO: 18-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 10) A type of preferred stock that entitles its holders an opportunity to share in additional dividends with common stockholders is known as: A) participating. B) cumulative. C) non-cumulative. D) capital. Answer: A Diff: 1 LO: 18-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 11) Preferred stock is considered to be non-participating when: A) preferred stockholders get their yearly dividend based on the stated rate, and the remainder of the dividend goes to common stockholders. B) preferred stockholders have a right to the current year's dividend based on the stated rate, but do not receive missed dividends from past years when dividends were not paid. C) preferred stockholders have a right to a dividend based on the stated rate every year plus missed dividends based on the stated rate from prior years. D) None of these answers is correct. Answer: A Diff: 1 LO: 18-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 7 Copyright © 2023 Pearson Education, Inc.

12) For no-par value stock with a stated value: A) the stated value is like par value, but it is not printed on stock certificates. B) the Board of Directors cannot change the stated value without approval of the state. C) stated value is the market value. D) All of the above are correct. Answer: A Diff: 1 LO: 18-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 13) Stockholders with a right to current-year dividends but not dividends in arrears are: A) common stockholders. B) cumulative preferred stockholders. C) noncumulative preferred stockholders. D) None of the above are correct. Answer: C Diff: 1 LO: 18-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 14) Par value represents: A) the market value of the stock. B) an arbitrary value that is placed on each share of stock. C) the legal capital of the corporation. D) Both B and C are correct. Answer: D Diff: 1 LO: 18-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 15) Dividends owed to cumulative preferred stockholders from prior years that must be paid before common stockholders can receive their dividends are: A) common stock dividends. B) no-par value stock. C) stated dividends. D) dividends in arrears. Answer: D Diff: 1 LO: 18-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

16) Voting rights are a characteristic of which type of stock? A) Common but not preferred B) Preferred but not common C) Both common and preferred D) Neither common nor preferred Answer: A Diff: 1 LO: 18-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 17) No-par value stock with an assigned amount per share determined by the corporation's board of directors is: A) par value stock. B) stated value stock. C) book value of stock. D) market value of stock. Answer: B Diff: 1 LO: 18-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 18) Preferred stock: A) is usually a more risky investment than common stock. B) given preference to a corporation's profits and assets. C) usually maintains voting rights. D) None of the above are correct. Answer: B Diff: 1 LO: 18-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 19) Each share of a corporation's common stock gives its owner the right to: A) vote at stockholders' meetings. B) set company policy. C) manage the daily operations of the business. D) determine the amount of dividends to be paid. Answer: A Diff: 1 LO: 18-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

20) Noran Corporation has issued 4200 shares of stock. Emily owns 450 shares. If the corporation issues an additional 900 shares, how many shares does Emily have the preemptive right to purchase? (Round intermediary calculations to two decimal places and the final answer to the nearest whole number.) A) 450 shares B) 50 shares C) 99 shares D) 900 shares Answer: C Explanation: 450 / 4200 = 0.11; 900 × 0.11 = 99 Diff: 2 LO: 18-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 21) Stated value means market value. Answer: FALSE Diff: 1 LO: 18-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 22) No-par value is placed on a stock certificate when the stock has no-par value and no stated value. Answer: TRUE Diff: 1 LO: 18-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 23) When a corporation has only one class of capital stock, it will be common stock. Answer: TRUE Diff: 1 LO: 18-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 24) A cumulative preferred stockholder must be paid dividends in arrears plus the current year dividend before any dividends are paid to common stockholders. Answer: TRUE Diff: 1 LO: 18-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

25) A corporation is required to pay dividends. Answer: FALSE Diff: 1 LO: 18-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 26) The number of shares of outstanding stock may not equal the number of shares of authorized stock. Answer: TRUE Diff: 1 LO: 18-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 27) A common shareholder's right to purchase a percentage of new stock equal to the shareholder’s current percentage of ownership in a company is his/her participating right. Answer: FALSE Diff: 1 LO: 18-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 28) More stable earnings are a benefit of owning preferred stock. Answer: TRUE Diff: 1 LO: 18-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 29) Nonparticipating preferred stock allows stockholders an opportunity to receive a higher percentage of dividends than promised, before any dividends are paid to common stockholders. Answer: FALSE Diff: 1 LO: 18-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 30) The two main sources of stockholders' equity are investments by stockholders and net income retained in the corporation. Answer: TRUE Diff: 1 LO: 18-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

31) Jacob Corporation has issued 5,000 shares of stock. Tim owns 25 shares. If the corporation issues an additional 600 shares, how many shares does Tim have the preemptive right to purchase? Answer: 3 shares Calculated by: 25 shares / 5,000 shares = .005 ownership .005 × 600 additional shares issued = 3 shares Diff: 2 LO: 18-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 32) List and discuss the following: a. Rights of common stockholders b. Rights of preferred stockholders Answer: a. The rights of common stockholders include: 1. The right to vote at stockholders' meetings. 2. The right to share in profits by receiving dividends. 3. The right to dispose of or sell their stocks. 4. The right to maintain their proportionate ownership interest in the company when new stock is sold is a preemptive right. 5. The right to share in company assets after creditors' claims are satisfied when a company is liquidated. b. The rights of preferred stockholders include: 1. The right to a prior claim to a corporation's profits and assets over holders of common stock. 2. Other rights may include: a. The cumulative right to a dividend based on the stated rate every year if the preferred stock is cumulative. Preferred stockholders have a prior claim to all dividends until all annual dividends have been collected. b. The right to receive extra dividends beyond the stated rate if the preferred stock is participating. This gives preferred stockholders an opportunity to collect dividends in excess of their regular dividends based on the stated rate. This is possible if there are surplus dividends available after both preferred and common stockholders have collected dividends based on the preferred stock’s stated rate. Diff: 2 LO: 18-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

Learning Objective 18-3 1) If selling no-par value common stock with a stated value, common stock is credited for the: A) par value. B) non-par value. C) participating value. D) stated value. Answer: D Diff: 1 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 2) The entry to record MidIowa.net selling 3000 shares of $5.00 par value common stock at $9.00 would be to: A) debit Cash $27,000; credit Common Stock $15,000; credit Paid-in Capital in Excess of Par ValueCommon $12,000. B) debit Cash $27,000; credit Common Stock $27,000. C) debit Cash $15,000; debit Paid-in Capital in Excess of Par Value-Common $12,000; credit Common Stock $27,000. D) None of these answers is correct. Answer: A Diff: 2 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 3) The entry to record selling 700 shares of no-par common stock with a stated value of $62 for $70 would be to: A) debit Cash $49,000; credit Common Stock $49,000. B) debit Cash $43,400; credit Common Stock $43,400. C) debit Cash $43,400; credit Common Stock $49,000; debit Paid-in Capital in Excess of Par ValueCommon $5600. D) debit Cash $49,000; credit Common Stock $43,400; credit Paid-in Capital in Excess of Stated ValueCommon $5600. Answer: D Diff: 2 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

4) Which of the following is NOT one of the procedural steps for calculating dividends with cumulative, fully participating preferred stock? A) Calculate the preferred dividends. B) Calculate the total par value. C) Calculate common dividends. D) Calculate treasury stock. Answer: D Diff: 1 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 5) Eight hundred shares of $24 par common stock were exchanged for a piece of equipment with a fair market value of $19,400. The journal entry to record the transaction would include a: A) credit to Equipment for $19,200. B) debit to Common Stock for $19,400. C) credit to Paid-In Capital in Excess of Par Value-Common for $200. D) credit to Common Stock for $19,400. Answer: C Diff: 2 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 6) Yellow Corporation has 270 shares of $160, 9% noncumulative nonparticipating preferred stock and 1530 shares of $8 par value common stock outstanding. The company paid $7000 cash dividends to stockholders in the current year. Common stockholders received: A) $3888. B) $7776. C) $3112. D) $7000. Answer: C Explanation: Preferred: 270 × $160 × 9% = $3888; Common: $7000 - $3888 = $3112 Diff: 2 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

7) Organization costs are: A) part of the company's start-up costs and are listed as expenses. B) listed as an intangible asset on the balance sheet. C) a current asset on the balance sheet. D) a liability on the balance sheet. Answer: A Diff: 2 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 8) Yellow Corporation has 300 shares of $90, 9% noncumulative nonparticipating preferred stock and 1500 shares of $8 par value common stock outstanding. The company paid $7500 cash dividends to stockholders in the current year. Preferred stockholders received: A) $4860. B) $5070. C) $2430. D) $7500. Answer: C Explanation: 300 × $90 × 9% = $2430 Diff: 3 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 9) An expense that records the initial cost of forming a corporation, such as legal and incorporating fees is called: A) Common Stock. B) Organization Expense. C) Preferred Stock. D) Paid-in Capital. Answer: B Diff: 3 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

10) 1700 shares of $70 par common stock were exchanged for a piece of land with a fair market value of $119,000. The journal entry to record the transaction would include a: A) credit to Land for $119,000. B) credit to Common Stock for $59,500. C) credit to Paid-In Capital in Excess of Par Value-Common for $59,500. D) debit to Land for $119,000. Answer: D Diff: 3 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 11) RH Corporation Stockholders' Equity section includes the following information: Preferred Stock Paid-in Capital in Excess of Par Value-Preferred Common Stock Paid-in Capital in Excess of Par Value-Common Retained Earnings

$17,000 23,000 24,000 12,000 14,000

Total paid-in capital is: A) $62,000. B) $76,000. C) $35,000. D) $90,000. Answer: B Explanation: $17,000 + $23,000 + $24,000 + $12,000 = $76,000 Diff: 2 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

12) The Zonga Corporation Stockholders' Equity section includes the following: Preferred Stock Common Stock Paid-in Capital in Excess of Par Value-Preferred Paid-in Capital in Excess of Par Value-Common Retained Earnings

$27,000 50,000 11,000 5000 15,000

Total paid-in capital is: A) $108,000. B) $16,000. C) $78,000. D) $93,000. Answer: D Explanation: $27,000 + $50,000 + $11,000 + $5000 = $93,000 Diff: 2 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 13) The Miranda Corporation Stockholders' Equity section includes the following: Preferred Stock Common Stock Paid-in Capital in Excess of Par Value-Preferred Paid-in Capital in Excess of Par Value-Common Retained Earnings

$18,000 8000 11,000 6000 13,000

What was the total amount preferred stock was sold for? A) $7000 B) $18,000 C) $29,000 D) $31,000 Answer: C Explanation: $18,000 + $11,000 = $29,000 Diff: 2 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

14) The Michigan Stockholders' Equity section includes the following: Preferred Stock Common Stock Paid-in Capital in Excess of Par Value-Preferred Paid-in Capital in Excess of Par Value-Common Retained Earnings

$9000 8000 500 2200 13,000

What was the total amount common stock was sold for? A) $10,200 B) $23,200 C) $19,700 D) $9500 Answer: A Explanation: $8000 + $2200 = $10,200 Diff: 2 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 15) Assume $1 stated value common stock was sold for $10 per share. The difference between what stockholders pay for stock and the stated value placed on stock by the board of directors is called: A) Paid-in Capital in Excess of Par Value-Common. B) Paid-in Capital in Excess of Stated Value-Common. C) Common Stock Stated Value. D) Preferred Stock. Answer: B Diff: 1 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 16) The Blanche Corporation issued 50 common shares of $24 par value stock to its accountant. The shares are in full payment for her $1700 fee for assistance in setting up the new company. The entry to record the issuance of the stock would include a: A) credit to Common Stock for $1700. B) debit to Common Stock for $1700. C) credit to Common Stock for $1200. D) debit to Common Stock for $1200. Answer: C Explanation: 50 × $24 = $1200 Diff: 2 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 18 Copyright © 2023 Pearson Education, Inc.

17) The entry to record selling 2000 shares of no-par common stock with no stated value at $170 per share would be to: A) debit Cash $340,000; credit Common Stock $340,000. B) debit Common Stock $340,000; credit Cash $340,000. C) debit Cash $320,000; debit Paid-in Capital in Excess of Par Value-Common $20,000; credit Common Stock $340,000. D) None of the above are correct. Answer: A Diff: 2 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 18) Washington Corporation issued 12,000 shares of its $21 par value common stock for $26 per share. The entry to record the issuance would include a: A) credit to Cash for $312,000. B) credit to Common Stock for $60,000. C) credit to Common Stock for $252,000. D) debit to Paid-in Capital in Excess of Par Value-Common for $60,000. Answer: C Explanation: 12,000 × $21 = $252,000 Diff: 2 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 19) The Mars Company issued 150 shares of its $13 par value stock for $20 per share. The entry to record the receipt of cash and issuance of the stock would include a: A) debit to Cash of $1950; credit to Common Stock for $1950. B) debit to Cash for $3000. C) credit to Common Stock for $3000. D) debit to Discount on Common Stock for $1050. Answer: B Explanation: 150 × $20 = $3000 Diff: 2 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

20) Luxury Motors issued 580 shares of its $11 par value common stock in exchange for equipment with a fair market value of $8200. The entry to record the transaction would include a: A) debit to Equipment for $6380. B) credit to Common Stock for $6380. C) debit to Paid-in Capital in Excess of Par Value-Common for $1820. D) credit to Common Stock Subscribed for $6380. Answer: B Explanation: 580 × $11 = $6380 Diff: 2 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 21) Dolly's Best issued 200 shares of its $7 par value common stock in exchange for used packaging equipment with a fair market value of $3200. The entry to record the acquisition of the equipment would include a: A) debit to Equipment for $1400. B) credit to Paid-in Capital in Excess of Par Value-Common for $1800. C) credit to Common Stock for $3200. D) credit to Equipment for $3200. Answer: B Explanation: $3200 - (200 × $7) = $1800 Diff: 2 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 22) When a company sells stock at an amount less then par value per share, the difference between the selling price per share and par value per share is referred to as: A) a discount. B) a premium. C) a bonus. D) Companies cannot sell stock for more than par value. Answer: A Diff: 1 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

23) If par-value stock is sold at more than par value, the excess money is called: A) earnings. B) paid-in capital in excess of par value. C) gain on issue of stock. D) discount on issue of stock. Answer: B Diff: 1 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 24) Nelson Inc. sells 430 shares of its $17 par common stock for $28 per share. The entry would entail the following credit(s): A) Cash for $12,040. B) Paid-in Capital in Excess of Par Value-Common for $7310; Common Stock for $4730. C) Paid-in Capital in Excess of Par Value-Common for $4730; Common Stock for $7310. D) Common Stock for $12,040. Answer: C Explanation: Common Stock 430 × $17 = $7310; Paid in Capital in Excess of Par Value-Common 430 × $(28 - 17) = $4730 Diff: 2 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 25) Common stock sold at a discount is called stock sold: A) at par. B) above par. C) at a premium. D) below par. Answer: D Diff: 1 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

26) When Common Stock is sold at a premium: A) an asset increases and stockholders' equity increases. B) an asset increases and liabilities increase. C) a liability increases and stockholders' equity increases. D) an asset decreases and stockholders' equity decreases. Answer: A Diff: 2 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 27) Rhubarb Corporation's outstanding stock is 120 shares of $103 par value, 11% cumulative nonparticipating preferred stock and 2600 shares of $18 par value common stock. Rhubarb paid $2200 cash dividends during the year. No preferred dividends are in arrears. Common stockholders received: (Round any intermediate calculations to the nearest cent, and your final answer to the nearest dollar.) A) $0. B) $46,800. C) $2200. D) $840. Answer: D Explanation: (120 × $103) × 11% = $1359.60; ($2200 - $1359.60) = $840 Diff: 2 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 28) Ariel Company sells preferred stock at par value, and records a: A) debit to Cash and a credit to Common Stock. B) debit to Preferred Stock and a credit to Cash. C) debit to Cash and a credit to Preferred Stock. D) debit to Cash, credit to Preferred Stock and a credit to Paid in Capital in Excess of Par Value-Preferred Stock. Answer: C Diff: 1 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

29) Korgen Company sells common stock at par value, and records a: A) debit to Common Stock and a credit to Cash. B) debit to Equipment and a credit to Common Stock. C) debit to Cash and a credit to Common Stock. D) debit to Cash, credit to Common Stock and a credit to Paid in Capital in Excess of Par Value-Common Stock. Answer: C Diff: 1 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 30) Bannon Corporation has 100 shares of $48 par, 7% cumulative preferred stock and 2400 shares of $11 par common stock. Bannon paid $12,000 in cash dividends including one-year dividends in arrears to preferred stockholders. Common stockholders will receive: (Round any intermediate calculations to the nearest cent, and your final answer to the nearest dollar.) A) $0. B) $672. C) $336. D) $11,328. Answer: D Explanation: (100 × $48) × 7% × 2 years = $672.00; ($12,000 - $672.00) = $11,328 Diff: 2 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 31) Cannes Corporation has 130 shares of $108 par value, 7% cumulative nonparticipating preferred stock and 1300 shares of $14 par value common stock outstanding. The company paid $4000 cash dividends including one-year dividends in arrears to preferred stockholders. Preferred stockholders received: (Round any intermediate calculations to the nearest cent, and your final answer to the nearest dollar.) A) $983. B) $4000. C) $3017. D) $1966. Answer: D Explanation: (130 × $108) × 7% × 2 = $1966 Diff: 2 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

32) To calculate the total amount of dividends on par-value preferred stock: A) multiply the number of shares issued times preferred dividend rate. B) multiply preferred dividend rate times par-value per share. C) multiply number of shares outstanding times preferred dividend rate times par-value per share. D) None of these answers is correct. Answer: C Diff: 2 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 33) When a company distributes some of their profits to shareholders, it is in the form of: A) cumulative stock. B) reduced taxes. C) dividends. D) bonds. Answer: C Diff: 2 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 34) Common Stock is an asset. Answer: FALSE Diff: 1 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 35) A company can exchange common stock for noncash assets. Answer: TRUE Diff: 1 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 36) A company issues no-par value with no stated value stock. Therefore, the company has a minimum legal capital amount. Answer: TRUE Diff: 2 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

37) Number of preferred shares outstanding times market value per share times preferred dividend rate is the formula used to determine the dividends to be paid. Answer: FALSE Diff: 1 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 38) Almont Corporation is authorized to issue 2,000 shares of common stock. Record the journal entry for each of the following independent situations. a) Almont issues 1,000 shares at $14. Common stock has a $11 per share par value. b) Almont issues 1,000 shares at $14. Common stock has no par value and no stated value amount. c) Almont issues 1,000 shares at $14. Common stock is no-par stock with a stated value of $7 per share. Answer: a) Cash 14,000 Common Stock 11,000 Paid-in Capital in Excess of Par Value-Common 3,000 b) Cash 14,000 Common Stock 14,000 c) Cash 14,000 Common Stock 7,000 Paid-in Capital in Excess of Stated Value-Common 7,000 Diff: 3 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

39) Journalize the following independent transactions: a) Casey Company sells 300 shares of $20 par-value common stock at $20. b) Jacob Corporation sells 100 shares of $20 par-value common stock at $30. c) Moss Inc. sells 40 shares of no-par common stock with a $20 stated value for $30 per share. Answer: a) Cash 6,000 Common Stock 6,000 b) Cash 3,000 Common Stock 2,000 Paid-in Capital in Excess of Par Value-Common 1,000 c) Cash 1,200 Common Stock 800 Paid-in Capital in Excess of Stated Value-Common 400 Diff: 3 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 40) Birch Company issued 200 shares of common stock with a par value of $10 per share in exchange for equipment with a fair market value of $4,000. Record the journal entry for the exchange. Answer: Equipment 4,000 Common Stock 2,000 Paid-in Capital in Excess of Par Value-Common 2,000 Diff: 2 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

41) Morton Corporation issued 350 common shares of its $6 par value stock to an attorney. The shares are in full settlement for $8,000 of legal services to help set up the company. Prepare the journal entry for the stock issuance. Answer: Organization Expense 8,000 Common Stock 2,100 Paid-in Capital in Excess of Par Value-Common 5,900 Diff: 2 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 42) R. Red formed a corporation with an authorization of 20,000 shares of $50 par, 6% non-cumulative preferred stock and 100,000 shares of $10 par common stock. The following selected transactions were completed during the first year of operations. Journalize the transactions omitting explanations. Jan 10 Issued 20,000 shares of common stock at par for cash. 31 Issued 20,000 shares of common stock in exchange for land, buildings, and equipment with fair market prices of $52,000, $125,000, and $48,000, respectively. Feb 24 Issued 2,000 shares of preferred stock at $54 for cash. Answer: Jan 10 Cash 200,000 Common Stock 200,000 31 Land Buildings Equipment Common Stock Paid-in Capital in Excess of Par Value-Common

52,000 125,000 48,000

Feb 24 Cash Preferred Stock Paid-in Capital in Excess of Par Value-Preferred

108,000

200,000 25,000

100,000 8,000

Diff: 3 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

43) Elsinore Corporation has been issued a charter by the state of New Hampshire. This charter gives Elsinore the authority to issue 10,000 shares of $16 par value preferred stock and 100,000 shares of $6 par value common stock. Journalize the entries listed below. June 1 Issued 3,000 shares of preferred stock at $20 per share. 4 Issued 10,000 shares of common stock at $10 per share. 13 Issued 8,000 shares of common stock at $12 per share. 21 Issued 500 shares of preferred stock at $25 per share. Answer: June 1 Cash Preferred Stock Paid-in Capital in Excess of Par Value-Preferred

60,000 48,000 12,000

4 Cash Common Stock Paid-in Capital in Excess of Par Value-Common

100,000

13 Cash Common Stock Paid-in Capital in Excess of Par Value-Common

96,000

21 Cash Preferred Stock Paid-in Capital in Excess of Par Value-Preferred

12,500

60,000 40,000

48,000 48,000

8,000 4,500

Diff: 3 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

44) Journalize the following stock transactions for Rick Corporation. July 22 Issued 10,000 shares of $6 par common stock for $45,000 cash. 28 Issued 6,000 shares of $4 par common stock for $35,000 cash. 31 Issued 4,000 shares of $10 par, 7% preferred stock for $50,000 cash. Answer: July 22 Cash 45,000 Discount on Common Stock 15,000 Common Stock July 28 Cash

60,000

35,000 Common Stock Paid -In Capital in Excess of Par Value-Common

July 31 Cash

24,000 11,000 50,000

Preferred Stock Paid-In Capital in Excess of Par Value-Preferred

40,000 10,000

Diff: 3 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

45) Jane Kathryn has 30,000 shares outstanding of $10 par value, 10% preferred stock and 100,000 shares outstanding $5 par value common stock. In the first 3 years of operations, the company paid dividends in Year 1, $0; Year 2, $40,000; Year 3, $100,000. Calculate the dividend paid to preferred and common stockholders under the following independent situations: a) Preferred is non-cumulative and nonparticipating. Year Preferred Common 1 ________ ________ 2 ________ ________ 3 ________ ________ b) Preferred is cumulative and nonparticipating. Year Preferred Common 1 ________ ________ 2 ________ ________ 3 ________ ________ c) Preferred is cumulative and fully participating. Year Preferred Common 1 ________ ________ 2 ________ ________ 3 ________ ________ Answer: a) Preferred is non-cumulative and nonparticipating. Year Preferred Common 1 0 0 2 30,000 10,000 3 30,000 70,000 b) Preferred is cumulative and nonparticipating. Year Preferred Common 1 0 0 2 40,000 0 3 50,000 50,000 c) Preferred is cumulative and fully participating. Year Preferred Common 1 0 0 2 40,000 0 3 50,000 50,000 Diff: 3 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

46) Jane Kathryn has 15,000 shares outstanding of $15 par value, 5% preferred stock and 100,000 shares outstanding $10 par value common stock. In the first 3 years of operations, the company paid dividends in Year 1, $0; Year 2, $10,000; Year 3, $20,000. Calculate the dividend paid to preferred and common stockholders under the following independent situations: a) Preferred is non-cumulative and nonparticipating. Year Preferred Common 1 ________ ________ 2 ________ ________ 3 ________ ________ b) Preferred is cumulative and nonparticipating. Year Preferred Common 1 ________ ________ 2 ________ ________ 3 ________ ________ Answer: a) Preferred is non-cumulative and nonparticipating. Year Preferred Common 1 0 0 2 10,000 0 3 11,250 8,750 b) Preferred is cumulative and nonparticipating. Year Preferred Common 1 0 0 2 10,000 0 3 20,000 0 Diff: 3 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

47) Colder Industries has 30,000 shares of $10 par common stock and 8,500 shares of $50 par, 6% preferred stock outstanding. Total dividends available are $80,000. Compute the dividends to be distributed to preferred and common stockholders under the following conditions. 1. The preferred stock is nonparticipating and non-cumulative with no dividends distributed last year. 2. The preferred stock is nonparticipating and cumulative with no dividends distributed last year. Answer: 1. Preferred Stock: $50 par × 6% × 8,500 shares = $25,500 Common Stock: $80,000 - $25,500 = $54,500 2. Preferred Stock: $50 par × 6% × 8,500 shares = $25,500 × 2 = $51,000 Common Stock: $80,000 - $51,000 = $29,000 Diff: 2 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 48) Colder Industries has 30,000 shares of $10 par common stock and 10,000 shares of $50 par, 6% preferred stock outstanding. Total dividends available are $100,000. Compute the dividends to be distributed to preferred and common stockholders assuming the preferred stock is nonparticipating and cumulative with no dividends distributed last year. Answer: Preferred Stock: $50 × 6% × 10,000 × 2 = $60,000 Common Stock: $100,000 - $60,000 = $40,000 Diff: 2 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 49) Alpha-Omega Industries has 30,000 shares of $12 par common stock and 15,000 shares of $50 par, 5% preferred stock outstanding. Total dividends available are $162,000. Compute the dividends to be distributed to preferred and common stockholders assuming the preferred stock is fully participating and non-cumulative with no dividends distributed last year. Answer: Dividend for Preferred Stock: $50 par × 5% × 15,000 shares = $37,500 Dividend for Common Stock: $12 par × 5% × 30,000 shares = $18,000 Preferred total par = $50 par × 15,000 shares = $750,000 Common total par = $12 par × 30,000 shares = $360,000 Remainder of dividend: $162,000 - ($37,500 + $18,000) = $106,500 Preferred: $750,000/$1,110,000 × $106,500 = $71,959.46 Common: $360,000/$1,110,000 × $106,500 = $34,540.54 TOTAL Preferred: $37,500 + $71,959.46 = $109,459.46 TOTAL Common: $18,000 + $34,540.54 = $52,540.54 Diff: 3 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 32 Copyright © 2023 Pearson Education, Inc.

50) Alpha-Omega Industries has 30,000 shares of $12 par common stock and 15,000 shares of $50 par, 5% preferred stock outstanding. Total dividends available are $162,000. Compute the dividends to be distributed to preferred and common stockholders assuming the preferred stock is fully participating and cumulative with no dividends distributed last year. Answer: Dividend for Preferred Stock: $50 par × 5% × 15,000 shares × 2 = $75,000 Dividend for Common Stock: $12 par × 5% × 30,000 shares = $18,000 Preferred total par = $50 par × 15,000 shares = $750,000 Common total par = $12 par × 30,000 shares = $360,000 Remainder of dividend: $162,000 - ($75,000 + $18,000) = $69,000 Preferred: $750,000/$1,110,000 × $69,000 = $46,621.62 Common: $360,000/$1,110,000 × $69,000 = $22,378.38 TOTAL Preferred: $75,000 + $46,621.62 = $121,621.62 TOTAL Common: $18,000 + $22,378.38 = $40,378.38 Diff: 3 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 51) Prepare the journal entries for Blitz Industries: Aug 10 Issued 12,000 shares of $12 par value common stock for $150,000 Aug 20 Issued 6,000 shares of 8%, $25 par value preferred stock for $200,000 Answer: Aug 10 Cash 150,000 Common Stock 144,000 Paid-In Capital in Excess of Par Value–Common 6,000 Aug 20 Cash

200,000 Preferred Stock Paid-In Capital in Excess of Par Value–Preferred

150,000 50,000

Diff: 2 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

52) Prepare the journal entries for Blitz Industries: April 6 Issued 9,000 shares of $11 par value common stock for $110,000 April 15 Issued 5,000 shares of 8%, $15 par value preferred stock for $130,000 April 23 Issued 5,000 shares of $5 par common stock for $20,000 cash. Answer: April 6 Cash 110,000 Common Stock 99,000 Paid-In Capital in Excess of Par Value–Common 11,000 April 15

Cash

130,000 Preferred Stock Paid-In Capital in Excess of Par Value–Preferred

April 23

Cash Discount on Common Stock Common Stock

75,000 55,000

20,000 5,000 25,000

Diff: 3 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

Using the following accounts: [1] Cash [2] Machinery [3] Building [4] Land [5] Organization costs [6] Preferred stock [7] Common stock [8] Paid in capital in excess of par value - common [9] Paid in capital in excess of par value - preferred [10] Discount on common stock [11] Organization Expense Indicate the account(s) to be debited and credited to record the following transaction. 53) Sold common stock for cash at a price above the par value. Debit ________ Credit ________ & ________ Answer: Debit 1, Credit 7 & 8 Diff: 3 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 54) Exchanged preferred stock for a building with a fair market value that exceeds the par value of the preferred stock. Debit ________ Credit ________ & ________ Answer: Debit 3, Credit 6 & 9 Diff: 3 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 55) Sold common stock at a price equal to the par value. Debit ________ Credit ________ Answer: Debit 1, Credit 7 Diff: 3 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

56) Exchanged common stock for a building and land with a fair market value less than the par value of the common stock. Debit ________ & ________ & ________ Credit ________ Answer: Debit 3 & 4 & 10, Credit 7 Diff: 3 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 57) Sold preferred stock at a price above the par value. Debit ________ Credit ________ & ________ Answer: Debit 1, Credit 6 & 9 Diff: 3 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 58) Exchanged common stock for services of corporation organizers (valued above par value of common stock). Debit ________ Credit ________ & ________ Answer: Debit 11, Credit 7 & 8 Diff: 3 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 59) Exchanged common stock for services of corporation organizers (valued equal to par value of common stock). Debit ________ Credit ________ Answer: Debit 11, Credit 7 Diff: 3 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

60) Sold common stock at a price less than the par value. Debit ________ & ________ Credit ________ Answer: Debit 1 & 10, Credit 7 Diff: 2 LO: 18-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

Learning Objective 18-4 1) The journal entry for the receipt of a cash payment on common stock subscriptions would include: A) debiting Subscriptions Receivable-Common Stock; crediting Common Stock. B) debiting Common Stock; crediting Subscriptions Receivable-Common Stock. C) debiting Cash; crediting Subscriptions Receivable-Common Stock. D) debiting Cash; crediting Common Stock Subscribed. Answer: C Diff: 2 LO: 18-4 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 2) Elegant Corporation received subscriptions for 120 shares of its $104 par value common stock for $125 per share. The entry to record the receipt of the subscriptions would include a: A) debit to Common Stock Subscribed for $12,480. B) debit to Subscriptions Receivable-Common Stock for $12,480. C) credit to Paid-in Capital in Excess of Par Value-Common for $2520. D) credit to Common Stock for $15,000. Answer: C Diff: 2 LO: 18-4 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 3) Tory Company received the first installment of $2600 on a common stock subscription. The entry to record the collection would include a: A) debit to Subscriptions Receivable-Common Stock for $2600. B) credit to Common Stock Subscribed for $2600. C) credit to Common Stock for $2600. D) credit to Subscriptions Receivable-Common Stock for $2600. Answer: D Diff: 2 LO: 18-4 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 37 Copyright © 2023 Pearson Education, Inc.

4) The account that is a current asset on the balance sheet that represents the amount due on stock subscriptions is: A) Common Stock Subscribed. B) Preferred Stock Subscribed. C) Stock Subscription. D) Subscriptions Receivable-Common Stock. Answer: D Diff: 1 LO: 18-4 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 5) The journal entry to record the final installment from a common stock subscription is: A) a debit Cash and a credit to Paid in Capital in Excess of Par Value-Common Stock. B) a debit to Subscriptions Receivable-Common Stock and a credit to Cash. C) a debit to Cash and a credit to Subscriptions Receivable-Common Stock. D) a debit to Common Stock Subscribed and a credit to Cash. Answer: C Diff: 2 LO: 18-4 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 6) Common Stock Subscribed is: A) shown as an equity account below Common Stock on the balance sheet. B) a contra-asset account. C) a receivables account. D) shown on the income statement as a revenue. Answer: A Diff: 1 LO: 18-4 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

7) In the stockholders' equity section of a balance sheet: A) common stock is listed before preferred stock. B) common stock is listed after preferred stock. C) common stock is listed after retained earnings. D) common stock is not listed. Answer: B Diff: 1 LO: 18-4 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 8) The source of capital approach: A) prepares Paid-In Capital by listing the legal capital first. B) prepares Paid-In Capital by listing all the different preferred stock accounts first. C) prepares Paid-In Capital by listing all the stock accounts at par value first. D) None of the above are correct. Answer: B Diff: 1 LO: 18-4 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 9) Temporary stockholders’ equity account that records at par value stock that has been subscribed to but not fully paid for is placed as a debit in Subscriptions Receivable – Common Stock. Answer: FALSE Diff: 2 LO: 18-4 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 10) Common Stock Subscribed is an asset account. Answer: FALSE Diff: 2 LO: 18-4 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 11) Subscriptions Receivable – Common Stock is an asset account. Answer: TRUE Diff: 2 LO: 18-4 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

12) Journalize the transactions for the stock subscription plan for Poplar Company. On April 1, Poplar received subscriptions for 250 shares of $20 par value common stock at $26 per share. The buyer will pay two equal installments on May 1 and July 1. Assume all payments are made as scheduled and the company issues the stock after the July 1 collection. Answer: April 1 Subscriptions Receivable–Common Stock 6,500 Common Stock Subscribed 5,000 Paid-in Capital in Excess of Par Value–Common 1,500 May 1

July 1

Cash Subscriptions Receivable–Common Stock

3,250

Cash Subscriptions Receivable–Common Stock

3,250

Common Stock Subscribed Common Stock

5,000

3,250

5,000

Diff: 3 LO: 18-4 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 13) Journalize the transactions for the stock subscription plan for Oro Company. On March 1, Oro received subscriptions for 120 shares of $15 par value common stock at $20 per share. The buyer will pay two equal installments on April 1 and July 1. Assume all payments are made as scheduled and the company issues the stock on August 1. Answer: Mar. 1 Subscriptions Receivable–Common Stock 2,400 Common Stock Subscribed 1,800 Paid-in Capital in Excess of Par Value–Common 600 Apr. 1

July 1

Aug. 1

Cash Subscriptions Receivable–Common Stock

1,200

Cash Subscriptions Receivable–Common Stock

1,200

Common Stock Subscribed Common Stock

1,800

1,200

1,800

14) Identify the account types used in recording transactions related to a stock subscription plan: Subscriptions Receivable-Common Stock; Common Stock Subscribed, Paid-In Capital in Excess of Par Value-Common, Common Stock, Cash. Also list the financial statement where the accounts are found. Answer: Subscriptions Receivable - Common Stock current asset, balance sheet Common Stock Subscribed stockholders' equity, balance sheet Paid-In Capital in Excess of Par Value-Common stockholders' equity, balance sheet Common Stock stockholders' equity, balance sheet Cash current asset, balance sheet Diff: 2 LO: 18-4 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 15) Describe a stock subscription plan. Answer: In a stock subscription plan, buyers pledge to buy certain stocks but pay in installments or in a lump sum at a later date. When the company accepts a subscription for common stock, the transaction is an increase in the asset account Subscriptions Receivable-Common Stock for the subscribed amount, an increase in the equity account Common Stock Subscribed for the par value, and an increase in the equity account Paid-In Capital in Excess of Par-Value-Common (if the subscribed amount is more than the par value). The equity account Common Stock is not affected until the stock is actually issued, usually when the subscription is paid in full. Diff: 2 LO: 18-4 AACSB: Written and Oral Communication Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

Using the following accounts: [1] Subscription receivable-common stock [2] Cash [3] Machinery [4] Building [5] Land [6] Organization costs [7] Preferred stock [8] Common stock [9] Paid in capital in excess of par value - common [10] Paid in capital in excess of par value - preferred [11] Common stock subscribed [12] Discount on common stock [13] Organization Expense Indicate the account(s) to be debited and credited to record the following transaction. 16) Sold common stock at a price above par accepting a subscription. Debit ________ Credit ________ & ________ Answer: Debit 1, Credit 9 & 11 Diff: 3 LO: 18-4 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 17) Received first installment on common stock subscription. Debit ________ Credit ________ Answer: Debit 2, Credit 1 Diff: 2 LO: 18-4 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 18) Issued fully paid, subscribed common stock. Debit ________ Credit ________ Answer: Debit 11, Credit 8 Diff: 2 LO: 18-4 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

College Accounting, 15e (Slater) Chapter 19 Corporations: Stock Values, Dividends, Treasury Stocks, and Retained Earnings Learning Objective 19-1 1) Market Value per Share is defined as: A) the price a corporation pays when it reserves the right to retire or redeem stock at a specific price. B) the price at which shares are bought and sold on the open market. C) the total stockholders' equity minus total amount assigned to preferred stock. D) the total of stockholders' equity (when only common stock exists) divided by the number of shares outstanding. Answer: B Diff: 1 LO: 19-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 2) Book Value per Share is defined as: A) the price a corporation pays when it reserves the right to retire or redeem stock at a specific price. B) the price at which shares are bought and sold on the open market. C) the total stockholders' equity minus total amount assigned to preferred stock. D) the total of stockholders' equity (when only common stock exists) divided by the number of shares outstanding. Answer: D Diff: 1 LO: 19-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 3) Redemption Value per Share is defined as: A) the price a corporation pays when it reserves the right to retire or redeem capital stock after it has been sold and held by stockholders. B) the price at which shares are bought and sold on the open market. C) the total stockholders' equity minus total amount assigned to preferred stock. D) the total of stockholders' equity (when only common stock exists) divided by the number of shares outstanding. Answer: A Diff: 1 LO: 19-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

4) To calculate book value per share of preferred stock, the following is calculated: A) redemption value of preferred stock and common stock par value. B) redemption value of preferred stock and preferred dividends in arrears. C) redemption value of common stock. D) total stockholders' equity. Answer: B Diff: 2 LO: 19-1 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 5) If total stockholders' equity is $170,000 with 13,000 common shares outstanding, what is the book value per share of common stock? (Assume no preferred stock is outstanding. Round your answer to the nearest cent.) A) $16.08 B) $39.23 C) $13.08 D) $10.08 Answer: C Explanation: $170,000 / 13,000 shares of common stock = $13.08 per share. Diff: 2 LO: 19-1 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 6) If preferred stock dividends in arrears are $12,000 preferred stock redemption value is 30,000, and 3000 preferred shares are outstanding, what is the book value per share of preferred stock? (Round the final answer to the nearest cent.) A) $14.00 B) $10.00 C) $2.75 D) $6.00 Answer: A Explanation: ($12,000 + $30,000) / 3000 shares = $14.00 per share. Diff: 2 LO: 19-1 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

7) Buck Company has $600,000 of preferred stock redemption value and $1,100,000 of preferred dividends in arrears. If 110,000 preferred shares are outstanding, what is the book value per share of preferred stock? (Round the final answer to the nearest cent.) A) $15.45 per share B) $10.00 per share C) $5.45 per share D) $4.55 per share Answer: A Explanation: ($600,000 + $1,100,000) / 110,000 shares = $15.45 per share. Diff: 2 LO: 19-1 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 8) Dexter Corporation has total paid-in capital of $160,000 and retained earnings of $90,000. It has 4000 shares of $10 preferred stock outstanding with no dividends in arrears and 6000 shares of $40 par value common stock outstanding. The book value of each share of common stock is: (Round your answer to the nearest cent.) A) $35.00. B) $3.50. C) $41.67. D) $25.00. Answer: A Explanation: ($160,000 + $90,000 - ($10.00 x 4000)) / 6000 shares = $35.00 (4000 x $10) / 4000 = $10.00 Diff: 2 LO: 19-1 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 9) Patterson Research has 300 shares of 10%, $103 par value and redemption value, preferred stock, and 2500 shares of $10 par value common stock outstanding. Total paid-in capital is $53,000, and retained earnings are $0. There are one-year dividends in arrears on preferred stock. The book value per share on common stock is: (Round your answer to the nearest cent.) A) $7.60. B) $19.96. C) $21.20. D) $18.93. Answer: A Explanation: Total amount assigned to Preferred = (300 × $103) + (.10 × $103 × 300) = $33,990 ($53,000 - $33,990) / 2500 shares = $7.60 Diff: 3 LO: 19-1 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 3 Copyright © 2023 Pearson Education, Inc.

10) Ariel Investigations has total paid-in capital of $77,000 and retained earnings of $43,000. It has 900 shares of $106 par value common stock outstanding, and no preferred shares outstanding. The book value of each share of common stock is: (Round your answer to the nearest cent.) A) $47.78. B) $85.56. C) $133.33. D) $27.33. Answer: C Explanation: ($77,000 + $43,000) / 900 = $133.33 Diff: 2 LO: 19-1 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 11) Before book value per share for common stock is computed, preferred stock is considered. Answer: TRUE Diff: 1 LO: 19-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 12) For common stock, book value per share is not the same as par value per share. Answer: TRUE Diff: 1 LO: 19-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 13) Redemption value per share is determined at the time stock is issued. Answer: TRUE Diff: 1 LO: 19-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 14) Book value per share is found by dividing total assets by total stockholders' equity. Answer: FALSE Diff: 1 LO: 19-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

15) Preferred dividends in arrears are considered in the calculation for book value per share of preferred stock. Answer: TRUE Diff: 1 LO: 19-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 16) The redemption of stock allows the corporation to repurchase or retire stock at the issued price per share. Answer: FALSE Explanation: The original issued (sale) price does not always equal the redemption price. Diff: 1 LO: 19-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 17) From the following, determine the book value per share for preferred and common stocks; no dividends are in arrears on the preferred stock. Stockholders' Equity Preferred Stock, 8% cumulative and $8 par value, $12 redemption value 4,000 shares issued and outstanding Common Stock, $1 par value, 30,000 shares issued and outstanding Retained Earnings Total Stockholders' Equity Answer: Book value for preferred: Redemption value per share Total Redemption Value Dividends in arrears BV per share, preferred

$32,000 30,000 24,000 ______ $86,000

$12 per share $12 × 4,000 = $48,000 0 $48,000/4,000 = $12

Book value for common: Total stockholders' equity Less: Preferred Redemption Value Total BV for common Number of common shares BV per share, common ($38,000/$30,000)

$86,000 48,000 $38,000 30,000 $1.27

Diff: 3 LO: 19-1 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 5 Copyright © 2023 Pearson Education, Inc.

18) Discuss and describe the major differences among the following stock values: a. Par value b. Stated value c. Redemption value d. Market value e. Book value Answer: a. Par value per share is an entirely arbitrary amount assigned to stock at the time the corporation receives its charter. It is a way of dividing ownership of the corporation into a number of units and putting a value on each unit. In most states, the par value per share times the number of shares issued represents the legal capital—an amount that a corporation must retain in the business for the protection of creditors. b. When some corporations issue no-par stock, stated value per share is an arbitrary value assigned to each share that can be changed by the board of directors. Stated value has the same purpose as par value. c. When a corporation issues preferred stock, it often reserves the right to retire or redeem that stock for a specific price—the redemption value per share. d. Market value is the price at which shares of stock are bought and sold in the several stock exchanges or the open market. Economic conditions, a company's earnings, and investors' expectations all play a factor in determining the market price. e. Book value per share is basically the total of stockholders' equity divided by the number of shares outstanding. Book value per share can be computed for preferred and common stock. For preferred stock, book value per share is the preferred redemption value plus preferred dividends in arrears divided by the number of preferred shares outstanding. For common stock, book value per share is total stockholders’ equity minus the amount assigned to preferred stock divided by the number of common shares outstanding. Diff: 2 LO: 19-1 AACSB: Written and Oral Communication Learning Outcome: Define accounting terms, accounting concepts and principles

19) From the following, determine the book value per share for preferred and common stocks, assuming $2,000 of dividends are in arrears on the preferred stock. Stockholders' Equity Preferred Stock, 10% cumulative and $20 par value, $21 redemption value 1,000 shares issued and outstanding Common Stock, $10 par value, 4,000 shares issued and outstanding Retained Earnings Total Stockholders' Equity Answer: Book value for preferred: Redemption value ($21 x 1,000 shares) Dividends in arrears Total BV of preferred stock Divided by number of shares BV per share, preferred

$21,000 2,000 $23,000 1,000 $23

Book value for common: Total stockholders' equity Less: preferred BV Total BV for common Divided by number of common shares BV per share, common

$68,000 23,000 $45,000 4,000 $11.25

$20,000 40,000 8,000 ______ $68,000

Diff: 3 LO: 19-1 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

20) Redemption value of preferred stock is $107. There are $2,000 of preferred dividends in arrears. Preferred stock has 3,100 shares issued and outstanding while common stock has 9,000 shares issued and outstanding. Total Stockholders: Equity is $800,000. What is the book value per share for a) preferred stock and b) common stock (round to the nearest cent)? Answer: Book value for preferred: Redemption value ($107 x 3,100 shares) $331,700 Dividends in arrears 2,000 Total BV of preferred stock $333,700 Divided by number of preferred shares 3,100 BV per share, preferred $107.65 Book value for common: Total stockholders' equity Less: preferred BV Total BV for common Divided by number of common shares BV per share, common

$800,000 333,700 $466,300 9,000 $51.81

Diff: 3 LO: 19-1 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

Learning Objective 19-2 1) What are the annual dividends on preferred stock, $29 par, 2,600 shares authorized, 600 shares issued and outstanding, and a dividend rate of 4%? (Round your answer to the nearest dollar.) A) $696 B) $128 C) $3,016 D) $2,320 Answer: A Explanation: ($29 × 4%) × 600 shares = $696 Diff: 2 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

2) What are the annual dividends on preferred stock, $15 par, 530 authorized, 350 shares issued and outstanding, and a dividend rate of 12%? (Round your answer to the nearest dollar.) A) $630 B) $954 C) $324 D) $1584 Answer: A Explanation: ($15 × 12%) × 350 shares = $630 Diff: 2 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 3) In the dividend process, the liability Dividend Payable is recognized on the: A) date of declaration. B) date of record. C) date of payment. D) date of stock issue. Answer: A Diff: 1 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 4) Which of the following dividend dates gets a formal journal entry? A) Date of payment B) Date of board of directors meeting to discuss dividends C) Date of record D) All receive formal journal entries. Answer: A Diff: 1 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 5) The date of record for cash dividends is: A) the date the board of directors pays a dividend. B) the date established by the board of directors that determines who will receive dividends. C) the date that creates a liability for the company. D) None of these answers is correct. Answer: B Diff: 1 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 9 Copyright © 2023 Pearson Education, Inc.

6) Declaration of a cash dividend causes: A) a decrease in stockholders' equity. B) an increase in cash. C) a decrease in liabilities. D) None of these answers is correct. Answer: A Diff: 2 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 7) Payment of a cash dividend causes: A) a decrease in liabilities. B) an increase in an asset. C) an increase in stockholders' equity. D) All of the above are correct. Answer: A Diff: 2 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 8) A distribution to stockholders in the form of stock is called a: A) stock dividend. B) stock split. C) stock conversion. D) cash dividend. Answer: A Diff: 1 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 9) The journal entry to pay a previously declared cash dividend is to: A) debit Retained Earnings; credit Dividends Payable. B) debit Dividends Payable; credit Cash. C) debit Retained Earnings; credit Cash. D) debit Dividends Payable; credit Retained Earnings. Answer: B Diff: 2 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 10 Copyright © 2023 Pearson Education, Inc.

10) Malcolm Corporation declared a dividend of $5 per share on 2,200 shares. The entry to record the transaction would be to: A) debit Retained Earnings $11,000; credit Dividends Payable $11,000. B) debit Retained Earnings $11,000; credit Cash $11,000. C) debit Dividends Payable $11,000; credit Cash $11,000. D) debit Dividends Expense $11,000; credit Cash $11,000. Answer: A Diff: 2 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 11) The entry to record the payment of a previously declared cash dividend would include a: A) debit Dividends Payable; credit Cash B) debit Retained Earnings; credit Cash C) debit Cash; credit Dividends Payable D) debit Cash; credit Retained Earnings Answer: A Diff: 2 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 12) On the date of record, the journal entry would include: A) a debit to Dividend Payable. B) a credit to Dividend Payable. C) a credit to Cash. D) No entry is required on date of record. Answer: D Diff: 2 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

13) The journal entry to record the issuance of a 10% stock dividend is to: A) debit Common Stock Dividend Distributable; credit Common Stock. B) debit Common Stock Dividend Distributable; credit Dividends Payable. C) debit Retained Earnings; credit Common Stock Dividends Distributable; credit Paid-in Capital in Excess of Par Value-Stock Dividend. D) debit Common Stock Dividend Distributable; credit Cash. Answer: A Diff: 2 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 14) Which of the following is the journal entry to record the declaration of a 10% stock dividend? A) Debit Common Stock Dividend Distributable (number of shares × par value common stock); credit Common Stock (same) B) Debit Common Stock Dividend Distributable (number of shares × market value common stock); credit Common Stock (same) C) Debit Retained Earnings (market value × number of shares); credit Common Stock Dividend Distributable (number of shares × par value); credit Paid-In Capital in Excess of Par Value-Stock Dividend (market value - par value) × number of shares D) Debit Common Stock (number of shares × par value); credit Cash Answer: C Diff: 2 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 15) The liability account showing the amount of cash dividend owed is: A) Dividends. B) Dividends Payable. C) Retained Earnings. D) Cash. Answer: B Diff: 1 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

16) The entry to record the distribution of the 10% stock dividend would include: A) a debit to Common Stock. B) a debit to Common Stock Dividend Distributable. C) a debit to Retained Earnings. D) None of these answers is correct. Answer: B Diff: 2 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 17) Michigan Steamers has 3400 shares of $28 par value common stock outstanding. During the current year, the company declared a 6% stock dividend. The market value of the stock on the declaration date was $20 per share. Michigan Steamers' total stockholders' equity should increase or decrease by: A) $0. B) $5712. C) $4080. D) $(1632). Answer: A Diff: 2 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 18) Michigan Steamers has 3700 shares of $25 par value common stock outstanding. During the current year, the company declared a 6% stock dividend. The market value of the stock on the declaration date was $19 per share. Michigan Steamers' total retained Earnings will decrease by: A) $0. B) $5550. C) $4218. D) $1332. Answer: C Explanation: Retained Earnings will decrease by the market value of the additional shares to be issued. (3700 shares x $19 × 6%) = 4218 Diff: 2 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

19) Before a four-for-one stock split, the shares outstanding were 9000 shares at $15 par. After the split, what was the par value per share and the number of shares? (Round your answer to the nearest cent.) A) 36,000 shares at $15 per share B) 36,000 shares at $3.75 per share C) 36,000 shares at $7.50 per share D) 9000 shares at $60 per share Answer: B Explanation: 9000 × 4 = 36,000; $15 / 4 = $3.75 per share Diff: 2 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 20) ABC Corporation issued a two-for-one stock split. The number of outstanding shares before the split was 20,000 and the par value was $26 per share. After the split, what was the par value per share and number of shares? (Round your answer to the nearest cent.) A) 40,000 shares and $26 per share B) 40,000 shares and $6.50 per share C) 40,000 shares and $13.00 per share D) 20,000 shares and $52 per share Answer: C Explanation: 20,000 × 2 = 40,000; $26 / 2 = $13.00 Diff: 2 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 21) On March 8, Nunes Corporation declares a $3 cash dividend per share on 4,000 shares issued and outstanding. What is the journal entry to record this transaction? A) Debit to Cash and credit to Dividends Payable B) Debit to Retained Earnings and credit to Cash C) Debit to Retained Earnings and credit to Dividends Payable D) Debit to Dividends Payable and credit to Cash Answer: C Diff: 2 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

22) On June 7, Ramirez Incorporated paid a $6.25 cash dividend per share on 3,200 shares issued and outstanding. What is the journal entry to record this transaction? A) Increase to Dividends Payable and a decrease to cash for $20,000 B) Increase to Dividends Payable and a decrease to Retained Earnings for $20,000 C) Decrease to Cash and a decrease to Retained Earnings for $20,000 D) Decrease to Cash and a decrease to Dividends Payable for $20,000 Answer: D Diff: 1 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 23) The retained earnings section of the balance sheet after a two-for-one stock split will: A) be one-half as much after the split. B) be double as much after the split. C) not change after the split. D) Cannot be determined from the information given. Answer: C Diff: 1 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 24) May Corporation had 37,000 shares of $24 par value common stock outstanding with a market value of $31 per share. May Corporation announced a three-for-one stock split. After the split, the par value of the stock: (Round your answer to the nearest cent.) A) remained the same as before the split. B) was increased by $48.00 per share. C) was reduced to $8.00 per share. D) was reduced to $12.00 per share. Answer: C Diff: 1 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

25) Issuance of a 10% stock dividend would: A) increase Cash and decrease Common Stock. B) decrease Common Stock Dividend Distributable and increase Common Stock. C) increase Common Stock Dividend Distributable and increase Cash. D) decrease Cash and increase Common Stock. Answer: B Diff: 3 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 26) A corporation may issue a 10% stock dividend for which of the following reasons? A) May want to increase permanent capital in the business B) May want to decrease market value per share C) May be short of cash and unable to pay a cash dividend D) All of the above are correct. Answer: D Diff: 3 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 27) A dividend is declared by: A) the board of directors. B) president of the corporation. C) CFO of the corporation. D) stockholders. Answer: A Diff: 1 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 28) A 2 for 1 stock split: A) increases the number of shares outstanding. B) reduces the par or stated value per share in proportion. C) is the same as a cash dividend. D) Both A and B are correct. Answer: D Diff: 1 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 16 Copyright © 2023 Pearson Education, Inc.

29) The board of Marpa, Inc. declared a $3 per share cash dividend on common stock. The corporation has 5,000 shares of common stock outstanding. The entry required when the dividend is declared is: A) debit Cash; credit Common Dividends Payable. B) debit Cash Dividends; credit Common Dividends Payable. C) debit Common Dividends Payable; credit Cash. D) debit Retained Earnings; credit Dividends Payable. Answer: D Diff: 2 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 30) On April 3, Jim's Planters declares a $5 cash dividend per share on 6,000 shares issued and outstanding. What is the journal entry to record this transaction? A) Increase to Cash for $30,000 and decrease to Dividends Payable for $30,000 B) Decrease to Retained Earnings for $30,000 and increase to Dividends Payable for $30,000 C) Increase to Retained Earnings for $30,000 and increase to Cash for $30,000 D) Increase to Dividends Payable for $30,000 and decrease to Cash for $30,000 Answer: B Diff: 2 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 31) An exchange of one share of an old issue of stock for a multiple number of shares of a new issue of stock with a reduced par value per share is known as a: A) property dividend. B) stock dividend. C) stock split. D) liquidating dividend. Answer: C Diff: 1 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

32) Lamar Industries issues a stock dividend recorded at $40,000. What would be the journal entry to record this transaction? A) $40,000 debit to Cash and $40,000 credit to Common Stock B) $40,000 debit to Common Stock Dividend Distributable and $40,000 credit to Cash C) $40,000 debit to Common Stock Dividend Distributable and $40,000 credit to Common Stock D) $40,000 credit to Cash and $40,000 debit to Retained Earnings Answer: C Diff: 2 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 33) On May 3, Bunny Unlimited paid a $4 cash dividend per share on $5,000 shares issued and outstanding. What is the journal entry to record this transaction? A) A debit to Dividends Payable and a credit to Cash B) A debit to Retained Earnings and a credit to Cash C) A debit to Dividends Payable and a credit to Retained Earnings D) A debit to Cash and a credit to Dividends Payable Answer: A Diff: 3 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 34) Paid-In Capital in Excess of Par Value–Stock Dividend account is used when: A) the stock's par value per share is lower than market value per share. B) the stock's par value per share is higher than the market value per share. C) the stock's par value per share is the same as market value per share. D) None of the above are correct. Answer: A Diff: 1 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

35) After issuing a stock dividend, a stockholder will own a larger number of shares but: A) the total ownership equity increases. B) the total ownership equity decreases. C) the total ownership equity stays the same. D) None of the above are correct. Answer: C Diff: 1 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 36) The distribution of earnings to stockholders may be in the form of cash or stock. Answer: TRUE Diff: 1 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 37) The date of record determines who receives the declared dividends. Answer: TRUE Diff: 1 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 38) Common Stock Dividend Distributable is a stockholders' equity account that accumulates a stock dividend that has been declared but not yet issued and distributed. Answer: TRUE Diff: 1 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 39) Issuing a stock dividend would show a debit to Common Stock and a credit to Common Stock Dividend Distributable. Answer: FALSE Diff: 1 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

40) Common Stock Dividend Distributable is an asset account. Answer: FALSE Diff: 1 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 41) A stock split has no effect on retained earnings. Answer: TRUE Diff: 1 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 42) A cash dividend will reduce total stockholders' equity. Answer: TRUE Diff: 2 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 43) The date of payment is the date established by the board of directors that determines which stockholders will receive the dividend. Answer: FALSE Diff: 1 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

44) Quinn Corporation has 4,500 shares of common stock issued and outstanding. The board of directors declared a $3.25 per share cash dividend on January 25, payable on March 25, to stockholders of record on February 25. Prepare the appropriate journal entries for the declaration and payment of the dividend. Answer: Jan. 25 Retained Earnings 14,625 Dividends Payable 14,625 Feb 25

No entry required

Mar 25

Dividends Payable Cash

14,625 14,625

Diff: 3 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 45) The Tiger Football Corporation has 9,000 shares of $1.50 par value common stock issued and outstanding. The common stock was issued at par value. The board of directors declared a 3-for-1 stock split May 10, distributable on June 15, to stockholders of record on June 1. The Retained Earnings account balance is $50,000 on May 10. Prepare the equity section of the balance sheet on May 10 and June 15, before and after the stock split. Answer: The Tiger Football Corporation Partial Balance Sheet (Before Split) May 10, 20XX Stockholders' Equity Common Stock, $1.50 par value, 9,000 shares issued and outstanding $13,500 Retained Earnings 50,000 Total Stockholders' Equity $63,500

The Tiger Football Corporation Partial Balance Sheet (After Split) June 15, 20XX Stockholders' Equity Common Stock, $0.50 par value, 27,000 shares issued and outstanding Retained Earnings Total Stockholders' Equity

$13,500 50,000 $63,500

Diff: 3 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

46) On May 31, Mason Corporation has the following stockholders' equity: Common Stock, $10 par value, 9,000 shares issued and outstanding Retained Earnings Total Stockholders' Equity

$90,000 30,000 $120,000

The board of directors declared a 10% stock dividend on June 5 to the stockholders of record on June 15. The stock is to be distributed on June 30. On the date of declaration, the stock had a market value of $13 per share. Prepare the appropriate journal entries for these transactions. Answer: June 5 Retained Earnings 11,700 Paid-in Capital in Excess of Par Value–Stock Dividend 2,700 Common Stock Dividend Distributable 9,000 June 15

No entry required

June 30

Common Stock Dividend Distributable Common Stock

9,000 9,000

Diff: 3 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 47) Prepare the following journal entries for Complex Company. March 15 Declared a dividend of $2 per share on 3,360 shares of $12 par common stock. The stock’s market value per share is $15. March 30 Determined stockholder ownership for dividend. April 15 Paid the dividend. Answer: March 15 Retained Earnings 6,720 Dividends Payable 6,720 March 30 No entry required April 15 Dividends Payable Cash

6,720 6,720

Diff: 3 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

48) Prepare the following stock dividend journal entries for Tamera, Inc. June 19 Declared a 5% stock dividend to common stockholders. The stock has a par value of $12 and a current market value of $15. There are 50,000 shares of common stock outstanding. July 2 The stock dividend is issued. Answer: June 19 Retained Earnings 37,500 Common Stock Dividend Distributable 30,000 Paid-in Capital in Excess of Par Value-Stock Dividend 7,500 July 2

Common Stock Dividend Distributable Common Stock

30,000 30,000

Diff: 3 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 49) Explain some possible reasons a company may declare a stock dividend instead of a cash dividend. Answer: A cash dividend is the distribution of earnings of a corporation in the form of cash. A stock dividend occurs when a corporation issues its own stock instead of a distribution of assets to its stockholders. The reasons why a stock dividend may be declared instead of a cash dividend include: 1. To satisfy stockholders' expectations. If the corporation is short on cash, a stock dividend is offered instead. This conserves the company's assets. 2. To increase permanent capital in the business because more stock is issued. 3. To reduce the market value per share of the stock; with more shares supplied in the market, the price per share should go down. 4. To avoid income tax for stockholders; stock dividends are not considered income at the time of receipt, but rather at the time of sale. Diff: 2 LO: 19-2 AACSB: Written and Oral Communication Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

Using the following accounts: [1] Cash [2] Dividends payable [3] Preferred stock [4] Common stock [5] Common Stock dividend distributable [6] Paid-in capital in excess of par value-common [7] Paid-in capital in excess of par value - preferred [8] Paid-in capital from treasury stock [9] Retained earnings [10] Treasury stock [11] Paid-in capital in excess of par value-Stock dividend Indicate the account(s) to be debited and credited to record the following transactions. 50) Issuance of 10% stock dividend. Debit ________ Credit ________ Answer: Debit 5, Credit 4 Diff: 3 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 51) Declared a cash dividend. Debit ________ Credit ________ Answer: Debit 9, Credit 2 Diff: 3 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 52) Paid a previously declared cash dividend. Debit ________ Credit ________ Answer: Debit 2, Credit 1 Diff: 3 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

53) Declared a stock dividend when the market price per share was above par value per share. Debit ________ Credit ________ & ________ Answer: Debit 9, Credit 5 & 11 Diff: 3 LO: 19-2 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

Learning Objective 19-3 1) Which of the following is NOT a reason why a corporation would reacquire previously issued stock? A) A need to issue more stock for stock option plans B) A need to issue more stock for use in acquiring other corporations C) A desire to reduce the number of shares of stock outstanding D) All of the above are correct reasons. Answer: D Diff: 1 LO: 19-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 2) What is the correct journal entry for Airline Express acquiring 220 shares of its own $9 par common stock for $17? A) Debit Treasury Stock-Common for $1980 and credit Cash for $1980 B) Debit Treasury Stock-Common for $3740 and credit Cash for $3740 C) Debit Cash for $1980 and credit Treasury Stock-Common for $1980 D) Debit Cash for $3740 and credit Treasury Stock-Common for $3740 Answer: B Diff: 2 LO: 19-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

3) April Corporation previously reacquired 175 shares at $19 per share of its own $6 par value per share of common stock. Of the shares reacquired, 35 of the 175 shares were reissued for $7 per share. There is no Paid-in Capital from Treasury Stock. What is the journal entry for the reissued shares? A) Debit Cash for $245; debit Retained Earnings for $420; credit Treasury Stock-Common for $665. B) Debit Cash for $665; credit Paid-In Capital from Treasury Stock for $420; credit Treasury StockCommon for $245. C) Debit Treasury Stock-Common for $245; credit Cash for $245. D) Debit Treasury Stock-Common for $665; credit Cash for $420; credit Paid-In Capital from Treasury Stock for $245. Answer: A Diff: 3 LO: 19-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 4) Which of the following is NOT a characteristic of treasury stock? A) The purchase of treasury stock does not change the amount of issued stock. B) Treasury stock is issued and outstanding stock. C) Treasury stock does not receive dividends or have voting rights. D) Treasury stock is a contra-stockholders' equity account. Answer: B Diff: 1 LO: 19-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 5) Treasury stock is: A) common stock that is issued in a stock dividend. B) common or preferred stock that has been reacquired by the corporation. C) previously issued common stock that has been canceled. D) unissued, but authorized common stock. Answer: B Diff: 1 LO: 19-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

6) Melton Industries acquired 340 shares of its own $11 par common stock for $23. What is the correct journal entry? A) Debit Treasury Stock-Common for $7820 and Credit Cash for $7820 B) Debit Treasury Stock-Common for $3740 and Credit Cash for $3740 C) Debit Cash for $7820 and Credit Treasury Stock-Common for $7820 D) Debit Cash for $3740 and Credit Treasury Stock-Common for $3740 Answer: A Diff: 2 LO: 19-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 7) Which of the following statements is true about treasury stock? A) It carries no right to dividends. B) It carries no right to vote. C) It is stock that is outstanding. D) A and B are correct. Answer: D Diff: 1 LO: 19-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 8) To record the purchase of treasury stock: A) debit Treasury Stock-Common (par value); credit Cash (par value). B) debit Treasury Stock-Common (purchase price); credit Cash (purchase price). C) debit Treasury Stock-Common (par value); debit any difference to Paid-in Capital from Treasury Stock; credit Cash (purchase price). D) None of these answers is correct. Answer: B Diff: 1 LO: 19-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

9) Miles Corporation previously reacquired 450 shares at $15 per share of its own $7 par value per share of common stock. Of the shares reacquired, 90 of the 450 shares were reissued for $13 per share. What is the journal entry for the reissued shares? A) Credit Cash for $1170, Debit Treasury Stock-Common for $1170. B) Debit Cash for $1350, Credit Paid-In Capital from Treasury Stock for $180, Credit Treasury StockCommon for $1170. C) Debit Cash for $1170, Debit Paid-In Capital from Treasury Stock for $180, Credit Treasury StockCommon for $1350. D) Credit Cash for $180, Credit Treasury Stock-Common for $1350, Debit Paid-In Capital from Treasury Stock for $1170. Answer: B Diff: 3 LO: 19-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 10) Which of the following decrease when treasury stock is purchased? A) Issued shares B) Outstanding shares C) Authorized shares D) None of these answers is correct. Answer: B Diff: 1 LO: 19-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 11) When treasury stock is reissued for more than cost, the journal entry would include a: A) credit to Cash B) credit to Common Stock. C) debit to Treasury Stock. D) credit to Paid-in Capital from Treasury Stock. Answer: D Diff: 2 LO: 19-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

12) Farm and Supply reissued 170 shares of treasury stock at $26 that had been reacquired for $18 per share. What is the entry? A) Debit Cash $4420; Credit Treasury Stock-Common $3060, Credit Paid-In Capital from Treasury Stock $1360 B) Debit Cash $4420; Credit Treasury Stock-Common $4420 C) Debit Cash $3060; Debit Paid-In Capital from Treasury Stock $1360, Credit Treasury Stock-Common $4420 D) None of these answers is correct. Answer: A Diff: 2 LO: 19-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 13) When O'Rourke Corporation sells treasury stock for more than the original cost: A) stockholders' equity decreases. B) paid-in capital increases. C) retained earnings may increase. D) retained earnings may decrease. Answer: B Diff: 2 LO: 19-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 14) Barkley's Resort had 2100 shares of $21 par value common stock outstanding. On June 1, Barkley's purchased 230 shares of treasury stock for $29 per share and later reissued them for $27 per share. What amount of profit from the reissuance will be reported on the income statement? A) $1380 B) $460 C) $1840 D) $0 Answer: D Diff: 2 LO: 19-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

15) Treasury stock should usually be recorded at: A) par or stated value. B) cost. C) original issue price. D) net realizable value. Answer: B Diff: 1 LO: 19-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 16) If treasury stock is reissued at a price less than its cost, the debit entry could include: A) Paid-in Capital from Treasury Stock. B) Retained Earnings. C) Treasury Stock. D) Both A and B Answer: D Diff: 2 LO: 19-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 17) A corporation purchased 110 shares of treasury stock for $47. The entry to record the transaction would include a: A) debit to Cash for $5170. B) credit to Treasury Stock for $5170. C) debit to Treasury Stock for $5170. D) None of these answers is correct. Answer: C Diff: 2 LO: 19-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

18) A corporation sold 20 shares of $21 par value treasury stock for $48 per share. The treasury stock cost $38 per share to acquire. The entry to record the transaction would include a: A) credit to Paid-in Capital from Treasury Stock for $760. B) debit to Treasury Stock for $960. C) credit to Paid-in Capital from Treasury Stock for $200. D) debit to Common Stock for $420. Answer: C Explanation: ((20 x $48) - (20 x $38)) = $200 Diff: 2 LO: 19-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 19) If treasury stock is sold for less than cost, the entry to record the transaction would include a: A) debit to Treasury Stock. B) credit to Treasury Stock. C) debit to Common Stock. D) None of these answers is correct. Answer: B Diff: 2 LO: 19-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 20) When treasury stock is sold, the Paid-in Capital in Excess of Par Value is increased. Answer: FALSE Diff: 2 LO: 19-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 21) The reissuance of treasury stock above cost results in an increase in stockholders’ equity. Answer: TRUE Diff: 2 LO: 19-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

22) Reacquiring common stock as treasury stock results in an increase in stockholders’ equity. Answer: FALSE Diff: 2 LO: 19-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 23) The purchase of treasury stock changes the amount of stock issued. Answer: FALSE Diff: 2 LO: 19-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

24) Curtis Corporation's balance sheet included the following: Common Stock, $5 par value, 5,000 shares issued and outstanding Retained Earnings Total Stockholders' Equity

$25,000 20,000 $45,000

Prepare journal entries for the following transactions: May 3 Issued 500 shares at $6 per share. 9 Reacquired 100 shares at $4 per share. 15 Reissued 50 of the Treasury shares at $7 per share. 17 Reissued 10 of the Treasury shares at $3 per share. Answer: May 3 Cash Common Stock Paid-in Capital in Excess of Par Value-Common 9

3,000 2,500 500

Treasury Stock Cash

400

Cash Treasury Stock Paid-in Capital from Treasury Stock

350

Cash Paid-in Capital from Treasury Stock Treasury Stock

30 10

400

200 150

Diff: 3 LO: 19-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

25) Baxter Corporation has 1,000 shares of $5 par value common stock issued and outstanding. Journalize the following Baxter transactions for 20XX: Feb.

1 20

Purchased 200 shares of treasury stock at $6.00. Declared a $2.00 per share cash dividend payable on March 15 to stockholders of record March 1. Paid the cash dividend. Declared a 10% stock dividend. The market value of the stock is $15.00 per share. Distributed the stock dividend. Reissued the treasury stock for $9.00.

Mar. 15 May 10 May 30 Jun 10 Answer: Feb. 1 Treasury Stock (200 × $6) Cash Feb. 20

Retained Earnings (800 × $2) Dividends Payable

1,200 1,200 1,600 1,600

Mar. 15 Dividends Payable Cash

1,600

May 10

1,200

May 30

June 10

1,600

Retained Earnings [(800 × 10%) × $15 mkt] Common Stock Dividend Distributable [(800 × 10%) × $5 par] Paid-In Capital in Excess of Par ValueStock Dividend

400 800

Common Stock Dividend Distributable Common Stock

400

Cash (200 × $9) Treasury Stock (200 × $6) Paid-In Capital from Treasury Stock

1,800

400

1,200 600

Diff: 3 LO: 19-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

Using the following accounts: [1] Cash [2] Dividends payable [3] Preferred stock [4] Common stock [5] Common Stock dividend distributable [6] Paid-in capital in excess of par value-common [7] Paid-in capital in excess of par value - preferred [8] Paid-in capital from treasury stock [9] Retained earnings [10] Treasury stock [11] Paid-in capital in excess of par value-Stock dividend Indicate the account(s) to be debited and credited to record the following transactions. 26) Purchased treasury stock at a price above par. Debit ________ & Credit ________ Answer: Debit 10, Credit 1 Diff: 3 LO: 19-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 27) Sold treasury stock at a price below cost when there was sufficient paid-in capital from treasury stock to absorb the difference between cost and selling price. Debit ________ & ________ Credit ________ Answer: Debit 1 & 8, Credit 10 Diff: 3 LO: 19-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 28) Sold treasury stock at a price above cost. Debit ________ Credit ________ & ________ Answer: Debit 1, Credit 8 & 10 Diff: 3 LO: 19-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

29) Sold treasury stock at cost. Debit ________ Credit ________ Answer: Debit 1, Credit 10 Diff: 3 LO: 19-3 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

Learning Objective 19-4 1) The portion of Retained Earnings that is NOT available for dividends is: A) Retained Earnings. B) Dividends. C) Appropriated Retained Earnings. D) Net Loss. Answer: C Diff: 1 LO: 19-4 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 2) What is the entry to restrict $40,000 for plant expansion? A) Debit Retained Earnings; credit Cash B) Debit Retained Earnings; credit Retained Earnings Appropriated for Plant Expansion C) Debit Retained Earnings Appropriated for Plant Expansion; credit Retained Earnings D) Debit Cash; credit Retained Earning Appropriated for Plant Expansion Answer: B Diff: 1 LO: 19-4 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 3) Which of the following would be shown on the statement of retained earnings? A) Purchase of treasury stock B) Sale of common stock C) Sale of preferred stock D) Declaration of a cash dividend Answer: D Diff: 1 LO: 19-4 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 36 Copyright © 2023 Pearson Education, Inc.

4) A retained earnings appropriation is a restriction of retained earnings by: A) accountants. B) senior management. C) stockholders. D) the board of directors. Answer: D Diff: 1 LO: 19-4 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 5) An entry to appropriate a portion of retained earnings to finance a future plant expansion would include a credit to: A) Paid-in Capital in Excess of Par. B) Retained Earnings Appropriated for Plant Expansion. C) Retained Earnings. D) Unappropriated Retained Earnings. Answer: B Diff: 1 LO: 19-4 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 6) Which of the following would require a debit to the Retained Earnings account for a corporation? A) The initial investment of stockholders B) Net income of the period C) Net loss of the period D) Contributions by new stockholders Answer: C Diff: 1 LO: 19-4 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 7) Which of the following statements is true when appropriating retained earnings? A) Appropriating retained earnings will increase the number of shares of stock available. B) Appropriating retained earnings will allow the corporation to use all its assets for dividends. C) Appropriating retained earnings will increase cash and other assets. D) Appropriating retained earnings will divide the retained earnings into two categories. Answer: D Diff: 1 LO: 19-4 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 37 Copyright © 2023 Pearson Education, Inc.

8) After the closing of its accounting books, Bear Company discovered that depreciation was understated by $8,000, which meant that Net Income was overstated by $8,000. What entry is needed to record the adjustment for the prior period's error? A) Debit Retained Earnings; credit Accumulated Depreciation B) Debit Accumulated Depreciation; credit Retained Earnings C) Debit Retained Earnings; credit Retained Earnings Appropriated D) No journal entry is needed. Answer: A Diff: 2 LO: 19-4 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 9) Appropriations to retained earnings can be: A) contractual only. B) an increase in total retained earnings. C) a decrease in total retained earnings. D) None of these answers is correct. Answer: D Diff: 1 LO: 19-4 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 10) Changes in the retained earnings balance can result from: A) purchasing equipment. B) net income or net loss. C) paying down debt. D) All of these answers are correct. Answer: B Diff: 1 LO: 19-4 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

11) A prior period adjustment would be necessary when: A) a stock dividend is declared. B) a stock dividend is paid. C) depreciation expense was understated the prior year. D) a cash dividend is declared. Answer: C Diff: 1 LO: 19-4 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 12) A prior period adjustment for depreciation would affect which account in the stockholders' equity section? A) Common Stock B) Paid-in Capital in Excess of Par Value–Common C) Retained Earnings D) Appropriations of Retained Earnings Answer: C Diff: 1 LO: 19-4 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 13) At the end of the accounting cycle, net income will be closed into: A) Treasury Stock. B) Paid-in Capital. C) Cash. D) Retained Earnings. Answer: D Diff: 1 LO: 19-4 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 14) Appropriations to retained earnings are: A) recorded as a contra-asset. B) disclosed in the footnotes to the financial statements. C) recorded as a contra-liability. D) a contra-stockholders' equity account. Answer: B Diff: 1 LO: 19-4 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 39 Copyright © 2023 Pearson Education, Inc.

15) Ample Corporation's balance in Retained Earnings is $105,000. The board of directors directs that $50,000 be appropriated for future business expansion. This will cause total retained earnings to: A) decrease by $50,000. B) increase by $50,000. C) remain at $105,000. D) increase or decrease $50,000, as determined by the board. Answer: C Diff: 2 LO: 19-4 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 16) Retained Earnings has a balance of $43,000 on January 1. During the year, the company had net income of $13,000, declared dividends of $15,000, and recorded a prior period adjustment due to overstated depreciation expense on the building of $7000. The Retained Earnings balance on December 31 would be: A) $34,000. B) $48,000. C) $56,000. D) $78,000. Answer: B Explanation: $43,000 + $13,000 + $7000 - $15,000 = $48,000 Diff: 1 LO: 19-4 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 17) Changes in retained earnings result from effects of prior period adjustments, net income or loss, or dividends declared. Answer: TRUE Diff: 1 LO: 19-4 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 18) An error understating Net Income would overstate Retained Earnings. Answer: FALSE Diff: 1 LO: 19-4 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

19) An appropriation to retained earnings reduces total shareholders' equity. Answer: FALSE Diff: 1 LO: 19-4 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 20) Most companies report restrictions of Retained Earnings by using a footnote to the Retained Earnings account. Answer: TRUE Diff: 1 LO: 19-4 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 21) A prior period adjustment is corrected to the beginning balance of Retained Earnings on the Retained Earnings Statement. Answer: TRUE Diff: 1 LO: 19-4 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 22) Dividends declared are subtracted from the Retained Earnings balance on the Statement of Retained Earnings. Answer: TRUE Diff: 1 LO: 19-4 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 23) In the closing process for corporations, net income is closed to the Retained Earnings account. Answer: TRUE Diff: 1 LO: 19-4 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

24) An error to an expense account in a prior period would adjust Retained Earnings in the new period. Answer: TRUE Diff: 1 LO: 19-4 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions 25) Prepare a statement of retained earnings in proper form for Ember Corporation for the year ended December 31, 20XX, from the following: Retained Earnings, January 1, 20XX Dividends declared during the year Net income for the year Correction of prior year error. Purchase of land recorded as rent expense

$7,000 2,200 5,000 1,000

Answer: Ember Corporation Statement of Retained Earnings Year Ended December 31, 20XX Retained Earnings, Jan. 1, 20XX Add: Prior Period Adjustment: Correction of prior year error Retained Earnings, Jan. 1, 20XX corrected Add: Net Income for 20XX Subtotal Deduct: Dividends declared in 20XX Retained Earnings, Dec. 31, 20XX

$7,000 1,000 $8,000 5,000 $13,000 2,200 $10,800

Diff: 2 LO: 19-4 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

26) Prepare a statement of retained earnings in proper form for Melon Corporation for the year ended December 31, 20XX, from the following: Retained Earnings, January 1, 20XX Dividends declared during the year Net income for the year Correction of prior year error, Sales overstated

$8,500 2,600 9,000 2,000

Answer: Melon Corporation Statement of Retained Earnings Year Ended December 31, 20XX Retained Earnings, Jan. 1, 20XX Deduct: Prior Period Adjustment, Correction of prior year error Retained Earnings, Jan. 1, 20XX, corrected Add: Net Income Subtotal Deduct: Dividends declared in 20XX Retained Earnings, Dec. 31, 20XX

$8,500 (2,000) 6,500 9,000 15,500 2,600 $12,900

Diff: 2 LO: 19-4 AACSB: Analytical Thinking Learning Outcome: Describe the different stock transactions and apply basic accounting methods to record and evaluate those transactions

College Accounting, 15e (Slater) Chapter 20 Corporations and Bonds Payable Learning Objective 20-1 1) A bond payable: A) is special type of long-term interest-bearing debt issued by a corporation to raise capital. B) is the amount owed for a mortgage. C) is a debt instrument requiring the payment of interest only. D) a debt instrument requiring the payment of principal only. Answer: A Diff: 1 LO: 20-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 2) The contract rate for a bond is: A) also called the effective interest rate. B) also called the market rate of interest. C) also called the stated rate of interest. D) None of these answers is correct. Answer: C Diff: 1 LO: 20-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 3) The Face Value of a bond: A) is the sum of the interest earned from issue to maturity date. B) is the annual interest rate based on face value. C) is the amount to be paid on the maturity date of a bond. D) is the selling price of a bond. Answer: C Diff: 1 LO: 20-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 4) A bond indenture: A) is a special type of long-term secured loan. B) is the annual interest rate based on face value. C) is the amount to be paid on the maturity date of a bond. D) is the contract between the bondholders and the corporation that provides the details of the bond. Answer: D Diff: 1 LO: 20-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 1 Copyright © 2023 Pearson Education, Inc.

5) Bond certificates state the: A) market value and contract rate. B) face value and contract rate. C) market value and current interest rate. D) face value and current interest rate. Answer: B Diff: 1 LO: 20-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 6) Barnes Corporation has decided to issue bonds that can be converted into stock at a specified exchange rate. What type of bonds is it offering? A) Secured bonds B) Debenture bonds C) Convertible bonds D) Serial bonds Answer: C Diff: 1 LO: 20-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 7) A $10,000 bond quoted at 95 would sell for: A) $10,000. B) $95. C) $9,500. D) None of the above Answer: C Diff: 1 LO: 20-1 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 8) A $10,000 bond quoted at 107 would sell for: A) $10,107. B) $10,700. C) $107. D) $10,000. Answer: B Diff: 1 LO: 20-1 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 2 Copyright © 2023 Pearson Education, Inc.

9) One reason a corporation might issue bonds rather than selling stock is that: A) bond interest is a tax-deductible expense. B) interest rates are high. C) dividends will lower the amount of tax due. D) bondholders have priority claims over stockholders at liquidation. Answer: A Diff: 2 LO: 20-1 AACSB: Reflective Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 10) When the maturities of a bond issue are spread over several dates, the bonds are called: A) term bonds. B) bearer bonds. C) debenture bonds. D) serial bonds. Answer: D Diff: 1 LO: 20-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 11) Bonds payable issued with collateral are called: A) debenture bonds. B) serial bonds. C) term bonds. D) secured bonds. Answer: D Diff: 1 LO: 20-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 12) Bonds that may be purchased by the issuing corporation after a certain date and at a certain price level are known as: A) callable bonds. B) debenture bonds. C) serial bonds. D) term bonds. Answer: A Diff: 1 LO: 20-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

13) Dividends paid to stockholders are: A) taxable to the recipient stockholder. B) taxable to the corporation because they represent income before dividends are declared. C) treated the same as bond interest expense on the corporation’s tax return. D) A and B. Answer: D Explanation: Double taxation of corporate income Diff: 2 LO: 20-1 AACSB: Reflective Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 14) Which of the following statements is false? A) Bondholders would be paid before stockholders in a liquidation. B) Dividends are not required to be paid to stockholders. C) Bondholders are owners while stockholders are creditors. D) Bondholders receive a fixed amount of interest annually while stockholders are paid dividends only if earnings are sufficient. Answer: C Diff: 2 LO: 20-1 AACSB: Reflective Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 15) When a bond is bought between interest dates: A) the buyer pays six months of interest only. B) the issuer receives the purchase price of the bonds only. C) the buyer pays the purchase price plus accrued interest since the last interest payment date. D) A buyer can't buy a bond between interest dates. Answer: C Diff: 1 LO: 20-1 AACSB: Reflective Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table

16) When the contract rate of interest on bonds is equal to the market rate of interest, bonds sell at: A) a premium. B) their face value. C) a discount. D) None of the above. Answer: B Diff: 1 LO: 20-1 AACSB: Reflective Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 17) Bonds payable issued in the bondholder’s name and address in order that interest can be mailed directly to the bondholder is: A) debenture bonds. B) registered bonds. C) serial bonds. D) secured bonds. Answer: B Diff: 1 LO: 20-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 18) Bonds payable issued with no specific assets as collateral are: A) debenture bonds. B) serial bonds. C) term bonds. D) secured bonds. Answer: A Diff: 1 LO: 20-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 19) A bond payable is similar to which of the following? A) Accounts Payable B) Accounts Receivable C) Notes Payable D) Cash Answer: C Diff: 1 LO: 20-1 AACSB: Reflective Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table

20) The interest rate specified in the bond indenture is called the: A) market rate. B) discount rate. C) contract rate. D) effective rate. Answer: C Diff: 1 LO: 20-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 21) Which of the following statements is FALSE in regards to secured bonds? A) Secured bonds are paid on the maturity date. B) Secured bonds are backed with specific assets. C) Secured bond require the payment of interest and principal. D) Secured bonds can be converted to stock. Answer: D Diff: 1 LO: 20-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 22) Which of the following best describes the term maturity date? A) The date on which each interest payment is made B) The date on which the bond is issued C) The date on which the bond is called D) The date on which the principal is repaid Answer: D Diff: 1 LO: 20-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 23) When interest payments are made on a bond issued at face value, the journal entry would include: A) a debit to Bond Interest Expense. B) a credit to Interest Payable. C) a debit to Cash. D) Both A and B Answer: A Diff: 1 LO: 20-1 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table

24) The entry to record the issuance of a bond between interest payment dates would include a: A) debit to Cash. B) credit to Bonds Payable. C) credit to Bond Interest Payable. D) All of the above Answer: D Diff: 2 LO: 20-1 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 25) If bonds are sold between interest payment dates, the amount of cash the issuer receives is: A) more than the market value of the bonds. B) less than the market value of the bonds. C) equal to the market value of the bonds. D) equal to the face value of the bonds. Answer: A Diff: 2 LO: 20-1 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 26) When a bond issued at face value is retired, the journal entry would include: A) debit Bond Interest Expense. B) debit Bonds Payable. C) credit Cash. D) Both B and C Answer: D Diff: 2 LO: 20-1 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 27) The interest rate on which interest payments to bondholders are based is the: A) market rate. B) discount rate. C) contract rate. D) amortization rate. Answer: C Diff: 1 LO: 20-1 AACSB: Reflective Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 7 Copyright © 2023 Pearson Education, Inc.

28) For a corporation, bond interest expense: A) is treated the same as dividends for tax purposes. B) has no effect on earnings and therefore has no effect on income taxes. C) increases income tax by reducing earnings. D) None of the above Answer: D Diff: 2 LO: 20-1 AACSB: Reflective Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 29) All other factors being equal, issuing stocks rather than issuing bonds will: A) increase earnings per share. B) decrease earnings per share. C) have no effect on earnings per share. D) Cannot be determined from information given Answer: B Diff: 2 LO: 20-1 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 30) The journal entry to record the payment of semiannual interest on 10%, $100,000 bonds issued at par would be to: A) debit Bond Interest Expense $5,000; credit Cash $5,000. B) debit Bond Interest Expense $10,000; credit Cash $10,000. C) debit Cash $5,000; credit Bond Interest Expense $5,000. D) debit Cash $10,000; credit Bond Interest Expense $10,000. Answer: A Explanation: $100,000 × 10% × ½ = $5,000 Diff: 2 LO: 20-1 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table

31) Bolan Corporation issued 500, 9%, 10-year, $1,000 bonds on Jan. 1, 20X1. The annual bond interest date is January 1 each year, and the bonds were issued at face value. The amount of interest expense reported for 20X1 is: A) $0. B) $45,000. C) $22,500. D) None of the above is correct. Answer: B Explanation: $500,000 × 9% = $45,000 Diff: 2 LO: 20-1 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 32) On October 1 of the current year, Garson Company issued 11%, 10-year, $400,000 bonds at 100. Interest payment dates are April 1 and October 1. The amount of cash paid out for interest during the current calendar year is: A) $0. B) $44,000. C) $22,000. D) $11,000. Answer: A Explanation: No interest will be paid until the following April 1st. Diff: 2 LO: 20-1 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 33) On April 1, 20X1, Ballentine Corporation issued 10%, 10-year, $400,000 bonds at face value. Interest payment dates are April 1 and October 1. The amount of cash paid out for interest during 20X1 is: A) $0. B) $10,000. C) $20,000. D) $40,000. Answer: C Explanation: $400,000 × 10% × ½ = $20,000 Diff: 2 LO: 20-1 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table

34) At the time a bond was sold at face value, the entire amount of interest over the life of the bond was recorded as an expense and a liability. This error would cause: A) the period's ending assets to be overstated. B) the period's ending liabilities to be understated. C) the period's net income to be understated. D) None of the above is correct. Answer: C Diff: 3 LO: 20-1 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 35) A bond is issued for more than its face value. Which of the following statements most likely would explain why? A) The bond's contract rate is lower than the market rate at the time of the issue. B) The bond's contract rate is the same as the market rate at the time of the issue. C) The bond's contract rate is higher than the market rate at the time of the issue. D) The bond is not secured by specific assets of the corporation. Answer: C Diff: 2 LO: 20-1 AACSB: Reflective Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 36) A bond is issued for less than its face value. Which of the following statements most likely would explain why? A) The bond's contract rate is lower than the market rate at the time of the issue. B) The bond's contract rate is the same as the market rate at the time of the issue. C) The bond's contract rate is higher than the market rate at the time of the issue. D) The bond is secured by specific assets of the corporation. Answer: A Diff: 2 LO: 20-1 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table

37) A bond is issued for an amount equal to its face value. Which of the following statements most likely would explain why? A) The bond's contract rate is lower than the market rate at the time of the issue. B) The bond's contract rate is the same as the market rate at the time of the issue. C) The bond's contract rate is higher than the market rate at the time of the issue. D) The bond is secured by specific assets of the corporation. Answer: B Diff: 2 LO: 20-1 AACSB: Reflective Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 38) Max Corporation sells $500,000, 10%, 10-year bonds at face value on January 1. Interest is paid on January 1 and July 1. The entry to record the issuance of the bonds on January 1 is: A) Cash 500,000 Bonds Payable 500,000 B) Cash

500,000 Interest Payable Bonds Payable

50,000 450,000

C) Cash Interest Expense Bonds Payable

450,000 50,000 500,000

D) Bonds Payable Interest Expense

450,000 50,000 Cash

500,000

Answer: A Diff: 2 LO: 20-1 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table

39) The sale and issuance of $500,000, 10% bonds with a market rate of 10% would involving debiting Cash for: A) $550,000. B) $525,000. C) $500,000. D) $50,000. Answer: C Diff: 1 LO: 20-1 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 40) Bonds that are backed solely by the general credit of the corporation issuing the bonds are called: A) secured bonds. B) debenture bonds. C) indenture bonds. D) convertible bonds. Answer: B Diff: 1 LO: 20-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 41) The interest paid to bondholders is determined by: A) multiplying the bond's contract rate of interest by the face value of the bond. B) multiplying the market rate of interest by the face value of the bond. C) dividing the bond's annual rate of interest by the face value of the bond. D) dividing the face value of the bond by the bond's annual rate of interest. Answer: A Diff: 1 LO: 20-1 AACSB: Reflective Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 42) Stockholders’ claims for dividends and repayment of investment rank ahead of the claims of bondholders. Answer: FALSE Diff: 1 LO: 20-1 AACSB: Reflective Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table

43) Bond interest expense is not tax deductible. Answer: FALSE Diff: 1 LO: 20-1 AACSB: Reflective Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 44) When the bondholder can convert the bonds into shares of stock, the bonds are called callable bonds. Answer: FALSE Diff: 1 LO: 20-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 45) The market rate of interest and the contract rate of interest are always the same for a bond sold at a discount. Answer: FALSE Diff: 1 LO: 20-1 AACSB: Reflective Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 46) Bonds are long-term interest-bearing notes issued to multiple lenders, usually in increments of $1,000. Answer: FALSE Explanation: Bonds are not notes. Diff: 1 LO: 20-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 47) The corporation will repay the principal amount of the bond on the maturity date. Answer: TRUE Diff: 1 LO: 20-1 AACSB: Reflective Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 48) If a corporation issues serial bonds, each bond will have the same maturity dates. Answer: FALSE Diff: 1 LO: 20-1 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 13 Copyright © 2023 Pearson Education, Inc.

49) A bond that has a face value of $300,000 with an annual interest rate of 8% paid semiannually and sold at par would have an interest payment of ________ semiannually. Answer: $12,000 Explanation: $300,000 × 8% × ½ = $12,000 Diff: 1 LO: 20-1 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 50) A piece of paper held by a bondholder showing evidence of a bond issued by a corporation is called a(n) ________. Answer: bond certificate Diff: 1 LO: 20-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 51) Bonds that are unsecured and are issued only on the general credit of a corporation are called ________ bonds. Answer: debenture Diff: 1 LO: 20-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 52) To determine the interest payment on a bond, multiply the ________ interest rate times the ________ value. Answer: contract (or stated); face (or principal) Diff: 1 LO: 20-1 AACSB: Reflective Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table

53) On January 1, 20X1, Baker Company issued $200,000, 10-year, 6% bonds at face value. The bonds have semiannual interest payments on June 30 and December 31. Record the 20X1 journal entries. Answer: Jan. 1, 20X1 Cash 200,000 Bonds Payable 200,000 June 30, 20X1

Dec. 31, 20X1

Bond Interest Expense Cash ($200,000 × 6% × 6/12)

6,000

Bond Interest Expense Cash

6,000

Diff: 2 LO: 20-1 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 54) On March 1, 20X1, Janes Company issued $200,000, 10-year, 6% bonds at face value. The bonds have semiannual interest payments on June 30 and December 31. Record the 20X1 journal entries. Answer: Mar. 1, 20X1 Cash 202,000 Bonds Payable 200,000 Bond Interest Payable 2,000 ($200,000 × 6% × 2/12) June 30, 20X1

Dec. 31, 20X1

Bond Interest Expense Bond Interest Payable Cash ($200,000 × 6% × 6/12)

4,000 2,000

Bond Interest Expense Cash

6,000

Diff: 3 LO: 20-1 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table

55) On January 1, Buy-New Online issued $500,000, 10%, 10-year bonds to lenders at 100. Interest is to be paid semiannually on July 1 and January 1. Journalize the following entries: a. Issued the bonds. b. Paid first semiannual interest payment. c. Retired the bonds at maturity. Answer: a. Cash 500,000 Bonds Payable 500,000 b. Bond Interest Expense 25,000 Cash 25,000 c. Bonds Payable 500,000 Cash 500,000 Diff: 2 LO: 20-1 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 56) Green Corporation issued on January 1, $300,000 of 9%, 5-year bonds at 100. Interest is to be paid semiannually on July 1 and January 1. Journalize the following entries: a. Issued the bonds. b. Paid first semiannual interest payment. c. Retired the bonds at maturity. Answer: a. Cash 300,000 Bonds Payable 300,000 b. Bonds Interest Expense 13,500 Cash 13,500 c. Bonds Payable 300,000 Cash 300,000 Diff: 2 LO: 20-1 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table

57) What is the difference between a secured bond and a debenture bond? Answer: A secured bond is backed by specific pledged assets such as equipment or property as security for meeting the terms of the bond agreement. Debenture bonds are not backed by specific pledged assets as collateral. Since the bonds are unsecured, risk is higher than on secured bonds. These bonds will often require a higher rate of interest than secured bonds to make them attractive to investors. Diff: 2 LO: 20-1 AACSB: Written and Oral Communication Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table

Learning Objective 20-2 1) If a bond is issued at a discount, the effective interest rate is most likely ________ the contract interest rate. A) higher than B) lower than C) the same as D) Cannot be determined based on information given. Answer: A Diff: 1 LO: 20-2 AACSB: Reflective Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 2) The entry to record the semiannual interest payment and amortization of the discount using the straight-line method on a 10%, $300,000, 6-year bond issued at 98 would be to (Round your answer to the nearest whole dollar.): A) debit Bond Interest Expense $7,500; credit Cash $7,500. B) debit Bond Interest Expense $15,250; credit Cash $15,000; credit Discount on Bonds Payable $250. C) debit Bond Interest Expense $15,500; credit Cash $15,500. D) debit Bond Interest Expense $15,500; credit Cash $15,000; credit Discount on Bonds Payable $500. Answer: D Explanation: Cash Interest $300,000 × 10% × ½ = $15,000; Discount amortization (0.02 × $300,000)/12 = $500 Diff: 2 LO: 20-2 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table

3) Using the straight-line method, the semiannual bond interest expense of a 12%, $500,000 bond for 10 years issued at 103 would be: A) $60,000. B) $30,000. C) $29,250. D) $30,750. Answer: C Explanation: Cash Interest $500,000 × 12% × ½= $30,000; Premium amortization ($500,000 × 3%)/20 = $750; Bond Interest Expense = $30,000 - $750 = $29,250 Diff: 2 LO: 20-2 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 4) Using the straight-line method, the semiannual bond interest expense of a 10%, $800,000, 10-year bond issued at 97 is: A) $80,000. B) $41,200. C) $38,800. D) $78,800. Answer: B Explanation: Cash Interest $800,000 × 10% × ½ = $40,000; Discount Amortization ($800,000 × 3%)/20 = $1,200; Bond Interest Expense = $40,000 + $1,200 = $41,200 Diff: 2 LO: 20-2 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 5) On October 1, 20X1, Port Company issued 10%, 10-year, $800,000 bonds at 110. Interest dates are April 1 and October 1. The amount of straight-line amortization for 20X1 is: A) $1,000. B) $4,000. C) $8,000. D) $2,000. Answer: D Explanation: ($800,000 × 10%)/10 = $8,000 for 12 months; for 3 months: $8,000 × 3/12= $2,000 Diff: 2 LO: 20-2 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table

6) Moab Corporation sells $800,000 of 8%, 20-year bonds for 99 on January 1. Interest is paid on January 1 and July 1. Straight-line amortization is used. What is the amount of the discount at issuance? A) $56,000 B) $4,000 C) $8,000 D) $64,000 Answer: C Explanation: $800,000 × 1% = $8,000 Diff: 2 LO: 20-2 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 7) Applegate Corporation sells $190,000, 10%, 10-year bonds for 97 on January 1. Interest is paid on January 1 and July 1. Straight-line amortization is used. The amount of bond interest expense recorded on July 1, six months after issuance, is (Round your intermediary calculations to the nearest whole dollar.): A) $9,785. B) $9,643. C) $9,500. D) $19,285. Answer: A Explanation: Cash Interest $190,000 × 10% × ½ = $9,500; Discount amortization ($190,000 × 3%)/20 = $285; Bond Interest Expense $9,500 + $285 = $9,785 Diff: 2 LO: 20-2 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 8) Candi Corporation sells $200,000, 8%, 10-year bonds for 98 on January 1, 20X1. Interest is paid on January 1 and July 1. Straight-line amortization is used. The amount of cash paid for interest on July 1, 20X1 is: A) $9,875. B) $8,200. C) $8,000. D) $1,675. Answer: C Explanation: $200,000 × 8% × ½ = $8,000 Diff: 2 LO: 20-2 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table

9) Bond Interest Payable is reported as a: A) current liability on the balance sheet. B) current liability on the income statement. C) contra-liability on the balance sheet. D) contra-liability on the income statement. Answer: A Diff: 1 LO: 20-2 AACSB: Reflective Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 10) The carrying value of bonds is calculated by: A) adding the Discount on Bonds Payable account balance to the Bonds Payable account balance. B) subtracting the Premium on Bonds Payable account balance from the Bonds Payable account balance. C) subtracting the Discount on Bonds Payable account balance from the Bonds Payable account balance. D) adding the Bonds Payable account balance to the Bond Interest Payable account balance. Answer: C Diff: 1 LO: 20-2 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 11) When selling bonds at a discount, the discount received effectively: A) reduces the cost of borrowing. B) increases the cost of borrowing. C) does not affect the cost of borrowing. D) None of the above. Answer: B Diff: 2 LO: 20-2 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 12) The carrying value of bonds payable is the same thing as: A) fair market value. B) discount value. C) premium value. D) book value. Answer: D Diff: 1 LO: 20-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

13) The real or actual rate of interest to the borrowing corporation is called the: A) stated rate of interest. B) effective rate of interest. C) discount rate of interest. D) premium rate of interest. Answer: B Diff: 1 LO: 20-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 14) The carrying value for bonds sold at a premium: A) equals face value at all times. B) increases as time passes until the maturity date. C) decreases as time passes until the maturity date. D) equals the cash amount received at the sale less the amount of the premium. Answer: C Diff: 2 LO: 20-2 AACSB: Reflective Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 15) Discount on Bonds Payable is a: A) contra-asset account. B) contra-liability account. C) liability account. D) None of these answers is correct. Answer: B Diff: 1 LO: 20-2 AACSB: Reflective Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 16) Interest expense will be less than the interest payment when bonds are issued at: A) a premium. B) face value. C) a discount. D) the conversion rate. Answer: A Diff: 2 LO: 20-2 AACSB: Reflective Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table

17) When interest payments are made on a discounted bond, a portion of the discount is: A) depreciated. B) liquidated. C) amortized. D) transferred to reduce the bond interest expense. Answer: C Diff: 1 LO: 20-2 AACSB: Reflective Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 18) Cane Corporation issued $300,000, 12% bonds at 97. The entry to record this transaction is: A) debit Cash $300,000; credit Bonds Payable $291,000; credit Discount on Bonds Payable $9,000. B) debit Cash $291,000; credit Bonds Payable $291,000. C) debit Cash $300,000; credit Bonds Payable $300,000. D) debit Cash $291,000; debit Discount on Bonds Payable $9,000; credit Bonds Payable $300,000. Answer: D Diff: 2 LO: 20-2 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 19) Harley Corporation issued a 12%, $400,000 8-year bond at 109. The entry to record the issuance transaction is to: A) debit Cash $400,000; credit Bonds Payable $400,000. B) debit Cash $436,000; credit Bonds Payable $436,000. C) debit Cash $436,000; credit Bonds Payable $400,000 credit Premium on Bonds Payable $36,000. D) debit Cash $400,000; debit Premium on Bonds Payable $36,000; credit Bonds Payable $436,000. Answer: C Diff: 2 LO: 20-2 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table

20) Marlo Corporation issued $200,000 of 13%, 10-year bonds for $190,000. The entry to record the issuance of the bonds includes a: A) debit to Bonds Payable for $200,000. B) credit to Premium on Bonds Payable for $10,000. C) credit to Bonds Payable for $210,000. D) debit to Discount on Bonds Payable $10,000. Answer: D Diff: 2 LO: 20-2 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 21) Control Corporation issued $350,000 of 9%, 10-year bonds for 107. The entry to record the issuance of the bonds includes a: A) debit to Discount on Bonds Payable for $24,500. B) credit to Bonds Payable for $325,500. C) debit to Bonds Payable for $350,000. D) credit to Premium on Bonds Payable for $24,500. Answer: D Diff: 2 LO: 20-2 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 22) On October 1, 20X1, Alex Company issued 10%, 10-year, $800,000 bonds at 108. Interest dates are April 1 and October 1. The amount of cash paid out for interest during 20X1 is: A) $0. B) $80,000. C) $40,000. D) $20,000. Answer: A Diff: 2 LO: 20-2 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table

23) On April 1, 20X1, Braintree Corporation issued 10%, 10-year, $800,000 bonds at 107. Interest dates are April 1 and October 1. The amount of cash paid out for interest during 20X1 is: A) $0. B) $40,000. C) $80,000. D) $20,000 Answer: B Explanation: $800,000 × 10% × ½ = $40,000 Diff: 2 LO: 20-2 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 24) Mansfield Corporation sells $600,000, 15%, 10-year bonds for 97 on January 1. Interest is paid on January 1 and July 1. Straight-line amortization is used. The entry to record the issuance of the bonds on January 1 is: A) Cash 600,000 Bonds Payable 600,000 B) Cash Discount on Bonds Payable Bonds Payable C) Cash

600,000 18,000 582,000

582,000 Bonds Payable

D) Cash Discount on Bonds Payable Bonds Payable

582,000

582,000 18,000 600,000

Answer: D Diff: 2 LO: 20-2 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table

25) Bonds are issued for $20,000 at face value with 8% interest on October 1, 20X1. What is the adjusting entry on December 31, 20X1? (Do not round any intermediate calculations. Round your final answer to the nearest dollar.) A) Bond Interest Expense 1,600 Bond Interest Payable 1,600 B) Bond Interest Expense Bond Interest Payable

400

C) Bond Interest Payable Bond Interest Expense

400

D) Bond Interest Payable Bond Interest Expense

1,600

400

1,600

Answer: B Explanation: $20,000 × 8% × 3/12 = $400 Diff: 2 LO: 20-2 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table

26) Bonds are issued for $120,000 at face value on September 1, 20X1. The stated interest is 12% and interest is paid on September 1 and March 1. What is the adjusting entry on December 31, 20X1? (Do not round any intermediate calculations. Round your final answer to the nearest dollar.) A) Bond Interest Expense 4,800 Bond Interest Payable 4,800 B) Bond Interest Expense Bond Interest Payable

3,600

C) Bond Interest Expense Bond Interest Payable

2,400

D) Bond Interest Payable Bond Interest Payable

14,400

3,600

2,400

14,400

Answer: A Explanation: $120,000 × 12% × 4/12 = $4,800 Diff: 2 LO: 20-2 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table

27) James issued bonds for $90,000 at face value on July 1, 20X1. 14% interest payments are due January 1 and July 1. What is the adjusting entry on December 31, 20X1? A) Bond Interest Expense 2,908 Bond Interest Payable 2,908 B) Bond Interest Expense Bond Interest Payable

6,300

C) Bond Interest Payable Bond Interest Expense

12,600

D) Bond Interest Payable Bond Interest Expense

5,250

6,300

12,600

5,250

Answer: B Explanation: $90,000 × 14% × ½ = $6,300 Diff: 2 LO: 20-2 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 28) When making the adjustment for accrued interest, the Bond Premium account was not taken into account. This error would cause: A) the period's ending assets to be overstated. B) the period's ending liabilities to be understated. C) the period's net income to be understated. D) None of the above is correct. Answer: C Diff: 3 LO: 20-2 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table

29) When making the adjustment for accrued interest the Bond Discount account was not taken into consideration. This error would cause: A) the period's ending assets to be overstated. B) the period's ending liabilities to be understated. C) the period's net income to be overstated. D) Both B and C are correct. Answer: D Diff: 3 LO: 20-2 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 30) On October 1, 20X1, Indiana Company issued $30,000, 12%, 5-year bonds at 106. What is the adjusting entry on December 31, 20X1, using the straight-line method? A) Bond Interest Expense 3,600 Bond Interest Payable 3,600 B) Bond Interest Expense Bond Interest Payable

900

C) Bond Interest Expense Premium on Bonds Payable Bond Interest Payable

810 90

900

D) Bond Interest Expense Premium on Bonds Payable Bond Interest Payable

990 90 900

Answer: C Explanation: Interest Payable $30,000 × 12% × 3/12 = $900; Premium amortization ($30,000 × 6%)/10 = $180 for 6 months; $90 for 3 months Diff: 2 LO: 20-2 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table

31) On October 1, 20X1, Pile Company issued $60,000, 9%, 5-year bonds at 98. What is the adjusting entry on December 31, 20X1, using the straight-line method? A) Bond Interest Expense 5,400 Bond Interest Payable 5,400 B) Bond Interest Expense Bond Interest Payable

1,350

C) Bond Interest Expense Discount on Bonds Payable Bond Interest Payable

1,290 60

1,350

D) Bond Interest Expense Discount on Bonds Payable Bond Interest Payable

1,410 60 1,350

Answer: D Explanation: Interest Payable $60,000 × 9% × 3/12 = $1,350; Discount amortization ($60,000× 2%)/5 = $240 per year; for 3 months $240 × 3/12 = $60 Diff: 2 LO: 20-2 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 32) At year end, there was no accrual of interest on a bond payable. The bonds were issued at par value. This error would cause: A) the period's ending assets to be overstated. B) the period's ending liabilities to be overstated. C) the period's net income to be understated. D) None of the above Answer: D Diff: 3 LO: 20-2 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table

33) When the market rate of interest on bonds is higher than the contract rate, the bonds will sell at: A) a premium. B) their face value. C) their maturity value. D) a discount. Answer: D Diff: 2 LO: 20-2 AACSB: Reflective Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 34) For a corporation, a premium on bonds results when: A) the contract rate is greater than the market rate. B) the contract rate is less than the market rate. C) the face value is greater than the effective rate. D) the rate on the bond certificate is less than the market rate. Answer: A Diff: 2 LO: 20-2 AACSB: Reflective Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table

35) Mansfield Corporation sells $400,000, 13%, 10-year bonds for 96 on January 1. Interest is paid on January 1 and July 1. Straight-line amortization is used. The entry to record the first interest payment would be: A) Bond Interest Expense 26,000 Bonds Payable 26,000 B) Bond Interest Expense Premium on Bonds Payable Cash C) Cash

25,200 800 26,000

26,800 Bond Interest

Expense D) Bond Interest Expense Discount on Bonds Payable Cash

26,800

26,800 800 26,000

Answer: D Explanation: Cash Interest $400,000 × 13% × ½= $26,000; Discount amortization ($400,000 × 4%)/20 = $800 Diff: 2 LO: 20-2 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table

36) Smith Corporation sells $100,000, 14%, 10-year bonds for 101 on January 1. Interest is paid on January 1 and July 1. Straight-line amortization is used. The entry to record the first interest payment would be: A) Bond Interest Expense 7,000 Bonds Payable 7,000 B) Bond Interest Expense Premium on Bonds Payable Cash C) Cash Expense

6,950 50 7,000

7,050 Bond Interest

D) Bond Interest Expense Discount on Bonds Payable Cash

7,050

7,050 50 7,000

Answer: B Explanation: Cash Interest $100,000 x 14% x ½ = $7,000; Premium amortization ($100,000 x 1%)/20 = $50 Diff: 2 LO: 20-2 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 37) A discount amortization does not affect the amount of cash paid for bond interest. Answer: TRUE Diff: 1 LO: 20-2 AACSB: Reflective Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 38) When the amount received from the sale of a bond is less than the face value, the difference is written off over time in an account called Premium on Bonds Payable. Answer: FALSE Diff: 1 LO: 20-2 AACSB: Reflective Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table

39) A bond issue of $500,000 sold at 107 has a bond discount of $35,000. Answer: FALSE Diff: 1 LO: 20-2 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 40) The straight-line method for the amortization of a bond’s premium allocates equal amounts of premium to Bonds Interest Expense each interest period. Answer: TRUE Diff: 2 LO: 20-2 AACSB: Reflective Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 41) At maturity, the Premium on Bonds Payable will have a balance equal to zero. Answer: TRUE Diff: 2 LO: 20-2 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 42) When a bond is sold at a discount, the person buying the bond receives less cash interest than if the bond had been purchased at face value. Answer: FALSE Diff: 2 LO: 20-2 AACSB: Reflective Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 43) A bond's discount is amortized over the term of the bond. Answer: TRUE Diff: 1 LO: 20-2 AACSB: Reflective Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table

44) The amortization of discount on bonds payable and the amortization of premium on bonds payable both increase Bond Interest Expense. Answer: FALSE Diff: 1 LO: 20-2 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 45) The carrying value of a bond sold at a(n) ________ falls over time until it reaches the face value of the bond. Answer: premium Diff: 1 LO: 20-2 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 46) The ________ of a bond issued at a discount increases over time until it reaches the face value of the bond. Answer: carrying value Diff: 1 LO: 20-2 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table

Using the following accounts: [1] Cash [2] Bond Sinking fund [3] Equipment [4] Building [5] Land [6] Accounts payable [7] Notes payable [8] Bonds payable [9] Bond interest payable [10] Premium on bonds payable [11] Discount on bonds payable [12] Common stock [13] Retained earnings [14] Sinking fund earned [15] Bond interest expense [16] Gain on retirement [17] Loss on retirement Indicate the account(s) to be debited and credited to record the following transactions. 47) Accrued interest on bonds which sold at face value. Debit ________ Credit ________ Answer: Debit 15, Credit 9 Diff: 3 LO: 20-2 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 48) Accrued interest on bonds which sold beneath face value. Debit ________ Credit ________ & ________ Answer: Debit 15, Credit 9 & 11 Diff: 3 LO: 20-2 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table

49) Accrued interest on bonds which sold above face value. Debit ________ & ________ Credit ________ Answer: Debit 15 & 10, Credit 9 Diff: 3 LO: 20-2 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 50) Issued bonds at face value in exchange for equipment. Debit ________ Credit ________ Answer: Debit 3, Credit 8 Diff: 3 LO: 20-2 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 51) Issued bonds at a value above face value in exchange for land. Debit ________ Credit ________ & ________ Answer: Debit 5, Credit 8 & 10 Diff: 3 LO: 20-2 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 52) Sold bonds at a discount. Debit ________ & ________ Credit ________ Answer: Debit 1 & 11 Credit 8 Diff: 3 LO: 20-2 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table

53) On July 1, Ball Computer Corporation issued 10-year, 8%, $200,000 bonds for 96. Interest is due June 30 and December 31. Prepare the journal entries to record: a. Issuance of the bond. b. First semiannual interest period payment including the amortization of the discount using the straightline method. Answer: a. Cash 192,000 Discount on Bonds Payable 8,000 Bonds Payable 200,000 b. Bond Interest Expense 8,400 Discount on Bonds Payable 400 Cash 8,000 Diff: 2 LO: 20-2 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 54) On January 1, Pearson Corporation issued 5%, 20-year bonds at 105. The face value is $300,000 and interest is paid semiannually. Interest is paid January 1 and July 1. Prepare the journal entries to record: a. Issuance of the bonds. b. First semiannual interest payment and amortization of the premium using the straight-line method. Answer: a. Cash 315,000 Premium on Bonds Payable 15,000 Bonds Payable 300,000 b. Bond Interest Expense 7,125 Premium on Bonds Payable 375 Cash 7,500 Diff: 2 LO: 20-2 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table

55) Northern Union Pacific is planning to issue 10-year, 10% semiannual interest bonds with a par value of $100,000. Required: Prepare the necessary journal entry under each of the following assumptions. a. The bonds are sold on issuance date at par. b. The bonds are sold on issuance date at 96. c. The bonds are sold on issuance date at 103. Answer: a. Cash 100,000 Bonds Payable b. Cash 96,000 Discount on Bonds Payable 4,000 Bonds Payable c. Cash 103,000 Premium on Bonds Payable Bonds Payable

100,000

3,000 100,000

Diff: 3 LO: 20-2 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table

56) Crafton Corporation is planning to issue 5-year, 8%, semiannual interest bonds with a face value of $500,000. Required: Prepare the necessary journal entry under each of the following assumptions. a. The bonds are sold on issuance date at par. b. The bonds are sold on issuance date at 97. c. The bonds are sold on issuance date at 105. Answer: a. Cash 500,000 Bonds Payable b. Cash 485,000 Discount on Bonds Payable 15,000 Bonds Payable c. Cash 525,000 Premium on Bonds Payable Bonds Payable

500,000

25,000 500,000

Diff: 3 LO: 20-2 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table

57) Island Corporation issued $500,000 of 6%, 10-year bonds at 104 on May 1, 20X1. Interest is paid semiannually on October 31 and April 30. Journalize the entries for the issuance of the bond on May 1, 20X1, the first interest payment on October 31, 20X1, using the straight-line method, and the adjusting entry on December 31, 20X1. Answer: May 1 Cash 520,000 Bonds Payable 500,000 Premium on Bonds Payable 20,000 Oct 31

Dec 31

Bond Interest Expense Premium on Bonds Payable Cash

14,000 1,000

Bond Interest Expense Premium on Bonds Payable Bond Interest Payable

4,667 333

15,000

5,000

Diff: 3 LO: 20-2 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 58) Prepare the first two interest payments in the amortization schedule using the straight-line method based on the following information (take all calculations to nearest dollar): 1. 10-year 8%, $270,000 bonds selling for $211,531. 2. Interest is paid semiannually. 3. Assume 12% market rate. Answer: Carrying Value Total Interest Interest Discount to be Carrying Value Period (Beginning) Expense Payment Amortized (ending) 1 $211,531 $13,723 $10,800 $2,923 $214,454 2 214,454 13,723 10,800 2,923 217,377 Diff: 3 LO: 20-2 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table

Learning Objective 20-3 1) Evans Corporation sells $500,000, 10%, 10-year bonds for 99 on January 1, 20X1. Compute the semiannual interest expense recorded on July 1, 20X1 using the interest method. The market rate is 13%. A) $32,175 B) $65,000 C) $50,000 D) $64,350 Answer: A Explanation: $500,000 × 0.99 × 13% × ½ = $32,175 Diff: 3 LO: 20-3 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 2) Davis Corporation sells $600,000, 14%, 10-year bonds for 105 on January 1, 20X1. Compute the semiannual interest expense recorded on July 1, 20X1 using the interest method. The market rate is 9%. A) $42,000 B) $14,175 C) $28,350 D) $21,000 Answer: C Explanation: $600,000 × 1.05 × 9% × ½ = $28,350 Diff: 3 LO: 20-3 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 3) Smith Corporation sells $1,000,000, 14%, 10-year bonds for $949,000 on January 1, 20X1. Compute the semiannual interest expense recorded on July 1, 20X1 using the interest method. The market rate is 15%. (Round your answer to the nearest whole dollar.) A) $142,350 B) $75,000 C) $70,000 D) $71,175 Answer: D Explanation: $949,000 × 15% × ½ = $71,175 Diff: 3 LO: 20-3 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table

4) Dixon Corporation sells $800,000, 11%, 10-year bonds for $963,000 on January 1, 20X1. Compute the semiannual interest expense recorded on July 1, 20X1 using the interest method. The market rate is 8%. (Round your answer to the nearest whole dollar.) A) $32,000 B) $52,965 C) $38,520 D) $44,000 Answer: C Explanation: $963,000 × 8% × ½ = $38,520 Diff: 3 LO: 20-3 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 5) Thompson Corporation sells $100,000, 12%, 10-year bonds for $112,000 on January 1, 20X1. What is the journal entry for the first semiannual interest expense recorded on July 1, 20X1 using the interest method? The market rate is 10%. A) Bond Interest Expense 6,000 Bonds Payable 6,000 B) Bond Interest Expense Premium on Bonds Payable Cash C) Cash

5,600 400 6,000

6,000 Bond Interest Expense

D) Bond Interest Expense Premium on Bonds Payable Cash

6,000

6,000 400 5,600

Answer: B Explanation: Cash Interest = $100,000 × 12% × ½ = $6,000; Bond Interest Expense 112,000 × 10% × ½ = 5,600 Diff: 3 LO: 20-3 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table

6) Allen Corporation sells $200,000, 15%, 10-year bonds for $173,000 on January 1, 20X1. What is the journal entry for the first semiannual interest expense recorded on July 1, 20X1 using the interest method? The market rate is =18%. A) Bond Interest Expense 15,000 Bonds Payable 15,000 B) Bond Interest Expense Discount on Bonds Payable Cash C) Cash

15,000 570 15,570

15,570 Bond Interest

Expense D) Bond Interest Expense Discount on Bonds Payable Cash

15,570

15,570 570 15,000

Answer: D Explanation: Cash Interest $200,000 x 15% x ½ = $15,000; Bond Interest Expense 173,000 x 18% x ½ = 15,570 Diff: 3 LO: 20-3 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 7) The _____________ of amortization makes interest expense a constant percentage of a bond’s carrying value. A) interest method B) carrying value method C) straight-line method D) discount method Answer: A Diff: 3 LO: 20-3 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table

8) A bond that pays interest on February 28 and August 31 will have to be adjusted for 2 months interest on December 31. Answer: FALSE Explanation: Adjust for interest from August 31 to December 31, which equals 4 months of interest. Diff: 1 LO: 20-3 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 9) All bonds have accrued interest adjustments on December 31. Answer: FALSE Diff: 1 LO: 20-3 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 10) The interest method amortizes an equal amount of discount to Bond Interest Expense each period. Answer: FALSE Diff: 2 LO: 20-3 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 11) To determine the bond interest expense to be recorded using the interest method, the computation is the ________ times the ________ of interest. Answer: carrying value; market rate Diff: 1 LO: 20-3 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table

12) On July 1, Shooter's Poultry Company issued 10% 10-year, $500,000 bonds for $462,000. This price will yield a market rate of 11%. Interest dates are June 30 and December 31. Prepare the journal entries to record (take all calculations to the nearest dollar): a. Issuance of the bond. b. Payment for the first semiannual interest period plus amortization of the discount using the interest method. c. Payment for the second semiannual interest period plus amortization of the discount using the interest method. Answer: a. Cash 462,000 Discount on Bonds Payable 38,000 Bonds Payable 500,000 b. Bond Interest Expense 25,410 Discount on Bonds Payable 410 Cash ($500,000 × 10% × ½) 25,000 c. Bond Interest Expense 25,433 Discount on Bonds Payable 433 Cash 25,000 Bond Interest Expense (first) $462,000 × 11% × ½ = $25,410 Bond Interest Expense (second) $462,410 × 11% × ½ = $25,433 Diff: 3 LO: 20-3 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table

13) On July 1, 20X1, Carly Corporation issued 10-year 9%, $600,000 bonds for $640,771, a price to yield 8% market rate. Interest dates are June 30 and December 31. Record the following journal entries (take all calculations to the nearest dollar): a. Issuance of the bonds. b. The semiannual interest payment and amortization of the premium on December 31, 20X1, using the interest method. c. The semiannual interest payment and amortization of the premium on June 30, 20X2 (the following year), using the interest method. Answer: a. Cash 640,771 Premium on Bonds Payable 40,771 Bonds Payable 600,000 b. Bond Interest Expense 25,631 Premium on Bonds Payable 1,369 Cash ($600,000 × 9% × ½) 27,000 c. Bond Interest Expense 25,576 Premium on Bonds Payable 1,424 Cash 27,000 Bond Interest Expense (first) $640,771 × 8% × ½ = $25,631 Bond Interest Expense (second) ($640,771 - $1,369) × 8% × ½ = $25,576 Diff: 3 LO: 20-3 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table

14) Prepare the first two interest payments in the amortization schedule using the straight-line method based on the following information (take all calculations to nearest dollar): 1. 10-year 8%, $270,000 bonds selling for $211,531. 2. Interest is paid semiannually. 3. Assume 12% market rate. Answer: Carrying Value Interest Total Interest Discount to be Carrying Value Period (Beginning) Payment Expense Amortized (ending) 1 $211,531 $10,800 $12,692 $1,892 $213,423 2 213,423 10,800 12,805 2,005 215,428 Interest Payment $270,000 × 8% × ½ = $10,800 Interest Expense $211,531 × 12% × ½ = $12,692 Interest Expense ($211,531 + $1,892) × 12% × ½ = $12,805 Diff: 3 LO: 20-3 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table

Learning Objective 20-4 1) Assume the following account balances immediately after an interest payment date: Bonds Payable Premium on Bonds Payable

$230,000 16,697

If the bonds are retired immediately at a total cost of $207,000, the journal entry to record this event is: A) Cash 207,000 Loss on Bond Retirement 39,697 Premium on Bonds Payable 16,697 Bonds Payable 230,000 B) Bonds Payable Premium on Bonds Payable Cash Gain on Bond Retirement

230,000 16,697

C) Bonds Payable 230,000 Loss on Bond Retirement 16,697 Premium on Bonds Payable Cash

207,000 39,697

39,697 207,000

D) None of these answers is correct. Answer: B Diff: 3 LO: 20-4 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 2) A bond sinking fund is a: A) short-term investment. B) long-term investment. C) current liability. D) long-term liability. Answer: B Diff: 1 LO: 20-4 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 48 Copyright © 2023 Pearson Education, Inc.

3) The journal entry to establish a bond sinking fund would include: A) a credit to Bond Sinking Fund. B) a debit to Bond Sinking Fund Expense. C) a debit to Bond Sinking Fund. D) a credit to Bonds Payable. Answer: C Diff: 1 LO: 20-4 AACSB: Reflective Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 4) A fund set up so that a bond can be retired at maturity is called a: A) bond sinking fund. B) bond payable fund. C) stock fund. D) retirement fund. Answer: A Diff: 1 LO: 20-4 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 5) A $600,000, 9% bond issue was sold at face value and later retired at 108. The corporation would have a: A) gain of $48,000. B) loss of $48,000. C) gain of $24,000. D) loss of $24,000. Answer: B Explanation: Cash used $600,000 × 1.08 = $648,000; Loss = $648,000 - $600,000 = $48,000 Diff: 2 LO: 20-4 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 6) A long-term investment established to pay off bondholders at maturity is called a(n): A) discount fund. B) maturity fund. C) bond sinking fund. D) annuity fund. Answer: C Diff: 1 LO: 20-4 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 49 Copyright © 2023 Pearson Education, Inc.

7) A bond sinking fund is reported as an asset on the balance sheet. Answer: TRUE Diff: 1 LO: 20-4 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 8) Usually, there is a gain or loss associated with the early retirement of bonds payable. Answer: TRUE Diff: 1 LO: 20-4 AACSB: Reflective Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 9) When bonds are retired, the Bonds Payable account is credited for face value even if the bonds were originally sold at a premium. Answer: FALSE Diff: 2 LO: 20-4 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 10) When bonds payable are retired at less than book value, the company records a loss on the retirement. Answer: FALSE Diff: 2 LO: 20-4 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 11) Interest earned on the bond sinking fund will be added to the Interest Revenue account. Answer: FALSE Diff: 2 LO: 20-4 AACSB: Reflective Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 12) Bonds that can be bought back by the corporation before the maturity date are called ________ bonds. Answer: callable Diff: 1 LO: 20-4 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 50 Copyright © 2023 Pearson Education, Inc.

Using the following accounts: [1] Cash [2] Bond Sinking fund [3] Equipment [4] Building [5] Land [6] Accounts payable [7] Notes payable [8] Bonds payable [9] Bond interest payable [10] Premium on bonds payable [11] Discount on bonds payable [12] Common stock [13] Retained earnings [14] Sinking fund earned [15] Bond interest expense [16] Gain on retirement [17] Loss on retirement Indicate the account(s) to be debited and credited to record the following transactions. 13) Paid the bondholders the amount due, face value plus accrued interest, using the bond sinking fund. Debit ________ & ________ Credit ________ Answer: Debit 8 & 9, Credit 2 Diff: 3 LO: 20-4 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 14) Retired bonds plus interest previously accrued, when the book value of bonds payable was above the cost of retirement, cash was paid. No discount or premium on bonds. Debit ________ & ________ Credit ________ & ________ Answer: Debit 8 & 9, Credit 1 & 16 Diff: 3 LO: 20-4 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table

15) Retired bonds plus interest previously accrued, when the book value of bonds payable was beneath the cost of retirement, cash was paid. No discount or premium on bonds. Debit ________ & ________ & ________ Credit ________ Answer: Debit 8 & 9 & 17, Credit 1 Diff: 3 LO: 20-4 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 16) Deposited cash in a bond sinking fund. Debit ________ Credit ________ Answer: Debit 2, Credit 1 Diff: 3 LO: 20-4 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 17) Recorded the interest earned on the bond sinking fund. Debit ________ Credit ________ Answer: Debit 2, Credit 14 Diff: 3 LO: 20-4 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 18) What is the purpose of a bond sinking fund? Answer: The purpose of a bond sinking fund is to establish a fund that will accumulate cash over the life of a bond that can be used to pay off the bondholders at maturity. In some instances, a bond sinking fund is a requirement stated in the bond indenture at the time the bond is issued. The company issuing the bond will determine the amount needed to be deposited annually to accumulate the funds needed at maturity of the bond. The bond issuer will set up the fund in an investment account called Bond Sinking Fund. Diff: 2 LO: 20-4 AACSB: Written and Oral Communication Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table

19) Describe bond refunding and explain why it might be advantageous for a company. Answer: Bond refunding occurs when a company reacquires their own, previously issued, bonds and then issues new bonds to take their place which has a lower interest rate. The retirement of bonds with a high interest rate and replacing them with bonds with a lower interest rate could result in substantial cash savings for the company in the form of interest. Diff: 2 LO: 20-4 AACSB: Written and Oral Communication Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table 20) Sampson Brothers puts $55,000 into a bond sinking fund each year in order to have enough cash available to pay bondholders when a $525,000 bond matures. During the first year, the fund earned $3,500 interest revenue. When the bond reaches the maturity date, the fund has a balance of $550,000. Sampson pays the bondholders $525,000. Journalize the a) initial deposit; b) the first year's interest; and c) the payment to the bondholders and closure of the bond sinking fund. Answer: a) Bond Sinking Fund 55,000 Cash 55,000 b) Bond Sinking Fund Bond Sinking Fund Interest Earned c) Cash Bonds Payable Bond Sinking Fund

3,500 3,500 25,000 525,000 550,000

Diff: 2 LO: 20-4 AACSB: Analytical Thinking Learning Outcome: Define and record long-term liability transactions and illustrate the use of an amortization table

College Accounting, 15e (Slater) Chapter 21 Statement of Cash Flows Learning Objective 21-1 1) Cash included on the statement of cash flows can include which of the following? A) Only money in the bank B) Only cash on-hand C) Cash, money market accounts, and government securities D) None of the above are correct. Answer: C Diff: 1 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 2) Which of the following is reported in the statement of cash flows? A) Net cash flow from managing activities B) Net cash flow from financing activities C) Net cash flow from retained earnings activities D) Net cash flow from start-up activities Answer: B Diff: 1 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 3) This statement summarizes the sources and uses of cash by a company during an accounting period. A) Statement of Retained Earnings B) Statement of Cash Flows C) Income Statement D) Balance Sheet Answer: B Diff: 1 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 4) The statement of cash flows provides information about all of the following except: A) organizing activities. B) investing activities. C) operating activities. D) financing activities. Answer: A Diff: 1 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 1 Copyright © 2023 Pearson Education, Inc.

5) The difference between the direct and indirect methods of preparing the cash flow statement occurs in the: A) financing activities section. B) operating activities section. C) investing activities section. D) managing activities section. Answer: B Diff: 1 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 6) A statement of cash flows' purpose is to: A) report the earnings of the company for an accounting period. B) report the financial condition of the company. C) report the changes in equity for a company. D) summarize the sources and uses of cash by a company during an accounting period. Answer: D Diff: 1 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 7) An outflow of cash from investing activities would be: A) the issuance of stock. B) the sale of investment in equity securities. C) interest received on loans. D) the purchase of fixed assets. Answer: D Diff: 1 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 8) Activities such as selling merchandise and services to customers and paying salaries and other expenses needed to continue earning the revenue are classified as: A) Financing activities. B) Investing activities. C) Operating activities. D) Management activities. Answer: C Diff: 1 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

9) A cash inflow from a financing activity would be: A) paying cash dividends. B) issuing stock or bonds. C) paying interest on notes payable. D) making payments for additional merchandise inventory. Answer: B Diff: 1 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 10) Transactions involving the purchase and sale of fixed assets would be considered: A) buying and selling activities. B) financing activities. C) operating activities. D) investing activities. Answer: D Diff: 1 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 11) When preparing the statement of cash flows by the indirect method, if a current asset, excluding cash, has increased, the difference is: A) added to net income. B) added to investments. C) deducted from net income. D) subtracted from investments. Answer: C Diff: 1 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 12) Activities relating to raising money from investors and creditors such as the issuance of common stock are classified as: A) Financing activities. B) Investing activities. C) Operating activities. D) Management activities. Answer: A Diff: 1 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

13) A ___________ balance sheet lists the financial position for two or more years in a side-by-side manner. A) corresponding B) derived C) comparative D) conclusive Answer: C Diff: 1 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 14) If Accounts Receivable decreases on a comparative balance sheet, this means: A) collections were more than credit sales. B) there is a decrease in cash flow related to sales on account. C) credit sales are increasing more than collections. D) None of these answers is correct. Answer: A Diff: 2 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 15) In the statement of cash flows (indirect method), which event would cause cash flow from operations to decrease? A) An increase in Merchandise Inventory B) A decrease in Prepaid Insurance C) An increase in Accounts Payable D) A decrease in Accounts Receivable Answer: A Diff: 1 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 16) Operating cash flow activities under the indirect method deal with which types of accounts? A) Current liabilities and owner's equity B) Current and intangible assets C) Current assets, excluding cash, and current liabilities D) Current assets, excluding cash, and owner's equity Answer: C Diff: 1 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

17) Under the indirect method of preparing the statement of cash flows, which of the following is considered a cash inflow? A) Decrease in Accounts Payable B) Increase in Accounts Receivable C) Increase in Prepaid Expenses D) Decrease in Accounts Receivable Answer: D Diff: 1 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 18) Under the indirect method of preparing the statement of cash flows, which of the following is considered a cash outflow? A) Decrease in Accounts Payable B) Decrease in Supplies C) Decrease in Prepaid Expenses D) Decrease in Accounts Receivable Answer: A Diff: 1 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 19) Under the indirect method, which of the following is NOT a proper adjustment to net income to arrive at net cash flow from operations? A) Adding a decrease in merchandise inventory B) Adding an increase in prepaid expense C) Adding an increase in salaries payable D) All are proper adjustments to net income. Answer: B Diff: 2 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 20) Which of the following would be included in the net cash flows from operating activities section of a cash flow statement using the indirect method? A) Decrease in Accounts Payable B) Purchase of equipment C) Decrease in Long-Term Notes Payable (nontrade) D) Increase in Long-Term Notes Payable (nontrade) Answer: A Diff: 2 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 5 Copyright © 2023 Pearson Education, Inc.

21) When comparing net cash provided by operating activities using the indirect versus direct methods: A) net cash is higher using the indirect method. B) net cash is lower using indirect method. C) there is no difference between the two methods. D) depreciation expense is used in the direct method. Answer: C Diff: 1 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 22) Blair Corporation's Accounts Receivable decreased by $15,000 during the year. What is the adjustment to the cash flow statement when it is prepared by the indirect method? A) Subtract the decrease from the net income in the operating activities section. B) Add the decrease to the net income in the operating activities section. C) Add the decrease in the investing activities section. D) Subtract the decrease in the financing activities section. Answer: B Diff: 1 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 23) Collins Corporation reported net income of $30,000; depreciation expenses of $20,000; a decrease in Accounts Payable of $2000; and an increase in Accounts Receivable of $4000. Net cash flow from operating activities using the indirect method is: A) $50,000. B) $10,000. C) $44,000. D) $56,000. Answer: C Explanation: Net income $30,000 + Depreciation expense $20,000 – Decrease A/P $2000 – Increase A/R $4000 = $44,000 Diff: 2 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

24) Orion Corporation reported net income of $36,000, depreciation expenses of $17,000, an increase in Accounts Payable of $5000 and a decrease in Accounts Receivable of $1500. Under the indirect method, net cash flow from operating activities is: A) $44,200 B) $59,500 C) $27,800 D) $39,200 Answer: B Explanation: Net income $36,000 + Depreciation expense $17,000 + Increase A/P $5000 + Decrease A/R $1500 = $59,500 Diff: 2 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 25) The records of Lily's Landing showed a purchase of equipment in the amount of $17,400; sale of equipment in the amount of $41,400; a purchase of land in the amount of $10,200, and a loan to a borrower in the amount of $4300. All transactions were in cash. The amount of Net Cash Flow from Investing Activities using the indirect method is: A) $9500. B) ($9500). C) $52,900. D) $73,300. Answer: A Explanation: Buy equipment ($17,400) + Sale equipment $41,400 – Buy land $10,200 – Loan to borrower $4300 = $9500 Diff: 2 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 26) Big Toy Corporation's records show net income of $60,000; depreciation expense of $14,000; and cash dividends declared and paid of $2000. The amount of cash provided by operating activities using the indirect method is: A) $76,000. B) $74,000. C) $60,000. D) $46,000. Answer: B Explanation: Net income $60,000 + Depreciation expense $14,000 = $74,000 Diff: 2 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

27) Sears Inc.'s Net Income was $56,000. Other accounts that changed included: Accounts Receivable decreased by $29,000; Merchandise Inventory increased by $21,000; Accounts Payable increased by $14,400; and Salaries Payable increased by $11,200. The amount of Net Cash from Operating Activities using the indirect method is: A) $89,600. B) $85,000. C) $75,600. D) $31,600. Answer: A Explanation: Net income $56,000 + Decrease A/R $29,000 – Increase Merch. Inventory $21,000 + Increase A/P $14,400 + Increase Salaries Payable $11,200 = $89,600 Diff: 2 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 28) The records of Aaron Paint Co. showed the issuance of a long-term note (nontrade) in the amount of $15,500; issuance of Common Stock for cash in the amount of $50,600; and payment of dividends in the amount of $22,000. The amount of Net Cash from Financing Activities using the indirect method is: A) $88,100. B) $44,100. C) $13,100. D) $57,100. Answer: B Explanation: Issue note payable $15,500 + Issue common stock $50,600 – Dividends paid $22,000 = $44,100 Diff: 2 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 29) Which of the following items would be subtracted from Net Income to compute Net Cash Flow from Operating Activities under the indirect method? A) A decrease in Prepaid Insurance B) A decrease in Merchandise Inventory C) An increase in Salaries Payable D) A decrease in Accounts Payable Answer: D Diff: 1 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

30) The records of Ashley Boutique showed Net Loss, $31,000 Depreciation Expense, $22,000 and decrease in Supplies on Hand, $26,000. The amount of Net Cash from Operating Activities using the indirect method is: A) $35,000. B) $17,000. C) -$17,000. D) -$35,000. Answer: B Explanation: Net Loss ($31,000) + Depreciation Expense $22,000 + Decrease Supplies $26,000 = $17,000 Diff: 3 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 31) The records of Amy's Flowers showed Net Loss, $22,000; Depreciation Expense, $33,000; and decrease in Supplies on Hand, $7000. The amount of Net Cash from Operating Activities using the indirect method is: A) ($18,000). B) $4000. C) $18,000. D) -$4000. Answer: C Explanation: Net Loss ($22,000) + Depreciation Expense $33,000 + Decrease Supplies $7000 = $18,000 Diff: 3 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 32) The records of Billie's Surfboards showed a purchase of equipment in the amount of $24,600; sale of equipment in the amount of $15,000; and a purchase of land in the amount of $31,000. All transactions were in cash. The amount of Net Cash from Investing Activities using the indirect method is: A) $70,600. B) $8600. C) $40,600. D) ($40,600). Answer: D Explanation: Purchase equipment ($24,600) + Sale equipment $15,000 – Purchase land $31,000 = ($40,600) Diff: 2 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

33) The net income reported on the income statement for the current year was $50,000. Depreciation Expense recorded on fixed assets was $17,000. What is the net cash from operations that would appear on a cash flow statement using the indirect method? A) $50,000 B) $67,000 C) $17,000 D) $33,000 Answer: B Explanation: Net income $50,000 + Depreciation expense $17,000 = $67,000 Diff: 1 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 34) Of the following, which has a positive effect on the computation of cash flow from operations using the indirect method? A) Increase in Merchandise Inventory B) Increase in Accounts Payable C) Increase in Accounts Receivable D) Increase in Prepaid Insurance Answer: B Diff: 1 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 35) Of the following, which has a positive effect on the computation of cash flow from investing using the indirect method? A) Decrease in Merchandise Inventory B) Increase in Accounts Payable C) Purchase of Equipment D) Sale of Equipment Answer: D Diff: 1 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

36) Which of the following adjustments would be in error when computing cash from financing using the indirect method? A) Increase cash when issuing Common Stock B) Decrease cash when purchasing Treasury Stock C) Decrease cash when purchasing investments D) None of the above Answer: C Diff: 1 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 37) Of the following, which has a positive effect on the computation of cash flow from operations using the indirect method? A) Decrease in Accounts Payable B) Increase in Merchandise Inventory C) Decrease in Notes Payable (used for merchandise inventory) D) Depreciation Expense Answer: D Diff: 1 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 38) Which of the following adjustments would be in error if made to net income when computing cash from operations using the indirect method? A) Add an increase in Accounts Payable B) Add Depreciation Expense C) Add an increase in Accounts Receivable D) None of the above Answer: C Diff: 1 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 39) Which of the following adjustments would be in error when computing cash from investing using the indirect method? A) Increase cash when issuing common stock B) Increase cash when selling equipment C) Decrease cash when purchasing land D) None of the above Answer: A Diff: 3 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 11 Copyright © 2023 Pearson Education, Inc.

40) The Accounts Receivable balance has decreased during the year. How would this event affect the statement of cash flows operations section—indirect method? A) It is already included in the net income. B) It would affect the operations section positively. C) It would affect the operations section negatively. D) Does not affect the cash flow from operations. Answer: B Diff: 1 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 41) The Accounts Payable balance has increased during the year. How would this event affect the statement of cash flows operations section—indirect method? A) It is already included in the net income. B) It would affect the operations section positively. C) It would affect the operations section negatively. D) Does not affect the cash flow from operations. Answer: B Diff: 1 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 42) How would the issuance of Common Stock affect the statement of cash flows – indirect method? A) It would affect the financing section positively. B) It would affect the financing section negatively. C) It would increase the investing section of the statement of cash flows. D) Does not affect the cash flow from financing activities. Answer: A Diff: 1 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 43) How would the purchase of land with cash affect the statement of cash flows – indirect method? A) It would affect the investing section positively. B) It would affect the investing section negatively. C) It would decrease the operating section of the statement of cash flows. D) Does not affect the cash flow from investing activities. Answer: B Diff: 1 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

44) Changes in Salaries Payable would be reported in the statement of cash flows prepared by the indirect method in: A) the operating activities section. B) the financing activities section. C) the investing activities section. D) None of the above Answer: A Diff: 1 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 45) Of the following, which has a positive effect on the computation of cash flow from financing using the indirect method? A) Increase to Dividends B) Increase in Accounts Payable C) Issuing Common Stock D) Sale of Equipment Answer: C Diff: 1 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 46) The statement of cash flows can be used for evaluating, comparing, and predicting future cash flows. Answer: TRUE Diff: 1 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 47) A change in Accounts Payable is considered an operating activity when using the indirect method for preparing the statement of cash flows. Answer: TRUE Diff: 1 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 48) The purpose of a cash flow statement is to show the outflows of cash only. Answer: FALSE Diff: 1 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

49) Under the indirect method, net income is considered the primary source of cash from financing activities. Answer: FALSE Diff: 1 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 50) Issuing Treasury Stock is considered an investing activity when preparing the statement of cash flows, indirect method. Answer: FALSE Diff: 1 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 51) Selling equipment is considered an investing activity when preparing the statement of cash flows, indirect method. Answer: TRUE Diff: 1 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 52) A statement of cash flows is a required financial statement in accordance with Generally Accepted Accounting Principles. Answer: TRUE Diff: 1 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 53) Issuing Common Stock is considered a financing activity when preparing the statement of cash flows, indirect method. Answer: TRUE Diff: 1 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 54) The final cash amount on the statement of cash flows needs to match the cash balance shown on the latest balance sheet. Answer: TRUE Diff: 1 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 14 Copyright © 2023 Pearson Education, Inc.

55) Identify each of the following transactions as an operating activity (O), an investing activity (I), a financing activity (F), or a transaction that is not reported on the statement of cash flows (N). The statement of cash flows uses the indirect method. a) ________ Decrease of supplies b) ________ Decrease of accounts payable c) ________ Declaration of cash dividends d) ________ Purchase of building for cash e) ________ Increase of accounts receivable f) ________ Sold plant equipment for cash g) ________ Borrowed money from a bank for long-term purposes (plant expansion) h) ________ Payment on principal of a long-term note payable Answer: a) O, b) O, c) F d) I, e) O, f) I, g) F, h) F Diff: 2 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 56) Identify where each of the following transactions would be shown on the statement of cash flows when it is prepared by the indirect method. Identify each transaction as an operating activity (O), an investing activity (I), a financing activity (F), or transaction that is not reported on the statement of cash flows (N). a) ________ Increase in prepaid insurance b) ________ Cash used to purchase new computers c) ________ Cash used to retire bonds outstanding d) ________ Depreciation expense e) ________ Cash used to purchase fixed assets f) ________ Cash proceeds from sale of the company's own stock g) ________ Bought back own stock h) ________ Increase in Accounts Receivable Answer: a) O, b) I, c) F, d) O, e) I, f) F, g) F, h) O Diff: 2 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

57) The following information is given for Tripp Company, which uses the indirect method. Net income Depreciation expense Increase in accounts receivable Payment of dividends Proceeds from sale of equipment Increase in accounts payable Decrease in merchandise inventory

$22,000 7,600 5,000 1,100 8,000 4,200 500

From the information provided, answer the following questions: a) The cash flow from operating activities is ________. b) The cash flow from investing activities is ________. c) The cash flow from financing activities is ________. Answer: a) $22,000 + $7,600 - $5,000 + $4,200 + $500 = $29,300 b) $8,000 c) ($1,100) Diff: 2 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

58) The following information is given for Arizona Company: Net income Depreciation expense Increase in accounts receivable Increase in supplies on hand Sale of common stock Proceeds from sale of equipment Loan money to a customer Decrease in accounts payable

$32,000 6,000 2,500 1,500 10,400 7,000 3,000 900

The indirect method is used. Required: Answer the following questions with the information provided above. a) The cash flow from operating activities is ________. b) The cash flow from investing activities is ________. c) The cash flow from financing activities is ________. Answer: a) $32,000 + $6,000 - $2,500 - $1,500 - $900 = $33,100 b) $7,000 - $3,000 = $4,000 c) $10,400 Diff: 2 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

59) The following information is given for Sunny Corporation: Net income Depreciation expense Decrease in accounts receivable Increase in supplies on hand Sale of common stock Purchase of equipment for cash Payment of dividends Increase in accounts payable

$40,000 6,000 5,000 2,000 40,000 40,000 6,000 5,000

The indirect method is used. The beginning Cash balance is $23,000. Required: Answer the following questions with the information provided above. a) The cash flow from operating activities is ________. b) The cash flow from investing activities is ________. c) The cash flow from financing activities is ________. d) The net change in cash is ________. e) The ending balance of cash is ________. Answer: a) Net income $40,000 + Depreciation expense $6,000 + Decrease A/R $5,000 — Increase Supplies $2,000 + Increase A/P $5,000 = $54,000 b) -$40,000 Buy equipment c) Issue common stock $40,000 — Dividends paid $6,000 = $34,000 d) $54,000 - $40,000 + $34,000 = $48,000 e) $23,000 + $48,000 = $71,000 Diff: 3 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

60) Discuss the purpose of a statement of cash flows and describe its components. Answer: A statement of cash flows summarizes the sources and uses of cash by the company during an accounting period. The statement of cash flows consists of three main sections: 1. Net cash flows from operating activities. This section converts the income statement from an accrual basis to a cash basis. This provides the reader of the statement with information as to the amount of cash generated by normal operations of the business. 2. Cash flows from investing activities. This section identifies cash flows from (l) the purchasing and selling of investments, (2) the buying and disposing of plant assets, and (3) the collecting and lending of monies. 3. Cash flows from financing activities. This section identifies cash flows from (1) issuance of long-term notes, (2) issuance of common stock and bonds, (3) payment of dividends, (4) purchase of treasury stock, and (5) retirement of bonds payable. Diff: 1 LO: 21-1 AACSB: Written and Oral Communication Learning Outcome: Describe the components of and prepare the four basic financial statements 61) The following information is given for Smith Company: Net income Depreciation expense Increase in accounts receivable Decrease in Merchandise Inventory Increase in Prepaid Insurance Decrease in accounts payable

$42,000 6,000 2,500 1,500 400 900

Prepare the operating activities section of the statement of cash flows using the indirect method. Answer: Cash Flows from Operating Activities: Net Income $42,000 Add (deduct) Items to Convert Net Income from Accrual Basis to Cash Basis: Depreciation Expense 6,000 Increase in Accounts Receivable (2,500) Decrease in Merchandise Inventory 1,500 Increase in Prepaid Insurance (400) Decrease in Accounts Payable (900) Net Cash Provided by Operating Activities $45,700 Diff: 3 LO: 21-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

Learning Objective 21-2 1) The method of reporting cash flows from operating activities under which revenues and expenses on the income statement are adjusted to reflect the amount of cash received or paid for each item is the: A) direct method. B) indirect method. C) combination method. D) adjustment method. Answer: A Diff: 1 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 2) If $95,000 net cash was provided by operations, $40,000 was used for investing activities, and $17,400 was provided by financing activities, the cash balance would: A) increase by $72,400. B) decrease by $55,000. C) increase by $117,600. D) increase by $37,600. Answer: A Explanation: $95,000 - $40,000 + $17,400 = $72,400 Diff: 2 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 3) When using the direct method to determine the net cash flows from operating activities, major categories would include: A) Cash received from sale of long-term investments. B) Cash paid for salaries. C) Cash paid for dividends. D) Cash paid for equipment. Answer: B Diff: 1 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

4) Cost of merchandise sold for the year was $720,000. Merchandise Inventories were $50,000 and $140,000 at the beginning and end of the year, respectively. There were no change in accounts payable from the beginning to the end of the year. Cash payment for merchandise to be reported on the cash flow statement using the direct method is: A) $720,000. B) $810,000. C) $860,000. D) $770,000. Answer: B Explanation: COGS $720,000+ Increase Merch. Inventories $90,000 = $810,000 Diff: 2 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 5) Operating expenses other than depreciation expense for the year were $336,000. Prepaid expenses increased by $9000. Cash payments for operating expenses to be reported on the cash flow statement using the direct method would be: A) $336,000. B) $345,000. C) $327,000. D) $9000. Answer: B Explanation: Operating expenses $336,000 + Increase Prepaid expenses $9000 = $345,000 Diff: 2 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 6) The distinction between the indirect and direct methods only applies to the cash flows from which section? A) Operating activities B) Financing activities C) Investing activities D) There is no distinction between the methods. Answer: A Diff: 1 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

7) Which would go into the operating activities section of a statement of cash flows using the direct method? A) Depreciation expense B) Cash paid for merchandise inventory C) Selling of plant, property and equipment D) All of the above Answer: B Diff: 2 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 8) If $40,000 was generated in sales and there was an increase to Accounts Receivable of $3900, what would be the cash amount received from customers? A) $40,000 B) $3900 C) $36,100 D) $43,900 Answer: C Explanation: $40,000 – Increase A/R $3900 = $36,100 Diff: 1 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 9) If $25,000 was provided by operations, $7000 was used for investing activities, and $3000 was provided by financing activities, the cash balance would: A) increase by $21,000. B) decrease by $21,000. C) increase by $25,000. D) increase by $18,000. Answer: A Explanation: $25,000 - $7000 + $3000 = $21,000 Diff: 2 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

10) If Cost of Goods Sold was $26,000, there was a decrease in Merchandise Inventory of $5000, and an increase in Accounts Payable of $4700, what would be the cash amount paid for Merchandise Inventory? A) $25,700 B) $16,300 C) $35,700 D) $26,300 Answer: B Explanation: COGS $26,000– Decrease Merch. Inventory $5000 – Increase A/P $4700 = $16,300 Diff: 2 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 11) Cash generated from operating activities may be computed by using: A) the indirect method. B) the direct method. C) the estimating method. D) Both A and B. Answer: D Diff: 1 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 12) If $34,000 net cash was used in operations, $17,000 was used for investing activities, and $27,000 was provided by financing activities, the cash balance would: A) increase by $24,000. B) decrease by $24,000. C) increase by $78,000. D) increase by $27,000. Answer: B Explanation: ($34,000) - $17,000 + $27,000 = ($24,000) Diff: 2 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

13) Operating expenses other than depreciation expense for the year were $26,500. Prepaid expenses increased by $7400. Cash payments for operating expenses to be reported on the cash flow statement using the direct method would be: A) $33,900. B) $7400. C) $26,500. D) $19,100. Answer: A Explanation: Operating Expenses $26,500 + Increase Prepaid Expenses $7400 = $33,900 Diff: 2 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 14) Cost of merchandise sold for the year was $420,000. Merchandise Inventories were $25,000 and $81,000 at the beginning and end of the year, respectively. There was no change in accounts payable from the beginning to the end of the year. Cash payment for merchandise to be reported on the cash flow statement using the direct method is: A) $501,000. B) $476,000. C) $81,000. D) $420,000. Answer: B Explanation: COGS $420,000 + Increase Merch. Inventories $56,000 = $476,000 Diff: 2 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 15) If Salaries Expense was $41,000, and there was a decrease in Salaries Payable of $16,000, what would be the cash amount paid for Salaries? A) $57,000 B) $25,000 C) $16,000 D) $41,000 Answer: A Explanation: Salaries Expense $41,000 + Decrease in Salaries Payable $16,000 = $57,000 Diff: 1 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

16) Which of the following is a cash outflow from a financing activity? A) A purchase of merchandise inventory B) A purchase of treasury stock C) A payment to buy property D) A loan made to a third party Answer: B Diff: 1 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 17) Under the direct method of the statement of cash flows, a sale of merchandise inventory for cash is a(n): A) managing activity. B) investing activity. C) financing activity. D) operating activity. Answer: D Diff: 1 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 18) If Insurance Expense was $7300, and there was a decrease in Prepaid Insurance of $4300, what would be the cash amount paid for Insurance? A) $3000 B) $11,600 C) $7300 D) $4300 Answer: A Explanation: Insurance Expense $7300 - Decrease Prepaid Insurance $4300 = $3000 Diff: 1 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 19) Under the direct method of the statement of cash flows, cash paid for salaries would result in: A) a decrease of cash flow from operating activities. B) a decrease of cash flow from investing activities. C) an increase of cash flow from financing activities. D) a decrease of cash flow from financing activities. Answer: A Diff: 1 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

20) If Salaries Payable increased, the amount of the increase would result in what adjustment to Salaries Expense? The company uses the direct method of preparing the statement of cash flows. A) Added to Salaries Expense B) Nothing would change with Salaries Expense C) Subtracted from Salaries Expense D) Multiplied by Salaries Expense Answer: C Diff: 1 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 21) Receiving cash from a lender from a long-term note payable would result in: A) an increase of cash flow from investing activities. B) a decrease of cash flow from investing activities. C) an increase of cash flow from financing activities. D) a decrease of cash flow from financing activities. Answer: C Diff: 1 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 22) Buying stocks of other companies for cash would result in: A) an increase of cash flow from investing activities. B) a decrease of cash flow from investing activities. C) an increase of cash flow from financing activities. D) a decrease of cash flow from financing activities. Answer: B Diff: 1 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 23) A decrease in long-term notes payable would mean: A) an increase of cash flow from investing activities. B) a decrease of cash flow from investing activities. C) an increase of cash flow from financing activities. D) a decrease of cash flow from financing activities. Answer: D Diff: 1 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

24) Under the direct method of preparing the statement of cash flows, to determine Cash Received from Customers, Sales is adjusted for __________. A) Accounts Receivable B) Merchandise Inventory C) Accounts Payable D) None of the above are true. Answer: A Diff: 1 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 25) On the statement of cash flows, direct method, activities that pay taxes are: A) operating activities. B) financing and investing activities. C) operating and financing activities. D) operating and investing activities. Answer: A Diff: 2 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 26) Under the direct method for preparing the statement of cash flows, to determine Cash Paid for Merchandise Inventory, we adjust Cost of Goods Sold for _________. A) Merchandise Inventory only B) Accounts Payable only C) Short-term Notes Payable (for Merchandise Inventory) only D) All of the above Answer: D Diff: 1 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 27) Carolina Company sold a machine for $7000 cash, which had an original cost of $22,000 and accumulated depreciation of $6,000. The amount of cash provided by this sale is: A) $15,000. B) $7000. C) $16,000. D) $22,000. Answer: B Diff: 1 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

28) On a statement of cash flow under the direct method, Payment of Dividends is considered: A) an outflow of cash under Financing activities. B) an inflow of cash under Financing activities. C) an outflow of cash under Investing activities. D) an outflow of cash under Operating activities. Answer: A Diff: 1 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 29) A statement of cash flows under the direct method would include the effect of which of the following transactions as a line item? A) Stock dividends declared B) Pending litigation C) Purchase of treasury stock D) Pending acquisition Answer: C Diff: 2 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 30) When determining the Cash Paid for Merchandise Inventory, a decrease to Merchandise Inventory would be _________. A) added to Cost of Goods Sold B) subtracted from Cost of Goods Sold C) ignored D) added to Accounts Receivable. Answer: B Diff: 1 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 31) When a corporation purchases a building for cash, it: A) does not affect the cash flow statement. B) is shown as an investing activity on the statement of cash flows. C) is shown as a financing activity on the statement of cash flows. D) is shown as an operating activity on the statement of cash flows. Answer: B Diff: 1 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

32) Under the direct method of preparing the statement of cash flows, Cash Paid for Insurance is determined by: A) Insurance Expense + Increase in Prepaid Insurance B) Insurance Expense – Increase in Prepaid Insurance C) Insurance Expense + Decrease in Prepaid Insurance D) None of the above are correct. Answer: A Diff: 1 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 33) Cash paid for insurance and rent would be reported in the statement of cash flows (direct method) in: A) a separate schedule. B) operating activities. C) financing activities. D) investing activities. Answer: B Diff: 2 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 34) On the Statement of Cash Flows, direct method, which of the following is a cash inflow from an operating activity? A) Payment to the bank for a loan B) Cash Received from Customers on account C) Payment to buy a piece of equipment D) Paying dividends to stockholders Answer: B Diff: 1 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 35) If a loss of $70,000 is incurred in selling equipment having a book value of $224,000, cash flow will increase: A) $294,000. B) $154,000. C) $70,000. D) $224,000 Answer: B Explanation: $224,000 - $70,000 = $154,000 Diff: 3 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 29 Copyright © 2023 Pearson Education, Inc.

36) Land costing $70,000 was sold for $10,000. What was the effect on the investing activities? A) Increase $10,000 B) Decrease $60,000 C) Decrease $10,000 D) Increase $60,000 Answer: A Diff: 2 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 37) If there is an increase to Merchandise Inventory, the result is added to Cost of Goods Sold to compute cash paid for merchandise inventory. Answer: TRUE Diff: 2 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 38) Under the direct method for the statement of cash flows, if there is an increase to Accounts Payable, the increase is added to Sales to determine Cash Collected from Customers. Answer: FALSE Diff: 2 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 39) Under the direct method, each line of the balance sheet is converted to cash paid or received. Answer: FALSE Diff: 1 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 40) One section of a statement of cash flows, using the direct method, is financing activities. Answer: TRUE Diff: 1 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 41) The investing activities section of the statement of cash flows is where differences occur between the indirect and direct methods. Answer: FALSE Diff: 1 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 30 Copyright © 2023 Pearson Education, Inc.

42) An example of operating activities reported on the statement of cash flows, direct method, is the Cash Received from Customers. Answer: TRUE Diff: 1 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 43) If $700,000 of a company's own stock is sold, it is shown in the financing activities section of the statement of cash flows, direct method. Answer: TRUE Diff: 1 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 44) Under the direct method of preparing the statement of cash flows, if there is an Accounts Receivable decrease of $300,000, this would be subtracted from Sales. Answer: FALSE Diff: 1 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 45) Under the direct method for the statement of cash flows, if there is a Prepaid Insurance increase of $550,000, this would be added to insurance expense. Answer: TRUE Diff: 1 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 46) Depreciation Expense is reported on the statement of cash flows only when using the direct method of preparing a statement of cash flows. Answer: FALSE Diff: 1 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 47) The direct method can be used to report cash flows from operating activities in the statement of cash flows. Answer: TRUE Diff: 1 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 31 Copyright © 2023 Pearson Education, Inc.

48) To determine cash received from customers for the cash flow statement using the direct method, an increase in accounts receivable is added to sales. Answer: FALSE Diff: 2 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 49) Indicate the effect that each of the following transactions has on the cash balance, using the direct method of preparing the statement of cash flows. Use (I) for increase, (D) for decrease, and (N) for no change. a) ________ Cash paid for inventory b) ________ Sale of common stock for cash c) ________ Payment of cash dividends d) ________ Depreciation expense for the period e) ________ Payment of long-term debt f) ________ Loan of money to another company g) ________ Cash received from customers h) ________ Purchase of equipment on account Answer: a) D, b) I, c) D, d) N, e) D, f) D, g) I, h) N Diff: 2 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 50) Indicate the effect that each of the following transactions has on the cash balance, using the direct method of preparing the statement of cash flows. Use (I) for increase, (D) for decrease, and (N) for no change. a) ________ Issued common stock for equipment b) ________ Acquired building for cash c) ________ Purchase equipment on account d) ________ Declared a cash dividend e) ________ Purchased supplies with cash f) ________ Cash paid for salaries g) ________ Borrowed money by issuance of a long-term debt h) ________ Purchased equipment on account to be paid within one year Answer: a) N, b) D, c) N, d) N, e) D, f) D, g) I, h) N Diff: 2 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

For each of the following items, indicate (by placing an X) whether the item would be found on the statement of cash flows in column 1, the direct approach for determining the cash flows from operating activities, column 2, the indirect approach for determining the cash flows from operating activities, column 3, cash flows from investing activities, column 4, cash flows from financing activities. If you identify that an item affects the cash flows from operations, indirect method, also indicate whether it will be increasing (+) or decreasing (-) the cash flows. 51) Col 1 Operating Direct

Col 2 Operating Indirect

Col 3 Investing

Col 4 Financing

Col 1 Operating Direct

Col 2 Operating Indirect

Col 3 Investing

Col 4 Financing

Cash paid for merchandise inventory Answer:

Cash paid for merchandise inventory

Diff: 2 LO: 21-1, 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 52) Col 1 Operating Direct

Col 2 Operating Indirect

Col 3 Investing

Col 4 Financing

Col 1 Operating Direct

Col 2 Operating Indirect

Col 3 Investing

Col 4 Financing

Sale of land Answer:

Sale of land

Diff: 2 LO: 21-1, 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

53) Col 1 Operating Direct

Col 2 Operating Indirect

Col 3 Investing

Col 4 Financing

Col 1 Operating Direct X

Col 2 Operating Indirect

Col 3 Investing

Col 4 Financing

Cash paid for rent Answer:

Cash paid for rent

Diff: 2 LO: 21-1, 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 54) Col 1 Operating Direct

Col 2 Operating Indirect

Col 3 Investing

Col 4 Financing

Col 1 Operating Direct

Col 2 Operating Indirect -X

Col 3 Investing

Col 4 Financing

Increase in prepaid expenses Answer:

Increase in prepaid expenses

Diff: 2 LO: 21-1, 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

55) Col 1 Operating Direct

Col 2 Operating Indirect

Col 3 Investing

Col 4 Financing

Col 1 Operating Direct

Col 2 Operating Indirect -X

Col 3 Investing

Col 4 Financing

Net loss Answer:

Net loss

Diff: 2 LO: 21-1, 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 56) Col 1 Operating Direct

Col 2 Operating Indirect

Col 3 Investing

Col 4 Financing

Col 1 Operating Direct

Col 2 Operating Indirect +X

Col 3 Investing

Col 4 Financing

Increase in accounts payable Answer:

Increase in accounts payable

Diff: 2 LO: 21-1, 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

57) Col 1 Operating Direct

Col 2 Operating Indirect

Col 3 Investing

Col 4 Financing

Col 1 Operating Direct X

Col 2 Operating Indirect

Col 3 Investing

Col 4 Financing

Cash received from customers Answer:

Cash received from customers

Diff: 2 LO: 21-1, 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 58) Col 1 Operating Direct

Col 2 Operating Indirect

Col 3 Investing

Col 4 Financing

Col 1 Operating Direct

Col 2 Operating Indirect -X

Col 3 Investing

Col 4 Financing

Increase in merchandise inventory Answer:

Increase in merchandise inventory

Diff: 2 LO: 21-1, 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

59) Col 1 Operating Direct

Col 2 Operating Indirect

Col 3 Investing

Col 4 Financing

Col 1 Operating Direct -X

Col 2 Operating Indirect

Col 3 Investing

Col 4 Financing

Cash paid for salaries or wages Answer:

Cash paid for salaries or wages

Diff: 2 LO: 21-1, 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 60) Col 1 Operating Direct

Col 2 Operating Indirect

Col 3 Investing

Col 4 Financing

Col 1 Operating Direct

Col 2 Operating Indirect +X

Col 3 Investing

Col 4 Financing

Net income Answer:

Net income

Diff: 2 LO: 21-1, 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

61) Col 1 Operating Direct

Col 2 Operating Indirect

Col 3 Investing

Col 4 Financing

Col 1 Operating Direct -X

Col 2 Operating Indirect

Col 3 Investing

Col 4 Financing

Cash paid for insurance Answer:

Cash paid for insurance

Diff: 2 LO: 21-1, 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 62) The cash flows from operating activities are reported by the direct method on the statement of cash flows. Determine the following: a. If sales for the current year were $800,000 and accounts receivable increased $36,000 during the year, what was the amount of cash received from customers? b. If sales salaries expense for the current years was $110,000 and sales salaries payable decreased $30,000 during the year, what was the amount of cash payments for sales salaries? Answer: a. $764,000 b. $140,000 Diff: 3 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 63) The cash flows from operating activities are reported by the direct method on the statement of cash flows. Determine the following: a. If accrued expenses showed $60,000 on the income statement and payables increased from $10,000 to $19,400 on the balance sheet, what was the amount of cash paid? b. If insurance expense showed $17,000 on the income statement and Prepaid Insurance increased from $5,000 to $9,000 on the balance sheet, what was the amount of cash paid for insurance? Answer: a. $50,600 b. $21,000 Diff: 3 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

64) Given the following, prepare the operating activities section of the statement of cash flows. Use the direct method. Sales, $10,700; Increase in Accounts Receivable, $500; Cost of Goods Sold, $1,300; Decrease in Merchandise Inventory, $150; Increase in Accounts Payable, $400; Salaries Expense, $575; Decrease in Salaries Payable, $55; Advertising Expense, $200; Decrease in Prepaid Advertising, $145 Answer: Cash Flows from Operating Activities: Cash Received from Customers $10,200 Cash Paid for Merchandise Inventory ($750) Cash Paid for Salaries ($630) Cash Paid for Advertising ($55) Total Cash Paid for Operating Activities ($1,435) Net Cash Provided by Operating Activities $8,765 Cash Received from Customers: Sales $10,700 – Increase A/R $500 = $10,200 Cash Paid for Merch. Inventory: COGS $1,300 – Decrease in Merch. Inventory $150 – Increase in A/P $400 = $750 Cash Paid for Salaries: Salaries Expense $575 + Decrease in Salaries Payable $55 = $630 Cash Paid for Advertising: Advertising Expense $200 – Decrease Prepaid Advertising $145 = $55 Diff: 3 LO: 21-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

College Accounting, 15e (Slater) Chapter 22 Analyzing Financial Statements Learning Objective 22-1 1) Amounts of line items or accounts compared on the same line of comparative financial statements describes: A) vertical analysis. B) ratio analysis. C) horizontal analysis. D) size analysis. Answer: C Diff: 1 LO: 22-1 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 2) In a comparative balance sheet, the Cash at December 31, 2023 was $315,000, and it is $283,000 at December 31, 2024. The net percentage change from 2023 to 2024 is: (Round the final answer to two decimal places.) A) 89.84%. B) 10.16%. C) 11.31%. D) -10.16%. Answer: D Explanation: ($283,000 - $315,000) / $315,000 = -10.16% Diff: 2 LO: 22-1 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 3) Comparative reports in which each line item is expressed as a percentage of a base amount without dollar amounts are called: A) comparative financial statements. B) common-size statements. C) cash flow analysis. D) horizontal analysis. Answer: B Diff: 1 LO: 22-1 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools

4) In a comparative balance sheet, the ending Accounts Receivable for 2023 was $239,000, and it is $280,000 for 2024. The net percentage change from 2023 to 2024 is: (Round your answer to two decimal places, X.XX%.) A) (17.15%). B) 17.15%. C) 14.64%. D) (14.64%). Answer: B Explanation: ($280,000 - $239,000) / $239,000 = 17.15% Diff: 2 LO: 22-1 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 5) In a comparative balance sheet, the Accounts Payable balance for 2023 was $196,330 and total liabilities and equity were $461,265. Using vertical analysis, and a denominator of total assets, Accounts Payable is what percentage of total assets? (Round your answer to two decimal places, X.XX%.) A) 42.56% B) (42.56%) C) 57.44% D) (57.44%) Answer: A Explanation: $196,330 / $461,265 = 42.56% Diff: 2 LO: 22-1 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 6) If Cash is $2,300 in 20X2 and $4,700 in 20X1, what is the percentage change in Cash from 20X1 to 20X2? A) -104% B) 104% C) 51% D) -51% Answer: D Explanation: ($2,300 - $4,700) / $4,700 = -51% Diff: 2 LO: 22-1 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools

7) If total assets are $18,000, what is the vertical analysis percentage for Cash when it has a balance of $7,000? (Round your answer two decimal places, X.XX%.) A) 61.11% B) 38.89% C) 163.64% D) 44.00% Answer: B Explanation: $7,000 / $18,000 = 38.89% Diff: 2 LO: 22-1 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 8) What was the percentage change in the Accounts Receivable account if the receivables were $89,000 in Year 1, and $70,000 in Year 2? (Round your answer two decimal places, X.XX%.) A) -21.35% B) 27.14% C) -27.14% D) 21.35% Answer: A Explanation: ($70,000 - $89,000) / $89,000 = -21.35% Diff: 2 LO: 22-1 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 9) When doing a vertical analysis, which of the following is a typical comparison item set at 100% for the balance sheet? A) Total liabilities B) Total stockholders' equity C) Total cash D) Total assets Answer: D Diff: 1 LO: 22-1 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 10) To find the percent of increase or decrease of an item in a comparative balance sheet you use the formula: % change = amount of change/base (new year). Answer: FALSE Diff: 1 LO: 22-1 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools

11) In a vertical analysis, each item on a financial statement is shown as a percentage of a base total, such as total assets. Answer: TRUE Diff: 1 LO: 22-1 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 12) A comparative balance sheet shows data from just one period of time. Answer: FALSE Diff: 1 LO: 22-1 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools

13) Complete the horizontal analysis of Soopy's Used Cars. (Round all percentages to the nearest tenth of a percent.)

Current Assets Plant and Equipment Total Assets Current Liabilities Long-term Liabilities Common Stock Retained Earnings Total Liabilities and Stockholders' Equity

Amount of Change

Percent of Change

2024 $75,000 225,000 $300,000

2023 $60,000 200,000 $260,000

$30,000 80,000 100,000 90,000

$35,000 70,000 100,000 55,000

$300,000

$260,000

2024 $75,000 225,000 $300,000

Amount of Percent of 2023 Change Change $60,000 $15,000 25.0% 200,000 25,000 12.5% $260,000 $ 40,000 15.4%

$30,000 80,000 100,000 90,000

$35,000 70,000 100,000 55,000

$(5,000) 10,000 0 35,000

-14.3% 14.3% 0% 63.6%

$300,000

$260,000

$40,000

15.4%

Answer:

Current Assets Plant and Equipment Total Assets Current Liabilities Long-term Liabilities Common Stock Retained Earnings Total Liabilities and Stockholders' Equity

Diff: 3 LO: 22-1 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools

14) From the following balance sheet for Bricks Corporation, compute the common-size balance sheet amounts. (Round all percentages to nearest tenth of a percent.)

Current Assets Plant and Equipment Total Assets Current Liabilities Long-term Liabilities Common Stock Retained Earnings Total Liabilities and Stockholders' Equity

Amount Percent $80,000 320,000 $400,000 $150,000 120,000 100,000 30,000 $400,000

Answer: Current Assets Plant and Equipment Total Assets Current Liabilities Long-term Liabilities Common Stock Retained Earnings Total Liabilities and Stockholders' Equity

Amount Percent $80,000 20.0% 320,000 80.0% $400,000 100.0% $150,000 120,000 100,000 30,000

37.5% 30.0% 25.0% 7.5%

$400,000

100.0%

Diff: 3 LO: 22-1 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools

Learning Objective 22-2 1) For vertical analysis purposes, the base item on an income statement is: A) net income. B) net sales. C) total expenses. D) total sales. Answer: B Diff: 1 LO: 22-2 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools

2) Which analysis compares line items on an income statement with those from the prior year? A) Horizontal analysis B) Vertical analysis C) Statement analysis D) None of the above are true. Answer: A Diff: 1 LO: 22-2 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 3) Net sales were $111,000 in Year 1 and $75,000 in Year 2. The percentage change in net sales was: (Round your answer to two decimal places, X.XX%.) A) (67.57%). B) 67.57%. C) (32.43%). D) 32.43%. Answer: C Explanation: ($75,000 - $111,000) / $111,000 = (32.43%) Diff: 2 LO: 22-2 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 4) Which analysis deals with comparing items in a financial report by expressing each line item as a percentage of a certain base total? A) Vertical analysis B) Ratio analysis C) Trend analysis D) Common-size statement Answer: A Diff: 1 LO: 22-2 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 5) The Cost of Goods Sold for Years 1, 2, and 3 are $27,000, $48,000, $87,000, respectively. The trend percentage for Year 3 (with Year 1 as base year) is: A) (322.22%). B) 322.22%. C) 181.25%. D) 31.03%. Answer: B Explanation: $87,000 / $27,000 = 322.22% Diff: 2 LO: 22-2 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 7 Copyright © 2023 Pearson Education, Inc.

6) The sales of Mary's Services for Years 1, 2, and 3 are $30,000, $46,000, $64,000 respectively. The trend percentage for Year 2 (with Year 1 as base year) is: A) 46.88%. B) 213.33%. C) 153.33%. D) 59.38%. Answer: C Explanation: ($46,000 / $30,000) x 100% = 153.33% Diff: 2 LO: 22-2 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 7) Net income was $63,000 in Year 1 and $48,000 in Year 2. The percentage increase or decrease in net income was: A) 31.25%. B) 76.19%. C) -23.81%. D) -31.25%. Answer: C Explanation: ($48,000 - $63,000) / $63,000 = -23.81% Diff: 2 LO: 22-2 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 8) In a common-size income statement, advertising expenses are 10%. This means that they are 10% of: A) net income. B) net sales. C) gross profit. D) net profit. Answer: B Diff: 1 LO: 22-2 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools

9) If Cara's Piano sales increased from $48,000 to $61,000 and its cost of goods sold decreased from $29,000 to $22,000, then vertical analysis based on sales would show the following for cost of goods sold (rounded to the nearest percent): A) 60% and 36%. B) 48% and 46%. C) 76% and 79%. D) 79% and 48%. Answer: A Explanation: $29,000 / $48,000 = 60%; $22,000 / $61,000 = 36% Diff: 2 LO: 22-2 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 10) An expression of the amount of each line item in a financial statement shown as a percentage of some designated total for purposes of comparison is called: A) horizontal analysis. B) earnings per share analysis. C) return on total assets. D) vertical analysis. Answer: D Diff: 1 LO: 22-2 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 11) If Rick's sales increased from $43,000 to $90,000 and its cost of goods sold increased from $26,000 to $60,000, then vertical analysis based on sales would show the following for cost of goods sold for the two periods, with the earliest year first: A) 66.67% and 60.47%. B) 60.47% and 66.67%. C) 150.00% and 165.38%. D) 165.38% and 150.00%. Answer: B Explanation: $26,000 / $43,000 = 60.47%; $60,000 / $90,000 = 66.67% Diff: 2 LO: 22-2 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools

12) Net income was $18,000 in Year 1 and $48,000 in Year 2. The percentage change in net income was: A) (37.50%). B) (166.67%). C) 166.67%. D) 37.50%. Answer: D Explanation: ($48,000 - $18,000) / $18,000 * 100% = 37.50% Diff: 2 LO: 22-2 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 13) A trend analysis is a type of horizontal analysis. Answer: TRUE Diff: 1 LO: 22-2 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 14) A form of analysis in which each line item on a financial statement is shown as a percent of net sales is called a horizontal analysis of the income statement. Answer: FALSE Diff: 1 LO: 22-2 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 15) A vertical analysis of an income statement compares net income (loss) to net sales within the same year. Answer: TRUE Diff: 1 LO: 22-2 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 16) Common-size statements deal with the percentage of change in a certain line item over several years. Answer: FALSE Diff: 1 LO: 22-2 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools

17) A horizontal analysis for an income statement compares Cost of Goods Sold to Net Sales within the same year. Answer: FALSE Diff: 1 LO: 22-2 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 18) An accountant is completing a trend analysis for a company by comparing sales for years 2020 through 2023. The base year for the calculations is 2023. Answer: FALSE Diff: 1 LO: 22-2 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 19) Meranda Flower Corporation needs to develop a trend analysis for its sales and gross profit for the past three years to make decisions for the future. Compute the trend percentages with the information below and place your answers in the spaces provided.

Net sales Gross profit

Year 3 $3,200 1,400

Year 2 $1,800 1,000

Year 1 $2,400 500

Year 3 133% 280%

Year 2 75% 200%

Year 1 100% 100%

Net sales trend percentages Gross profit trend percentages Answer: Net sales Gross profit

Diff: 3 LO: 22-2 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools

20) From the following, complete the common-size income statement for Isaiah's Sporting Goods using net sales as the base. (Round to nearest tenth of a percent.)

Net Sales Cost of Goods Sold Gross Profit on Sales Operating Expenses Net Income

Amount Percent $900,000 700,000 200,000 110,000 $90,000

Answer: Net Sales Cost of Goods Sold Gross Profit on Sales Operating Expenses Net Income

Amount Percent $900,000 100.0% 700,000 77.8% 200,000 22.2% 110,000 12.2% $90,000 10.0%

Diff: 3 LO: 22-2 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools

21) Complete the following horizontal analysis comparative income statements of Webster Corporation. Round to one decimal place. Webster Corporation Comparative Income Statements For the Years Ended December 31, Years 1 and 2 Amt. of Year 2 Year 1 Change $100,000 $70,000

Net Sales Expenses: Cost of Goods Sold Operating Expense Interest Expense Income Tax Expense Total Expenses Net Income

$35,000 20,000 2,000 2,200 $59,200 $40,800

Percent of Change

$25,000 8,000 1,500 1,700 $36,200 $33,800

Answer:

Net Sales Expenses: Cost of Goods Sold Operating Expense Interest Expense Income Tax Expense Total Expenses Net Income

Amount of Percent of Change Change $30,000 42.9% 10,000 12,000 500 500 23,000 $7,000

40.0% 150.0% 33.3% 29.4% 63.5% 20.7%

Diff: 3 LO: 22-2 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools

22) Define two types of financial analysis that relies on financial statements, and compare the information provided by each type. Answer: Horizontal analysis compares a line item in one period to the same line item in another period. This analysis provides us with a quick way of monitoring specific accounts from one period to the next. We can tell if Sales increased or decreased from year to year, as well as the percentage change from year to year. Vertical analysis compares the base of net sales to each line item on the income statement for one year. This provides information as to the percentage that each line item is to net sales, within one year. Vertical analysis can then be prepared for another year, using a different net sales figure and a different line item, and comparisons can be made. For example, is the percentage spent on advertising greater from one year to the next? A variation of the vertical analysis is the common-size statement, which shows only percentages and not dollar amounts. Diff: 2 LO: 22-2 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools

Learning Objective 22-3 1) The ratios that measure a company's ability to pay off short-term debt are known as: A) Liquidity Ratios. B) Debt Management Ratios. C) Profitability Ratios. D) None of the above Answer: A Diff: 1 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 2) The ratios that measures a company's mix of debt and equity financing are known as: A) Liquidity Ratios. B) Debt Management Ratios. C) Profitability Ratios. D) None of the above Answer: B Diff: 1 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools

3) The ratios that measure a company's ability to earn profits are known as. A) Liquidity Ratios. B) Debt Management Ratios. C) Profitability Ratios. D) None of the above Answer: C Diff: 1 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 4) The current ratio is: A) quick assets divided by current liabilities. B) assets divided by liabilities. C) current assets divided by current liabilities. D) net sales divided by current liabilities. Answer: C Diff: 1 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 5) The current ratio determines the ability of a company to: A) pay off all liabilities. B) pay off current liabilities. C) manage its ability to earn profit. D) use its equity. Answer: B Diff: 1 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 6) The current ratio for a company with current assets of $126,000, current liabilities of $50,000, total assets of $152,000, and net sales of $83,000, would be: (Round your answers two decimal places, X.XX.) A) 3.04. B) 0.40. C) 2.52. D) 0.33. Answer: C Explanation: $126,000 / $50,000 = 2.52 Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools

7) Accounts Receivable Turnover is an example of what type of ratio? A) Liquidity B) Asset Management C) Debt Management D) Profitability Answer: B Diff: 1 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 8) Alliance Plus has total liabilities of $191,000, current liabilities $48,000, and stockholders' equity $305,000. What is the debt to total stockholders' equity ratio? (Round your answer to two decimal places, X.XX%.) A) 159.69% B) 25.13% C) 15.74% D) 62.62% Answer: D Explanation: $191,000 / $305,000 * 100% = 62.62% Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 9) An acid test (quick) ratio of 0.75 to 1 would indicate: A) a company has insufficient quick assets to pay off all current liabilities. B) for every $0.75 of short-term debt there is $1.00 of quick assets to meet short-term obligations. C) for every $1 of current assets there is $0.75 of short-term debt. D) Both A and B are correct. Answer: A Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools

10) A company has $51,000 in cash, $24,000 in accounts receivable, $25,000 in temporary investments and $131,000 in merchandise inventory. The company has $54,000 in current liabilities. The company's acid test (quick) ratio is: (Round your answer two decimal places, X.XX.) A) 1.39. B) 0.54. C) 4.28. D) 1.85. Answer: D Explanation: ($51,000 Cash + $25,000 Temporary Investments + $24,000 Accounts Receivable)/$54,000 = 1.85 Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 11) With a beginning Accounts Receivable balance of $60,000, an ending balance of $86,000, and net credit sales of $530,000, compute accounts receivable turnover ratio. (Round your answer two decimal places.) A) 0.14 B) 7.26 C) 8.83 D) 6.16 Answer: B Explanation: $530,000 / [($60,000 + $86,000) / 2] = 7.26 Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 12) May Cooperative has total assets of $457,000, current assets $133,000, total liabilities $264,000, and current liabilities $83,000. What is the debt to total assets ratio? A) 0.89% B) 198.50% C) 18.16% D) 57.77% Answer: D Explanation: $264,000 / $457,000 *100 = 57.77% Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools

13) May Cooperative has total liabilities of $264,000, current liabilities $78,000, and stockholders' equity $364,000. What is the debt to total stockholders' equity ratio? A) 29.55% B) 72.53% C) 93.96% D) 1.38% Answer: B Explanation: $264,000 / $364,000 *100 = 72.53% Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 14) The ratio that indicates how many days it takes to turn accounts receivable into cash is the: A) accounts receivable turnover ratio. B) average turnover ratio. C) average collection period. D) quick assets turnover ratio. Answer: C Diff: 1 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 15) Orange Designers has net income before taxes of $4,480,000, total assets of $3,600,000, and net sales of $5,600,000. What is the return on net sales? (Round your answer to two decimal places, X.XX%.) A) 25.00% B) 80.00% C) 64.29% D) None of the above are correct. Answer: B Explanation: $4,480,000 / $5,600,000 * 100% = 80.00% Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 16) If the average collection period is 35 days, this means: A) from the date of purchase to the date of payment is 35 days. B) from the date of sale to the date of receipt of payment is 35 days. C) from the date of discount to the date of receipt of payment is 35 days. D) None of these answers are correct. Answer: B Diff: 1 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 18 Copyright © 2023 Pearson Education, Inc.

17) The inventory turnover ratio calculates: A) how many times the merchandise inventory turns over in one period. B) number of times merchandise inventory is purchased in one period. C) the dollar amount of change in merchandise inventory in one period. D) None of these answers are correct. Answer: A Diff: 1 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 18) If beginning and ending merchandise inventories are $18,000 and $24,000, respectively, and cost of goods sold is $490,000, what is the inventory turnover ratio? (Round your answer to two decimal places.) A) 23.33 B) 11.67 C) 27.22 D) 20.42 Answer: A Explanation: ($490,000 / [($18,000 + $24,000) / 2] = 23.33 Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 19) Elegant Operators has net sales in the amount of $633,000, a cash amount of $350,000, accounts receivable of $56,000, merchandise inventory of $64,000 and land with a cost of $87,000. What is the asset turnover ratio? A) 1.56 times B) 1.35 times C) 1.14 times D) 6.25 times Answer: C Explanation: $633,000 / ($350,000 + $56,000 +$64,000 + $87,000) = 1.14 Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools

20) John's Market's total assets are $316,000, current assets $129,000, total liabilities $163,000, and current liabilities $49,000. What is the debt to total assets ratio? (Round your answer to the nearest hundredth.) A) 40.82% B) 79.14% C) 51.58% D) 37.16% Answer: C Explanation: $163,000 / $316,000 * 100% = 51.58% Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 21) Profitability ratios: A) measure a company's ability to earn a profit. B) measure a company's ability to pay off short-term debts. C) measure a company's mix of debt and equity financing. D) All of the above are correct. Answer: A Diff: 1 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 22) If management wishes to evaluate how effectively the assets of a business are being used, they could use the: A) asset turnover ratio. B) rate of return on common stockholders' equity. C) acid test ratio. D) debt to total stockholders' equity ratio. Answer: A Diff: 1 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 23) If management wishes to evaluate the ability of a business to use sales less cost of goods sold to cover the operating expenses, they could use the: A) rate of return on total assets. B) rate of return on common stockholders' equity. C) gross profit rate. D) times interest earned. Answer: C Diff: 1 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 20 Copyright © 2023 Pearson Education, Inc.

24) If management wishes to measure how effectively the assets were used in generating a profit, they could use the: A) rate of return on total assets. B) rate of return on common stockholders' equity. C) return on sales. D) times interest earned. Answer: A Diff: 1 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 25) If management wishes to know how long it takes to collect, on average, from charge customers, they could use the: A) rate of return on total assets. B) average collection period. C) acid test ratio. D) current ratio. Answer: B Diff: 1 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 26) If management wishes to evaluate the amount of assets which were financed by creditors, they could use the: A) debt to total assets. B) rate of return on common stockholders' equity. C) debt to total liabilities. D) times interest earned. Answer: A Diff: 1 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 27) Maynard Co. has income before taxes of $569,700 and an interest expense of $83,000. What is the times interest earned ratio? (Round your answer to two decimal places.) A) 3.93 times B) 7.86 times C) 6.86 times D) 5.86 times Answer: B Explanation: ($569,700 + $83,000) / $83,000 = 7.86 Diff: 1 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 21 Copyright © 2023 Pearson Education, Inc.

28) Debt to total assets is an example of what type of ratio? A) Liquidity B) Asset Management C) Debt Management D) Profitability Answer: C Diff: 1 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 29) Ballard Screens has net sales in the amount of $479,000, a cash amount of $241,000, and accounts receivables of $43,000 (cash and accounts receivable are the company’s only assets).What is the asset turnover ratio? (Round your answer to two decimal places.) A) 1.69 times B) 2.54 times C) 1.99 times D) 11.14 times Answer: A Explanation: $479,000 / ($241,000 + $43,000) = 1.69 Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 30) Noble Company's accounts receivable turnover was 24.6 in Year 1 and 18.2 in Year 2. This change in accounts receivable turnover indicates: A) the company is not selling its merchandise inventory as fast. B) the company is selling its merchandise inventory faster. C) the company's customers are paying faster. D) the company's customers are paying slower. Answer: D Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 31) The ratio that indicates the amount of assets that are financed by creditors is: A) debt to stockholders' equity. B) debt to total retained earnings ratio. C) debts to total assets ratio. D) None of the above Answer: C Diff: 1 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 22 Copyright © 2023 Pearson Education, Inc.

32) The risk of creditors in relation to the risk taken by stockholders is measured by: A) debt to stockholders' equity ratio. B) gross profit ratio. C) rate of return to stockholders. D) None of these answers are correct. Answer: A Diff: 1 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 33) The lower the times interest earned ratio, the more likely: A) a default in payment will occur. B) a business can pay off their loan. C) a business will produce a gain. D) interest payments can be made. Answer: A Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 34) The ratio that indicates how much profit is generated from each sales dollar to cover general and selling expenses is: A) gross profit rate. B) return on sales. C) rate of return on total assets. D) rate of return on common stockholders' equity. Answer: A Diff: 1 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 35) The gross profit rate is an example of this type of ratio. A) Liquidity B) Asset Management C) Debt Management D) Profitability Answer: D Diff: 1 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools

36) Which of the following ratios helps evaluate how well a company is earning profit for the common stockholders? A) Times interest earned ratio B) Return on sales ratio C) Return on total assets D) Rate of return on common stockholders' equity Answer: D Diff: 1 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 37) Which of the following ratios measures the earnings of a company on each sales dollar? A) Return on assets B) Return on sales C) Return on inventory D) Return on stockholders' equity Answer: B Diff: 1 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 38) The current ratio and quick ratio are example of this type of ratio. A) Liquidity B) Asset Management C) Debt Management D) Profitability Answer: A Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 39) Compute the gross profit rate when sales are $550,000; net sales are $480,000 and gross profits are $140,000. (Round your answer to the nearest whole percent.) A) 29% B) 25% C) 0.29 to 1 D) 0.25 to 1 Answer: A Explanation: $140,000 / $480,000 * 100 = 29% Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools

40) Asset management ratios measure: A) a company's ability to earn a profit. B) a company's ability to meet short-term obligations. C) how well a company is using debt versus equity. D) how effectively a company is using its assets. Answer: D Diff: 1 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 41) Saxon Corporation's beginning merchandise inventory was $15,000. The cost of goods sold was $380,000 for the year, with an ending merchandise inventory of $22,000. Inventory turnover for the year is: (Round your answer two decimal places.) A) 20.54 times. B) 10.27 times. C) 12.67 times. D) 8.64 times. Answer: A Explanation: $380,000 / [($15,000 + $22,000) / 2] = 20.54 Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 42) The relationship of two quantities or numbers, one divided by the other, describes a: A) vertical analysis of an account on a balance sheet. B) trend percentage. C) ratio. D) All of the above. Answer: D Diff: 1 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 43) Interest expense was $11,000, income tax expense $28,000, and net income after taxes is $46,000. The number of times interest was earned is: (Round your answer two decimal places.) A) 4.18 times. B) 1.64 times. C) 7.73 times. D) 6.73 times. Answer: C Explanation: ($46,000 + $28,000 + $11,000) / $11,000 = 7.73 Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 25 Copyright © 2023 Pearson Education, Inc.

44) Net sales for Aaron Company are $689,000 and total assets are $414,000. What is the asset turnover ratio? A) 0.66 times B) 1.66 times C) 1.51 times D) 1.10 times Answer: B Explanation: $689,000 / $414,000 = 1.66 Diff: 1 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 45) Ballard Inc. has net income before taxes of $3,380,000, total assets of $4,410,000, and net sales of $6,450,000. What is the return on sales? A) 52.40% B) 46.26% C) 76.64% D) None of the above are correct. Answer: A Explanation: ($3,380,000 / $6,450,000) * 100 = 52.40% Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 46) Accounts receivable on January 1 was $37,000 and, at the end of the year it was $56,000. Net credit sales were $160,000. Accounts receivable turnover is: (Round your answer two decimal places.) A) 1.72 times. B) 3.44 times. C) 4.32 times. D) 8.42 times. Answer: B Explanation: $160,000 / [($37,000 + $56,000) / 2] = 3.44 Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools

47) If current assets were $147,000, merchandise inventory was $60,000, and current liabilities were $16,000, the acid test ratio is: (Round your answer two decimal places.) A) 5.44:1. B) 9.19:1. C) 1.45:1. D) 1:1.45. Answer: A Explanation: ($147,000 - $60,000) / $16,000 = 5.44 Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 48) What is George's gross profit rate if net sales are $110,000, operating expenses are $31,000, and cost of goods sold is $60,000? (Round your answer two decimal places, X.XX%.) A) 45.45% B) 28.18% C) 26.36% D) 54.55% Answer: A Explanation: (($110,000 - $60,000) / $110,000) *100 = 45.45% Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 49) What is Jane's rate of return on total assets if total assets are $132,000, net income is $2,700, interest expense is $1,700, and income tax is $4,000? (Round your answer two decimal places, X.XX%.) A) 2.05% B) 6.36% C) 5.08% D) 3.33% Answer: B Explanation: (($2,700 + $1,700 + $4,000) / $132,000) * 100 = 6.36% Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools

50) What is the rate of return on common stockholders' equity if net income before taxes is $21,200, sales are $210,000, and common stockholders' equity is $82,000? (Round your answer two decimal places, X.XX%.) A) 39.05% B) 10.10% C) 25.85% D) None of these answers is correct. Answer: C Explanation: ($21,200 / $82,000) * 100 = 25.85% Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 51) The net sales for James, Inc. were $4,070,000; net income before taxes was $900,000; and gross profit was $1,310,000. The return on sales ratio would be: (Round your answer two decimal places, X.XX%.) A) 10.07%. B) 32.19%. C) 68.70%. D) 22.11%. Answer: D Explanation: ($900,000 / $4,070,000) * 100 = 22.11% Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 52) A company has cash of $225,000; short-term investments of $54,000; net receivables of $82,000; and merchandise inventory of $103,000. Current liabilities total $80,000. The current ratio is: (Round your answer two decimal places.) A) 4.51:1. B) 4.78:1. C) 5.80:1. D) 5.13:1. Answer: C Explanation: ($225,000 + $54,000 + $82,000 + $103,000) / $80,000 = 5.80 Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools

53) Rick's Cars had a beginning account receivables balance of $321,000. The ending account receivables balance was $290,000. Net credit sales for the company were $4,200,000. The accounts receivable turnover for Rick's Cars is: (Round your answer two decimal places.) A) 13.08. B) 13.75. C) 14.48. D) None of the above is correct. Answer: B Explanation: $4,200,000 / [($321,000 + $290,000) / 2] = 13.75 Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 54) The liabilities of a company at the end of the year are $510,000 and the total stockholders' equity at the end of the year is $1,080,000. The debt to stockholders' equity ratio is: (Round your answer two decimal places.) A) 0.47 to 1. B) 0.32 to 1. C) 0.68 to 1. D) 3.12 to 1. Answer: A Explanation: $510,000 / $1,080,000= 0.47 Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 55) Tom's Toys has a cash balance of $105,000; temporary investments of $49,000; net receivables of $66,000; and merchandise inventory of $410,000. Tom's current liabilities total $125,000. His quick (acid test) ratio is: (Round your answer to two decimal places.) A) 1.76 to 1. B) 1.84 to 1. C) 0.84 to 1. D) 0.57 to 1. Answer: A Explanation: ($105,000 + $49,000 + $66,000) / $125,000 = 1.76 Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools

56) Examination of the relationship between two numbers or sets of numbers on financial statements describes: A) Horizontal analysis B) Vertical analysis C) Ratio analysis D) All of the above. Answer: D Diff: 1 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 57) Topiary's Unlimited has a cost of goods sold of $1,480,000. The beginning merchandise inventory was $202,000 and its ending merchandise inventory is $206,000. Topiary's inventory turnover ratio is: (Round your answer two decimal places.) A) 7.33 times. B) 7.25 times. C) 7.18 times. D) None of the above is correct. Answer: B Explanation: $1,480,000 / [($202,000 + $206,000) / 2] = 7.25 Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 58) Coal Company has an income before taxes of $511,900, and an interest expense of $104,700. What is the times interest earned ratio? A) 5.89 times B) 9.78 times C) 4.89 times D) 0.83 times Answer: A Explanation: ($511,900 + $104,700) / $104,700 = 5.89 Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools

59) Isaiah Company has net income before interest and taxes of $831,000; beginning total assets of $2,160,000; and ending total assets of $2,570,000. Isaiah's return on total assets is: (Round your answer two decimal places.) A) 32.33%. B) 17.57%. C) 38.47%. D) 35.14%. Answer: A Explanation: ($831,000 / $2,570,000) * 100 = 32.33% Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 60) The income before taxes and interest expense of Barry Builders for the year just ended is $219,000. Their interest expense is $26,000 and their income taxes are $84,500. The number of times interest would be earned is: (Round your answer to two decimal places.) A) 12.67. B) 8.42. C) 9.42. D) 0.50. Answer: B Explanation: $219,000 / $26,000 = 8.42 Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 61) Which of the following is considered a debt management ratio? A) Debt to total assets B) Debt to stockholders' equity C) Times interest earned D) All of the above are correct. Answer: D Diff: 1 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools

62) The net income before taxes for the year ended was $360,000. Equity for common stockholders at the end of the year was $1,620,000 and $1,470,000 at the beginning of the year. The return on common stockholders' equity would be (assume no preferred stock dividends): (Round your answer to two decimal places, X.XX%.) A) 90.74%. B) 23.30%. C) 22.22%. D) 11.65%. Answer: C Explanation: ($360,000 / $1,620,000) * 100 = 22.22%. Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 63) The gross profit rate reveals how much profit from each sales dollar is generated to cover administrative and selling expenses. Answer: TRUE Diff: 1 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 64) Accounts receivable turnover is calculated by dividing net credit sales by the average accounts receivable. Answer: TRUE Diff: 1 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 65) The debt-to-equity ratio measures the extent of (or proportion of) assets to equity, with which a business operates. Answer: FALSE Diff: 1 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 66) With the asset turnover ratio, assets that are not used in producing sales, such as investments, are subtracted from total assets. Answer: TRUE Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools

67) A current ratio of 1.5 times would mean that the business has 1.5 times more assets than liabilities. Answer: FALSE Diff: 1 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 68) The acid test ratio is the best test to determine the ability to pay short-term debt. Answer: TRUE Diff: 1 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 69) A low inventory turnover means that the company has tied up less cash in merchandise inventory. Answer: FALSE Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 70) If the average collection period has increased and credit terms remain the same, the company should put a greater emphasis on collections. Answer: TRUE Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 71) The return on sales ratio divides net income before taxes by net sales. Answer: TRUE Diff: 1 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 72) The higher the times interest earned ratio, the more likely it is that interest payments will be made. Answer: TRUE Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools

73) If the return on common stockholders' equity is more than the industry standard, it means the company is using debt financing successfully. Answer: TRUE Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 74) When net income before taxes and interest is $86,000 and total assets equal $234,000, the rate of return on total assets is 36.8%. Answer: TRUE Diff: 1 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 75) Debt management ratios measure a company's mix of debt and equity financing. Answer: TRUE Diff: 1 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 76) A horizontal analysis of an income statement automatically provides the return on sales ratio and the gross profit ratio. Answer: FALSE Diff: 1 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools

77) From the following information of Carlson's Restoration Corporation, compute: a. ________ Asset turnover for Year 2. b. ________ Inventory turnover for Year 2. c. ________ Accounts receivable turnover for Year 2.

Net Sales (on credit) Cost of Goods Sold Net Income Ending Acct. Receivable Ending Merchandise Inventory Total Assets

Year 2 $130,000 85,000 45,000 28,000 18,000 135,000

Year 1 $100,000 60,000 20,000 22,000 12,000 150,000

Answer: a. 0.96 times = ($130,000 / $135,000) b. 5.67 times = ($85,000) / [($18,000 + $12,000) / 2] c. 5.20 times = ($130,000) / [($22,000 + $28,000) / 2] Diff: 3 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools

78) Selected data for Stick's Design are given as of December 31, Year 1 and Year 2:

Net Credit Sales Cost of Goods Sold Net Income Cash Accounts Receivable Merchandise Inventory Current Liabilities

Year 2 $22,000 14,000 1,000 8,000 4,000 2,500 7,000

Year 1 $40,000 19,000 1,500 1,000 3,000 4,500 5,500

Required: Compute the following: a. ________ Current ratio for Year 2. b. ________ Acid-test ratio for Year 2. c. ________ Accounts receivable turnover for Year 2. d. ________ Average collection period for Year 2. e. ________ Inventory turnover for Year 2. Answer: a. 2.07:1 = ($8,000 + $4,000 + $2,500) / $7,000 b. 1.71:1 = ($8,000 + $4,000) / $7,000 c. 6.29 times = $22,000 / [($4,000 + $3,000)/2] d. 58.03 days = 365 days / 6.29 e. 4 times = $14,000 / [($2,500 + $4,500)/2} Diff: 3 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools For each of the following items, indicate by placing an X in the appropriate column whether it is a measure of: (column 1) liquidity, (column 2) asset management, (column 3) debt management, or (column 4) profitability. 79) Asset Debt Liquidity Management Management Profitability Inventory turnover Answer:

Inventory turnover

Asset Debt Liquidity Management Management Profitability X

Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools

80) Asset Debt Liquidity Management Management Profitability Rate of return on total assets Answer:

Rate of return on total assets

Asset Debt Liquidity Management Management Profitability X

Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 81) Asset Debt Liquidity Management Management Profitability Rate of return on common stockholders' equity Answer: Asset Debt Liquidity Management Management Profitability Rate of return on common stockholders' equity

Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 82) Asset Debt Liquidity Management Management Profitability Acid test ratio Answer:

Acid test ratio

Asset Debt Liquidity Management Management Profitability X

Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools

83) Asset Debt Liquidity Management Management Profitability Times interest earned Answer:

Times interest earned

Asset Debt Liquidity Management Management Profitability X

Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 84) Asset Debt Liquidity Management Management Profitability Accounts receivable turnover Answer:

Accounts receivable turnover

Asset Debt Liquidity Management Management Profitability X

Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 85) Asset Debt Liquidity Management Management Profitability Gross profit rate Answer:

Gross profit rate

Asset Debt Liquidity Management Management Profitability X

Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools

86) Asset Debt Liquidity Management Management Profitability Asset turnover Answer:

Asset turnover

Asset Debt Liquidity Management Management Profitability X

Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 87) Asset Debt Liquidity Management Management Profitability Current ratio Answer:

Current ratio

Asset Debt Liquidity Management Management Profitability X

Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 88) Asset Debt Liquidity Management Management Profitability Debt to total assets Answer:

Debt to total assets

Asset Debt Liquidity Management Management Profitability X

Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools

89) Asset Debt Liquidity Management Management Profitability Average collection period Answer:

Average collection period

Asset Debt Liquidity Management Management Profitability X

Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools 90) Asset Debt Liquidity Management Management Profitability Return on sales Answer:

Return on sales

Asset Debt Liquidity Management Management Profitability X

Diff: 2 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools

91) Selected data for Stick's Design are given as of December 31, Year 1 and Year 2:

Net Credit Sales Income Before Taxes Income Before Interest and Taxes Total Assets Merchandise Inventory Total Liabilities Stockholders’ Equity (all Common Stock)

Year 2 Year 1 $22,000 $40,000 31,800 29,000 36,000 173,200 2,500 81,200

30,000 170,000 4,500 80,000

92,000

90,000

Required: Compute the following (use tenths of a percent): a. ________ Debt to Total Assets for Year 2. b. ________ Debt to Stockholders’ Equity for Year 2. c. ________ Rate of return on Total Assets for Year 2. d. ________ Rate of return on Common Stockholders’ Equity for Year 2. Answer: a. 46.9% = ($81,200 / $173,200) b. 88.3% = ($81,200 / $92,000) c. 20.8% = ($36,000 / $173,200) b. 34.6% = ($31,800 - $0) / $92,000 Diff: 3 LO: 22-3 AACSB: Analytical Thinking Learning Outcome: Define and use the different types of financial statement analysis tools

College Accounting, 15e (Slater) Chapter 23 The Voucher System Learning Objective 23-1 1) A voucher system is designed to control a company's: A) cash receipts. B) cash payments. C) equity accounts. D) internal finances. Answer: B

Diff: 1 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

2) A voucher is made for every: A) cash receipt. B) cash payment. C) accounts payable transaction. D) stock sale. Answer: B

Diff: 1 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

3) A voucher register is: A) a replacement for the purchases journal. B) a special journal which records prenumbered vouchers. C) a summary of shareholders. D) Both A and B Answer: D

Diff: 1 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

4) A(n) ________ is used for every cash payment made. A) invoice B) voucher C) purchase order D) purchase requisition Answer: B

Diff: 1 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

5) The separation of duties among the employees of the accounting department is an example of a(n): A) internal control system. B) document system. C) voucher system. D) pay grade system. Answer: A Diff: 1 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

6) Which of the following is NOT a part of internal control? A) Separation of duties B) Purchases are made without approval. C) A voucher system is used. D) None of these answers is correct. Answer: B

Diff: 1 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

7) Which situation would NOT result in a separation of duties? A) The person who approves purchases does not make the payments. B) The person who makes journal entries is the same as the person who signs and mails checks. C) The person who makes purchases is different from the one who approves the purchase. D) The person who distributes paychecks does not make journal entries. Answer: B Diff: 2 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

8) Important principles of internal control include: A) that payment can be made without an approved voucher. B) that all transactions are backed with documentation. C) no separation of duties. D) all accounting staff have the same start time. Answer: B

Diff: 2 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

9) In the voucher system, the purchases journal is replaced by the: A) check register. B) stock register. C) invoice register. D) voucher register. Answer: D Diff: 1 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

10) The check register is: A) a special journal. B) used when paying out of petty cash. C) used to record customer receipts. D) used to house unpaid vouchers. Answer: A

Diff: 1 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

11) Supporting documents for a voucher system are: A) attached to stock certificate. B) attached to the invoice. C) attached to the purchase order. D) attached to the voucher. Answer: D

Diff: 1 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

12) When a purchase is made under the periodic system and the voucher system, the business will: A) debit Vouchers Payable. B) not enter a voucher in the voucher register. C) debit Purchases. D) credit Purchases. Answer: C Diff: 2 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

13) When a voucher transaction does not fit in the special columns of the voucher register, it will be recorded in the: A) general journal. B) sundry column. C) purchases debit column. D) Both B and C Answer: B Diff: 2 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

14) On the balance sheet, the liability for vouchers will be: A) Vouchers Payable. B) Accounts Payable. C) Invoices Payable. D) None of these answers is correct. Answer: B

Diff: 1 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

15) Which of the following is an element in a voucher system? A) General journal B) Sales journal C) Paid voucher file D) Stock Register. Answer: C

Diff: 1 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

16) Another name for the unpaid voucher file is the: A) accounts receivable file. B) accounts payable file. C) tickler file. D) paid vouchers file. Answer: C

Diff: 1 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

17) Which of the following is the controlling account in the general ledger when using a voucher system? A) Common Stock B) Accounts Payable C) Accounts Receivable D) Vouchers Payable Answer: D Diff: 1 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

18) In a voucher system, the cash payments journal: A) is replaced by a check register. B) is used to record payments by check. C) is replaced by a stock purchases register. D) supplements the check register. Answer: A

Diff: 1 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

19) The reason for filing vouchers in an unpaid voucher file according to due date is: A) to allow the company to take advantage of cash discounts. B) to track when stock dividends are due. C) to keep accounts receivable up to date. D) to keep the cash payments journal up to date. Answer: A Diff: 2 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

20) Paid vouchers may be filed in the paid voucher file according to: A) date paid. B) creditor's name. C) voucher number. D) Both B and C Answer: D Diff: 2 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

21) Which of the following business documents would originate with the selling company? A) Purchase requisition B) Check for payment C) Sales invoice D) Receiving report Answer: C Diff: 1 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

22) The company receiving a purchase order prepares a: A) purchase requisition. B) debit memo. C) purchases invoice. D) sales invoice. Answer: D

Diff: 1 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

23) On the balance sheet, Vouchers Payable would be: A) a special liability account. B) an asset account. C) renamed as Accounts Payable. D) shown as long-term liabilities. Answer: C

Diff: 2 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

24) After payment is made, a notation is made on the: A) check register. B) voucher register. C) back of the voucher. D) All of these answers are correct. Answer: D

Diff: 2 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

25) Which of the following statements is false as it pertains to a voucher system? A) The purchase order must be completed and approved before the goods are purchased. B) A receiving report is completed when goods are received and is checked against the purchase order. C) Someone in the receiving department checks the purchase order and sales invoice for accuracy. D) After all the steps are completed, payment is issued in the form of a check. Answer: C Diff: 2 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

26) Before a voucher is approved for payment, all documents must be in agreement, except for the: A) dividend journal. B) invoice. C) purchase order. D) receiving report. Answer: A Diff: 1 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

27) The voucher register in a voucher system is known as the: A) book of final entry. B) book of original entry. C) book of vouchers. D) dividend journal. Answer: B

Diff: 1 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

28) Under a voucher system, every liability is recorded at the time: A) of requisition of goods. B) of receipt of goods. C) of payment. D) the liability is incurred. Answer: D Diff: 2 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

29) The voucher register would contain a column for all except: A) Date of Payment. B) Vouchers Payable credit. C) Voucher Number. D) Purchases credit. Answer: D

Diff: 1 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

30) The check register would contain a column for all except: A) a credit to Vouchers Payable. B) a debit to Vouchers Payable. C) a credit to Cash. D) a credit to Purchases Discount. Answer: A

Diff: 1 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

31) Which of the following sequences of events is in the correct order for a voucher system? A) Recording, preparing, posting, and paying the voucher B) Posting, preparing, paying, and recording the voucher C) Preparing, paying, posting, and recording the voucher D) None of the above is the correct order. Answer: D Diff: 2 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

32) Important control features provided by a voucher system do NOT include: A) assure all approved and unapproved invoices are paid. B) centralize the recording of all expenditures in one place—the voucher register. C) include using the check register along with the voucher register. D) assure only approved invoices are paid. Answer: A Diff: 2 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

33) Which of the following is true of a voucher system? A) All expenditures such as rent and interest would first be credited to Accounts Payable before payment is made. B) Transactions are first entered in the voucher register, then payment is made in the cash payments journal. C) The check register replaces the cash payments journal. D) Either A or B would be correct. Answer: C Diff: 2 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

34) The voucher system strengthens internal control because: A) all the duties of preparing a voucher and the receiving reports are assigned to a single person. B) certain payments, which are made on a regular basis, such as monthly rent payments, do not need to be vouchered. C) the employee who approves all vouchers then sends the approved vouchers to others who prepare the voucher register and the check register. D) All of these answers are correct. Answer: C Diff: 2 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

35) Which of the following accounts is used for recording the purchase of merchandise for resale on account in the periodic system? A) Purchases B) Purchase Discounts C) Purchase Discounts Lost D) Merchandise Inventory Answer: A Diff: 1 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

36) Using the gross method, and the voucher system, record the payment of the following transaction in time to take the discount. Connect Company bought $12,000 of merchandise on account, terms 2/10, n/30, and uses the periodic inventory system. A) Debit Cash $12,000; credit Vouchers Payable $12,000. B) Debit Vouchers Payable $12,000; credit Cash $11,760; credit Purchase Discount $240. C) Debit Vouchers Payable $11,760; credit Cash $11,760. D) Debit Vouchers Payable $12,000; credit Cash $12,000. Answer: B Explanation: credit Purchase Discount $12,000 x 2% = $240 Diff: 2 LO: 23-1 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

37) Using the gross method, record the payment of the following transaction in time to take the discount. Clip Company bought $11,000 of merchandise on account, terms 1/15, n/45. The company uses the voucher system and the periodic inventory method. A) Debit Cash $11,000; credit Vouchers Payable $11,000. B) Debit Vouchers Payable $11,000; credit Cash $10,890; credit Purchase Discount $110. C) Debit Vouchers Payable $10,890; credit Cash $10,890. D) Debit Vouchers Payable $11,000; credit Cash $11,000. Answer: B Explanation: credit Purchase Discount = $11,000 x 1% = $110 Diff: 2 LO: 23-1 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

38) Connect Company bought $7000 of merchandise on account from Woods Corporation, terms 2/10, n/30. Connect Company uses the voucher system and the periodic inventory method. The journal entry to record the payment under the gross method after the discount period would be to: A) debit Vouchers Payable $7000; credit Cash $7000. B) debit Vouchers Payable $7000; credit Purchases Discount $140; credit Cash $6860. C) debit Vouchers Payable $6860; credit Cash $6860. D) debit Vouchers Payable $6860; debit Purchases Discount $140; credit Cash $7000. Answer: A Diff: 2 LO: 23-1 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

39) Clip Company bought $13,000 of merchandise on account from Tarpon Corporation, terms 1/10, n/45. Clip Company uses the voucher system and the periodic inventory method. The journal entry to record the payment under the gross method after the discount period would be to: A) debit Vouchers Payable $13,000; credit Cash $13,000. B) debit Vouchers Payable $13,000; credit Purchases Discount $130; credit Cash $12,870. C) debit Vouchers Payable $12,870; credit Cash $12,870. D) debit Vouchers Payable $12,870; debit Purchases Discount $130; credit Cash $13,000. Answer: A Diff: 2 LO: 23-1 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

40) Each entry in a voucher register includes a: A) debit to Cash. B) credit to Vouchers Payable. C) credit to Purchases. D) debit to Vouchers Payable. Answer: B

Diff: 1 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

41) A voucher register could contain which of the following columns? A) Credit to purchases account B) Credit to sundry account C) Debit to sundry account D) Both B and C. Answer: D Diff: 1 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

42) Martin Corporation used the gross method of recording purchases, the voucher system and the periodic inventory method. A purchase of $11,000 on account, with terms 2/15, n30 would be recorded as: A) debit Purchases $11,000; credit Accounts Payable $11,000. B) debit Purchases $11,000; credit Vouchers Payable $11,000. C) debit Purchases $10,780; credit Accounts Payable $10,780. D) debit Purchases $10,780; credit Vouchers Payable $10,780. Answer: B Diff: 2 LO: 23-1 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

43) If Vouchers Payable has been credited, it is most likely that: A) the business took out a loan. B) the business made a payment to a vendor. C) a purchase was made on account. D) a cash receipt from a customer. Answer: C

Diff: 2 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

44) The entry to record payment of a voucher for an invoice within the discount period under the gross method and the periodic inventory method will include: A) a debit to Purchase Discounts. B) a credit to Purchase Discounts. C) a debit to Cash. D) Both B and C would be in the entry. Answer: B Diff: 2 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

45) The entry to record payment of a voucher for an invoice after the discount period under the gross method and the periodic method will include: A) a debit to Vouchers Payable. B) a credit to Purchase Discounts. C) a debit to Discounts Lost. D) a credit to Vouchers Payable. Answer: A Diff: 2 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

46) With the voucher system, the entry to record the incurrence of a liability for an expense will include: A) a debit to expense and a credit to Cash. B) a debit to the expense and a credit to Vouchers Payable. C) a debit to the expense and a credit to Accounts Payable. D) a debit to Vouchers Payable and a credit to the expense. Answer: B Diff: 1 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

47) The entry to record the approval of a withdrawal by the owner will include: A) a debit to Wages Expense and a credit to Vouchers Payable. B) a debit to Vouchers Payable and a credit to Wages Expense. C) a debit to Withdrawals and a credit to Vouchers Payable. D) a debit to Vouchers Payable and a credit to Withdrawals. Answer: C Diff: 1 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

48) A company uses the gross method of recording purchases on account, the periodic method, and the voucher system. An invoice was paid after the discount date. The full amount of the invoice would be recorded in the: A) check register. B) voucher register. C) general journal. D) A and B are correct. Answer: D Diff: 1 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

49) The voucher system is a form of internal control. Answer: TRUE

Diff: 1 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

50) Written authorizations for cash payments are called vouchers. Answer: TRUE Diff: 1 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

51) Vouchers are recorded in the voucher register at the time the liability is paid. Answer: FALSE Diff: 1 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

52) A schedule of unpaid vouchers can be prepared from the tickler file at the end of the month. Answer: TRUE Diff: 1 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

53) In a voucher system, all of the source documents include the invoice, receiving report, and a purchase order. Answer: FALSE Diff: 1 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

54) To maintain good internal control procedures, the person preparing a purchase requisition should not approve the payment. Answer: TRUE Diff: 1 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

55) The information contained on a voucher includes: invoice number and date; purchase order number; the amount to be paid, who is being paid; voucher number; and the verification steps. Answer: TRUE Diff: 1 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

56) When a voucher is prepared, the invoice needs only to be compared to the purchase requisition, purchase order and receiving report. Answer: TRUE Diff: 2 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

57) Vouchers Payable is not a liability account on the balance sheet. Answer: TRUE Diff: 1 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

58) Vouchers Payable replaces Accounts Payable in the general ledger. Answer: TRUE Diff: 1 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

59) In a voucher system, a schedule of vouchers payable is the same as a schedule of accounts payable. Answer: TRUE Diff: 1 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

60) In a voucher system, Vouchers Payable is the controlling account for the subsidiary ledger Unpaid Vouchers. Answer: TRUE Diff: 1 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

61) After paying a voucher, the voucher document is marked approved. Answer: FALSE Diff: 1 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

62) Items are listed in the voucher register in the order liabilities are paid. Answer: FALSE Diff: 1 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

63) Unpaid vouchers are arranged by the voucher number in a tickler file. Answer: FALSE Diff: 1 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

64) A schedule of vouchers payable is prepared from the unpaid voucher file. Answer: TRUE Diff: 1 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

65) When merchandise is purchased, the entry in the vouchers register is a debit to Merchandise Inventory and a credit to Vouchers Payable. The company uses the periodic method. Answer: FALSE Diff: 1 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

66) The check register replaces the voucher journal. Answer: FALSE

Diff: 1 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

67) Using the voucher system when paying an invoice outside the discount period, assuming the gross method, the entry would be to debit Vouchers Payable, credit Sales Discounts, and credit Cash. Answer: FALSE Diff: 1 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

68) Vouchers are recorded in alphabetical order. Answer: FALSE

Diff: 1 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

69) In the voucher register, "miscellaneous accounts" are classified as ________ accounts. Answer: Sundry Diff: 1 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

70) Separation of duties in a voucher system leads to a more effective ________ for the management of cash payments. Answer: Internal Control Diff: 1 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

71) Vouchers should be filed in the tickler file ________ rather than alphabetically. Answer: chronologically by due date Diff: 1 LO: 23-1 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

72) Peet Company uses a voucher system and the periodic inventory method. The following transactions were completed: May 3 May 13

Purchased $7,000 of merchandise on account; terms 2/10, n/30. Prepared voucher #205. Paid voucher #205.

Required: Prepare journal entries to record the above transactions. Assume Peet Company uses the gross method for recording purchases. Omit explanations. Answer: May 3 Purchases 7,000 Vouchers Payable 7,000 13

Vouchers Payable Purchase Discount Cash

7,000 140 6,860

Diff: 3 LO: 23-1 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

73) Fixer Supply purchased $5,000 of merchandise on account, terms 2/10, n/60 on July 2, and prepared voucher #1001. Fixer Supply paid the invoice on August 31. Prepare journal entries to record the above transactions. Assume Fixer Supply uses the gross method and the periodic inventory system for recording purchases. Omit explanations. Answer: July 2 Purchases 5,000 Vouchers Payable 5,000 Aug. 31 Vouchers Payable Cash

5,000 5,000

Diff: 3 LO: 23-1 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

74) Ebony Corporation uses a voucher system and completed the following transactions: Dec. 31 Prepared voucher #301 to replenish the petty cash fund based on the following receipts: supplies $52, postage $33, and cash over $5. 31 Issued check #1003 in payment of voucher #301. Required: Prepare general journal entries to record the above transactions. Omit explanations. Answer: Dec. 31 Supplies Expense 52 Postage Expense 33 Cash Short and Over 5 Vouchers Payable 80 31

Vouchers Payable Cash

80 80

Diff: 3 LO: 23-1 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

75) Buzz Corporation uses a voucher system and the periodic inventory method. The company uses the gross method. Record the following transactions in general journal format. Omit the explanations. Nov. 8 Purchased office equipment on account from Bell Company, $1,500; voucher no. 100 was prepared. Nov. 12 Established a petty cash fund of $200; voucher no. 101 was prepared. Nov. 14 Purchased merchandise on account from Kelly Corporation, $2,100; voucher no. 102 was prepared. Answer: Nov. 8 Office Equipment 1,500 Vouchers Payable 1,500 Nov. 12 Petty Cash Vouchers Payable

200

Nov. 14 Purchases Vouchers Payable

2,100

200

2,100

Diff: 3 LO: 23-1 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

76) Name and discuss the two most important internal control principles embedded in the voucher system. Answer: The most important principle is the separation of duties. In a voucher system, no one person in a company is in control of all transactions or everything to do with one transaction. The person who approves purchases is different from the person who makes the accounting entries related to this function, and that person is different from the person who signs and mails the checks. A second important principle is that no purchases are made without approved vouchers backed up by documentation. There are several layers of documents and authorizations here, beginning with a purchase requisition, moving on to a purchase order, and ending up with actual payment by a check. At every layer and step, the appropriate documents are presented, checked, and approved before going further. Diff: 2 LO: 23-1 AACSB: Written and Oral Communication Learning Outcome: Define and record current and contingent liabilities

Learning Objective 23-2 1) If it is later decided to pay an approved voucher in two payments: A) a memo in the check register must show the unpaid balance. B) an entry in the Paid column of the voucher register must show the unpaid balance. C) the original voucher must be canceled and two new vouchers must be issued. D) a memo must be made on the voucher to show the unpaid balance. Answer: C Diff: 1 LO: 23-2 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

2) After Crowe purchased $6000 of merchandise on account from Hanks, Crowe discovered $800 of defective merchandise. Record the entry for the return (assume the gross method) in the Voucher Register. The company uses the periodic method and the voucher system. A) Vouchers Payable 6000 Vouchers Payable 5200 Purchase Returns & Allowances 800 B) Vouchers Payable Vouchers Payable

800

C) Vouchers Payable Purchase Returns & Allowances Vouchers Payable

5200 800

D) None of these answers is correct. Answer: A

800

6000

Diff: 2 LO: 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

3) After Sam purchased $13,000 of merchandise on account from Gary, Sam discovered $800 of defective merchandise. Record the entry for the return. The company uses the gross method, the periodic method and the voucher system. Use the Voucher Register. A) Vouchers Payable 800 Vouchers Payable 800 B) Vouchers Payable Vouchers Payable Purchase Returns & Allow. C) Vouchers Payable Purchase Returns & Allow. Vouchers Payable

13,000 12,200 800

12,200 800 13,000

D) None of these answers is correct. Answer: B

Diff: 2 LO: 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

4) Alex returned all of the $5000 purchase of equipment to James. The purchase was on account. The company uses the voucher system. The entry to record this is: A) Vouchers Payable 5000 Equipment 5000 B) Equipment

5000 Vouchers Payable

C) Equipment

5000

5000 Accounts Payable

D) None of these answers is correct. Answer: A

5000

Diff: 2 LO: 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

5) Jack returned all of the $7000 purchase of equipment to Sue. The purchase was on account. The company uses the voucher system. The entry to record this is: A) Vouchers Payable 7000 Equipment 7000 B) Equipment

7000 Vouchers Payable

C) Equipment

7000

7000 Accounts Payable

7000

D) None of these answers is correct. Answer: A

Diff: 2 LO: 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

6) Emily purchased $2,000 of merchandise on account on April 1 and recorded it in the voucher register. On April 8, $400 of the merchandise proved to be defective. The company uses the gross method and the periodic inventory system. The entry in the Voucher Register would be to: A) reduce the original voucher. B) record a purchase return in the general journal. C) cancel the original voucher and record a revised voucher. D) None of these answers is correct. Answer: C Diff: 1 LO: 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

7) If installment payments are set up after a voucher is prepared for the total amount owed on a purchase of equipment: A) the old voucher is cancelled, and a new voucher is prepared for the new amount owed. B) the old voucher is credited for the entire amount. C) Vouchers Payable is debited; Purchase Returns and Allowances is credited. D) None of these answers is correct. Answer: D Diff: 1 LO: 23-2 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

8) What is the internal control advantage of using the net method of accounting for merchandise purchases? A) It highlights the inefficiency of losing purchase discounts. B) It guarantees that all purchase discounts will be taken. C) It automatically increases a firm's net income. D) It results in a higher quality of inventory on hand for customers. Answer: A Diff: 2 LO: 23-2 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

9) The Discount Lost account is used when the: A) gross method is used, and the discount is not taken. B) gross method is used, and the discount is taken. C) net method is used, and the discount is not taken. D) net method is used, and the discount is taken. Answer: C

Diff: 2 LO: 23-2 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

10) The company uses the periodic inventory system and the voucher system. If the net method is applied, the purchase of $7000 of merchandise inventory on account with terms 2/10, n/30 is recorded by: A) debit Cash $7000; credit Accounts Payable $7000. B) debit Accounts Payable $7000; credit Purchases $7000. C) debit Purchases $7000; credit Accounts Payable $7000. D) debit Purchases $6860; credit Vouchers Payable $6860. Answer: D Explanation: $7000 x 98% = $6860 Diff: 2 LO: 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

11) The company uses the periodic inventory system and the voucher system. If the net method is applied, the purchase of $15,000 of merchandise inventory on account with terms 4/15, n/60 is recorded by: A) debit Cash $15,000; credit Accounts Payable $15,000. B) debit Accounts Payable $15,000; credit Purchases $15,000. C) debit Purchases $14,400; credit Accounts Payable $14,400. D) debit Purchases $14,400; credit Vouchers Payable $14,400. Answer: D Explanation: $15,000 x 96% = $14,400 Diff: 2 LO: 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

12) Toy Bots Company bought $12,000 of merchandise on account, terms 2/10, n/30. The company uses the periodic inventory system and the voucher system. The journal entry to record the transaction under the net method would be to: A) debit Purchases $11,760; credit Accounts Payable $11,760. B) debit Purchases $12,000; credit Vouchers Payable $12,000. C) debit Purchases $12,000; credit Vouchers Payable $11,760; credit Discounts Lost $240. D) debit Purchases $11,760; credit Vouchers Payable $11,760. Answer: D Explanation: $12,000 x 98% = $11,760 Diff: 2 LO: 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

13) Grant's Hardware bought $11,000 of merchandise on account, terms 1/10, n/30. The company uses the periodic inventory system and the voucher system. The journal entry to record the transaction under the net method would be to: A) debit Purchases $10,890; credit Accounts Payable $10,890. B) debit Purchases $10,890; credit Vouchers Payable $10,890. C) debit Purchases $11,000; credit Vouchers Payable $10,890; credit Discounts Lost $110. D) debit Purchases $11,000; credit Cash $11,000. Answer: B Explanation: $11,000 x 99% = $10,890 Diff: 2 LO: 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

14) Lynn Corporation bought $5000 of merchandise on account from Woods Corporation, terms 2/10, n/30. The company uses the periodic inventory system and the voucher system. The journal entry to record the payment under the net method after the discount period would be to: A) debit Vouchers Payable $5000; credit Cash $5000. B) debit Vouchers Payable $5000; credit Discounts Lost $100; credit Cash $4900. C) debit Vouchers Payable $4900; credit Cash $4900. D) debit Vouchers Payable $4900; debit Discounts Lost $100; credit Cash $5000. Answer: D Explanation: debit Discounts Lost = $5000 x 2% = $100 Diff: 2 LO: 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

15) On May 1, Garcia Corporation bought $18,000 of merchandise on account from Morris Corporation, terms 4/10, n/30. Garcia paid the invoice on May 6. The company uses the periodic and voucher system. The journal entry to record the payment under the net method would be to: A) debit Vouchers Payable $18,000; credit Cash $18,000. B) debit Vouchers Payable $18,000; credit Discounts Lost $720; credit Cash $17,280. C) debit Vouchers Payable $17,280; credit Cash $17,280. D) debit Vouchers Payable $17,280; debit Discounts Lost $720; credit Cash $18,000. Answer: C Explanation: $18,000 x 96% = $17,280 Diff: 2 LO: 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

16) A cash purchase discount of $24 taken under the net method, using the voucher system and periodic inventory method, is recorded as a separate account in: A) the check register. B) the voucher register. C) the general journal. D) None of these answers is correct. Answer: D Diff: 1 LO: 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

17) The primary difference between the gross method and the net method of recording invoices is: A) when the invoice is paid. B) when the purchase discount is recognized. C) the gross method is only used when there are no discounts available. D) the net method does not use a voucher system. Answer: B Diff: 2 LO: 23-1, 23-2 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

18) Booker's Company purchased $6,000 of merchandise on account with terms of 5/10, n/60 and paid the invoice within the discount period. Booker uses the periodic and voucher systems. If Booker's uses the net method of recording merchandise purchases, the $300 purchase discount as a separate account is recorded in: A) the voucher register. B) the check register. C) the general journal. D) None of these answers is correct. Answer: D Diff: 1 LO: 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

19) Booker Company purchased $8,000 of merchandise on account with terms of 2/10, n/60 and paid the invoice within the discount period. The company uses the periodic inventory method and the voucher system. If Booker's uses the net method of recording merchandise purchases, the $160 purchase discount as a separate account is: A) recorded in the voucher register. B) recorded in the check register. C) recorded in the general journal. D) not recorded Answer: D Diff: 1 LO: 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

20) The entry to record payment of a voucher, for an invoice paid within the discount period, under the net and periodic methods will include: A) a debit to Discounts Lost. B) a credit to Purchase Discounts. C) a credit to Discounts Lost. D) None of these is correct. Answer: D Diff: 2 LO: 23-2 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

21) The entry to record payment of a voucher, for an invoice after the discount period, under the net method and the periodic inventory system will include: A) a debit to Purchase Discounts. B) a credit to Purchase Discounts. C) a debit to Discounts Lost. D) None of these is correct. Answer: C Diff: 2 LO: 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

22) When there is a return after the original voucher has been prepared, the first step is to create a new voucher for the amount owed. Answer: FALSE Diff: 1 LO: 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

23) If a purchase return or allowance occurs after the recording of the original voucher, the original voucher is cancelled. Answer: TRUE Diff: 1 LO: 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

24) Partial payments of an original voucher with one payment require new vouchers for each approved payment. Answer: TRUE Diff: 1 LO: 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

25) The Discount Lost account is used when the gross method is used for recording purchases of merchandise inventory. Answer: FALSE Diff: 1 LO: 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

26) If an account is not paid on time using the net method, and the periodic system, the account ________ must be recorded. Answer: Discount Lost Diff: 1 LO: 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

27) Any change in an already recorded voucher dictates the ________ of that voucher. Answer: canceling Diff: 1 LO: 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

Given the following accounts: [1] Cash [2] Petty cash [3] Supplies [4] Equipment [5] Notes payable [6] Vouchers payable [7] FICA payable [8] Wages payable [9] Purchases [10] Purchase discounts [11] Discounts lost [12] Repairs expense [13] Interest expense [14] Delivery expense Indicate the account(s) to be debited and credited to record the following transactions. The company uses the periodic inventory method and the voucher system. 28) Prepared and recorded voucher #422 for the purchase of merchandise (gross method) inventory on account of $10,000 with credit terms of 2/10, n/30. Debit ________ Credit ________ Answer: Debit 9, Credit 6

Diff: 3 LO: 23-1, 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

29) Received an invoice in the amount of $60 for repairs to the store equipment, voucher #423 was prepared. Debit ________ Credit ________ Answer: Debit 12, Credit 6

Diff: 3 LO: 23-1, 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

30) Paid voucher #419 which was issued to reimburse petty cash for the purchase of supplies, $35, and delivery expense of $50. Debit ________ Credit ________ Answer: Debit 6, Credit 1

Diff: 3 LO: 23-1, 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

31) Prepared voucher #424 in the amount of $6,300 in reply to the payroll department's request for payment of last week's wages. Debit ________ Credit ________ Answer: Debit 8, Credit 6

Diff: 3 LO: 23-1, 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

32) Prepared voucher #425 for a purchase of $3,000 of merchandise inventory on account, terms 1/10, n/30. The company uses the periodic and voucher systems under the gross method. Debit ________ Credit ________ Answer: Debit 9, Credit 6

Diff: 3 LO: 23-1, 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

33) Paid voucher #424. Debit ________ Credit ________ Answer: Debit 6, Credit 1

Diff: 3 LO: 23-1, 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

34) Paid voucher #425 within the discount period. Debit ________ Credit ________ & ________ Answer: Debit 6, Credit 1 & 10

Diff: 3 LO: 23-1, 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

35) Borrowed $4,000, signing a 5%, 60-day promissory note. Debit ________ Credit ________ Answer: Debit 1, Credit 5

Diff: 3 LO: 23-1, 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

36) Paid voucher #422, payment was within the discount period. Debit ________ Credit ________ & ________ Answer: Debit 6, Credit 1 & 10

Diff: 3 LO: 23-1, 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

37) Prepared and recorded voucher #426 for the purchase of merchandise (net method) inventory on account of $4,200 with credit terms of 2/10, n/30. Debit ________ Credit ________ Answer: Debit 9, Credit 6

Diff: 3 LO: 23-1, 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

38) Paid voucher #426, payment was after the discount period. Debit ________ & ________ Credit ________ Answer: Debit 6 & 11, Credit 1

Diff: 3 LO: 23-1, 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

For each of the following, identify in Column 1 the category to which the account belongs, in Column 2 the normal balance for the account, in Column 3 the financial statement in which the account balance is reported, and in Column 4 the account's nature (permanent/temporary). 39) Column 1

Column 2

Column 3

Column 4

Column 1 asset

Column 2 debit

Column 3 balance sheet

Column 4 permanent

Cash Answer: Cash

Diff: 3 LO: 23-1, 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

40) Column 1

Column 2

Column 3

Column 4

Column 1 asset

Column 2 debit

Column 3 balance sheet

Column 4 permanent

Petty cash Answer: Petty cash

Diff: 3 LO: 23-1, 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

41) Column 1

Column 2

Column 3

Column 4

Column 1 asset

Column 2 debit

Column 3 balance sheet

Column 4 permanent

Supplies Answer: Supplies

Diff: 3 LO: 23-1, 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

42) Column 1

Column 2

Column 3

Column 4

Column 1 asset

Column 2 debit

Column 3 balance sheet

Column 4 permanent

Equipment Answer: Equipment

Diff: 3 LO: 23-1, 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

43) Column 1

Column 2

Column 3

Column 4

Column 1 liability

Column 2 credit

Column 3 balance sheet

Column 4 permanent

Notes Payable Answer: Notes payable

Diff: 3 LO: 23-1, 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

44) Column 1

Column 2

Column 1

Column 2

Column 3

Column 4

Vouchers payable Answer:

Vouchers payable

liability

credit

Column 3 Column 4 none; reported as accounts payable on balance sheet permanent

Diff: 3 LO: 23-1, 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

45) Column 1

Column 2

Column 3

Column 4

Column 1 Stockholders’ equity

Column 2

Column 3

Column 4

Common Stock Answer:

Common Stock

credit

Balance sheet

Diff: 3 LO: 23-1, 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

permanent

46) Column 1

Column 2

Column 3

Column 4

Column 1 liability

Column 2 credit

Column 3 balance sheet

Column 4 permanent

Wages payable Answer: Wages payable

Diff: 3 LO: 23-1, 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

47) Column 1

Column 2

Column 1 expense

Column 2 debit

Column 3

Column 4

Purchases Answer: Purchases

Column 3 Column 4 income statement temporary

Diff: 3 LO: 23-1, 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

48) Column 1

Column 2

Column 3

Column 4

Column 1

Column 2

Column 3

Column 4

Purchase discounts Answer: Purchase discounts

contra-purchases credit

income statement temporary

Diff: 3 LO: 23-1, 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

49) Column 1

Column 2

Column 1 Other expense

Column 2 debit

Column 3

Column 4

Discounts lost Answer: Discounts lost

Column 3 Column 4 income statement temporary

Diff: 3 LO: 23-1, 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

50) Column 1

Column 2

Column 1 Repairs expense expense

Column 2 debit

Column 3

Column 4

Repairs expense Answer: Column 3 Column 4 income statement temporary

Diff: 3 LO: 23-1, 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

51) Column 1

Column 2

Column 1 Interest expense expense

Column 2 debit

Column 3

Column 4

Interest expense Answer: Column 3 Column 4 income statement temporary

Diff: 3 LO: 23-1, 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

52) Column 1

Column 2

Column 1 Delivery expense expense

Column 2 debit

Column 3

Column 4

Delivery expense Answer: Column 3 Column 4 income statement temporary

Diff: 3 LO: 23-1, 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

53) Steel Company completed the following transactions: May 10 Prepared voucher #301 for purchase of merchandise on account for $5,000 from Sweet Company 12 Returned $800 of the merchandise purchased from Sweet because of poor quality. Cancelled voucher #301 and replaced it with voucher #305. Required: Prepare journal entries to record the above transactions. Assume Steel uses the periodic system and the gross method for recording purchases. Omit explanations. Steel uses the periodic method. Answer: May 10 Purchases 5,000 Vouchers Payable 5,000 12

Vouchers Payable Purchase Returns and Allowances Vouchers Payable

5,000 800 4,200

Diff: 3 LO: 23-1, 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

54) On June 2, Sandoval Corporation purchased $9,000 of merchandise on account from Johnston Company, terms 3/10, n/30 and prepared voucher #402. Sandoval returned $400 of the supplies on June 8, because of poor quality. Sandoval cancelled voucher #402 and replaced it with #415. Required: Prepare journal entries to record the above transactions. Assume Sandoval uses the periodic system and the net method for recording purchases. Omit explanations. Sandoval uses the periodic method. Answer: Jun. 2 Purchases 8,730 Vouchers Payable 8,730 8

Vouchers Payable Purchase Returns and Allowances Vouchers Payable

8,730

Purchase Returns and Allowances: $400 × 0.97 = $388 Diff: 3 LO: 23-1, 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

388 8,342

55) Keith Printing purchased $8,000 of supplies on account from Paul's Wholesale, terms 2/10, n/30 on July 25, and prepared voucher #611. Keith paid the voucher on July 31. Required: Prepare journal entries to record the above transactions assuming Keith uses the net method and the periodic inventory system for recording purchases. Answer: Jul. 25 Purchases 7,840 Vouchers Payable 7,840 31

Vouchers Payable Cash

7,840 7,840

Diff: 3 LO: 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

56) On October 1, Oak Company purchased $10,000 of merchandise on account from City Seed Company, terms 2/10, n/30, and prepared voucher #222. Oak paid the invoice on October 15. Required: Prepare journal entries to record the above transactions. Assume Oak uses the net method and the periodic inventory system for recording purchases. Answer: Oct. 1 Purchases 9,800 Vouchers Payable 9,800 15

Vouchers Payable Discounts Lost Cash

9,800 200

Diff: 3 LO: 23-2 AACSB: Analytical Thinking Learning Outcome: Define and record current and contingent liabilities

10,000

57) Describe how the transactions listed would be handled applying the gross method and the net method. For example: A $750 invoice with 3/10 net 30 terms. Transaction (a) Record original transaction (b) Returned purchases (c) Discounts taken (d) Discounts not taken Answer: Transaction (a) Record original transaction (b) Returned purchases (c) Discounts taken (d) Discounts not taken

Gross Method

Net Method

Gross Method Total price Original price Recorded when taken as Purchase Discount No special procedure

Net Method Total price less discount Original price less discounts Already deducted from original price Recorded as Discounts Lost

Diff: 3 LO: 23-1, 23-2 AACSB: Reflective Thinking Learning Outcome: Define and record current and contingent liabilities

College Accounting, 15e (Slater) Chapter 24 Departmental Accounting Learning Objective 24-1 1) A unit or department that incurs costs and generates revenues is known as a: A) cost center. B) profit center. C) revenue center. D) corporate center. Answer: B Diff: 1 LO: 24-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 2) A unit or department that incurs costs but does not generate revenues is known as a: A) cost center. B) profit center. C) revenue center. D) division center. Answer: A Diff: 1 LO: 24-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 3) Departmental reports are NOT useful for: A) determining performance. B) determining future revenue. C) controlling costs. D) calculating gross profit for each department. Answer: B Diff: 1 LO: 24-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 4) Which of the following is normally the report prepared for a department? A) Cash flow statement B) Statement of equity C) Income statement D) Balance sheet Answer: C Diff: 1 LO: 24-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 1 Copyright © 2023 Pearson Education, Inc.

5) A maintenance department in a factory would be an example of a: A) cost center. B) direct expense. C) profit center. D) petty cash. Answer: A Diff: 1 LO: 24-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 6) In a department store, the men's clothing section would be a(n): A) profit center. B) direct expense. C) cost center. D) indirect expense. Answer: A Diff: 1 LO: 24-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 7) Which of the following statements is true in regards to a profit center? A) A profit center incurs costs. B) A profit center does not generate revenues. C) A profit center generates revenue. D) Both A and C Answer: D Diff: 1 LO: 24-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 8) The financial statement(s) that cannot be broken down by departments would be a(n): A) income statement. B) balance sheet. C) trial balance. D) None of the above. Answer: B Diff: 1 LO: 24-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

9) The administrative department of a shopping mall is a(n): A) cost center. B) profit center. C) internal center. D) revenue center. Answer: A Diff: 1 LO: 24-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 10) The human resource department of a construction firm is a(n): A) profit center. B) cost center. C) investment center. D) allocation center. Answer: B Diff: 1 LO: 24-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 11) Sales minus cost of goods sold yields: A) operating expenses. B) gross profit. C) income before taxes. D) other revenues. Answer: B Diff: 1 LO: 24-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 12) An example of a cost center is: A) the toy department at a department store . B) the restaurant in a motel. C) the administrative department in a hospital. D) the catering department in a motel. Answer: C Diff: 1 LO: 24-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

13) Gross profit by department appears on the: A) balance sheet. B) trial balance. C) statement of cash flows. D) income statement. Answer: D Diff: 1 LO: 24-1 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 14) The women's shoe department shows gross sales of $270,000 with the cost of the shoes $100,000. The men's shoe department shows gross sales of $150,000 with the cost of the shoes $100,000. What is the gross profit for each department respectively? A) $370,000 and $250,000 B) $120,000 and $0 C) $170,000 and $50,000 D) $120,000 and $50,000 Answer: C Diff: 1 LO: 24-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 15) When a company tracks gross profit by department, the sales journal will: A) not differ from a company that does not track gross profit by department. B) have a separate column for accounts receivable for each department. C) have a separate column for sales for each department. D) have a column for purchases of merchandise inventory for each department. Answer: C Diff: 2 LO: 24-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

16) A company has four departments (A, B, C and D) and the net sales are $33,000; $43,000; $42,000 and $38,000 respectively. The cost of goods sold per department is $26,000; $28,000; $34,000 and $30,000 respectively. What department has the lowest dollar gross profit? A) A B) B C) C D) D Answer: A Explanation: Company A Sales $33,000 - COGS $26,000 = $7,000; Company B Sales $43,000 - COGS $28,000 = 15,000; Company C Sales $42,000 - COGS $34,000 = $8,000; Company D Sales $38,000 - COGS $30,000 = $8,000. Diff: 2 LO: 24-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 17) A company has four departments (A, B, C and D) and the net sales are $36,000; $46,000; $40,000 and $39,000 respectively. The cost of goods sold per department is $28,000; $40,000; $33,000 and $25,000 respectively. What department has the highest dollar gross profit? A) B B) C C) D D) A Answer: C Explanation: Company A Sales $36,000 - COGS $28,000 = $8,000; Company B Sales $46,000 - COGS $40,000 = 6,000; Company C Sales $40,000 - COGS $33,000 = $7,000; Company D Sales $39,000 - COGS $25,000 = $14,000. Diff: 2 LO: 24-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 18) Calculate a department's gross profit given the following: Sales Operating expenses Cost of goods sold

$1,940 400 880

A) $660 B) $1,540 C) $1,060 D) $480 Answer: C Explanation: Sales $1,940 – Cost of Goods Sold $880 = $1,060 Diff: 2 LO: 24-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 5 Copyright © 2023 Pearson Education, Inc.

19) The photography department in a department store experienced the following revenue and expenses during October: Sales Cost of Goods Sold Direct Operating Expenses Indirect Operating Expenses

$20,000 4,900 1,000 2,000

The photography departmental gross profit is: A) $12,100. B) $17,000. C) $13,100. D) $15,100. Answer: D Explanation: Sales $20,000 – COGS $4,900 = $15,100 Diff: 2 LO: 24-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 20) The sporting goods department experienced the following revenue and expenses during October: Sales Cost of Goods Sold Direct Operating Expenses Indirect Operating Expenses

$23,000 11,000 2,000 1,000

The sporting goods departmental gross profit is: A) $9,000. B) $12,000. C) $8,000. D) $20,000. Answer: B Explanation: Sales $23,000 - COGS $11,000 = $12,000 Diff: 2 LO: 24-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

21) What is the total gross profit of the company if there are three departments (A, B, and C) and the net sales are $200,000, $178,000, and $282,000, respectively, and cost of goods sold is $136,000, $140,000, and $128,000, respectively? A) $114,000 B) $86,000 C) $256,000 D) $200,000 Answer: C Diff: 2 LO: 24-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 22) A company has three departments (A, B, and C) and the net sales are $350,000; $400,000; and $280,000 respectively. The cost of goods sold per department is $290,000; $360,000; and $245,000 respectively. What department has the highest gross profit? A) A B) B C) C D) Both departments A and B Answer: A Diff: 2 LO: 24-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 23) The PPC department of Ajax shows gross sales of $805,700 for computer supplies and $910,800 for office supplies. The cost of the goods sold for computer supplies was $524,000 and the cost of the goods sold for office supplies was $489,000. What is the gross profit for each category of the department respectively? A) $316,700 and $386,800 B) $281,700 and $910,800 C) $281,700 and $421,800 D) $805,700 and $421,800 Answer: C Diff: 2 LO: 24-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

24) The photography department in a department store experienced the following revenue and expenses during September: Sales Cost of Goods Sold Direct Operating Expenses Indirect Operating Expenses

$23,700 10,200 2,000 2,100

The photography departmental gross profit is: A) $11,500. B) $21,700. C) $13,500. D) $9,400. Answer: C Diff: 2 LO: 24-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 25) All of the following are used to compute gross profit except: A) sales. B) sales returns and allowances. C) sales salary expense. D) sales discount. Answer: C Diff: 2 LO: 24-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 26) All of the following are used to compute gross profit except: A) sales. B) sales returns and allowances. C) office supplies. D) cost of goods sold. Answer: C Diff: 2 LO: 24-1 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 27) A profit center and a cost center both generate revenue. Answer: FALSE Diff: 1 LO: 24-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 8 Copyright © 2023 Pearson Education, Inc.

28) A cost center only generates revenues. Answer: FALSE Diff: 1 LO: 24-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 29) The toy department of a department store would be a profit center. Answer: TRUE Diff: 1 LO: 24-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 30) A human resource department in a large discount store would be a revenue center. Answer: FALSE Diff: 1 LO: 24-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 31) The data processing department of a tax firm would be a profit center. Answer: FALSE Diff: 1 LO: 24-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 32) In departmental accounting, it is necessary to break down revenue and expenses by departments. Answer: TRUE Diff: 1 LO: 24-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 33) A department with sales of $75,000 and cost of goods sold of $55,000 has a gross profit of $130,000. Answer: FALSE Diff: 1 LO: 24-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

34) To calculate departmental gross profit, separate accounts should be set up for Assets, Liabilities, etc., for each department. Answer: FALSE Diff: 1 LO: 24-1 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 35) To calculate gross profit, subtract sales expense from net sales. Answer: FALSE Diff: 1 LO: 24-1 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 36) To calculate gross profit, subtract operating expenses from net sales. Answer: FALSE Diff: 1 LO: 24-1 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 37) Departmental income statements are prepared to indicate how well each department is performing. Answer: TRUE Diff: 1 LO: 24-1 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 38) A department income statement showing gross profit by department is a useful tool in analyzing performance of individual departments. Answer: TRUE Diff: 1 LO: 24-1 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 39) Most companies that prepare departmental income statements typically don't prepare departmental balance sheets. Answer: TRUE Diff: 1 LO: 24-1 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

40) A department with sales of $130,000; cost of goods sold of $75,000; and operating expenses of $20,000 has a gross profit of $35,000. Answer: FALSE Diff: 1 LO: 24-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 41) A department with sales of $120,000; cost of goods sold of $75,000; and operating expenses of $20,000 has a gross profit of $45,000. Answer: TRUE Diff: 1 LO: 24-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 42) A cost center is evaluated on the amount of costs it incurs. Answer: TRUE Diff: 1 LO: 24-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 43) The accountant must always consider cost of goods sold when determining gross profit for a department. Answer: TRUE Diff: 1 LO: 24-1 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 44) When a company tracks gross profit by department, the sales journal has one column for Sales for each department. Answer: TRUE Diff: 1 LO: 24-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 45) When a company tracks gross profit by department, the sales journal does not have separate columns for Accounts Receivable for each department. Answer: TRUE Diff: 1 LO: 24-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

Below is a list of departments; you are to identify each as either [1] a profit center or [2] a cost center. 46) The meat department for a food store. ________ Answer: 1 Diff: 2 LO: 24-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 47) The snack shop for a ski resort. ________ Answer: 1 Diff: 2 LO: 24-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 48) The human resource office for a department store. ________ Answer: 2 Diff: 2 LO: 24-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 49) The maintenance office of a mall. ________ Answer: 2 Diff: 2 LO: 24-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 50) The warehouse area for a wholesale club. ________ Answer: 2 Diff: 2 LO: 24-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 51) The jewelry department of a major retailer. ________ Answer: 1 Diff: 2 LO: 24-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

52) The IT department of a manufacturer. ________ Answer: 2 Diff: 2 LO: 24-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 53) The tax offices of a CPA firm. ________ Answer: 1 Diff: 2 LO: 24-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 54) The body shop of a car dealership. ________ Answer: 1 Diff: 2 LO: 24-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 55) The housekeeping department for a hotel chain. ________ Answer: 2 Diff: 2 LO: 24-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 56) Explain the difference between a "cost center" and a "profit center." Answer: A cost center is a unit or department that incurs costs but does not generate revenues. Examples of cost centers include: the personnel department in a construction company, the maintenance department in a department store, and the accounting department in a law firm. A profit center is a unit or department that incurs costs and generates revenues. Examples of profit centers include the shoe department in a department store and the pharmacy department in a drug store. Diff: 2 LO: 24-1 AACSB: Written and Oral Communication Learning Outcome: Define accounting terms, accounting concepts and principles

57) The photography department in a department store experienced the following revenue and expenses during September: Sales Cost of Goods Sold Direct Operating Expenses Indirect Operating Expenses

$26,000 16,000 1,000 2,000

The photography departmental gross profit is ____________. Answer: $10,000 Diff: 2 LO: 24-1 AACSB: Written and Oral Communication Learning Outcome: Describe the components of and prepare the four basic financial statements

Learning Objective 24-2 1) The difference between a department's gross profit and its operating expenses is known as the: A) departmental operating margin. B) departmental operating cost. C) income before taxes. D) departmental gross profit. Answer: C Diff: 1 LO: 24-2 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 2) Indirect expenses are allocated to departments based on: A) decisions of the stockholders. B) directives from customers. C) some reasonable basis, such as percent of sales. D) generally accepted accounting principles. Answer: C Diff: 1 LO: 24-2 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

3) To determine how each profit center is performing, management would analyze the: A) current forecast. B) indirect expenses. C) departmental income before tax for each profit center. D) allocated expenses. Answer: C Diff: 1 LO: 24-2 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 4) Direct expenses are those expenses that: A) can be identified with a specific department. B) cannot be identified with a specific department. C) can be identified with a general or specific common area. D) None of these answers is correct. Answer: A Diff: 1 LO: 24-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 5) Indirect expenses are those expenses that: A) can be controlled by a department manager. B) can be identified with a specific department. C) are incurred for the general benefit of a company. D) All of these answers are correct. Answer: C Diff: 1 LO: 24-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 6) Which of the following would be a direct expense for a shoe department in a department store? A) Depreciation expense for the store B) Salary expense of shoe department sales staff C) Building maintenance expense D) Administrative expense Answer: B Diff: 2 LO: 24-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

7) Which of the following would NOT be considered a direct expense for a shoe department in a department store? A) Building maintenance expenses B) Advertising expense for the store as a whole C) Administrative expense D) All of the above Answer: D Diff: 2 LO: 24-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 8) Which of the following would be a direct expense of a shoe department in a retail store? A) Sales salaries of salespeople in shoe department B) Administrative expense C) Shoe department manager D) Both A and C Answer: D Diff: 2 LO: 24-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 9) When evaluating the toy department in a large retailer, general expenses, such as rent on the building, are: A) indirect expenses. B) direct expenses. C) controllable expenses. D) All of these answers are correct. Answer: A Diff: 2 LO: 24-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 10) Which of the following statements is false as it relates to direct and indirect expenses? A) Maintenance expense is an indirect expense in a factory. B) Indirect expenses cannot be assigned to different departments based on an allocation such as square feet. C) If an expense is traceable to a particular department, it is a direct expense. D) Salary of department manager in the furniture department of a retailer is a direct expense to the furniture department. Answer: B Diff: 2 LO: 24-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 16 Copyright © 2023 Pearson Education, Inc.

11) If the cosmetic department in the store measures 20,000 square feet and the total building cost is $90,000 for a 40,000 square foot building, the cost that would be allocated to the cosmetic department would be: A) $45,000. B) $8,889. C) $180,000. D) $90,000. Answer: A Explanation: $90,000 × 20,000/40,000 = $45,000 Diff: 2 LO: 24-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 12) If the music department in a department store is 10,000 square feet and the total square feet is 40,000, how much of the total building cost of $100,000 will be allocated to the music department? A) $50,000 B) $75,000 C) $100,000 D) $25,000 Answer: D Explanation: $100,000 × 10,000/40,000 = $25,000 Diff: 2 LO: 24-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 13) Advertising totaled $30,000; $7,000 was indirect. What would be the best choice to use to allocate the indirect cost? A) Allocate the indirect expense based on square feet. B) Allocate the indirect expense based on gross sales. C) Charge indirect expense to administrative expense. D) Allocate the indirect expense based on number of goods shipped. Answer: B Diff: 2 LO: 24-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

14) If an expense is traceable to a department, it would be considered a(n): A) direct expense. B) indirect expense. C) uncontrollable expense. D) apportioned expense. Answer: A Diff: 1 LO: 24-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 15) Joyful Praises Corporation has total advertising expenses of $87,000: $34,000 for radio advertising and $53,000 for print advertising. The print advertising is allocated to Departments A and B based on net sales generated in each department. Department A has net sales of $288,000 and Department B has net sales of $432,000. How much of the print advertising should be allocated to Department A? A) $31,800 B) $32,287 C) $53,000 D) $21,200 Answer: D Explanation: $53,000 × $288,000/$720,000 = $21,200 Diff: 2 LO: 24-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 16) If the gross sales for the computer department are $40,000 and the book department gross sales are $60,000, what is the allocation for advertising expense of $10,000 to these departments, based on gross sales? A) Computer department $4,000; book department $6,000 B) Computer department $5,000; book department $5,000 C) Computer department $6,000; book department $4,000 D) Computer department $40,000; book department $60,000 Answer: A Explanation: Computer department $10,0000 x $40,000/$100,000 = $4,000; Book department $10,000 x $60,000/$100,000 = $6,000 Diff: 2 LO: 24-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

17) Windermere Corporation has 25,000 square feet in department A; 20,000 square feet in department B; and 55,000 square feet in department C. Janitorial services are based on square footages in each department. How will the $35,000 of janitorial services be allocated? (Round your answer to the nearest dollar.) A) $8,750 to C; $7,000 to B; and $19,250 to A. B) $8,750 to A; $7,000 to B; and $19,250 to C. C) Split evenly ($11,666.67) to each department. D) Cannot be determined by given information. Answer: B Explanation: Dept A: $35,000 × 25,000/100,000 = $8,750; Dept B: $35,000 × 20,000/100,000 = $7,000; Dept C: $35,000 × 55,000/100,000 = $19,250 Diff: 2 LO: 24-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 18) Which of the following is NOT a direct departmental expense in a shoe department of a department store? A) Salaries of shoe department sales personnel B) Delivery expense for items sold in apparel department C) Advertising for the shoe department D) Cost of promotional items included with each pair of shoes sold Answer: B Diff: 2 LO: 24-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 19) If the property, plant, and equipment cannot be traced to a specific department, depreciation expense is a(n): A) direct expense. B) indirect expense. C) controllable expense. D) sales expense. Answer: B Diff: 1 LO: 24-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

20) Compute income before taxes for the housewares department, when gross profit is $700,000, direct expenses are $238,000, allocated indirect expenses are $90,000 and sales are $885,000. A) -$185,000 B) $462,000 C) $610,000 D) $372,000 Answer: D Explanation: Gross profit $700,000 – Direct Expenses $238,000 – Indirect Expenses $90,000 = $372,000 Diff: 2 LO: 24-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 21) If there is a total of 100,000 square feet of floor space in a big-box store, and the hardware department utilizes 10,000 square feet, what percent of the total square footage is in the hardware department? A) 5% B) 2.5% C) 10% D) 20% Answer: C Diff: 2 LO: 24-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 22) Which of the following indirect expenses would most likely be allocated on the basis of gross sales? A) Rent expense B) Building depreciation expense C) Administrative expense D) None of the above Answer: C Diff: 2 LO: 24-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

23) Advertising expense totaled $100,000, with the indirect advertising expense of $20,000, and it is allocated based on gross sales per department. The Gross Sales were Jewelry, $50,000; Glassware, $40,000; and Watches, $10,000. What amount of indirect advertising expense would be allocated to the Jewelry department? (Round any percentages two decimal places, X.XX%, and round your final answer to the nearest dollar.) A) $6,667 B) $10,000 C) $50,000 D) $16,667 Answer: B Explanation: $20,000 × $50,000/$100,000 = $10,000 Diff: 2 LO: 24-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 24) Advertising expense totaled $60,000, with indirect advertising expense of $1,000, and it is allocated based on gross sales per department. The Gross Sales are Jewelry, $80,000; Glassware, $30,000; and Watches, $60,000. What amount of indirect advertising expense would be allocated to the watches department? (Round any percentages two decimal places, X.XX%, and round your final answer to the nearest dollar.) A) $1,000 B) $353 C) $21,176 D) $20,000 Answer: B Explanation: $1,000 × $60,000/$170,000 = $353 Diff: 2 LO: 24-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 25) Carla's building expenses, which are indirect, are allocated based on each department's square footage. Department A occupies 35,000 square feet. Department B occupies 55,000 square feet, and Department C occupies 10,000 square feet. If the building expenses total $250,000, how much is allocated to Department B? (Round your answer to the nearest dollar.) A) $211,538 B) $137,500 C) $152,778 D) $83,333 Answer: B Explanation: $250,000 × 55,000/100,000 = $137,500 Diff: 2 LO: 24-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

26) The Popper's candy department experienced the following revenue and expenses during October: Sales Cost of Goods Sold Direct Operating Expenses Indirect Operating Expenses (allocated)

$13,400 7,100 1,000 400

The candy departmental income before taxes is: A) $12,000. B) $5,300. C) $4,900. D) $12,400. Answer: C Explanation: Sales $13,400 – COGS $7,100– Direct Expenses $1,000 – Indirect Expenses $400 = $4,900 Diff: 2 LO: 24-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 27) If gross sales for the tools department are $400,000 and gross sales for the appliances department are $240,000, what is the percentage used to apportion the indirect advertising expense to the appliances department if it is based on gross sales? A) 27.2% B) 62.5% C) 37.5% D) 60% Answer: C Explanation: $240,000/$640,000 = 37.5% Diff: 2 LO: 24-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 28) Julia Company allocates its indirect advertising expenses based on each department's gross sales. If the men's apparel department has gross sales of $312,000 out of a total of $2,808,000 in gross sales, what percentage would Julia use to allocate its indirect advertising expenses to the men’s apparel department? A) 10.0% B) 11.1% C) 12.5% D) 9.6% Answer: B Explanation: $312,000/$2,808,000 = 11.1% Diff: 2 LO: 24-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 22 Copyright © 2023 Pearson Education, Inc.

29) The photography department in a department store experienced the following revenue and expenses during October: Sales Cost of Goods Sold Direct Operating Expenses Indirect Operating Expenses (allocated)

$6,900 2,000 200 800

The photography departmental income before taxes is: A) $6,900. B) $4,900. C) $3,900. D) $4,700. Answer: C Explanation: $6,900 - $2,000 - $200 - $800 = $3,900 Diff: 2 LO: 24-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 30) Calculate the costume jewelry department's income (loss) before taxes given the following: Sales Cost of Goods Sold Direct Operating Expenses Indirect Operating Expenses (allocated)

$1,400 200 200 800

A) $1,200 B) $1,000 C) $200 D) ($1,200) Answer: C Explanation: $1,400 - $200 - $200 - $800 = $200 Diff: 2 LO: 24-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

31) Departmental accounting requires: A) calculating departmental gross profit. B) allocating direct costs to departments. C) allocating indirect costs to departments. D) Both A and C are correct. Answer: D Diff: 2 LO: 24-2 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 32) Which of the following expenses is the most difficult to allocate to departments? A) Cost of goods sold B) Use of common supplies by everyone C) Salaries and wages D) Merchandise Inventory Answer: B Diff: 2 LO: 24-2 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 33) Which allocation base is best used to allocate building depreciation expense? A) Square feet of space used B) Number of employees C) Hours used D) Electric usage Answer: A Diff: 2 LO: 24-2 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 34) Which allocation base is best used to allocate advertising expense by selling department? A) Square feet of space used B) Gross sales of each department as a percent of total gross sales C) An even split among all selling departments D) Some other method not listed Answer: B Diff: 2 LO: 24-2 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

35) The allocation of indirect expenses is normally: A) subjective and approximate. B) assigned by arbitrary methods. C) assigned precisely by accepted methods. D) assigned to the accounting department. Answer: A Diff: 2 LO: 24-2 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 36) Of two departments, the men's department has 10,000 square feet and the women's department has 24,000 square feet. Depreciation expense is allocated by square footage. If total depreciation expense is $70,000, the total amount allocated to the men's department would be approximately $56,000. Answer: FALSE Diff: 2 LO: 24-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 37) Sports apparel department's gross profit is $300,000; women clothing department’s gross profit is $300,000; indirect advertising expense is $6,000. Indirect expense charged to the women clothing department based on gross profit would be $3,000. Answer: TRUE Diff: 2 LO: 24-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 38) A direct expense should be traceable to a respective department. Answer: TRUE Diff: 1 LO: 24-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 39) Direct expenses, such as salaries, can be traced to a particular department. Answer: TRUE Diff: 1 LO: 24-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

40) A building's depreciation expense would be considered an indirect expense. Answer: TRUE Diff: 1 LO: 24-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 41) A common way to apportion advertising expense is to base it on number of employees in each department. Answer: FALSE Diff: 1 LO: 24-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 42) Indirect expenses cannot be allocated to departments based on the cost of goods sold in each department. Answer: FALSE Diff: 1 LO: 24-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 43) Indirect expenses are subjective in nature and may only be allocated by cost of goods sold. Answer: FALSE Diff: 1 LO: 24-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 44) Indirect expenses are the same across departments and industries. Answer: FALSE Diff: 1 LO: 24-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements Below is a list of expenses; you are to identify each as either [1] a direct expense or [2] an indirect expense. 45) Electricity for entire factory building. ________ Answer: 2 Diff: 2 LO: 24-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

46) Food served in the restaurant dining room. ________ Answer: 1 Diff: 2 LO: 24-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 47) Rent paid for the building of department store. ________ Answer: 2 Diff: 2 LO: 24-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 48) Wages paid to the restaurant wait staff. ________ Answer: 1 Diff: 2 LO: 24-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 49) Electricity for the general lighting in a department store. ________ Answer: 2 Diff: 2 LO: 24-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 50) Paint used by body shop department in a car dealership. ________ Answer: 1 Diff: 2 LO: 24-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 51) General employee insurance. ________ Answer: 2 Diff: 2 LO: 24-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 52) Rent paid for the freezers in the frozen foods department of a food store. ________ Answer: 1 Diff: 2 LO: 24-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 27 Copyright © 2023 Pearson Education, Inc.

53) Insurance paid on employees working in high-risk areas of a machine shop. ________ Answer: 1 Diff: 2 LO: 24-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 54) Athletics For All is trying to allocate its building's depreciation expense based on floor space. Determine the amount that should be assigned to the golf department and to the basketball department.

Floor Space Depreciation Exp

Golf 110,000 $40,000

Basketball 140,000

Total 250,000

Answer: Apportionment of depreciation expense: Golf department: (110,000/250,000) × $40,000 = $17,600 Basketball department (140,000/250,000) × $40,000 = $22,400 Diff: 3 LO: 24-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 55) You have been hired by Jones to allocate his utilities to each department based on space (in square footage). Complete the assignment.

Space (square feet) Utilities Cost

Shoe Dept. 32,000 $60,000

Jewelry Dept. Clothing Dept. 8,000 40,000

Total 80,000

Answer: Utilities Cost Allocated: Shoe: (32,000/80,000) × $60,000 = $24,000 Jewelry: (8,000/80,000) × $60,000 = $6,000 Clothing: (40,000/80,000) × $60,000 = $30,000 Diff: 3 LO: 24-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

56) The following information is available for Charter Company: Item Square footage Sales

Department 1 25,000 sq. ft. $1,250,000

Department 2 35,000 sq. ft. $725,000

Total 60,000 sq. ft. $1,975,000

Complete the following chart to determine the total cost for each department, using the most appropriate method to apportion the indirect costs. Cost Depreciation Expense, Building Utilities Advertising for whole company Rent on Furniture TOTALS

Department 1

Department 2

Total $120,000 $45,000 $59,250 $150,000 $374,250

Answer: Cost Depreciation Expense, Building Utilities Advertising for the whole company Rent on Furniture TOTALS

Department 1 (25/60 x $120,000) = $50,000 (25/60 × $45,000) = $18,750 (1,250/1,975) x $59,250 = $37,500 (25/60 × $150,000) = $62,500 $168,750

Department 2 (35/60 x $120,000) = $70,000 (35/60 × $45,000) = $26,250 (725/1,975) x $59,250 = $21,750 (35/60 × $150,000) = $87,500 $205,500

Total $120,000 $45,000 $59,250 $150,000 $374,250

Diff: 3 LO: 24-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

57) From the following, calculate income by departments.

Net Sales Cost of Goods Sold Delivery Expense Advertising Expense Depreciation Expense

Dept. 1 Dept. 2 $9,000 $7,200 4,500 2,700 520 480 350 307 600 520

Answer: Net Sales Cost of Goods Sold Gross Profit Delivery Expense Advertising Expense Depreciation Expense Income Before Taxes

Dept. 1 Dept. 2 $9,000 $7,200 4,500 2,700 4,500 4,500 520 480 350 307 600 520 $3,030 $3,193

Total $16,200 7,200 $9,000 1,000 657 1,120 $6,223

Diff: 3 LO: 24-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

58) From the following partial data, prepare a departmental income statement showing income before tax along with net income for Mason Corporation for the month ended December 31. Net Sales-Sporting Goods Net Sales-Shoes Cost of Goods Sold-Sporting Goods Cost of Goods Sold-Shoes Income Tax Rate Sporting Goods Dept. Shoe Dept.

$3,000 1,500 1,950 900 30% 5,000 square feet 3,000 square feet

The following items are indirect expenses and should be allocated: Basis of Allocation Building Expense $240 Square Footage Delivery Expense $135 Net Sales Depreciation Expense $40 Square Footage Answer: Mason Corporation Departmental Income Statement For the Month Ended December 31 Sporting Goods Shoes Total Net Sales $3,000 $1,500 $4,500.00 Cost of Goods Sold 1,950 900 2,850.00 Gross Profit $1,050 $600 $1,650.00 Delivery Expense 90 45 135.00 Depreciation Expense 25 15 40.00 Building Expense 150 90 240.00 Income Before Taxes $785 $450 $1,235.00 Income Tax Expense 370.50 Net Income $864.50 Diff: 3 LO: 24-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

59) Below is a list of expenses (direct and indirect). You are to determine the total direct cost for departments A and B. Salary Expense (employees each make the same amount) Depreciation Expense - Office Equipment Depreciation Expense — Building Heating Expense Lighting Expense Cleaning & Maintenance Expense Department Cost of Goods Sold Employees Cost of Office Equipment* in each area Square footage of use *Office Equipment has 5-year life; no salvage value. Company uses straight-line depreciation. Answer: Direct Costs Salary Expense* Cost of Goods Sold Depreciation Expense, Office Equipment** Total Direct Costs

$90,000 4,000 24,000 1,800 2,400 900 A B $100,000 $300,000 3 6 $8,000 $12,000 200 sq. ft. 400 sq. ft.

Dept. A Dept. B $30,000 $60,000 100,000 300,000 1,600 2,400 $131,600 $362,400

*Salary Expense $90,000/9 = $10,000 per employee; Dept. A: 3 x $10,000; Dept. B. 6 x $10,000 **Since we know the cost of the office equipment in each department, it is a direct cost. The office equipment is depreciated in each department. Dept. A: $8,000/5= $1,600; Dept. B: $12,000/5 = $2,400 Diff: 3 LO: 24-2 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

Learning Objective 24-3 1) When preparing an income statement showing departmental contribution margin: A) indirect expenses are combined with direct expenses. B) indirect departmental expenses are added to contribution margin. C) direct expenses are subtracted from gross profit of a department. D) None of these answers is correct. Answer: C Diff: 1 LO: 24-3 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

2) Compute the contribution margin for the video department, when gross profit is $950,000, direct expenses $220,000, and indirect expenses are $110,000. A) $1,060,000 B) $730,000 C) $620,000 D) $840,000 Answer: B Explanation: Gross profit $950,000 – Direct expense $220,000 = $730,000 Diff: 1 LO: 24-3 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 3) The CPC department of Alex shows gross sales of $732,800 for computer supplies and $934,600 for office supplies. The cost of goods sold for the computer supplies was $534,000 and the cost of goods sold for the office supplies was $491,400. Direct expenses were $75,900 for the company and indirect expenses were $75,200. What was the contribution margin for the company? A) $642,000 B) $1,591,500 C) $1,667,400 D) $566,100 Answer: D Explanation: Sales $732,800 + $934,600 = $1,667,400; Cost of Goods Sold $534,000 + $491,400 = $1,025,400; Gross Profit $642,000 – Direct Expenses $75,900 = Contribution Margin $566,100 Diff: 2 LO: 24-3 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 4) A line on the income statement that indicates what a department has left after covering cost of goods and sold and direct expenses is: A) the gross margin. B) the net income. C) the contribution margin. D) None of these answers is correct. Answer: C Diff: 1 LO: 24-3 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

5) What is the purpose for determining contribution margin? A) To show the contribution by department toward covering indirect costs B) To help determine whether or not to eliminate a department C) To show the effect on net income for each department D) All of these answers are correct. Answer: D Diff: 1 LO: 24-3 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 6) Supporters of the contribution margin approach believe that: A) indirect expenses should be departmentalized. B) indirect expenses should not be used for evaluating departmental performance. C) indirect expenses are proportionally charged to each department. D) direct expenses should not be used in evaluating departmental performance. Answer: B Diff: 1 LO: 24-3 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 7) The cosmetic department experienced the following revenue and expenses during December: Sales Cost of Goods Sold Direct Operating Expenses Indirect Operating Expenses

$83,000 40,000 9,000 3,000

The cosmetic department's contribution margin is: A) $43,000. B) $31,000. C) $71,000. D) $34,000. Answer: D Explanation: Sales $83,000 – COGS $40,000 – Direct Expenses $9,000 = Contribution Margin $34,000 Diff: 2 LO: 24-3 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

8) On a departmental income statement, contribution margin minus total indirect expenses equals: A) departmental contribution margin. B) net income. C) income before taxes. D) net sales. Answer: C Diff: 1 LO: 24-3 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 9) On a departmental income statement, sales less cost of goods sold and direct expenses equals: A) gross margin. B) income before taxes. C) indirect expenses. D) departmental contribution margin. Answer: D Diff: 1 LO: 24-3 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 10) The photography department in a department store experienced the following revenue and expenses during October: Sales Cost of Goods Sold Direct Operating Expenses Indirect Operating Expenses

$23,400 8,700 2,800 1,000

The photography department's contribution margin is: A) $14,700. B) $20,600. C) $11,900. D) $13,700. Answer: C Explanation: Sales $23,400 – COGS $8,700 – Direct Expenses $2,800 = Contribution Margin $11,900 Diff: 2 LO: 24-3 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

11) When a department showing a net loss is eliminated, other departments will always achieve a greater contribution margin. Answer: FALSE Diff: 1 LO: 24-3 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 12) Direct expenses and indirect expenses are separated in determining contribution margin. Answer: TRUE Diff: 1 LO: 24-3 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 13) Direct expenses are assigned to departments based on the actual expenses incurred. Answer: TRUE Diff: 1 LO: 24-3 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 14) Eliminating one department may increase the sales of another department. Answer: TRUE Diff: 1 LO: 24-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 15) Department contribution margin equals gross profit on sales minus direct departmental expenses. Answer: TRUE Diff: 1 LO: 24-3 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 16) Departmental income statements would be a useful tool for management to determine the viability of a department. Answer: TRUE Diff: 1 LO: 24-3 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

17) A department should not be eliminated just because it becomes unprofitable. Answer: TRUE Diff: 1 LO: 24-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 18) In a departmental income statement, a net income would occur if the contribution margin is greater than indirect expenses. Answer: TRUE Diff: 1 LO: 24-3 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 19) Trends in the industry, such as advancements in technology, should not be a consideration in determining whether or not a department is eliminated. Answer: FALSE Diff: 1 LO: 24-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 20) The availability of suppliers and a firm's potential capacity are considerations before a department is added. Answer: TRUE Diff: 1 LO: 24-3 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 21) Why would it be advisable for a company to keep separate accounting records for various departments? Answer: Management needs to measure the efficiency and the contribution of each department to the overall performance of the company. Management may use departmental information in making decisions such as expanding a department, reducing a department, or eliminating a department. Management may use this type of information to determine a supervisor's merit for a raise, promotion, etc. Diff: 2 LO: 24-1, 24-2, 24-3 AACSB: Written and Oral Communication Learning Outcome: Define accounting terms, accounting concepts and principles

22) Prepare an income statement showing departmental contribution margin based on the following:

Space (square feet) Net Sales Cost of Goods Sold Rent Expense (allocated based on square feet) Advertising Expense

Rent Dept. X Dept. Y Expense 17,500 35,000 $70,000 $50,000 19,000 20,000 $3,000 $4,000

$5,000

Answer: Net Sales Cost of Goods Sold Gross Profit Direct Expense: Advertising Contribution Margin Indirect Expense: Rent Income Before Taxes

Dept. X Dept. Y $70,000 $50,000 19,000 20,000 $51,000 $30,000 4,000 5,000 $47,000 $25,000

Total $120,000 39,000 $81,000 9,000 72,000 3,000 $69,000

Diff: 3 LO: 24-3 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

23) Buckeye Golf is considering dropping the clothing department because it is not generating a profit as disclosed by the following data: Sales Cost of Goods Sold Gross Profit Direct Expenses Contribution Margin Indirect Expenses Net Loss

$2,000 900 $1,100 600 500 600 $(100)

Note: None of the indirect expenses can be avoided by dropping the department. Should Buckeye drop the department? Show your computations. Answer: At this point the department is contributing $500 toward covering the indirect costs ($1,100 $600). If the department is eliminated, the other department(s) must absorb the $600 indirect cost. At this time, since the clothing department has a positive contribution margin and it is contributing to covering indirect expenses, keep the clothing department. Diff: 2 LO: 24-3 AACSB: Analytical Thinking, Written & Oral Communication Learning Outcome: Describe the components of and prepare the four basic financial statements 24) Given the following, calculate contribution margin and net income:

Net Sales Cost of Goods Sold Operating Expense (Direct) Operating Expenses (Indirect)

DVD $12,000 7,000 2,000

Indirect CD Expense $6,000 2,500 1,000 $5,000

Answer: Net Sales Cost of Goods Sold Gross Profit Direct Expense Contribution Margin Indirect Operating Expenses Net Income

DVD $12,000 7,000 5,000 2,000 $3,000

CD $6,000 2,500 3,500 1,000 $2,000

Total $18,000 9,500 $8,500 3,000 5,500 5,000 $500

College Accounting, 15e (Slater) Chapter 25 Manufacturing Accounting Learning Objective 25-1 1) Screws, electricity for manufacturing, and production supervisor salary are examples of: A) raw materials. B) direct labor. C) manufacturing overhead. D) None of the above Answer: C Diff: 1 LO: 25-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 2) Metal used in construction of a tank is part of: A) raw material costs. B) labor costs. C) manufacturing overhead. D) depreciation expense. Answer: A Diff: 1 LO: 25-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 3) When manufacturing a product, direct labor includes the wages of: A) an hourly worker producing the product. B) the shop foreman. C) maintenance workers. D) sales staff. Answer: A Diff: 1 LO: 25-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 4) Manufacturing overhead includes all manufacturing costs except which of the following? A) Raw materials costs B) Maintenance supplies C) Direct labor costs D) Both A and C Answer: B, D Diff: 1 LO: 25-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 1 Copyright © 2023 Pearson Education, Inc.

5) Total manufacturing costs incurred include: A) direct labor costs. B) raw materials costs. C) manufacturing overhead. D) All of the above Answer: D Diff: 1 LO: 25-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 6) Which inventory account consists of manufacturing cost of goods that are complete? A) Work-in-Process Inventory B) Raw Materials Inventory C) Manufacturing Overhead D) Finished Goods Inventory Answer: D Diff: 1 LO: 25-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 7) Which inventory account consists of products currently being manufactured? A) Finished Goods Inventory B) Work-in-Process Inventory C) Manufacturing Overhead Inventory D) Supplies expense Answer: B Diff: 1 LO: 25-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 8) Under a perpetual inventory system, freight costs associated with the purchases of raw materials should be assigned to: A) Work-in-Process Inventory. B) Delivery Expense. C) Raw Materials Inventory. D) Manufacturing overhead. Answer: C Diff: 1 LO: 25-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

9) Ending finished goods inventory is subtracted from cost of goods available for sale to get: A) cost of goods manufactured. B) cost of goods sold. C) gross profit. D) None of the above Answer: B Diff: 2 LO: 25-1 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 10) The three major manufacturing inventories do NOT include which of the following? A) Supplies inventory B) Work-in-process inventory C) Raw materials inventory D) Finished goods inventory Answer: A Diff: 1 LO: 25-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 11) Calculate the cost of goods sold when beginning finished goods inventory equals $88,000, ending finished goods inventory $65,000, and cost of goods manufactured $610,000. A) $633,000 B) $458,000 C) $698,000 D) $587,000 Answer: A Explanation: Finished Goods Inventory, Beg. Bal. $88,000 + COGM $610,000 = Cost of Goods Available for Sale $698,000 – Finished Goods Inventory, End. Bal. $65,000 = COGS $633,000 Diff: 2 LO: 25-1 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 12) In a manufacturing company, what inventories are included in determining the cost of goods sold? A) Beginning and ending finished goods inventories B) Beginning and ending raw materials inventories C) Beginning and ending work-in-process inventories D) Beginning and ending Supplies inventories Answer: A Diff: 2 LO: 25-1 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

13) In a Statement of Cost of Goods Manufactured, what inventories are included in determining total manufacturing costs? A) Beginning and ending finished goods inventories B) Beginning and ending raw materials inventories C) Beginning and ending work-in-process inventories D) None of the above answers is correct. Answer: B Diff: 2 LO: 25-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 14) The formula for cost of goods manufactured is: A) raw materials used plus direct labor minus overhead plus beginning work-in-process inventory plus ending work-in-process inventory. B) raw materials used minus direct labor plus overhead plus beginning work-in-process inventory plus ending work-in-process inventory. C) total manufacturing costs plus beginning work-in-process inventory minus ending work-in-process inventory. D) raw materials used plus direct labor less overhead plus beginning work-in-process inventory less ending work-in-process inventory. Answer: C Diff: 2 LO: 25-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 15) In the Statement of Cost of Goods Manufactured, the first step in determining total manufacturing costs is to calculate: A) the raw materials used for the month. B) the direct labor cost for the month. C) factory overhead cost for the month. D) finished inventory — ending balance. Answer: A Diff: 2 LO: 25-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

16) The statement of cost of goods manufactured does NOT include: A) direct labor costs. B) selling and administrative costs. C) manufacturing overhead costs. D) All of the above are included. Answer: B Diff: 2 LO: 25-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 17) In the Statement of Cost of Goods Manufactured, manufacturing costs do NOT include: A) raw material. B) advertising expense. C) factory supervisor salary. D) All of these answers are correct. Answer: B Diff: 1 LO: 25-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 18) Raw Materials Inventory appears on the: A) balance sheet. B) income statement. C) cost of goods manufactured statement. D) Both A and C are correct. Answer: D Diff: 2 LO: 25-1 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 19) The three manufacturing inventories are raw materials, work-in-process, and finished goods inventory. Answer: TRUE Diff: 1 LO: 25-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 20) Paint used in painting the final product would be considered a direct material cost. Answer: TRUE Diff: 1 LO: 25-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 5 Copyright © 2023 Pearson Education, Inc.

21) In a manufacturing company, a shop foreman's salary is considered indirect labor. Answer: TRUE Diff: 1 LO: 25-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 22) In a manufacturing company, Cost of Goods Manufactured is determined before the income statement can be completed. Answer: TRUE Diff: 1 LO: 25-1 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 23) Manufacturing overhead costs include the labor costs of assembly line supervisors but not the assembly workers. Answer: TRUE Diff: 2 LO: 25-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 24) Hourly wages of production line employees are one of the costs included in the manufacturing overhead. Answer: FALSE Diff: 2 LO: 25-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 25) Work in Process inventory includes the total costs of manufacturing a product. Answer: TRUE Diff: 2 LO: 25-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 26) A cost of goods manufactured statement should be prepared after the income statement has been prepared. Answer: FALSE Diff: 2 LO: 25-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

27) The balance sheet reports the work in process inventory. Answer: TRUE Diff: 1 LO: 25-1 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 28) The steps of the accounting cycle for a manufacturing company are different from those used for a merchandise company. Answer: FALSE Diff: 2 LO: 25-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 29) The second step in the preparation of the statement of cost of goods manufactured is to add in and subtract out the two raw material inventory balances. Answer: FALSE Diff: 2 LO: 25-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 30) If a company had a beginning balance of $5,000 in Raw Materials Inventory, an ending balance of $3,000 and purchased $27,000 of materials during the month, then the raw materials used for the month was $29,000. Answer: TRUE Explanation: Beg. Raw Materials Inventory $5,000 + Purchases $27,000 = Raw Material Available $32,000 – End. Raw Materials Inventory $3,000 = Raw Materials Used $29,000 Diff: 2 LO: 25-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 31) If a company had a beginning balance of $5,000 in Work-in-Process Inventory, an ending balance of $7,000 in Work-in-Process Inventory and incurred direct labor costs of $8,000 and overhead costs of $4,000, then the cost of goods manufactured during the month was $20,000. Raw Materials used were $10,000. Answer: TRUE Explanation: Raw Materials used $10,000 + Direct Labor $8,000 + Overhead Costs $4,000 = Total Manuf. Costs $22,000 + Beg. Work in Process Inventory $5,000 – End. Work in Process Inventory $7,000 = COGM $20,000 Diff: 2 LO: 25-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

32) If a company had a beginning balance of $8,000 in Finished Goods Inventory, an ending balance of $5,000 in Finished Goods Inventory and cost of goods manufactured was $41,000 during the month, then the cost of goods sold for the month was $44,000. Answer: TRUE Explanation: Beg. Finished Goods Inventory $8,000 + COGM $41,000 – End. Finished Goods Inventory $5,000 = COGS $44,000 Diff: 2 LO: 25-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 33) In a manufacturing company, Finished Goods Inventory is listed on the schedule of cost of goods sold. Answer: TRUE Diff: 2 LO: 25-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 34) All expenses are listed on the income statement of a manufacturer. Answer: FALSE Explanation: Some expenses are listed on the Statement of Cost of Goods Manufactured. Diff: 1 LO: 25-1 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

35) Classify each of the following as raw materials, direct labor, or overhead:

Item Steel in making of cars Salary of a factory supervisor Wages of an employee producing cars Lease payment for the factory building Utilities for the factory building Lug nuts for the wheels of a car produced

Raw Material

Direct Labor

Answer: Item Raw Material Direct Labor Steel in making of cars X Salary of a factory supervisor Wages of an employee producing cars X Lease payment for the factory building Utilities for the factory building Lug nuts for the wheels of a car produced

Overhead

Overhead X X X X

Diff: 2 LO: 25-1 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 36) From the following information, calculate (a) cost of raw materials used and (b) total manufacturing costs. Raw Materials Inventory, April 1 Raw Materials Inventory, April 30 Manufacturing Overhead Costs Finished Goods Inventory Direct Labor Costs Raw Materials Purchased

$20,000 15,000 22,000 17,000 35,000 62,000

a. ________ b. ________ Answer: a. $67,000 (20,000 + 62,000 - 15,000) b. $124,000 (67,000 + 35,000 + 22,000) Diff: 3 LO: 25-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 9 Copyright © 2023 Pearson Education, Inc.

37) Calculate the (a) cost of raw materials used and (b) total manufacturing costs from the following information. Beginning Raw Materials Inventory: Ending Raw Materials Inventory: Manufacturing Overhead Costs Beginning Finished Goods Inventory: Ending Finished Goods Inventory: Direct Labor Costs Raw Materials Purchased Beginning Work-in-Process Inventory: Ending Work-in-Process Inventory:

$50,000 27,000 38,000 28,000 23,000 40,000 75,000 16,000 19,000

a. ________ b. ________ Answer: a. $98,000 (50,000 + 75,000 - 27,000) b. $176,000 (98,000 + 38,000 + 40,000) Diff: 3 LO: 25-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 38) Calculate the cost of goods manufactured from the following information. Beginning Raw Materials Inventory: Ending Raw Materials Inventory: Manufacturing Overhead Costs Beginning Finished Goods Inventory: Ending Finished Goods Inventory: Direct Labor Costs Raw Materials Purchased Beginning Work-in-Process Inventory: Ending Work-in-Process Inventory:

$63,000 58,000 36,000 27,000 32,000 42,000 73,000 12,000 15,000

Answer: $153,000 (63,000 + 73,000 - 58,000 + 42,000 + 36,000 + 12,000 - 15,000) Diff: 3 LO: 25-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

39) Chelsie Interiors produces artist supplies. Listed below are the costs of production and inventories. Direct Labor Costs Raw Materials Inventory, Aug. 1 Raw Materials Purchases Raw Materials Inventory, Aug. 31 Manufacturing Overhead Costs Work-in-Process Inventory Aug. 1 Work-in-Process Inventory Aug. 31 Finished Goods Inventory Aug. 31

$60,000 45,000 75,000 25,000 50,000 21,000 27,000 18,000

Compute: a. Cost of raw materials used in production b. Total manufacturing costs c. Total cost of goods manufactured Answer: a. $95,000 (45,000+75,000-25,000) b. $205,000 (95,000 + 60,000 + 50,000) c. $199,000 (205,000 + 21,000 - 27,000) Diff: 3 LO: 25-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 40) From the following, calculate the cost of raw materials used and total manufacturing costs: Raw Materials Inventory, Sep. 1 Raw Materials Inventory, Sep. 30 Work-in-Process Inventory, Sep. 1 Work-in-Process Inventory, Sep. 30 Raw Materials Purchased Direct Labor Costs Depreciation Expense Factory Utilities Expense

$8,000 3,000 6,000 5,000 8,000 12,000 7,000 3,000

Answer: Raw Materials used: $13,000 (8,000 + 8,000 - 3,000) Total manufacturing costs: $35,000 (13,000 + 12,000 + 10,000) Diff: 3 LO: 25-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

41) From the following, calculate the cost of raw materials used, total manufacturing costs and cost of goods manufactured: Raw Materials Inventory, Sep. 1 Raw Materials Inventory, Sep. 30 Work-in-Process Inventory, Sep. 1 Work-in-Process Inventory, Sep. 30 Raw Materials Purchased Direct Labor Costs Depreciation Expense Factory Utilities Expense

$14,000 6,000 12,000 15,000 25,000 25,000 6,000 6,000

Answer: Raw Materials Used: $33,000 (14,000 + 25,000 - 6,000) Total Manufacturing Costs: $70,000 (33,000 + 25,000 + 6,000 + 6,000) Cost of Goods Manufactured: $67,000 (70,000 + 12,000 - 15,000) Diff: 3 LO: 25-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 42) From the following information calculate total manufacturing costs and cost of goods manufactured. Raw Materials Inventory, Sep. 1 Raw Materials Inventory, Sep. 30 Work-in-Process Inventory, Sep. 1 Work-in-Process Inventory, Sep. 30 Raw Materials Purchased Direct Labor Costs Depreciation Expense Factory Utilities Expense

$9,000 3,000 5,000 1,000 6,000 10,000 5,000 2,000

Answer: Total manufacturing costs: $29,000 (Raw Materials Used $12,000 + Direct Labor $10,000 + Depreciation Expense $5,000 + Factory Utilities Expense $2,000 = Total Manuf. Costs $29,000) Total cost of goods manufactured: $33,000 (Total Manuf. Costs $29,000 + Beg. Work In Process Inventory $5,000 – End. Work In Process Inventory $1,000 = COGM $33,000) Diff: 3 LO: 25-1 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

43) Describe the three elements of manufacturing cost. Answer: The three elements of manufacturing cost are raw materials, direct labor, and manufacturing overhead. Following is a brief description of each. Raw materials consist of all the items of raw materials that will become a part of the final product. For an auto manufacturer, raw materials for an auto include engines, steel, metal, plastic bumpers, windshields, tires, dashboards, chasses, metal frames, etc. Direct labor costs include the wages of those personnel whose efforts directly change the characteristics of the products. For an auto manufacturer, the wages of the workers who assemble an automobile represent direct labor costs. Manufacturing overhead costs consists of all other manufacturing costs not included in raw materials or direct labor costs. For example, indirect labor, maintenance, supplies, and manufacturing supervision are manufacturing overhead costs. Diff: 2 LO: 25-1 AACSB: Written and Oral Communication Learning Outcome: Define accounting terms, accounting concepts and principles

Learning Objective 25-2 1) A material requisition is a: A) document prepared to show the movement of materials or products between departments. B) document used to list the quantity and price of materials received from a supplier. C) document used for charging raw materials to production. D) document used to record receipt of materials or supplies from the vendor or supplier. Answer: C Diff: 1 LO: 25-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 2) A clock card is: A) the basis for payroll. B) the basis for charging cost of goods sold. C) a document to show movement of materials. D) a document used to order materials. Answer: A Diff: 1 LO: 25-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

3) Which is NOT an example of a source document? A) Clock card B) Bill of lading C) Lot ticket D) All are source documents. Answer: D Diff: 1 LO: 25-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 4) A report issued by the payroll department to categorize all the types of labor incurred during the week is a: A) labor distribution report. B) receiving report. C) payroll register. D) None of these answers is correct. Answer: A Diff: 1 LO: 25-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 5) A lot ticket is a: A) document prepared to show the movement of materials or products between departments. B) document used to order materials or supplies from the storeroom. C) document used for charging material to production. D) document used to identify an inventory location. Answer: A Diff: 1 LO: 25-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 6) A document that is prepared to show how items have been shipped to customers is a: A) receiving report. B) bill of lading. C) lot ticket. D) clock card. Answer: B Diff: 1 LO: 25-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

7) The journal entry to record issuing supplies from the storeroom would include a: A) debit to Manufacturing Overhead-Applied. B) credit to Raw Materials Inventory. C) credit to Manufacturing Overhead-Applied. D) debit to Manufacturing Overhead-Control. Answer: D Diff: 2 LO: 25-2 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 8) The journal entry to record issuing raw materials from the storeroom for production would include a: A) credit to Raw Materials Inventory. B) credit to Supplies. C) debit to Work-in-Process Inventory. D) Both A and C Answer: D Diff: 2 LO: 25-2 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 9) The journal entry to record the direct labor summarized on the labor distribution report would include a: A) debit to Payroll Expense. B) debit to Work-in-Process Inventory. C) credit to Payroll Payable. D) Both B and C Answer: D Diff: 2 LO: 25-2 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

10) In a manufacturing company, the purchase of raw materials on account should be recorded as follows: A) Raw Materials Inventory Accounts Payable B) Work-in-Process Inventory Accounts Payable C) Finished Goods Inventory Accounts Payable D) Manufacturing Overhead - Control Raw Materials Inventory Answer: A Diff: 2 LO: 25-2 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 11) Journal entries crediting Payroll Payable and debiting Work-in-Process Inventory are made for: A) administrative salaries. B) direct labor costs of manufacturing employees. C) foremen's salaries. D) raw materials. Answer: B Diff: 2 LO: 25-2 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

12) The entry for indirect materials (such as glue, etc.) requisitioned for use in production is: A) Raw Materials Inventory Work-in-Process Inventory B) Manufacturing Overhead - Control Supplies Inventory C) Work-in-Process Inventory Raw Materials Inventory D) None of these answers is correct. Answer: B Diff: 2 LO: 25-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 13) During the week ended November 30, total factory payroll incurred was $8000. Of this total, 80% was for direct labor. The entry to record the payroll distribution would include: A) debit Work-in-Process Inventory for $6400 and debit Manufacturing Overhead-Control for $1600. B) debit Work-in-Process Inventory for $8000. C) debit Work-in-Process Inventory for $6400 and debit Manufacturing Overhead-Applied for $1600. D) debit Work-in-Process Inventory for $6400 and debit Indirect Labor Expense for $1600. Answer: A Diff: 2 LO: 25-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 14) The entry to record the requisition of supplies from the storeroom for the manufacturing area would include a: A) debit to Raw Materials Inventory. B) debit to Manufacturing Overhead-Control. C) debit to Supplies Inventory. D) debit to Work in Process Inventory. Answer: B Diff: 2 LO: 25-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

15) Rockland completed the manufacturing process. The entry to transfer the completed product to the finished goods inventory is: A) Work-in-Process Inventory Finished Goods Inventory B) Finished Goods Inventory Cost of Goods Sold C) Finished Goods Inventory Work-in-Process Inventory D) Finished Goods Inventory Raw Materials Inventory Answer: C Diff: 2 LO: 25-2 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 16) Chico.com sold 35 jet skis on account for $7300 which cost $5500. The entry to record the sale would include a: A) credit to Finished Goods Inventory $5500. B) credit to Account Receivable for $7300. C) debit to Cost of Goods Sold for $7300. D) all of the above. Answer: A Diff: 2 LO: 25-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 17) The Manufacturing Overhead-Control account is used for the: A) application of overhead to production and it has a debit balance. B) accumulation of all actual overhead costs and it has a credit balance. C) application of overhead to production and it has a credit balance. D) accumulation of all actual overhead costs and it has a debit balance. Answer: D Diff: 2 LO: 25-2 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

18) The Manufacturing Overhead-Applied account is used for the: A) application of manufacturing overhead costs to production and it has a credit balance. B) accumulation of all actual manufacturing overhead costs and it has a credit balance. C) application of manufacturing overhead costs to production and it has a debit balance. D) accumulation of all actual manufacturing overhead costs and it has a debit balance. Answer: A Diff: 2 LO: 25-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 19) The manufacturing overhead application rate may be based on: A) machine hours. B) direct labor hours. C) direct labor dollars. D) All of these answers are correct. Answer: D Diff: 2 LO: 25-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 20) Which of the following journal entries would be made when indirect labor costs incur in production? A) Work-in-Process Inventory Manufacturing Overhead-Control B) Manufacturing Overhead-Control Payroll Payable C) Finished Goods Inventory Manufacturing Overhead-Control D) Work-in-Process Inventory Manufacturing Overhead-Applied Answer: B Diff: 2 LO: 25-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

21) If direct labor for the month is $101,000, and overhead is applied based on 85% of direct labor dollars, what is the entry to apply overhead? A) Debit Work-in-Process Inventory $85,850; credit Payroll Payable $85,850 B) Debit Manufacturing Overhead-Applied $85,850; credit Work-in-Process Inventory $85,850 C) Debit Work-in-Process Inventory $85,850; credit Manufacturing Overhead-Applied $85,850 D) Debit Work-in-Process Inventory $101,000; credit Manufacturing Overhead-Applied $101,000 Answer: C Diff: 2 LO: 25-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 22) Direct labor for the month is $59,000, and overhead is applied based on direct labor cost. Annual overhead is estimated to be $530,000, and annual direct labor is estimated to be $840,000. What is the entry to apply overhead to production? (Round intermediary calculations to two decimal places and your final calculations to the nearest whole dollar.) A) Debit Work-in-Process Inventory $37,170; credit Payroll Payable $37,170 B) Debit Manufacturing Overhead-Applied $37,170; credit Work-in-Process Inventory $37,170 C) Debit Work-in-Process Inventory $37,170 credit Manufacturing Overhead-Applied $37,170 D) Debit Work-in-Process Inventory $59,000; credit Manufacturing Overhead-Applied $59,000 Answer: C Explanation: Manufacturing Overhead Rate = $530,000 / $840,000 = 0.634 of Direct Labor Cost; $59,000 × 0.63 = $37,170 Diff: 2 LO: 25-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 23) The entry to record rent expense $17,000, supervision expense $24,000 and depreciation expense $15,000 to overhead is: A) debit Manufacturing Overhead-Applied $56,000; credit Rent Expense $17,000, Supervision $24,000, Depreciation Expense $15,000. B) debit Work in Process Inventory $56,000; credit Rent Expense $17,000, Supervision $24,000, Depreciation Expense $15,000. C) debit Manufacturing Overhead-Applied $56,000; credit Manufacturing Overhead-Control $56,000. D) None of these answers is correct. Answer: D Explanation: Should be Debit Manufacturing Overhead-Control $56,000; credit Rent Expense $17,000; credit Supervision Expense $24,000; credit Depreciation Expense $15,000 Diff: 2 LO: 25-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

24) Jackson Manufacturing is using a manufacturing overhead application rate of 160% of direct labor dollars. A job uses 10 direct labor hours at $25 per hour. How much overhead should be applied to the job? (Round your answer to the nearest dollar.) A) $156 B) $200 C) $400 D) $250 Answer: C Explanation: 10 × $25 = $250; Manufacturing overhead application: 1.6 × 250 = $400 Diff: 2 LO: 25-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 25) Brooks Manufacturing is using a manufacturing overhead application rate based on the number of machine hours. A job uses 28 machine hours. Annual overhead costs are estimated to be $660,000 and 20,000 machine hours are budgeted annually. How much overhead should be applied to job 43? (Round your answer to the nearest dollar.) A) $924 B) $714 C) $1638 D) $819 Answer: A Diff: 2 LO: 25-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 26) Baker Manufacturing has estimated manufacturing overhead at $131,000 and has estimated direct labor of 11,000 direct labor hours at $11 per hour. The overhead rate per direct labor dollar would be: (Round your answer to the nearest cent.) A) $0.92. B) $11.91. C) $1.08. D) $0.91. Answer: C Explanation: Manufacturing overhead rate = $131,000 / ($11 × 11,000) = 1.08 Diff: 2 LO: 25-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

27) Caper Manufacturing applies overhead based on direct labor hours. At the beginning of the year, it estimated that overhead costs would be $159,000 and direct labor hours would be 22,000. The applied overhead rate per direct labor hour is: (Round your answer to the nearest cent.) A) $5.42. B) $10.84. C) $7.23. D) None of the above Answer: C Explanation: Manufacturing overhead rate = $159,000 / 22,000 = $7.23 per direct labor hour Diff: 2 LO: 25-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 28) If the overhead applied rate based on direct labor hours is $11.00 and the actual labor hours are 570, what is the amount credited to Manufacturing Overhead-Applied? A) $6270 B) $627 C) $62,700 D) None of the above Answer: A Explanation: $11 × 570 = $6270 Diff: 2 LO: 25-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 29) The estimated manufacturing overhead cost was $25,000 and estimated machine hours were 15,000. Actual manufacturing overhead cost was $32,000 and actual machine hours were 17,000. The overhead application rate per hour based on machine hours is: (Round your answer to the nearest cent.) A) $1.67. B) $1.88. C) $2.13. D) $1.47. Answer: A Explanation: Manufacturing overhead rate = $25,000 / 15,000 = $1.67 per machine hour Diff: 2 LO: 25-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

30) Estimated manufacturing overhead costs were $62,000 and the number of estimated machine hours was 30,000. Actual overhead costs were $66,000 and the actual number of machine hours used was 24,500. Based on machine hours, the overhead application rate per hour is: (Round your answer to the nearest cent.) A) $2.07. B) $2.53. C) $2.69. D) $2.20. Answer: A Explanation: Manufacturing overhead rate = $62,000 / 30,000 = $2.07 per machine hour Diff: 2 LO: 25-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 31) ZTY Company has direct labor for the month of $44,000. ZTY's annual overhead is $610,000 and annual direct labor cost is $1,080,000. Overhead is applied based on direct labor cost. What is the entry to charge direct labor to production? (Round your answer to the nearest dollar.) A) Debit Work-in-Process Inventory $44,000; credit Payroll Payable $44,000 B) Debit Manufacturing Overhead-Applied $44,000; credit Work-in-Process Inventory $44,000 C) Debit Work-in-Process Inventory $24,852; credit Manufacturing Overhead-Applied $24,852 D) Debit Work-in-Process Inventory $77,902; credit Manufacturing Overhead-Applied $77,902 Answer: A Diff: 2 LO: 25-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 32) The following data are available for Starbrite Corporation: Estimated direct labor hours Estimated overhead costs

1400 $41,700

If overhead is applied based on direct labor hours, the predetermined overhead rate is: (Round your answer to the nearest cent.) A) $20.05. B) $29.79. C) $200.48. D) $297.86. Answer: B Explanation: Manufacturing overhead rate = $41,700 / 1400 = $29.79 per direct labor hour Diff: 2 LO: 25-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

33) The following data are available for Skyway: Estimated machine hours Estimated overhead costs

41,000 hours $82,000

If overhead is applied based on machine hours, the predetermined overhead rate is: (Round your answer two decimal places.) A) $2.00. B) $20.00. C) $0.50. D) $4.00. Answer: A Explanation: Manufacturing overhead rate = $82,000 / 41,000 = $2.00 per machine hour Diff: 2 LO: 25-2 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 34) The bill of lading is a formal document issued to the carrier for shipping the finished product to a customer. Answer: TRUE Diff: 1 LO: 25-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 35) In entries to record the movement of material, labor, and overhead through the operation of a company, the credit is the destination and the debit is the source. Answer: FALSE Diff: 2 LO: 25-2 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 36) The entry to record selling a product that cost $22,000 would be a credit to Finished Goods Inventory $22,000, and a debit to Cost of Goods Sold $22,000. Answer: TRUE Diff: 1 LO: 25-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 37) Work-in-Process Inventory is credited when goods are transferred to finished goods. Answer: TRUE Diff: 1 LO: 25-2 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 24 Copyright © 2023 Pearson Education, Inc.

38) Raw Material Inventory is credited and Finished Goods Inventory is debited when raw material is transferred to production. Answer: FALSE Diff: 1 LO: 25-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 39) Work-in-Process Inventory is debited and Payroll Payable is credited when supervisor pay is charged to production. Answer: FALSE Diff: 1 LO: 25-2 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 40) Finished Goods Inventory is credited when products are sold and debited when the products are transferred from Work-in-Process Inventory. Answer: TRUE Diff: 1 LO: 25-2 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 41) Cost of Goods Sold is debited after items have been sold. Answer: TRUE Diff: 1 LO: 25-2 AACSB: Reflective Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 42) Overhead may be applied based on direct labor hours or sales salary expense. Answer: FALSE Diff: 1 LO: 25-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 43) The Manufacturing Overhead-Control account is used to apply overhead costs to production. Answer: FALSE Diff: 1 LO: 25-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

44) When actual overhead costs are not known until the end of the month, an estimated overhead application rate should be determined so that the total weekly costs can be applied. Answer: TRUE Diff: 1 LO: 25-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 45) One way to determine a manufacturing overhead application rate is to divide estimated annual overhead costs by estimated annual direct labor hours. Answer: TRUE Diff: 1 LO: 25-2 AACSB: Reflective Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

46) Record in general journal form the following transactions for Max Manufacturing: Feb. 4

Raw materials of $15,000 were issued from the storeroom.

Feb. 7

Charged $25,000 of direct labor to production.

Feb. 10 Supplies costing $6,000 were issued from the storeroom. Feb. 15 The following expenses were charged to overhead: depreciation $5,000, rent $4,000, and electricity $1,500. Feb. 20 Overhead was applied at 75% of direct labor dollars. Feb. 21 Transferred completed goods costing $8,000 to finished goods. Answer: Feb. 4 Work-in-Process Inventory 15,000 Raw Materials Inventory 15,000 Feb. 7

Feb. 10

Feb. 15

Feb. 20

Feb. 21

Work-in-Process Inventory Payroll Payable

25,000

Manufacturing Overhead-Control Supplies Inventory

6,000

Manufacturing Overhead-Control Depreciation Expense Rent Expense Electricity Expense

10,500

Work-in-Process Inventory Manufacturing Overhead-Applied

18,750

Finished Goods Inventory Work-in-Process Inventory

8,000

25,000

6,000

5,000 4,000 1,500

18,750

8,000

Diff: 3 LO: 25-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

47) From the following transactions, prepare the appropriate general journal entries for the month of April. a. Raw materials costing $72,000 were issued from the storeroom. b. Direct labor of $42,000 was charged to production. c. Indirect labor costs of $17,000 were incurred. d. Overhead was applied at the rate of 40% of direct labor dollars. e. Completed products costing $38,000 were transferred to finished goods. f. Products costing $32,000 were sold for $50,000 on account. Answer: a. Work-in-Process Inventory 72,000 Raw Materials Inventory 72,000 b.

Work-in-Process Inventory Payroll Payable

42,000

Manufacturing Overhead-Control Payroll Payable

17,000

Work-in-Process Inventory Manufacturing Overhead-Applied

16,800

Finished Goods Inventory Work-in-Process Inventory

38,000

Cost of Goods Sold Finished Goods Inventory

32,000

Accounts Receivable Sales

50,000

42,000

17,000

16,800

38,000

32,000

50,000

Diff: 3 LO: 25-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

48) The following data are available for Convoy Trucks: Estimated machine hours Actual machine hours Estimated manufacturing overhead costs Actual manufacturing overhead costs

40,000 hours 5,000 hours $150,000 13,000

Required: a. Compute the predetermined overhead rate assuming the rate is based on machine hours. b. Prepare the journal entry to record the applied overhead. Answer: a. $3.75 ($150,000/40,000) b. Work-in-Process Inventory 18,750 Manufacturing Overhead-Applied 18,750 Diff: 3 LO: 25-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 49) The following data are available for Jefferson Company. Annual estimated manufacturing overhead costs Actual manufacturing overhead costs in May Annual estimated direct labor hours Actual direct labor hours in May

$ 90,000 16,200 40,000 6,000

Required: a. Compute the predetermined rate based on direct labor hours. b. Prepare the journal entry to record the applied overhead for the month of May. Answer: a. $2.25 per direct labor hour ($90,000/40,000 hours) b. Work-in-Process Inventory 13,500 Manufacturing Overhead-Applied ($2.25/DLHr × 6,000 DLHr) 13,500 Diff: 3 LO: 25-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

50) List four of the six source documents covered in this unit and explain the function of each in the accounting process. Answer: The six source documents are as follows: Receiving reports are prepared by the receiving department to acknowledge receipt of all material and supplies from vendors. It is one of the documents required as part of the voucher for payment. Material requisitions are the documents initiated by the manufacturing personnel, or other users, to request materials from the inventory warehouse. Copies of the requisition are used for charging production. A clock card is a card used by each hourly-based employee to clock in and out of the factory each day. The cards are used as a basis for the payroll check and charging production. Lot tickets are documents that are written by department managers to reflect the movement of products from one department to another. These tickets become the basis of transferring cost between departments and finished goods. A labor distribution report is a by-product of the payroll that has been reassembled into the categories of direct labor, and maintenance labor. Based on this report, cost accountants charge labor into departments. Bills of lading are documents that are used to show the shipment of products to customers. The copies become the basis for recording the transfer of the cost of the products from the finished goods inventory to the cost of goods sold. Diff: 2 LO: 25-2 AACSB: Written and Oral Communication Learning Outcome: Define accounting terms, accounting concepts and principles

Given the following accounts: [1] Expense accounts. [2] Accounts receivable [3] Finished goods inventory. [4] Work in process inventory. [5] Raw materials inventory. [6] Factory supplies inventory. [7] Manufacturing overhead applied [8] Depreciation expense [9] Accounts payable. [10] Payroll payable [11] Utilities expense [12] Sales. [13] Raw materials purchases. [14] Manufacturing overhead-control. [15] Cost of goods sold. Indicate the account(s) to be debited and credited to record the following transactions. 51) Purchased raw materials on account. Debit ________ Credit ________ Answer: Debit 5, Credit 9 Diff: 3 LO: 25-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 52) Issued raw materials to production. Debit ________ Credit ________ Answer: Debit 4, Credit 5 Diff: 3 LO: 25-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 53) Charged direct labor to production. Debit ________ Credit ________ Answer: Debit 4, Credit 10 Diff: 3 LO: 25-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

54) Issued supplies to production. Debit ________ Credit ________ Answer: Debit 14, Credit 6 Diff: 3 LO: 25-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 55) Charged the following costs to overhead: utilities, salaries, and depreciation. Debit ________ Credit ________ & ________ & ________ Answer: Debit 14, Credit 11 & 10 & 8 Diff: 3 LO: 25-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 56) Applied overhead to production. Debit ________ Credit ________ Answer: Debit 4, Credit 7 Diff: 3 LO: 25-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 57) Transferred completed products to finished goods. Debit ________ Credit ________ Answer: Debit 3, Credit 4 Diff: 3 LO: 25-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 58) Sold products on account. Debit ________ & ________ Credit ________ & ________ Answer: Debit 2 & 15, Credit 12 & 3 Diff: 3 LO: 25-2 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

Learning Objective 25-3 1) All of the following reports can be prepared from the worksheet of a manufacturing company EXCEPT: A) statement of the cost of goods manufactured. B) income statement. C) balance sheet. D) statement of cash flows. Answer: D Diff: 3 LO: 25-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 2) The direct costs of a manufacturing company were overstated. This error will cause: A) the cost of goods manufactured to be understated. B) the cost of goods sold to be understated. C) the net income to be overstated. D) None of these answers is correct. Answer: D Diff: 3 LO: 25-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 3) The accrual for the direct labor costs at the end of the year was not prepared. This error will cause: A) the cost of goods manufactured to be overstated. B) the cost of goods sold to be overstated. C) the net income to be understated. D) None of these answers is correct. Answer: D Diff: 3 LO: 25-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 4) The adjustment for factory depreciation expense was ignored. This error will cause: A) the cost of goods manufactured to be overstated. B) the cost of goods sold to be understated. C) the net income to be understated. D) total manufacturing costs to be overstated. Answer: B Diff: 3 LO: 25-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

5) The work-in-process ending inventory was overstated. This error will cause: A) the cost of goods manufactured to be understated. B) the cost of goods sold to be understated. C) the net income to be understated. D) Answers A and B are correct. Answer: D Diff: 3 LO: 25-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 6) The ending inventory for raw materials was overstated. This error will cause: A) the cost of raw materials used to be understated. B) the cost of goods sold to be overstated. C) the net income to be understated. D) Answers A and B are correct. Answer: A Diff: 3 LO: 25-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 7) Indirect manufacturing costs were understated. This error will cause: A) the cost of goods manufactured to be overstated. B) the cost of goods sold to be overstated. C) the net income to be understated. D) None of these answers is correct. Answer: D Diff: 3 LO: 25-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 8) Finished goods ending inventory was understated. This error will cause: A) the cost of goods manufactured to be overstated. B) the cost of goods sold to be overstated. C) the net income to be overstated. D) All of these are correct. Answer: B Diff: 3 LO: 25-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements

9) The work-in-process beginning inventory was understated. This error will cause: A) the cost of goods manufactured to be understated. B) the cost of goods sold to be overstated. C) the net income to be overstated. D) Answers A and C are correct. Answer: D Diff: 3 LO: 25-3 AACSB: Analytical Thinking Learning Outcome: Analyze and record transactions and their effects on the financial statements 10) Work in Process Inventory appears on which of the following statements on the worksheet? A) Statement of cost of goods manufactured and income statement B) Statement of cost of goods manufactured and balance sheet C) Income statement and balance sheet D) Income statement and cost of goods sold statement Answer: B Diff: 2 LO: 25-3 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 11) Factory Supplies Expense, Depreciation Expense-Factory, and Heat, Light, and Power-Factory appear on which section of the worksheet? A) Statement of cost of goods manufactured B) Statement of Stockholders' Equity C) Income statement D) Statement of cost of goods sold Answer: A Diff: 2 LO: 25-3 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 12) In comparison to non-manufacturing companies, a manufacturing company will have a new set of columns on the worksheet for the: A) statement of finished goods. B) statement of work-in-process inventories. C) statement of cost of goods sold. D) statement of cost of goods manufactured. Answer: D Diff: 2 LO: 25-3 AACSB: Reflective Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements

13) The major difference on the balance sheet of a manufacturing company when compared to a merchandise company is to include: A) a retained earnings section. B) three inventory accounts, rather than one. C) three inventory accounts, rather than two. D) accrued payroll. Answer: B Diff: 2 LO: 25-3 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements 14) The Finished Goods Inventory account appears on the manufacturing worksheet in the: A) balance sheet column. B) income statement columns. C) statement of cost of goods manufactured. D) A and B Answer: D Diff: 2 LO: 25-3 AACSB: Analytical Thinking Learning Outcome: Describe the components of and prepare the four basic financial statements For each of the following, identify in Column 1 the category to which the account belongs, in Column 2 the normal balance for the account, in Column 3 the financial statement(s) on which the account balance is reported, and in Column 4 the account's nature (permanent/temporary). 15) Column 1

Column 2

Column 3

Column 4

Column 1

Column 2

Column 3

Column 4

Accounts receivable Answer: Accounts receivable

asset

debit

balance sheet

permanent

Diff: 3 LO: 25-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

16) Column 1

Column 2

Column 1

Column 2

Column 3

Column 4

Finished goods inventory Answer: Finished goods inventory

asset

debit

Column 3 Column 4 balance sheet/ income statement permanent

Diff: 3 LO: 25-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 17) Column 1

Column 2

Column 1

Column 2

Column 3

Column 4

Work in process inventory Answer:

Work in process inventory asset

debit

Column 3 Column 4 balance sheet/statement of COGM permanent

Diff: 3 LO: 25-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 18) Column 1

Column 2

Column 1

Column 2

Column 3

Column 4

Raw materials inventory Answer:

Raw materials inventory

asset

debit

Column 3 Column 4 balance sheet/statement of COGM permanent

Diff: 3 LO: 25-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

19) Column 1

Column 2

Column 3

Column 4

Column 1

Column 2

Column 3

Column 4

Factory supplies inventory Answer: Factory supplies inventory asset

debit

balance sheet

permanent

Diff: 3 LO: 25-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 20) Column 1

Column 2

Column 3

Column 4

Column 1

Column 2

Column 3

Column 4

Factory equipment Answer: Factory equipment

asset

debit

balance sheet

permanent

Diff: 3 LO: 25-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

21) Column 1

Column 2

Column 3

Column 4

Column 1

Column 2

Column 3

Column 4

Accumulated depreciation— factory equipment Answer: Accumulated depreciation— factory equipment

contra-asset

credit

balance sheet

permanent

Diff: 3 LO: 25-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 22) Column 1

Column 2

Column 3

Column 4

Column 1

Column 2

Column 3

Column 4

Accounts payable Answer: Accounts payable

liability

credit

balance sheet

permanent

Diff: 3 LO: 25-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles

23) Column 1

Column 2

Column 3

Column 4

Column 1

Column 2

Column 3

Column 4

Cost of goods sold Answer: Cost of goods sold

expense

debit

income statement temporary

Diff: 3 LO: 25-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles 24) Column 1

Column 2

Column 3

Column 4

Column 1

Column 2

Column 3 statement of COGM

Column 4

Factory rent expense Answer: Factory rent expense

expense

debit

temporary

Diff: 3 LO: 25-3 AACSB: Analytical Thinking Learning Outcome: Define accounting terms, accounting concepts and principles