TEST BANK For College Accounting A Contemporary Approach, 4e David Haddock, John Ellis Price, Michae by StudyGuide

Chapter 01 Accounting: The Language of Business MULTIPLE CHOICE QUESTIONS 1) The purpose of accounting is to provide financial information about an economic or social entity. A) True B) False Answer: A Explanation: Diff: 1 Topic: What is Accounting Learning Objective: 01-01 Define accounting. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making

2) An accounting system is designed to accumulate and classify data about a company's financial activities and summarize them in the general journal. A) True B) False Answer: B Explanation: Diff: 1 Topic: What is Accounting; Defining Accounting Terms Learning Objective: 01-01 Define accounting.; 01-06 Define the accounting terms new to this chapter. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making

3) In a sole proprietorship, the owner is NOT responsible for the debts of the business if the company is unable to pay. A) True B) False Answer: B Explanation: Diff: 1 Topic: Business and Accounting; Defining Accounting Terms Learning Objective: 01-06 Define the accounting terms new to this chapter.; 01-04 Compare and contrast the three types of business entities. Bloom's: Remember AACSB: Analytical Thinking AICPA: FN Decision Making; BB Legal

4) Laws passed by Congress in 1933 and 1934 gave the Securities and Exchange Commission (SEC) final say on matters of financial reporting by publicly owned corporations. A) True B) False Answer: A Explanation: Diff: 2 Topic: What is Accounting Learning Objective: 01-03 Identify the users of financial information. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making; BB Legal

5) Currently, generally accepted accounting principles are developed by the American Institute of Certified Public Accountants (AICPA). A) True B) False Answer: B Explanation: Diff: 1 Topic: Business and Accounting Learning Objective: 01-05 Describe the process used to develop generally accepted accounting principles. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making; BB Legal

6) The Securities and Exchange Commission (SEC) requires that publicly owned corporations submit financial statements to it at least one time each year. A) True B) False Answer: A Explanation: Diff: 1 Topic: Business and Accounting Learning Objective: 01-05 Describe the process used to develop generally accepted accounting principles. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making; BB Legal

7) Public accounting firms provide three major types of services: auditing, tax accounting, and management advisory services. A) True B) False Answer: A Explanation: Diff: 1 Topic: What is Accounting Learning Objective: 01-02 Identify and discuss career opportunities in accounting. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making

8) The financial statements and the auditor's report must be made available to stockholders of publicly owned corporations. A) True B) False Answer: A Explanation: Diff: 2 Topic: Business and Accounting Learning Objective: 01-05 Describe the process used to develop generally accepted accounting principles. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; BB Legal; FN Reporting

9) Anyone can invest in a closely held corporation. A) True B) False Answer: B Explanation: Diff: 2 Topic: Business and Accounting Learning Objective: 01-04 Compare and contrast the three types of business entities. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making; BB Legal

10) Managerial Accounting is any activity associated with the preparation of tax returns and the audit of those returns. A) True B) False Answer: B Explanation: Diff: 2 Topic: What is Accounting Learning Objective: 01-02 Identify and discuss career opportunities in accounting. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making

11) The separate entity assumption applies only to the corporate form of business. A) True B) False Answer: B Explanation: Diff: 1 Topic: Business and Accounting; Defining Accounting Terms Learning Objective: 01-06 Define the accounting terms new to this chapter.; 01-04 Compare and contrast the three types of business entities. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making

12) As the first step in the development of generally accepted accounting principles, the FASB writes a discussion memorandum, which explains the topic being considered. A) True B) False Answer: A Explanation: Diff: 2 Topic: Business and Accounting Learning Objective: 01-05 Describe the process used to develop generally accepted accounting principles. Bloom's: Remember AACSB: Analytical Thinking AICPA: FN Decision Making; BB Legal

13) Public accountants work on the staff of federal, state, or local governmental units. A) True B) False Answer: B Explanation: Diff: 1 Topic: What is Accounting; Defining Accounting Terms Learning Objective: 01-06 Define the accounting terms new to this chapter.; 01-02 Identify and discuss career opportunities in accounting. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making

14) The SEC uses financial information to determine a company's tax base. A) True B) False Answer: B Explanation: Diff: 2 Topic: What is Accounting Learning Objective: 01-03 Identify the users of financial information. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making; BB Legal; FN Measurement

15) When a partner leaves the company, the partnership is dissolved and a new partnership may be formed with the remaining partners. A) True B) False Answer: A Explanation: Diff: 1 Topic: Business and Accounting Learning Objective: 01-04 Compare and contrast the three types of business entities. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making; BB Legal

16) Accounting is defined as the process by which financial information about a business is recorded, classified, summarized, interpreted, and communicated to owners, managers, and other interested parties. A) True B) False Answer: A Explanation: Diff: 2 Topic: What is Accounting Learning Objective: 01-01 Define accounting. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making

17) The owners and managers of a business are the only users of the financial information. A) True B) False Answer: B Explanation: Diff: 1 Topic: What is Accounting Learning Objective: 01-03 Identify the users of financial information. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making; FN Reporting

18) Most owners and managers rely heavily on the accountant's judgment and knowledge when making financial decisions. A) True B) False Answer: A Explanation: Diff: 1 Topic: What is Accounting Learning Objective: 01-01 Define accounting. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making

19) Accountants provide financial information to various parties so they can make business decisions. A) True B) False Answer: A Explanation: Diff: 1 Topic: What is Accounting Learning Objective: 01-01 Define accounting. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making

20) When a business is organized as a sole proprietorship, the owner should combine his/her personal financial information with the business financial information. A) True B) False Answer: B Explanation: Diff: 1 Topic: Business and Accounting Learning Objective: 01-04 Compare and contrast the three types of business entities. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making; FN Reporting

21) A business partnership consists of two or more owners. A) True B) False Answer: A Explanation: Diff: 1 Topic: Business and Accounting Learning Objective: 01-04 Compare and contrast the three types of business entities. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making; BB Legal

22) Which of the following is NOT an area in which accountants usually practice? A) Managerial (Private) Accounting B) Public Accounting C) Industrial Accounting D) Governmental Accounting Answer: C Explanation: A) B) C) D) Diff: 1 Topic: What is Accounting Learning Objective: 01-02 Identify and discuss career opportunities in accounting. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making

23) Managerial accountants usually do which of the following? A) prepare and audit tax returns B) investigate companies for possible violations of law C) prepare internal reports for management D) audit financial statements Answer: C Explanation: A) B) C) D) Diff: 1 Topic: What is Accounting Learning Objective: 01-02 Identify and discuss career opportunities in accounting. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making

24) Identify which of the following are considered OUTSIDE users of financial accounting information. A) managers B) banks C) employees D) owners Answer: B Explanation: A) B) C) D) Diff: 1 Topic: What is Accounting Learning Objective: 01-03 Identify the users of financial information. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making

25) An example of an economic entity is A) a business. B) a town. Answer: A Explanation: A) B) C) D)

C) a church.

D) a politician.

Diff: 2 Topic: Business and Accounting Learning Objective: 01-04 Compare and contrast the three types of business entities. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making; BB Critical Thinking

26) The form of a business organization that is not affected by the withdrawal or death of an owner and can continue indefinitely is the A) sole proprietorship. B) nonprofit organization. C) corporation. D) partnership. Answer: C Explanation:

A) B) C) D)

Diff: 1 Topic: Business and Accounting Learning Objective: 01-04 Compare and contrast the three types of business entities. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making; BB Legal

27) Which of the following is NOT a type of information communicated by the financial statements? A) whether or not the business is profitable B) how long the business has been in operation C) how much the business owes others D) what types of assets business owns Answer: B Explanation: A) B) C) D) Diff: 1 Topic: What is Accounting Learning Objective: 01-01 Define accounting. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making; FN Reporting

28) Which of the following is NOT a type of information communicated by the financial statements? A) the types of products and services the business provides B) the equity, or value, of the business C) the amount of revenue earned by the business D) the amount spent on costs (expenses) of the business Answer: A Explanation: A) B) C) D) Diff: 1 Topic: What is Accounting Learning Objective: 01-01 Define accounting. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making; FN Reporting

29) The Financial Accounting Standards Board is responsible for A) auditing financial statements. B) making recommendations to the Securities and Exchange Commission. C) developing generally accepted accounting principles. D) establishing accounting systems for businesses. Answer: C Explanation: A) B) C) D) Diff: 1 Topic: Business and Accounting Learning Objective: 01-05 Describe the process used to develop generally accepted accounting principles. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making; BB Legal

30) The government agency that has final authority over the financial reporting of publicly owned corporations is the A) Financial Accounting Standards Board. B) Internal Revenue Service. C) Federal Trade Commission. D) Securities and Exchange Commission. Answer: D Explanation:

A) B) C) D)

Diff: 1 Topic: Business and Accounting Learning Objective: 01-05 Describe the process used to develop generally accepted accounting principles. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making; BB Legal

31) The financial activities of a business and the financial activities of the owners should be A) combined only if the owner wants them to be. B) kept totally and completely separate. C) combined in the firm's accounting records. D) reported in different parts of the firm's accounting records. Answer: B Explanation: A) B) C) D) Diff: 1 Topic: Business and Accounting Learning Objective: 01-04 Compare and contrast the three types of business entities. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Risk Analysis

32) All financial statements submitted to the SEC by publicly owned corporations must include an auditor's report prepared by A) an internal auditor. B) an independent certified public accountant. C) the firm's managerial accountant. D) anyone in the accounting department. Answer: B Explanation: A) B) C) D) Diff: 1 Topic: Business and Accounting Learning Objective: 01-05 Describe the process used to develop generally accepted accounting principles. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making; BB Legal

33) The area of accounting that involves the preparation of internal reports for a firm's executives and the analysis of the data in these reports to aid in decision making is known as A) managerial accounting. B) cost accounting. C) financial accounting. D) auditing. Answer: A Explanation: A) B) C) D) Diff: 1 Topic: What is Accounting Learning Objective: 01-02 Identify and discuss career opportunities in accounting. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making

34) The corporations whose stock can be bought and sold on stock exchanges and in over-the-counter markets are referred to as A) publicly owned corporations. B) sole proprietorships. C) closely held corporations. D) privately owned corporations. Answer: A Explanation: A) B) C) D) Diff: 1 Topic: Business and Accounting Learning Objective: 01-04 Compare and contrast the three types of business entities. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making; BB Legal

35) The group of accounting educators who offer their opinions about proposed FASB statements, after research has been done to determine the possible effects on financial reporting and the economy, is A) the FCC. B) the SEC. C) the AAA. D) the AICPA. Answer: C Explanation: A) B) C) D) Diff: 2 Topic: Business and Accounting Learning Objective: 01-05 Describe the process used to develop generally accepted accounting principles. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making; BB Legal

36) Owners are not personally responsible for the debts of the business if the form of business organization is a A) partnership. B) nonprofit organization. C) corporation. D) sole proprietorship. Answer: C Explanation: A) B) C) D) Diff: 1 Topic: Business and Accounting Learning Objective: 01-04 Compare and contrast the three types of business entities. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making; BB Legal

37) Identify the form of business that is considered a separate legal entity. A) a sole proprietorship B) a partnership C) a limited liability partnership D) a corporation Answer: D Explanation: A) B) C) D) Diff: 1 Topic: Business and Accounting Learning Objective: 01-04 Compare and contrast the three types of business entities. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making; BB Legal

38) Identify the advantages of forming a business as an S Corporation. A) owner is personally responsible for debts of the business and earnings are reported directly on owner's personal tax return B) treated as a separate legal entity and owners avoid double taxation C) owners have limited liability and corporation's earnings are tax free D) owners avoid double taxation and owners have limited liability Answer: D Explanation: A) B) C) D) Diff: 1 Topic: Business and Accounting Learning Objective: 01-04 Compare and contrast the three types of business entities. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making; BB Legal

39) A company issues periodic reports called A) audits. C) tax returns. Answer: B Explanation:

B) financial statements. D) summaries.

A) B) C) D)

Diff: 1 Topic: What is Accounting Learning Objective: 01-01 Define accounting. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making; FN Reporting

40) Which of the following is NOT part of the process of accounting for financial information? A) classifying B) communicating C) identifying D) recording Answer: C Explanation: A) B) C) D) Diff: 2 Topic: What is Accounting; Defining Accounting Terms Learning Objective: 01-01 Define accounting.; 01-06 Define the accounting terms new to this chapter. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making

41) Which of the following is a true statement in regards to the International Accounting Standards Board? A) The IASB develops all accounting principles to be used in the United States B) The IASB has the authority to audit financial statements of all US corporations C) The IASB deals with issues caused by the lack of uniform accounting principles existing in different countries D) The IASB was created by the American Accounting Association Answer: C Explanation:

A) B) C) D)

42) Which of the following is NOT a service of public accounting firms? A) management advisory services B) tax accounting C) investment services D) auditing Answer: C Explanation: A) B) C) D) Diff: 1 Topic: What is Accounting Learning Objective: 01-02 Identify and discuss career opportunities in accounting. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making

43) Tax accounting involves tax compliance and A) tax planning. C) tax evaluation. Answer: A Explanation: A) B) C) D)

B) tax configuration. D) tax obfuscation.

Diff: 1 Topic: What is Accounting Learning Objective: 01-02 Identify and discuss career opportunities in accounting. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making

44) Tax planning includes A) suggesting actions to reduce tax liability. C) correcting tax returns. Answer: A Explanation: A) B) C) D)

B) preparing tax returns. D) auditing tax returns.

Diff: 2 Topic: What is Accounting Learning Objective: 01-02 Identify and discuss career opportunities in accounting. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making

45) Managerial accounting is A) government accounting. C) tax accounting. Answer: B Explanation: A) B) C) D)

B) private accounting. D) public accounting.

Diff: 1 Topic: What is Accounting Learning Objective: 01-02 Identify and discuss career opportunities in accounting. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making

46) The following are all government agencies except the A) IRS. B) FBI. C) SEC. Answer: D Explanation: A) B) C) D)

D) AICPA.

47) An act passed in response to the wave of corporate accounting scandals is the A) Sorbine-Oxide Act. B) Sardonic-Oxone Act. C) Saxon-Ordanly Act. D) Sarbanes-Oxley Act. Answer: D Explanation: A) B) C) D) Diff: 2 Topic: What is Accounting Learning Objective: 01-03 Identify the users of financial information. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making; BB Legal

48) Owners and managers need financial information in order to A) grant loans. B) collect taxes. C) make decisions. Answer: C Explanation: A) B) C) D)

D) issue credit.

Diff: 1 Topic: What is Accounting Learning Objective: 01-03 Identify the users of financial information. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making

49) The Sarbanes-Oxley Act includes rules on A) auditor rotation. C) auditor retention. Answer: A Explanation: A) B) C) D)

B) auditor reporting. D) auditor reliability.

Diff: 2 Topic: What is Accounting Learning Objective: 01-03 Identify the users of financial information. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making; BB Legal

50) A form of the partnerships business entity is A) DBA. B) LLC. Answer: C Explanation:

C) LLP.

D) INP.

A) B) C) D)

Diff: 2 Topic: Business and Accounting Learning Objective: 01-04 Compare and contrast the three types of business entities. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making; BB Legal

51) Which statement below represents what GAAP stands for? A) Generally Approved Accounting Practices. B) General Accepted Accounting Principles. C) Generally Anticipated Accounting Principles. D) Generally Accepted Accounting Policies. Answer: B Explanation: A) B) C) D) Diff: 1 Topic: Business and Accounting Learning Objective: 01-04 Compare and contrast the three types of business entities. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making; BB Legal

52) The review of financial statements to assess their fairness and adherence to GAAP is A) compliance. B) preparation. C) auditing. D) accounting. Answer: C Explanation: A) B) C) D) Diff: 1 Topic: What is Accounting; Defining Accounting Terms Learning Objective: 01-06 Define the accounting terms new to this chapter.; 01-02 Identify and discuss career opportunities in accounting. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making

53) Management advisory services are designed to help A) employers. C) clients. Answer: C Explanation: A) B) C) D)

B) government agencies. D) creditors.

Diff: 1 Topic: What is Accounting; Defining Accounting Terms Learning Objective: 01-06 Define the accounting terms new to this chapter.; 01-02 Identify and discuss career opportunities in accounting. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making

54) An independent accountant who is licensed by the state and provides accounting services to the public for a fee is a A) CMA. B) CIA. C) CFE. D) CPA. Answer: D Explanation: A) B) C) D) Diff: 1 Topic: What is Accounting; Defining Accounting Terms Learning Objective: 01-06 Define the accounting terms new to this chapter.; 01-02 Identify and discuss career opportunities in accounting. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making; BB Legal

55) The Financial Accounting Standards Board has the authority to develop generally accepted accounting principles. Choose the option below that contains the steps used by the FASB in developing GAAP. A) steps include: publishing a notice in the newspaper, seeking public opinion, and issuing a statement of principle. B) steps include: issuing a discussion memorandum, filing a legal draft, and notifying the SEC. C) steps include: issuing a discussion memorandum, issuing an exposure draft, and issuing a statement of principle. D) steps include: filing a complaint with the SEC, issuing an internal report, and issuing a statement of principle. Answer: C Explanation:

A) B) C) D)

Diff: 2 Topic: Business and Accounting Learning Objective: 01-05 Describe the process used to develop generally accepted accounting principles. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making; BB Legal

SHORT ANSWER QUESTIONS 56) Accounting is often referred to as the language of ________. Answer: business Explanation: Diff: 1 Topic: What is Accounting? Learning Objective: 01-01 Define accounting. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Decision Making

57) The results of the accounting process are summarized in periodic reports called ________. Answer: financial statements Explanation: Diff: 1 Topic: What is Accounting? Learning Objective: 01-01 Define accounting. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting

58) Users of financial information, such as owners, managers and employees, are referred to as ________ users. Answer: inside or internal Explanation: Diff: 1 Topic: Users of Accounting Learning Objective: 01-03 Identify the users of financial information. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Decision Making

59) The three major legal forms of business entity are the sole proprietorship, the partnership, and the ________. Answer: corporation Explanation: Diff: 1 Topic: Business Entities Learning Objective: 01-04 Compare and contrast the three types of business entities. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; BB Legal; FN Decision Making

60) A partnership has ________ owners. Answer: two or more Explanation: Diff: 1 Topic: Business Entities Learning Objective: 01-04 Compare and contrast the three types of business entities. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; BB Legal; FN Decision Making

61) Ownership in a corporation is evidenced by shares of ________. Answer: stock Explanation: Diff: 1 Topic: Business Entities Learning Objective: 01-04 Compare and contrast the three types of business entities. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; BB Legal; FN Decision Making

62) The Securities and Exchange Commission (SEC) regulates the accounting methods and financial reporting of ________ owned corporations. Answer: publicly Explanation: Diff: 1 Topic: Accounting Standards Learning Objective: 01-03 Identify the users of financial information. Bloom's: Remember AACSB: Analytic AICPA: BB Legal; BB Industry; FN Reporting

63) The financial statements submitted to the SEC by a corporation must be ________ by an independent accountant to ensure their fairness and adherence to generally accepted accounting principles. Answer: audited Explanation: Diff: 2 Topic: Accounting Standards Learning Objective: 01-05 Describe the process used to develop generally accepted accounting principles. Bloom's: Understand AACSB: Analytic AICPA: BB Legal; BB Industry; FN Reporting; FN Decision Making

64) Accountants normally choose to practice in one of three areas: public accounting, managerial accounting, or ________ accounting. Answer: governmental Explanation: Diff: 1 Topic: What is Accounting? Learning Objective: 01-02 Identify and discuss career opportunities in accounting. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Decision Making

65) A form of business entity owned by one person is called a(n) ________. Answer: sole proprietorship Explanation: Diff: 1 Topic: Business Entities Learning Objective: 01-04 Compare and contrast the three types of business entities.; 01-06 Define the accounting terms new to this chapter. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; BB Legal; FN Decision Making

66) A form of business entity owned by two or more people is called a(n) ________. Answer: partnership Explanation: Diff: 1 Topic: Business Entities Learning Objective: 01-04 Compare and contrast the three types of business entities.; 01-06 Define the accounting terms new to this chapter. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; BB Legal; FN Decision Making

67) The people, companies, or government agencies to whom a firm owes money are called ________. Answer: creditors Explanation: Diff: 1 Topic: Business and Accounting Learning Objective: 01-04 Compare and contrast the three types of business entities. Bloom's: Understand AACSB: Analytic AICPA: BB Industry; FN Decision Making

68) The process by which financial information about a business is recorded, classified, summarized, interpreted, and communicated to owners, managers, and other interested parties is called ________. Answer: accounting Explanation: Diff: 1 Topic: What is Accounting? Learning Objective: 01-01 Define accounting.; 01-06 Define the accounting terms new to this chapter. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Decision Making

69) Tax accounting is a service offered by public accounting firms that involves tax ________ and tax planning. Answer: compliance Explanation: Diff: 2 Topic: What is Accounting? Learning Objective: 01-02 Identify and discuss career opportunities in accounting.; 01-06 Define the accounting terms new to this chapter. Bloom's: Understand AACSB: Analytic AICPA: BB Industry; FN Decision Making

70) The ________ (GAAP) must be followed by publicly owned companies and are changed and refined in response to changes in the environment in which businesses operate. Answer: generally accepted accounting principles Explanation: Diff: 1 Topic: Accounting Standards Learning Objective: 01-05 Describe the process used to develop generally accepted accounting principles. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Decision Making; FN Reporting

71) The owners of a corporation are called ________. Answer: stockholders or shareholders Explanation: Diff: 1 Topic: Business Entities Learning Objective: 01-04 Compare and contrast the three types of business entities. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; BB Legal; FN Decision Making

72) What is the "language of business?" List three groups who use this financial information. Answer: Accounting is the language of business. The groups who use this information are owners and managers, suppliers, banks, tax authorities, regulatory agencies and investors, customers, and employees and unions. Explanation: Diff: 1 Topic: What is Accounting Learning Objective: 01-01 Define accounting.; 01-03 Identify the users of financial information. Bloom's: Remember; Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making; BB Legal

73) Cullen Company of country X and Shaw Industries of country Y have issued financial statements in compliance with the accounting principles of their respective countries. They would like to work together on a project and need to compare their current financial statements prior to starting the project. However, the accounting principles of the two countries differ. What organization might they turn to regarding this issue? (Give both the full name of the organization and its acronym.) What is the function of this organization? Answer: Organization: International Accounting Standards Board (IASB). The function of the IASB is to deal with issues caused by the lack of uniform accounting principles and make recommendations to enhance comparability. Explanation: Diff: 2 Topic: Business and Accounting Learning Objective: 01-05 Describe the process used to develop generally accepted accounting principles. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making; BB Global

74) You have just entered college and decide to pursue a career as an accountant. What are the three areas in which an accountant can practice? Answer: Public accounting, managerial (private) accounting, and governmental accounting. Explanation: Diff: 1 Topic: What is Accounting Learning Objective: 01-02 Identify and discuss career opportunities in accounting. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making

75) There are three general services public accountants offer. List and briefly describe each. Answer: Auditing: the review of financial statements to assess their fairness and adherence to GAAP. Tax accounting: tax compliance-dealing with the preparation of tax returns and the audit of those returns, and tax planning. Also giving advice to clients on how to structure their financial affairs in order to reduce their tax liability. Management advisory services: helping clients improve their information systems or their business performance. Explanation: Diff: 2 Topic: What is Accounting Learning Objective: 01-02 Identify and discuss career opportunities in accounting. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making

76) List at least five activities performed by managerial accountants. Answer: Establishing accounting policies, managing the accounting system, preparing financial statements, interpreting financial information, providing financial advice to management, preparing tax forms, performing tax planning services, and preparing internal reports for management. Explanation: Diff: 1 Topic: What is Accounting Learning Objective: 01-02 Identify and discuss career opportunities in accounting. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making

77) Define the following terms: entity, economic entity, and social entity. Answer: Entity-recognized as having its own separate identity. Economic entity-business or organization whose major purpose is to produce a profit. Social entity-nonprofit organizations. Explanation: Diff: 2 Topic: Business and Accounting; Defining Accounting Terms Learning Objective: 01-06 Define the accounting terms new to this chapter.; 01-04 Compare and contrast the three types of business entities. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making

78) How do sole proprietorships, partnerships, and corporations differ? Answer: Sole proprietorships-business entities owned by one person who is responsible for the business debts and taxes. The business ends when the owner dies. Partnerships-business entities owned by two or more individuals who are individually, and as a group, responsible for the partnership's debts and taxes. A partnership ends when one or more partners withdraw or die. Corporations-business entities with one or more owners which can continue indefinitely unless bankruptcy occurs or the stockholders vote to liquidate. Stockholders (owners) are not personally responsible for the corporation's debts and can only lose the amount they invested. Explanation: Diff: 1 Topic: Business and Accounting; Defining Accounting Terms Learning Objective: 01-06 Define the accounting terms new to this chapter.; 01-04 Compare and contrast the three types of business entities. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making; BB Legal

79) List three individuals or groups who use financial information to make decisions about a firm. For each listed, give an example of why they would need the information. Answer: Owners and managers-to evaluate results of operations or to make decisions about the future. Suppliers-to assess the ability of the firm to pay its bills and to set credit limits. Banks-to determine whether the firm can repay the loan in a timely manner. Tax authorities-to determine the tax base of the firm. Regulatory agencies and investors-to fulfill the requirements of the law. Customers-to determine whether service on purchases will continue into the future. Employees and unions-to negotiate wages and benefits. Explanation: Diff: 1 Topic: What is Accounting Learning Objective: 01-03 Identify the users of financial information. Bloom's: Remember; Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making

80) List the "Big Four" public accounting firms in the United States. Answer: Deloitte & Touche, Ernst & Young, KPMG, and PricewaterhouseCoopers Explanation: Diff: 2 Topic: What is Accounting Learning Objective: 01-02 Identify and discuss career opportunities in accounting. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making

81) Audited financial statements include an auditor's report. What does this auditor's report contain? Answer: It contains the auditor's opinion regarding the fairness of the firm's financial statements and confirms the financial reports' adherence to GAAP. Explanation: Diff: 2 Topic: Business and Accounting Learning Objective: 01-05 Describe the process used to develop generally accepted accounting principles. Bloom's: Analyze AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making

82) List at least three of the provisions of the Sarbanes-Oxley Act. Answer: The act tightens regulation of financial reporting by publicly held companies and their accountants and auditors; creates a five-member Public Company Accounting Oversight Board to oversee the accounting profession which in turn is overseen by the SEC; includes rules on consulting services, auditor rotation, criminal penalties, corporate governance, and securities regulation; requires auditors to maintain all audit or review work papers for five years; requires chief executives and chief financial officers of publicly traded corporations to certify their financial statements; requires quicker disclosure of material changes in a firm's financial position; provides protection for whistle blowers; and lengthens the time investors have to file lawsuits for securities fraud. Explanation: Diff: 2 Topic: What is Accounting Learning Objective: 01-02 Identify and discuss career opportunities in accounting. Bloom's: Analyze AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making; BB Legal

83) What determines the independence of Certified Public Accountants (CPAs)? Answer: They are not employees of the companies they audit and they do not have a financial interest in those companies. Explanation: Diff: 2 Topic: Business and Accounting Learning Objective: 01-05 Describe the process used to develop generally accepted accounting principles. Bloom's: Analyze AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making; BB Legal

84) What is the definition of Accounting? Answer: The process by which financial information about a business is recorded, classified, summarized, interpreted, and communicated to owners, managers, and other interested parties. Explanation: Diff: 2 Topic: What is Accounting Learning Objective: 01-01 Define accounting. Bloom's: Remember; Analyze AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making; BB Legal

Chapter 02 Analyzing Business Transactions MULTIPLE CHOICE QUESTIONS 1) The entire process of analyzing, recording, and reporting business transactions is based on the fundamental accounting equation. A) True B) False Answer: A Explanation: Diff: 1 Topic: The Accounting Equation and Financial Statements; Property and Financial Interest Learning Objective: 02-01 Record in equation form the financial effects of a business transaction.; 02-03 Analyze the effects of business transactions on a firm's assets, liabilities, and owner's equity and record these effects in accounting equation form. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making

2) When using the fundamental accounting equation, an accountant must make sure that total assets are always equal to total liabilities minus owner's equity. A) True B) False Answer: B Explanation: Diff: 1 Topic: The Accounting Equation and Financial Statements Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets, liabilities, and owner's equity and record these effects in accounting equation form. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making

3) Assets always equal debts of the business plus the financial interest of the owner. A) True B) False Answer: A Explanation: Diff: 1 Topic: Property and Financial Interest Learning Objective: 02-02 Define, identify, and understand the relationship between asset, liability, and owner's equity accounts. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making; BB Critical Thinking

4) When cash is paid to a creditor, the firm's liabilities decrease. A) True B) False Answer: A Explanation: Diff: 1 Topic: Property and Financial Interest Learning Objective: 02-02 Define, identify, and understand the relationship between asset, liability, and owner's equity accounts. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making

5) Al Dunn Bakery bought a new oven for $1,380. Al paid $300 as a cash down payment and will pay the balance in 30 days. Total assets increased by $1,080. A) True B) False Answer: A Explanation: Diff: 2 Topic: The Accounting Equation and Financial Statements Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets, liabilities, and owner's equity and record these effects in accounting equation form. Bloom's: Analyze AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making; BB Critical Thinking; FN Reporting

6) If the owner takes cash out of the business for personal use, the withdrawal should be recorded as an expense of the business. A) True B) False Answer: B Explanation: Diff: 2 Topic: The Accounting Equation and Financial Statements Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets, liabilities, and owner's equity and record these effects in accounting equation form. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making; BB Critical Thinking; FN Reporting

7) When cash is collected from accounts receivable, the total amount of assets increases. A) True B) False Answer: B Explanation: Diff: 1 Topic: The Accounting Equation and Financial Statements Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets, liabilities, and owner's equity and record these effects in accounting equation form. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making

8) A company has assets of $56,320 and liabilities of $29,500. The owner's equity is $85,820. A) True B) False Answer: B Explanation: Diff: 1 Topic: The Accounting Equation and Financial Statements Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets, liabilities, and owner's equity and record these effects in accounting equation form. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; BB Critical Thinking; FN Measurement

9) The expenses for a period are reported on the balance sheet. A) True B) False Answer: B Explanation: Diff: 1 Topic: The Accounting Equation and Financial Statements Learning Objective: 02-04 Prepare an income statement. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

10) A double line drawn under the figures in a money column shows that the computation is complete. A) True B) False Answer: A Explanation: Diff: 1 Topic: The Accounting Equation and Financial Statements; Defining Accounting Terms Learning Objective: 02-04 Prepare an income statement.; 02-05 Prepare a statement of owner's equity and a balance sheet.; 02-06 Define the accounting terms new to this chapter. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

11) A business transaction is a financial event that affects the resources of a business. A) True B) False Answer: A Explanation: Diff: 1 Topic: Property and Financial Interest Learning Objective: 02-01 Record in equation form the financial effects of a business transaction. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making

12) If there is an excess of expenses over revenues, the excess represents a profit. A) True B) False Answer: B Explanation: Diff: 1 Topic: The Accounting Equation and Financial Statements Learning Objective: 02-04 Prepare an income statement. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

13) A withdrawal of funds by the owner for personal use is considered a business expense. A) True B) False Answer: B Explanation: Diff: 1 Topic: The Accounting Equation and Financial Statements Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets, liabilities, and owner's equity and record these effects in accounting equation form. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

14) The statement of owner's equity is prepared before the balance sheet so that the ending capital balance is available. A) True B) False Answer: A Explanation: Diff: 1 Topic: The Accounting Equation and Financial Statements Learning Objective: 02-05 Prepare a statement of owner's equity and a balance sheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

15) If assets are $8,000 and liabilities are $2,000, owner's equity is $10,000. A) True B) False Answer: B Explanation: Diff: 2 Topic: The Accounting Equation and Financial Statements Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets, liabilities, and owner's equity and record these effects in accounting equation form. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; BB Critical Thinking; FN Reporting

16) The amount of net income or net loss is needed to complete the statement of owner's equity. A) True B) False Answer: A Explanation: Diff: 2 Topic: The Accounting Equation and Financial Statements Learning Objective: 02-05 Prepare a statement of owner's equity and a balance sheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking; FN Reporting

17) Withdrawals by the owner are reported on the income statement. A) True B) False Answer: B Explanation: Diff: 1 Topic: The Accounting Equation and Financial Statements Learning Objective: 02-05 Prepare a statement of owner's equity and a balance sheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking; FN Reporting

18) The income statement is also known as the profit and loss statement. A) True B) False Answer: A Explanation: Diff: 1 Topic: The Accounting Equation and Financial Statements Learning Objective: 02-04 Prepare an income statement. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; BB Critical Thinking; FN Reporting

19) The net income or net loss for the period is shown on both the income statement and the balance sheet. A) True B) False Answer: B Explanation: Diff: 2 Topic: The Accounting Equation and Financial Statements Learning Objective: 02-04 Prepare an income statement.; 02-05 Prepare a statement of owner's equity and a balance sheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; BB Critical Thinking; FN Reporting

20) Which of the following equations is the Fundamental Accounting Equation? A) Assets – Owner's Equity = Liabilities B) Assets + Liabilities = Owner's Equity C) Assets = Liabilities + Owner's Equity D) Assets – Liabilities = Owner's Equity Answer: C Explanation: A) B) C) D) Diff: 2 Topic: Property and Financial Interest Learning Objective: 02-02 Define, identify, and understand the relationship between asset, liability, and owner's equity accounts. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

21) The balance sheet shows: A) all revenues and expenses. B) the financial position of a business at a given time. C) the results of business operations. D) the amount of net income or loss. Answer: B Explanation: A) B) C) D) Diff: 1 Topic: Property and Financial Interest Learning Objective: 02-02 Define, identify, and understand the relationship between asset, liability, and owner's equity accounts. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

22) The Income Statement shows: A) the financial position of a business at a given time. B) the change in owner's equity for a period of time. C) the amount of net income or net loss. D) assets, liabilities and expenses. Answer: C Explanation: A) B) C) D) Diff: 1 Topic: Property and Financial Interest Learning Objective: 02-02 Define, identify, and understand the relationship between asset, liability, and owner's equity accounts. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

23) Amounts that a business must pay in the future are known as: A) capital. B) liabilities. C) expenses. Answer: B Explanation: A) B) C) D)

D) assets.

Diff: 1 Topic: Property and Financial Interest Learning Objective: 02-01 Record in equation form the financial effects of a business transaction. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

24) Examples of assets are: A) cash and accounts receivable. C) accounts receivable and rent expense. Answer: A Explanation: A) B) C) D)

B) investments by the owner and revenue. D) equipment and revenue.

Diff: 1 Topic: The Accounting Equation and Financial Statements; Property and Financial Interest Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets, liabilities, and owner's equity and record these effects in accounting equation form.; 02-02 Define, identify, and understand the relationship between asset, liability, and owner's equity accounts. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

25) Ginger Yale Ice Company receives money from a customer on account. Recording this transaction will: A) decrease Accounts Payable. B) increase Cash. C) increase Accounts Receivable. D) decrease G. Yale, Capital. Answer: B Explanation:

A) B) C) D)

Diff: 1 Topic: Property and Financial Interest Learning Objective: 02-01 Record in equation form the financial effects of a business transaction. Bloom's: Analyze AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement

26) If a business issues a check for $100 to purchase office supplies, What is the effect on the accounting equation? A) Owner's Equity will decrease B) Assets will decrease C) Owner's Equity will increase D) Total Assets will remain the same Answer: D Explanation: A) B) C) D) Diff: 1 Topic: Property and Financial Interest Learning Objective: 02-01 Record in equation form the financial effects of a business transaction. Bloom's: Analyze AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making

27) If a business issued a check for $1,000 to pay for two months rent in advance, what is the effect on the firms' assets, liabilities and owner's equity. A) Owner's Capital will increase B) Accounts Payable will increase C) Prepaid Rent will decrease D) Cash will decrease Answer: D Explanation: A) B) C) D) Diff: 1 Topic: The Accounting Equation and Financial Statements; Property and Financial Interest Learning Objective: 02-01 Record in equation form the financial effects of a business transaction.; 02-03 Analyze the effects of business transactions on a firm's assets, liabilities, and owner's equity and record these effects in accounting equation form. Bloom's: Analyze AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

28) The owner's investment or equity in a business is called: A) accounts payable. B) drawing. C) cash. D) capital. Answer: D Explanation: A) B) C) D) Diff: 1 Topic: Property and Financial Interest Learning Objective: 02-01 Record in equation form the financial effects of a business transaction. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

29) At the end of the first month of operations for SloMo Delivery Service, the business had the following accounts: Accounts Receivable, $11,350; Prepaid Insurance, $400; Equipment, $26,200 and Cash, $21,650. On the same date, SloMo owed the following creditors: Simpson Supply Company, $17,000; Allen Office Equipment, $14,500. The total assets for the SloMo Delivery Service are: A) $59,600. B) $21,650.

Answer: A Explanation:

C) $33,400.

D) $33,000.

A) Assets = Accounts Receivable, $11,350 + Prepaid Insurance, $400 + Equipment $26,200 + Cash, $21,650 = $59,600. B) Assets = Accounts Receivable, $11,350 + Prepaid Insurance, $400 + Equipment $26,200 + Cash, $21,650 = $59,600. C) Assets = Accounts Receivable, $11,350 + Prepaid Insurance, $400 + Equipment $26,200 + Cash, $21,650 = $59,600. D) Assets = Accounts Receivable, $11,350 + Prepaid Insurance, $400 + Equipment $26,200 + Cash, $21,650 = $59,600.

Diff: 2 Topic: The Accounting Equation and Financial Statements Learning Objective: 02-05 Prepare a statement of owner's equity and a balance sheet. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; BB Critical Thinking; FN Measurement

30) At the end of the first month of operations for SloMo Delivery Service, the business had the following accounts: Accounts Receivable, $11,350; Prepaid Insurance, $400; Equipment, $26,200 and Cash, $21,650. On the same date, SloMo owed the following creditors: Simpson Supply Company, $17,000; Allen Office Equipment, $14,500. The total amount of Liabilities is: A) $17,000. B) $14,500.

Answer: D Explanation:

C) $28,100.

D) $31,500.

A) Liabilities = Simpson Supply Company, $17,000 + Allen Office Equipment, $14,500 = $31,500. B) Liabilities = Simpson Supply Company, $17,000 + Allen Office Equipment, $14,500 = $31,500. C) Liabilities = Simpson Supply Company, $17,000 + Allen Office Equipment, $14,500 = $31,500. D) Liabilities = Simpson Supply Company, $17,000 + Allen Office Equipment, $14,500 = $31,500.

31) Total assets of Douglas Fuhr Furniture Co. are $84,000 and the total liabilities are $37,000. What is the amount of the owner's equity? A) $47,000 B) $121,000 C) $84,000 D) $6,000 Answer: A Explanation: A) Assets = Liabilities + Owner's Equity: $84,000 = $37,000 + $47,000 B) Assets = Liabilities + Owner's Equity: $84,000 = $37,000 + $47,000 C) Assets = Liabilities + Owner's Equity: $84,000 = $37,000 + $47,000 D) Assets = Liabilities + Owner's Equity: $84,000 = $37,000 + $47,000 Diff: 1 Topic: The Accounting Equation and Financial Statements Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets, liabilities, and owner's equity and record these effects in accounting equation form. Bloom's: Analyze AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement

32) If during the year total assets increase by $75,000 and total liabilities decrease by $16,000, by how much did owner's equity increase/decrease? A) $59,000 decrease B) $75,000 increase C) $91,000 increase D) $91,000 decrease Answer: C Explanation: A) $75,000 = ($16,000) + $91,000 B) $75,000 = ($16,000) + $91,000 C) $75,000 = ($16,000) + $91,000 D) $75,000 = ($16,000) + $91,000 Diff: 3 Topic: The Accounting Equation and Financial Statements Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets, liabilities, and owner's equity and record these effects in accounting equation form. Bloom's: Evaluate AACSB: Analytical Thinking AICPA: BB Industry; BB Critical Thinking; FN Measurement

33) Which financial statement is reported as of a specific date? A) Statement of Changes in Financial Position B) Income Statement C) Statement of Owner's Equity D) Balance Sheet Answer: D Explanation: A) B) C) D) Diff: 1 Topic: The Accounting Equation and Financial Statements Learning Objective: 02-05 Prepare a statement of owner's equity and a balance sheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

34) A net loss results: A) when revenue is greater than expenses. C) when expenses are greater than revenue. Answer: C Explanation: A) B) C) D)

B) when expenses are greater than assets. D) when assets are greater than liabilities.

Diff: 1 Topic: The Accounting Equation and Financial Statements Learning Objective: 02-04 Prepare an income statement. Bloom's: Analyze AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making

35) The income statement shows: A) revenue and owner's equity. B) the results of operations for a period of time. C) the total value of the business. D) the financial position of a business on a specific date. Answer: B Explanation: A) B) C) D) Diff: 2 Topic: The Accounting Equation and Financial Statements Learning Objective: 02-04 Prepare an income statement. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

36) If the income statement covered a six-month period ending on November 30, 2019, the third line of the income statement heading would read: A) Month of November, 2019. B) November 30, 2019. C) Six-month Period Ended November 30, 2019. D) Month Ended November 30, 2019. Answer: C Explanation: A) B) C) D) Diff: 2 Topic: The Accounting Equation and Financial Statements Learning Objective: 02-04 Prepare an income statement. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

37) When the owner invests equipment in a business, A) assets and owner's equity increase. B) assets and revenue increase. C) liabilities decrease and owner's equity increases. D) assets increase and owner's equity decreases. Answer: A Explanation: A) B) C) D) Diff: 1 Topic: The Accounting Equation and Financial Statements Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets, liabilities, and owner's equity and record these effects in accounting equation form. Bloom's: Analyze AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making

38) When equipment is purchased on credit, A) assets increase and liabilities decrease. C) assets and expenses increase. Answer: D Explanation: A) B) C) D)

B) assets and owner's equity increase. D) assets and liabilities increase.

Diff: 1 Topic: Property and Financial Interest Learning Objective: 02-01 Record in equation form the financial effects of a business transaction. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

39) When equipment is purchased for cash, A) assets decrease and expenses increase. B) one asset increases and another asset decreases. C) assets increase and liabilities decrease. D) assets and owner's equity increase. Answer: B Explanation: A) B) C) D) Diff: 2 Topic: Property and Financial Interest Learning Objective: 02-01 Record in equation form the financial effects of a business transaction. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

40) If a business receives $5,000 on account from clients who owed money for services previously billed, identify the effect on the accounting equation: A) assets decrease and liabilities increase. B) assets remain the same and owner's equity remains the same. C) liabilities decrease and owner's equity decreases. D) owner's equity increases and revenue increases. Answer: B Explanation: A) Cash is increased by $5,000 but Accounts Receivable is reduced by $5,000 so there is no change in total assets. B) Cash is increased by $5,000 but Accounts Receivable is reduced by $5,000 so there is no change in total assets. C) Cash is increased by $5,000 but Accounts Receivable is reduced by $5,000 so there is no change in total assets. D) Cash is increased by $5,000 but Accounts Receivable is reduced by $5,000 so there is no change in total assets. Diff: 2 Topic: The Accounting Equation and Financial Statements Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets, liabilities, and owner's equity and record these effects in accounting equation form. Bloom's: Analyze AACSB: Analytical Thinking AICPA: BB Critical Thinking; FN Measurement

41) When the owner withdraws cash for personal use, A) assets decrease and owner's equity decreases. B) assets decrease and owner's equity increases. C) assets decrease and expenses increase. D) owner's equity decreases and revenue decreases. Answer: A Explanation: A) B) C) D) Diff: 2 Topic: The Accounting Equation and Financial Statements Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets, liabilities, and owner's equity and record these effects in accounting equation form. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

42) When the owner writes a company check to pay the company's electric bill, A) expenses increase and owner's equity increases. B) assets and owner's equity increase. C) assets and liabilities decrease. D) assets and owner's equity decrease. Answer: D Explanation: A) B) C) D) Diff: 1 Topic: The Accounting Equation and Financial Statements Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets, liabilities, and owner's equity and record these effects in accounting equation form. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

43) Identify the account below that is classified as an asset account and would appear on the left side of the accounting equation. A) Accounts Payable. B) Owner's Capital. C) Fees Income. D) Accounts Receivable. Answer: D Explanation: A) B) C) D) Diff: 1 Topic: The Accounting Equation and Financial Statements Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets, liabilities, and owner's equity and record these effects in accounting equation form. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

44) Assets and liabilities are reported on: A) both the balance sheet and the income statement. B) the statement of owner's equity. C) the income statement. D) the balance sheet. Answer: D Explanation: A) B) C) D) Diff: 1 Topic: Property and Financial Interest Learning Objective: 02-02 Define, identify, and understand the relationship between asset, liability, and owner's equity accounts. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

45) The financial statement that is prepared first is: A) the balance sheet. C) the income statement. Answer: C Explanation: A) B) C) D)

B) up to the accountant. D) the statement of owner's equity.

Diff: 1 Topic: The Accounting Equation and Financial Statements Learning Objective: 02-04 Prepare an income statement. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

46) The rent paid for future months is a(n): A) asset. B) liability. Answer: A Explanation: A) B) C) D)

C) revenue.

D) expense.

47) The statement of financial position is another term for which financial statement? A) Balance Sheet B) Income Statement C) Statement of Owner's Equity D) Trial Balance Answer: A Explanation: A) B) C) D) Diff: 1 Topic: Property and Financial Interest Learning Objective: 02-02 Define, identify, and understand the relationship between asset, liability, and owner's equity accounts. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

48) Which financial statement is a representation of the accounting equation? A) Balance Sheet B) Income Statement C) Statement of Owner's Equity D) Profit and Loss Statement Answer: A Explanation: A) B) C) D) Diff: 1 Topic: The Accounting Equation and Financial Statements Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets, liabilities, and owner's equity and record these effects in accounting equation form. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

49) The Statement of Owner's Equity is calculated as follows: A) beginning capital + net income - withdrawals + additional investments = ending capital B) beginning capital + net income + withdrawals + additional investments = ending capital C) beginning capital + net loss - withdrawals + additional investments = ending capital D) beginning capital + net loss + withdrawals + additional investments = ending capital Answer: A Explanation: A) B) C) D) Diff: 2 Topic: The Accounting Equation and Financial Statements Learning Objective: 02-05 Prepare a statement of owner's equity and a balance sheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making

50) An Income Statement is all of the following except: A) a profit and loss statement. B) a formal report of business operations. C) a statement of income and expenses. D) a statement of revenues less withdrawals and expenses. Answer: D Explanation: A) B) C) D) Diff: 2 Topic: The Accounting Equation and Financial Statements Learning Objective: 02-04 Prepare an income statement. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

51) At the end of the first month of operations for Jackson's Catering Service, the business had the following accounts: Cash, $21,000; Prepaid Rent, $500; Equipment, $7,500 and Accounts Payable $4,000. By the end of the month, Jackson's had earned $32,000 of Revenues, and used $1,800 of Utilities Expenses, $4,000 of Rent Expense and $3,600 of Salaries Expenses. Calculate the net income to be reported by the company for this first month. A) $32,000 B) $26,200 C) $22,600 D) $23,100 Answer: C Explanation:

A) Revenues $32,000 – Utilities Expense $1,800 – Rent Expense $4,000 – Salaries Expense $3,600 = Net Income $22,600 B) Revenues $32,000 – Utilities Expense $1,800 – Rent Expense $4,000 – Salaries Expense $3,600 = Net Income $22,600 C) Revenues $32,000 – Utilities Expense $1,800 – Rent Expense $4,000 – Salaries Expense $3,600 = Net Income $22,600 D) Revenues $32,000 – Utilities Expense $1,800 – Rent Expense $4,000 – Salaries Expense $3,600 = Net Income $22,600

Diff: 2 Topic: The Accounting Equation and Financial Statements Learning Objective: 02-04 Prepare an income statement. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

52) At the end of its first year of operations, Shapiro's Consulting Services reported net income of $27,000. They also had account balances of: Cash, $16,000; Office Supplies, $3,200, Equipment, $24,000 and Accounts Receivable, $8,000. The owner's total investment for this first year was $15,000 and the owner withdrew $2,000 for personal use. Calculate the ending balance to be reported on the Statement of Owner's Equity in the Owner's Capital account. A) $40,000 B) $42,200 C) $58,000 D) $27,000 Answer: A Explanation:

A) Investments $15,000 + Net Income $27,000 – Withdrawals $2,000 = $40,000 B) Investments $15,000 + Net Income $27,000 – Withdrawals $2,000 = $40,000 C) Investments $15,000 + Net Income $27,000 – Withdrawals $2,000 = $40,000 D) Investments $15,000 + Net Income $27,000 – Withdrawals $2,000 = $40,000

Diff: 2 Topic: The Accounting Equation and Financial Statements Learning Objective: 02-04 Prepare an income statement. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking; FN Reporting; FN Measurement

53) At the end of its first year of operations, Shapiro's Consulting Services reported net income of $27,000. They also had account balances of: Cash, $16,000; Office Supplies, $3,200; Equipment, $24,000 and Accounts Receivable, $8,000. The owner's total investment for this first year was $15,000 and the owner withdrew $2,000 for personal use. What are the total liabilities of Shapiro's Consulting Services at the end of the first year of operations? A) $24,200 B) $11,200 C) $42,000 D) $27,000

Answer: B Explanation:

A) Investments $15,000 + Net Income $27,000 – Withdrawals $2,000 = $40,000 Equity. Assets = Cash $16,000 + Office Supplies $3,200 + Equipment $24,000 + Accounts Receivable $8,000 = $51,200 Total Assets. So Assets of $51,200 = 11,200 Liabilities + $40,000 Equity. B) Investments $15,000 + Net Income $27,000 – Withdrawals $2,000 = $40,000 Equity. Assets = Cash $16,000 + Office Supplies $3,200 + Equipment $24,000 + Accounts Receivable $8,000 = $51,200 Total Assets. So Assets of $51,200 = 11,200 Liabilities + $40,000 Equity. C) Investments $15,000 + Net Income $27,000 – Withdrawals $2,000 = $40,000 Equity. Assets = Cash $16,000 + Office Supplies $3,200 + Equipment $24,000 + Accounts Receivable $8,000 = $51,200 Total Assets. So Assets of $51,200 = 11,200 Liabilities + $40,000 Equity. D) Investments $15,000 + Net Income $27,000 – Withdrawals $2,000 = $40,000 Equity. Assets = Cash $16,000 + Office Supplies $3,200 + Equipment $24,000 + Accounts Receivable $8,000 = $51,200 Total Assets. So Assets of $51,200 = 11,200 Liabilities + $40,000 Equity.

Diff: 3 Topic: The Accounting Equation and Financial Statements Learning Objective: 02-04 Prepare an income statement. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking; FN Reporting; FN Measurement

54) Identify the type of accounts that would appear on a firm's income statement A) liabilities and expenses. B) assets and revenues. C) assets and liabilities. D) revenues and expenses. Answer: D Explanation: A) B) C) D) Diff: 2 Topic: The Accounting Equation and Financial Statements Learning Objective: 02-04 Prepare an income statement. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

55) Owner's equity is: A) the amount taken out of a business by the owner for personal use. B) the revenues less the expenses. C) the amount the owner owes the business. D) the financial interest of the owner of a business. Answer: D Explanation: A) B) C) D) Diff: 2 Topic: The Accounting Equation and Financial Statements; Defining Accounting Terms Learning Objective: 02-06 Define the accounting terms new to this chapter. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

56) Given the options below, identify the correct accounting equation formula. A) Assets = Liabilities + Owner's Equity. B) Assets + Liabilities = Owner's Equity. C) Assets + Owner's Equity = Liabilities. D) Liabilities = Assets + Owner's Equity. Answer: A Explanation: A) B) C) D) Diff: 1 Topic: The Accounting Equation and Financial Statements Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets, liabilities, and owner's equity and record these effects in accounting equation form. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

57) The balance sheet shows each of the following except the: A) amount and types of property the business owns. B) net income of the business. C) owner's interest. D) amount owed creditors. Answer: B Explanation:

A) B) C) D)

Diff: 1 Topic: Property and Financial Interest Learning Objective: 02-02 Define, identify, and understand the relationship between asset, liability, and owner's equity accounts. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

58) The Balance Sheet heading includes each of the following except: A) firm's address. B) title of the report. C) date of the report. D) firm's name. Answer: A Explanation: A) B) C) D) Diff: 1 Topic: The Accounting Equation and Financial Statements Learning Objective: 02-05 Prepare a statement of owner's equity and a balance sheet. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making

59) Choose the option below that reflects the correct order in which to prepare the three financial statements A) Income Statement; Statement of Owner's Equity; Balance Sheet. B) Statement of Owner's Equity; Balance Sheet; Income Statement. C) Income Statement; Balance Sheet; Statement of Owner's Equity. D) Balance Sheet; Income Statement; Statement of Owner's Equity. Answer: A Explanation:

A) B) C) D)

Diff: 1 Topic: The Accounting Equation and Financial Statements Learning Objective: 02-05 Prepare a statement of owner's equity and a balance sheet. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

60) Which of the following is an example of an expense: A) an owner withdrawal for personal use. B) the payment of the monthly utility bill. C) the receipt of cash from a credit customer. D) the payment of a creditor on account. Answer: B Explanation: A) B) C) D) Diff: 1 Topic: Defining Accounting Terms Learning Objective: 02-06 Define the accounting terms new to this chapter. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

61) Revenue by definition is: A) the collection of amounts owed by customers. B) an amount a business must pay in the future. C) the payment of amounts owed to creditors. D) amounts earned from the sale of goods or services. Answer: D Explanation: A) B) C) D) Diff: 1 Topic: Defining Accounting Terms Learning Objective: 02-06 Define the accounting terms new to this chapter. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

SHORT ANSWER QUESTIONS 62) The property that a business owns is referred to as its ________. Answer: assets Explanation: Diff: 1 Topic: Accounts and Their Relationships Learning Objective: 02-02 Define, identify, and understand the relationship between asset, liability, and owner's equity accounts. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Measurement

63) The debts or obligations of a business are known as its ________. Answer: liabilities Explanation: Diff: 1 Topic: Accounts and Their Relationships Learning Objective: 02-02 Define, identify, and understand the relationship between asset, liability, and owner's equity accounts. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Measurement

64) On the income statement, revenues minus expenses equals ________ for a period of time. Answer: Net income or net loss Explanation: Diff: 1 Topic: Accounting Equation and Financial Statements Learning Objective: 02-04 Prepare an income statement. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting

65) The financial interest of the owner in a business is called owner's equity or ________. Answer: capital Explanation: Diff: 1 Topic: Accounts and Their Relationships Learning Objective: 02-02 Define, identify, and understand the relationship between asset, liability, and owner's equity accounts. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting

66) The account used to record amounts that are owed for goods or services purchased on credit is known as ________. Answer: accounts payable Explanation: Diff: 1 Topic: Accounts and Their Relationships Learning Objective: 02-01 Record in equation form the financial effects of a business transaction. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting

67) When a business sells services for cash, assets increase and revenue

Answer: increases Explanation: Diff: 1 Topic: Accounting Equation and Financial Statements Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets, liabilities, and owner's equity and record these effects in accounting equation form. Bloom's: Understand AACSB: Analytic AICPA: BB Industry; FN Reporting

68) The account used to record amounts that will be collected from charge account customers in the future is referred to as . Answer: accounts receivable Explanation: Diff: 1 Topic: Accounting Equation and Financial Statements Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets, liabilities, and owner's equity and record these effects in accounting equation form. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting

69) The ________ is the financial report that shows the assets, liabilities, and owner's equity of a business on a specific date. Answer: balance sheet Explanation: Diff: 1 Topic: Accounting Equation and Financial Statements Learning Objective: 02-02 Define, identify, and understand the relationship between asset, liability, and owner's equity accounts. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting

70) If assets are $17,000 and owner's equity is $10,000, liabilities are ________. Answer: $7,000 Explanation: Assets = Liabilities + Owner's Equity; therefore, $17,000 = $7,000 + $10,000. Diff: 1 Topic: Accounting Equation and Financial Statements Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets, liabilities, and owner's equity and record these effects in accounting equation form. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; BB Critical Thinking; FN Measurement

71) When a business pays cash for salaries, assets decrease and expenses ________. Answer: increase Explanation: Diff: 1 Topic: Accounting Equation and Financial Statements Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets, liabilities, and owner's equity and record these effects in accounting equation form. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; BB Critical Thinking; FN Measurement

72) In a business transaction, when revenue increases, owner's equity will

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

73) In a business transaction, when expenses increase, owner's equity will ________. Answer: decrease Explanation: Diff: 1 Topic: Accounting Equation and Financial Statements Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets, liabilities, and owner's equity and record these effects in accounting equation form. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; BB Critical Thinking; FN Measurement

74) Funds taken from the business by the owner for personal use are called ________. Answer: withdrawals Explanation: Diff: 1 Topic: Accounting Equation and Financial Statements Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets, liabilities, and owner's equity and record these effects in accounting equation form. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting

75) The ________ reports the changes that have occurred in the owner's financial interest during the accounting period. Answer: statement of owner's equity Explanation: Diff: 1 Topic: Accounting Equation and Financial Statements Learning Objective: 02-05 Prepare a statement of owner's equity and a balance sheet. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting

76) When revenue is greater than expenses, the result is a net ________. Answer: income Explanation: Diff: 1 Topic: Accounting Equation and Financial Statements Learning Objective: 02-04 Prepare an income statement. Bloom's: Understand AACSB: Analytic AICPA: BB Industry; FN Reporting

77) When revenue and expenses are equal, the firm is said to ________. Answer: break even Explanation: Diff: 1 Topic: Accounting Equation and Financial Statements Learning Objective: 02-04 Prepare an income statement. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Measurement; FN Reporting

78) The three-line heading of a financial statement shows who, what, and ________. Answer: when Explanation: Diff: 1 Topic: Accounting Equation and Financial Statements Learning Objective: 02-04 Prepare an income statement.; 02-05 Prepare a statement of owner's equity and a balance sheet. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting

79) On December 1, 2019, Geneva Jordan opened her new business with the following assets and liabilities. Complete the accounting equation for the firm. Accounts Payable Cash Equipment

$ 2,100 Prepaid Rent 3,750 Loans Payable 26,200 Supplies

$ 7,000 15,000 1,900

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

Answer: Assets $38,850 = Liabilities $17,100 + Owner's Equity $21,750 Explanation: Assets = Cash $3,750 + Equipment $26,200 + Prepaid Rent $7,000 + Supplies $1,900 = $38,850. Liabilities = Accounts Payable $2,100 + Loans Payable $15,000 = $17,100. Diff: 2 Topic: Accounting Equation and Financial Statements Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets, liabilities, and owner's equity and record these effects in accounting equation form. Bloom's: Apply AACSB: Analytic AICPA: BB Critical Thinking; FN Measurement; FN Reporting

80) During October, a firm had the following transactions involving revenue and expenses. Did the firm earn a net income or incur a net loss for the period? What was the amount? Paid $1,600 for rent for October Provided services for $4,750 in cash Paid $350 for the October telephone service Provided services for $1,700 on credit Paid salaries of $2,675 to employees Paid $350 for the monthly office cleaning service

Answer: Net income: $1,475 Explanation: $4,750 + $1,700 - $1,600 - $350 - $2,675 - $350 = $1,475 Net Income Diff: 2 Topic: Accounting Equation and Financial Statements Learning Objective: 02-04 Prepare an income statement. Bloom's: Apply AACSB: Analytic AICPA: BB Critical Thinking; FN Measurement; FN Reporting

ESSAY QUESTIONS The following information should be used for questions 81-90. The transactions listed below took place at the Mitchell Advertising Agency. These transactions affected the following accounts. Indicate the accounts affected and use plus and minus to show the changes caused by each transaction. Cash Accounts Receivable Equipment Accounts Payable

K. Mitchell, Capital Revenue Expenses

81) Performed services on credit Answer: plus Accounts Receivable; plus Revenue Diff: 1 Topic: Accounting Equation and Financial Statements Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets, liabilities, and owner's equity and record these effects in accounting equation form. Bloom's: Analyze AACSB: Analytic AICPA: BB Critical Thinking; FN Reporting

SHORT ANSWER QUESTIONS 82) Paid cash for utilities Answer: plus Expenses; minus Cash Explanation: Diff: 1 Topic: Accounting Equation and Financial Statements Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets, liabilities, and owner's equity and record these effects in accounting equation form. Bloom's: Analyze AACSB: Analytic AICPA: BB Critical Thinking; FN Reporting

83) Sent a check to a creditor Answer: minus Accounts Payable; minus Cash Explanation: Diff: 1 Topic: Accounting Equation and Financial Statements Learning Objective: 02-01 Record in equation form the financial effects of a business transaction. Bloom's: Analyze AACSB: Analytic AICPA: BB Critical Thinking; FN Reporting

84) Issued checks to pay salaries Answer: plus Expenses; minus Cash Explanation: Diff: 1 Topic: Accounting Equation and Financial Statements Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets, liabilities, and owner's equity and record these effects in accounting equation form. Bloom's: Analyze AACSB: Analytic AICPA: BB Critical Thinking; FN Reporting

85) Purchased a computer for cash Answer: plus Equipment; minus Cash Explanation: Diff: 1 Topic: Accounting Equation and Financial Statement Learning Objective: 02-01 Record in equation form the financial effects of a business transaction. Bloom's: Analyze AACSB: Analytic AICPA: BB Critical Thinking; FN Reporting

86) Received cash from credit customers Answer: plus Cash; minus Accounts Receivable Explanation: Diff: 1 Topic: Accounting Equation and Financial Statements Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets, liabilities, and owner's equity and record these effects in accounting equation form. Bloom's: Analyze AACSB: Analytic AICPA: BB Critical Thinking; FN Reporting

87) Performed services for cash Answer: plus Cash; plus Revenue Explanation: Diff: 1 Topic: Accounting Equation and Financial Statements Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets, liabilities, and owner's equity and record these effects in accounting equation form. Bloom's: Analyze AACSB: Analytic AICPA: BB Critical Thinking; FN Reporting

88) The owner made an additional investment of cash Answer: plus Cash; plus K. Mitchell, Capital Explanation: Diff: 1 Topic: Accounting Equation and Financial Statements Learning Objective: 02-01 Record in equation form the financial effects of a business transaction. Bloom's: Analyze AACSB: Analytic AICPA: BB Critical Thinking; FN Reporting

89) Purchased Equipment on credit Answer: plus Equipment; plus Accounts Payable Explanation: Diff: 1 Topic: Accounting Equation and Financial Statements Learning Objective: 02-01 Record in equation form the financial effects of a business transaction. Bloom's: Analyze AACSB: Analytic AICPA: BB Critical Thinking; FN Reporting

90) Had a computer repaired; payment is due in 30 days Answer: plus Expenses; plus Accounts Payable Explanation: Diff: 1 Topic: Accounting Equation and Financial Statements Learning Objective: 02-01 Record in equation form the financial effects of a business transaction. Bloom's: Analyze AACSB: Analytic AICPA: BB Critical Thinking; FN Reporting

91) Guy McKinley started the McKinley Charter Service at the beginning of August 2019. On August 31, 2019, the accounting records of the business showed the following information. Prepare an income statement and a statement of owner's equity for the month and a balance sheet as of August 31, 2019. Equipment Accounts Receivable Fees Income Boats Gasoline Expense Loans Payable Owners' Withdrawal

$ 18,000 Rent Expense 2,600 Cash 30,000 Salaries Expense 103,000 Utilities Expense 7,500 Supplies 77,500 Initial Investment 4,100 Accounts Payable

$4,800 6,200 10,800 1,900 3,600 51,000 4,000

Answer:

MCKINLEY CHARTER SERVICE Income Statement Month Ended August 31, 2019 Revenue: Fees Income Expenses: Gasoline Expense Rent Expense Salaries Expense Utilities Expense Total Expenses Net Income

$30,000 $7,500 4,800 10,800 1,900 25,000 $5,000

MCKINLEY CHARTER SERVICE Statement of Owner's Equity Month Ended August 31, 2019 Guy McKinley, Capital, August 1, 2019 Net Income for August 5,000 Less Withdrawals for August 4,100 Increase in Capital Guy McKinley, Capital, August 31, 2019 MCKINLEY CHARTER SERVICE Balance Sheet August 31, 2019 Assets Liabilities Cash $6,200 Loans Payable Accounts Receivable 2,600 Accounts Payable Supplies 3,600 Total Liabilities Equipment 18,000 Owner's Equity Boats 103,000 Guy McKinley, Capital Total Liabilities Total Assets $ 133,400 and Owner's Equity

$51,000

900 $51,900

$77,500 4,000 81,500 51,900 $ 133,400

Explanation:

Diff: 3 Topic: Accounting Equation and Financial Statements Learning Objective: 02-05 Prepare a statement of owner's equity and a balance sheet. Bloom's: Create AACSB: Analytic AICPA: BB Critical Thinking; FN Reporting

ESSAY QUESTIONS The following information should be used for questions 92-94. On September 1, Shawn Dahl established Whitewater Rentals, a canoe and kayak rental business. The following transactions occurred in the month of September and affected the following accounts: Cash Accounts Receivable Office Equipment Canoe and Kayak Equipment

Accounts Payable Shawn Dahl, Capital Revenue Expenses

Transactions 1. Shawn Dahl invested $50,000 in cash to open the business 2. Paid $14,200 in cash for the purchase of kayak and canoe equipment 3. Paid $2,200 in cash for rent expense 4. Purchased additional kayak and canoe equipment for $4,900 on credit 5. Received $4,600 in cash for kayak rentals 6. Rented canoes and kayaks for $3,400 on account 7. Purchased office equipment for $375 in cash 8. Received $1,350 in cash from credit clients 9. Shawn Dahl withdrew $1,800 in cash for personal expenses

92) Based on the information shown in transaction #4 above, indicate the accounts affected and use plus and minus to show the changes caused by the transaction. Answer: plus Canoe and Kayak Equipment; plus Accounts Payable Diff: 1 Topic: Accounting Equation and Financial Statements Learning Objective: 02-02 Define, identify, and understand the relationship between asset, liability, and owner's equity accounts. Bloom's: Apply AACSB: Analytic AICPA: BB Critical Thinking; FN Reporting

SHORT ANSWER QUESTIONS 93) Based on the information shown above, what is the balance of Accounts Receivable for Whitewater Rentals at the end of September? Answer: The balance of Accounts Receivable at September 30 is $2,050. Explanation: Beginning Accounts Receivable, $0 + sales on account, $3,400 — collections on account, $1,350 = Ending Accounts Receivable, $2,050. Diff: 1 Topic: Accounting Equation and Financial Statements Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets, liabilities, and owner's equity and record these effects in accounting equation form. Bloom's: Apply AACSB: Analytic AICPA: BB Critical Thinking; FN Measurement; FN Reporting

94) Based on the information above, what is the fundamental accounting equation at the end of September for Whitewater Rentals? Answer: Assets $58,900 = Liabilities $4,900 + Owner's Equity $ 54,000 Explanation: Assets = Cash $37,375 + Accounts Receivable $2,050 + Office Equipment $375 + Canoe and Kayak Equipment $19,100 = $58,900. Liabilities = Accounts Payable $4,900. Equity = Investment $50,000 + Net Income $5,800 — Withdrawal $1,800 = $54,000. Detail for Assets: Cash = (1) $50,000 — (2) $14,200 — (3) $2,200 + (5) $4,600 — (7) $375 + (8) 1,350 — (9) $1,800 = $37,375. Accounts Receivable = (6) $3,400 — (8) $1,350 = $2,050. Office Equipment = (7) $375 Canoe & Kayak Equipment = (2) $14,200 + (4) $4,900 = $19,100. Detail for Liabilities: Accounts Payable = (4) $4,900. Diff: 3 Topic: Accounting Equation and Financial Statements Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets, liabilities, and owner's equity and record these effects in accounting equation form. Bloom's: Analyze AACSB: Analytic AICPA: BB Critical Thinking; FN Measurement; FN Reporting

ESSAY QUESTIONS 95) On June 1, Donna Banhil established Solo Services, a voice consulting service. Enter the following transactions for June in the table below using + and — to indicate increases or decreases: Transactions 1. Donna Banhil invested $21,000 in cash to open the business 2. Paid $1,650 for June's rent 3. Paid $4,950 for rent in advance, for the next three months (July-September) 4. Purchased office supplies for $550 on credit 5. Performed voice consulting services and immediately received $3,300 from clients. 38 Copyright © McGraw-Hill Education.All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

6. Gave voice lessons to charge account clients and earned $8,800 7. Paid $220 cash for the supplies purchased earlier in the month 8. Received $1,000 in cash from credit clients billed earlier in the month Trans

Assets Cash

Accts. Rec.

= Liab. Prepaid Rent

Office Supplies

Owner's Equity D. Banhil, Rev. Capital

Accts. Pay.

Expense

1 2 3 4 5 6 7 8 Bal

Answer: Assets

Trans Cash 1

+21,000

-1,650

-4,950

Accts. Rec.

= Liab. Prepaid Rent

Accts. Pay.

-1,650 +550

+550

+3,300

Expense

+4,950

4 5

Office Supplies

Owner's Equity D. Banhil, Rev. Capital +21,000

+3,300 +8,800

- 220

+1,000

-1,000

Bal

18,480

7,800

+8,800 -220

4,950

550

330

21,000

12,100

-1,650

Diff: 3 Topic: Business Transactions and Events Learning Objective: 02-03 Analyze the effects of business transactions on a firm's assets, liabilities, and owner's equity and record these effects in accounting equation form. Bloom's: Apply AACSB: Analytic AICPA: BB Critical Thinking; FN Measurement; FN Reporting

SHORT ANSWER QUESTIONS The following information should be used for questions 96-98. The figure below shows the transactions for Sawyer Architecture Services during June. Greg Sawyer opened this business on June 1 with a capital investment of $78,000 (Transaction 1). Trans

Assets Cash

Accts

Supp

Liab.

Equip

Accts

Owner's Equity G. Sawyer, Rev.

Pay

Capital

Rec

+78,000

- 8,200

+78,000 +8,200 +5,200

+5,200

+3,680

- 3,500

- 2,400

Bal

670

+3,680 -3,500

- 670 - 2,400

450 64,120 +

Expense

+450 4,530 +

450 +

11,880=

3,680

75,600 +

5,200 +

-3,500

96) What was the net income or net loss for Sawyer Architecture Services for the month of June? Answer: Net income was $1,700. Explanation: Revenue, $5,200 — Expenses, $3,500 = Net Income, $1,700. Diff: 1 Topic: Accounting Equation and Financial Statements Learning Objective: 02-04 Prepare an income statement. Bloom's: Apply AACSB: Analytic AICPA: BB Critical Thinking; FN Measurement; FN Reporting

ESSAY QUESTIONS 97) Prepare the statement of owner's equity for Sawyer Architecture Services for the month ended June 30, 2019. Answer: Sawyer Architecture Services Statement of Owner's Equity Month Ended June 30, 2019 Greg Sawyer, Capital, June 1, 2019 $78,000 Net Income for June $ 1,700 Less Withdrawals for June (2,400) Decrease in Capital (700) Greg Sawyer, Capital, June 30, 2019 $77,300 Diff: 2 Topic: Accounting Equation and Financial Statements Learning Objective: 02-05 Prepare a statement of owner's equity and a balance sheet. Bloom's: Create AACSB: Analytic AICPA: FN Measurement

98) Prepare the balance sheet for Sawyer Architecture Services as of June 30, 2019. Answer: Sawyer Architecture Services Balance Sheet June 30, 2019 Assets Liabilities Cash $64,120 Accounts Payable Accounts Receivable 4,530 Supplies 450 Owner's Equity Equipment 11,880 Greg Sawyer, Capital Total Assets $80,980 Total Liabilities and Owner's Equity

$3,680

77,300 $80,980

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

SHORT ANSWER QUESTIONS The following information should be used for questions 99-100. Cullen Beatty plans to start a consulting business–Cullen Consulting Services. In preparation to do this, on April 1, 2019, he invested $56,000 in cash and $23,000 in equipment, and opened an account at Office Plus by purchasing $1,750 in office supplies which is due by the end of the month. He then signed a one-year lease agreement on an office building for $8,400, paying the full amount in advance.

99) Prepare a Balance Sheet for Cullen Consulting Services as of April 1, 2019, before he conducts any services. Answer:

Cullen Consulting Services Balance Sheet April 1, 2019 Assets Cash $47,600 Supplies 1,750 Prepaid Rent 8,400 Equipment 23,000 Total $80,750

Liabilities Accounts Payable

$ 1,750

Owner's Equity Cullen Beatty, Capital Total

79,000 $80,750

Explanation: Cash Balance = Cash invested $56,000 — Cash spent for Prepaid Rent $ 8,400 = $47,600 Diff: 2 Topic: Accounting Equation and Financial Statements Learning Objective: 02-02 Define, identify, and understand the relationship between asset, liability, and owner's equity accounts. Bloom's: Create AACSB: Analytic AICPA: FN Measurement

ESSAY QUESTIONS 100) Cullen would like an explanation of the accounting for his business actions as of April 1, 2019. Explain the terms and interactions between the categories on a Balance Sheet. Answer: Answers will vary. Items that should be included are: The Balance Sheet is a format report of a business's financial condition --on a certain date --reports assets, liabilities, and owner's equity of a business --reports property owned by a business, obligations (debts) of a business --reports the financial interest (proprietorship, net worth) of the owner --total assets equals the total liabilities plus total owner's equity Diff: 2 Topic: Accounting Equation and Financial Statements Learning Objective: 02-02 Define, identify, and understand the relationship between asset, liability, and owner's equity accounts. Bloom's: Create AACSB: Analytic AICPA: BB Critical Thinking; FN Reporting; FN Decision Making

Chapter 03 Analyzing Business Transactions Using T Accounts MULTIPLE CHOICE QUESTIONS 1) When preparing the trial balance, the total debits MUST equal the total credits. A) True B) False Answer: A Explanation: Diff: 1 Topic: Transactions That Affect Revenue, Expenses, and Withdrawals Learning Objective: 03-05 Prepare a trial balance from T accounts. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

2) Credits increase Liabilities, Owner's Equity, and Revenue. A) True B) False Answer: A Explanation: Diff: 1 Topic: Transactions That Affect Assets, Liabilities, and Owner's Equity; Transactions That Affect Revenue, Expenses, and Withdrawals Learning Objective: 03-01 Set up T accounts for assets, liabilities, and owner's equity.; 03-04 Set up T accounts for revenue and expenses. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement

3) Increases in assets and expenses are both recorded with debits. A) True B) False Answer: A Explanation: Diff: 1 Topic: Transactions That Affect Assets, Liabilities, and Owner's Equity; Transactions That Affect Revenue, Expenses, and Withdrawals Learning Objective: 03-01 Set up T accounts for assets, liabilities, and owner's equity.; 03-04 Set up T accounts for revenue and expenses. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement

4) Increases in assets and revenue are both recorded with debits. A) True B) False Answer: B Explanation: Diff: 1 Topic: Transactions That Affect Assets, Liabilities, and Owner's Equity; Transactions That Affect Revenue, Expenses, and Withdrawals Learning Objective: 03-01 Set up T accounts for assets, liabilities, and owner's equity.; 03-04 Set up T accounts for revenue and expenses. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement

5) When an owner invests assets in a business, the capital account is debited. A) True B) False Answer: B Explanation: Diff: 1 Topic: Transactions That Affect Revenue, Expenses, and Withdrawals Learning Objective: 03-04 Set up T accounts for revenue and expenses. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement

6) If the total on the debit side of a T account is greater than the total on the credit side, the balance is recorded on the debit side. A) True B) False Answer: A Explanation: Diff: 1 Topic: Transactions That Affect Assets, Liabilities, and Owner's Equity Learning Objective: 03-03 Determine the balance of an account. Bloom's: Analyze AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

7) Utilities Expense would be debited when a company receives a bill for utilities that it will pay later. A) True B) False Answer: A Explanation: Diff: 1 Topic: Transactions That Affect Revenue, Expenses, and Withdrawals Learning Objective: 03-04 Set up T accounts for revenue and expenses. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement

8) Debit entries increase asset, drawing, expense and liability accounts. A) True B) False Answer: B Explanation: Diff: 1 Topic: Transactions That Affect Assets, Liabilities, and Owner's Equity; Transactions That Affect Revenue, Expenses, and Withdrawals Learning Objective: 03-01 Set up T accounts for assets, liabilities, and owner's equity.; 03-04 Set up T accounts for revenue and expenses. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement

9) The normal balance of a liability account is on the debit side. A) True B) False Answer: B Explanation: Diff: 1 Topic: Transactions That Affect Assets, Liabilities, and Owner's Equity Learning Objective: 03-03 Determine the balance of an account. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

10) Increases in owner's equity are recorded with credits. A) True B) False Answer: A Explanation: Diff: 1 Topic: Transactions That Affect Assets, Liabilities, and Owner's Equity Learning Objective: 03-01 Set up T accounts for assets, liabilities, and owner's equity. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement

11) Revenue is a component of owner's equity. A) True B) False Answer: A Explanation: Diff: 1 Topic: Transactions That Affect Revenue, Expenses, and Withdrawals Learning Objective: 03-04 Set up T accounts for revenue and expenses. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

12) An increase in an expense results in an increase in owner's equity. A) True B) False Answer: B Explanation: Diff: 1 Topic: Transactions That Affect Revenue, Expenses, and Withdrawals Learning Objective: 03-04 Set up T accounts for revenue and expenses. Bloom's: Analyze AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

13) Increases in the owner's drawing account are recorded with debits. A) True B) False Answer: A Explanation: Diff: 1 Topic: Transactions That Affect Revenue, Expenses, and Withdrawals Learning Objective: 03-04 Set up T accounts for revenue and expenses. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement

14) After transactions for the period have been recorded, a trial balance is prepared to verify the equality of total debits and total credits. A) True B) False Answer: A Explanation: Diff: 1 Topic: Transactions That Affect Revenue, Expenses, and Withdrawals Learning Objective: 03-05 Prepare a trial balance from T accounts. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

15) A business transaction must affect at least two accounts. A) True B) False Answer: A Explanation: Diff: 1 Topic: Transactions That Affect Assets, Liabilities, and Owner's Equity Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

16) The current system of accounting is called the double-entry system because a debit to one account is balanced by a credit to another account. A) True B) False Answer: A Explanation: Diff: 1 Topic: Transactions That Affect Revenue, Expenses, and Withdrawals Learning Objective: 03-05 Prepare a trial balance from T accounts. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

17) Financial statements are prepared after the trial balance is prepared. A) True B) False Answer: A Explanation: Diff: 1 Topic: Transactions That Affect Revenue, Expenses, and Withdrawals Learning Objective: 03-06 Prepare an income statement, a statement of owner's equity, and a balance sheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

18) Another name for permanent accounts is real accounts. A) True B) False Answer: A Explanation: Diff: 1 Topic: Transactions That Affect Revenue, Expenses, and Withdrawals Learning Objective: 03-07 Develop a chart of accounts. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

19) Another name for temporary accounts is real accounts. A) True B) False Answer: B Explanation: Diff: 1 Topic: Transactions That Affect Revenue, Expenses, and Withdrawals Learning Objective: 03-07 Develop a chart of accounts. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

20) When developing a chart of accounts, the highest block of numbers is assigned to asset accounts. A) True B) False Answer: B Explanation: Diff: 1 Topic: Transactions That Affect Revenue, Expenses, and Withdrawals Learning Objective: 03-07 Develop a chart of accounts. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

21) An account whose balance is transferred to the capital account at the end of an accounting period is a temporary account. A) True B) False Answer: A Explanation: Diff: 1 Topic: Transactions That Affect Revenue, Expenses, and Withdrawals; Defining Accounting Terms Learning Objective: 03-07 Develop a chart of accounts.; 03-08 Define the accounting terms new to this chapter. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

22) An account with a balance that carries over from one accounting period to another is a nominal account. A) True B) False Answer: B Explanation: Diff: 1 Topic: Transactions That Affect Revenue, Expenses, and Withdrawals; Defining Accounting Terms Learning Objective: 03-07 Develop a chart of accounts.; 03-08 Define the accounting terms new to this chapter. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

23) The classification and normal balance of the accounts receivable account is: A) an asset with a debit balance. B) a revenue with a debit balance. C) a liability with a debit balance. D) an asset with a credit balance. Answer: A Explanation: A) B) C) D) Diff: 1 Topic: Transactions That Affect Assets, Liabilities, and Owner's Equity Learning Objective: 03-01 Set up T accounts for assets, liabilities, and owner's equity. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

24) The classification and normal balance of the salaries expense account is: A) a liability with a debit balance. B) an expense with a credit balance. C) an asset with a debit balance. D) an expense with a debit balance. Answer: D Explanation:

A) B) C) D)

Diff: 1 Topic: Transactions That Affect Revenue, Expenses, and Withdrawals Learning Objective: 03-04 Set up T accounts for revenue and expenses. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

25) A business earns $4,000 from various charge account clients. To record this transaction, the business would: A) Debit Accounts Receivable; Credit Fees Income B) Debit Cash; Credit Accounts Receivable C) Debit Accounts Payable; Credit Fees Income D) Debit Accounts Receivable; Credit Cash Answer: A Explanation: A) B) C) D) Diff: 1 Topic: Transactions That Affect Assets, Liabilities, and Owner's Equity Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement

26) Select the entry below to record the payment to employees for work performed during the pay period? A) debit Cash, and credit Accounts Receivable B) debit Salary Expense and credit Cash C) debit Salary Expense and credit Accounts Receivable D) debit Cash and credit Salary Expense Answer: B Explanation: A) B) C) D) Diff: 1 Topic: Transactions That Affect Assets, Liabilities, and Owner's Equity Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement

27) A business receives a bill for utilities but decides to pay it next month. The business would record the receipt of the bill by: A) Debiting Utilities Expense; Crediting Cash B) Debiting Utilities Expense; Crediting Accounts Receivable C) Debiting Utilities Expense; Crediting Accounts Payable D) Debiting Accounts Payable; Crediting Utilities Expense Answer: C Explanation: A) B) C) D) Diff: 1 Topic: Transactions That Affect Assets, Liabilities, and Owner's Equity Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement

28) A business purchases equipment costing $5,500. They pay $1,500 right away and charge the remaining amount. To record this transaction, the business would: A) Debit Equipment $5,500; Credit Cash $1,500 and Credit Accounts Payable $4,000 B) Debit Equipment $5,500; Credit Accounts Payable $5,500 C) Debit Equipment $4,000; Credit Accounts Payable $4,000 D) Debit Equipment $1,500; Credit Cash $1,500 Answer: A Explanation: A) B) C) D) Diff: 2 Topic: Transactions That Affect Assets, Liabilities, and Owner's Equity Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement

29) A business performed $8,000 of services. Their customer paid $3,000 of the amount right away but charged the remaining amount. To record this transaction, the business would: A) Debit Cash $3,000 and Debit Accounts Receivable $5,000 and Credit Fees Income $8,000 B) Debit Accounts Receivable $8,000 and; Credit Fees Income $8,000 C) Debit Cash $3,000; Credit Fees Income $3,000 D) Debit Cash $3,000 and Debit Accounts Payable $5,000; Credit Fees Income $8,000 Answer: A Explanation: A) B) C) D) Diff: 2 Topic: Transactions That Affect Assets, Liabilities, and Owner's Equity Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement

30) Which of the following entries records the withdrawal of cash for personal use by Ty Knott, the owner of a business? A) debit Ty Knott, Drawing, and credit Cash B) debit Salary Expense and credit Cash C) debit Cash and credit Salary Expense D) debit Cash and credit Ty Knott, Capital Answer: A Explanation: A) B) C) D) Diff: 1 Topic: Transactions That Affect Assets, Liabilities, and Owner's Equity Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry

31) The ending capital balance appears on which of the following statement(s)? A) Income Statement B) Statement of owner's equity and balance sheet C) Only on the Statement of owner's equity D) Statement of owner's equity and income statement Answer: B Explanation: A) B) C) D) Diff: 1 Topic: Transactions That Affect Revenue, Expenses, and Withdrawals Learning Objective: 03-06 Prepare an income statement, a statement of owner's equity, and a balance sheet. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

32) On a statement of owner's equity, beginning capital is $30,000, Net Income for the year is $11,000 and Drawing for the year is $6,000, the ending capital amount would be: A) $25,000. B) $47,000. C) $35,000. D) $30,000. Answer: C Explanation: A) Beginning Capital, $30,000 + Net Income, $11,000 - Drawing, $6,000 = Ending Capital, $35,000. B) Beginning Capital, $30,000 + Net Income, $11,000 - Drawing, $6,000 = Ending Capital, $35,000. C) Beginning Capital, $30,000 + Net Income, $11,000 - Drawing, $6,000 = Ending Capital, $35,000. D) Beginning Capital, $30,000 + Net Income, $11,000 - Drawing, $6,000 = Ending Capital, $35,000. Diff: 2 Topic: Transactions That Affect Revenue, Expenses, and Withdrawals Learning Objective: 03-06 Prepare an income statement, a statement of owner's equity, and a balance sheet. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

33) A business purchases supplies on account. The entry to record this transaction is: A) Debit to Supplies; Credit Accounts Receivable B) Debit Supplies; Credit Accounts Payable C) Debit Supplies; Credit to Cash D) Debit to Cash; Credit Supplies Answer: B Explanation: A) B) C) D) Diff: 1 Topic: Transactions That Affect Assets, Liabilities, and Owner's Equity Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

34) On a statement of owner's equity, beginning capital is $152,000, Drawing for the year is $65,000, and the ending capital is $191,000. What is the amount of Net Income for the year? A) $126,000 B) $ 87,000 C) $104,000 D) $ 26,000 Answer: C Explanation: A) Beginning Capital, $152,000 + Net Income, $104,000 – Drawing, $65,000 = Ending Capital, $191,000. B) Beginning Capital, $152,000 + Net Income, $104,000 – Drawing, $65,000 = Ending Capital, $191,000. C) Beginning Capital, $152,000 + Net Income, $104,000 – Drawing, $65,000 = Ending Capital, $191,000. D) Beginning Capital, $152,000 + Net Income, $104,000 – Drawing, $65,000 = Ending Capital, $191,000. Diff: 3 Topic: Transactions That Affect Revenue, Expenses, and Withdrawals Learning Objective: 03-06 Prepare an income statement, a statement of owner's equity, and a balance sheet. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

35) Debits are used to record: A) increases in assets. C) increases in revenue. Answer: A Explanation: A) B) C) D)

B) increases in liabilities. D) decreases in expenses.

Diff: 1 Topic: Transactions That Affect Assets, Liabilities, and Owner's Equity; Transactions That Affect Revenue, Expenses, and Withdrawals Learning Objective: 03-01 Set up T accounts for assets, liabilities, and owner's equity.; 03-04 Set up T accounts for revenue and expenses. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

36) Which of the following represents the proper sequence for preparing the financial statements? A) balance sheet, statement of owner's equity, income statement B) income statement, balance sheet, statement of owner's equity C) statement of owner's equity, income statement, balance sheet D) income statement, statement of owner's equity, balance sheet Answer: D Explanation: A) B) C) D) Diff: 1 Topic: Transactions That Affect Revenue, Expenses, and Withdrawals Learning Objective: 03-06 Prepare an income statement, a statement of owner's equity, and a balance sheet. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

37) Which of the following is not one of the formal financial statements that is made available to all users of the financial statements. A) Income Statement B) Trial Balance C) Statement of Owner's Equity D) Balance Sheet Answer: B Explanation: A) B) C) D) Diff: 1 Topic: Transactions That Affect Revenue, Expenses, and Withdrawals Learning Objective: 03-05 Prepare a trial balance from T accounts.; 03-06 Prepare an income statement, a statement of owner's equity, and a balance sheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

38) A business pays a creditor on account. The entry to record this transaction is: A) Debit Cash; Credit Accounts Payable B) Debit Accounts Receivable; Credit to Cash C) Debit Accounts Receivable; Credit Accounts Payable D) Debit Accounts Payable; Credit Cash Answer: D Explanation: A) B) C) D) Diff: 1 Topic: Transactions That Affect Assets, Liabilities, and Owner's Equity Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

39) When recording transactions in the T-accounts, the debits should equal the credits: A) Always. B) Sometimes. C) Never. D) Only for asset accounts. Answer: A Explanation: A) B) C) D) Diff: 1 Topic: Transactions That Affect Assets, Liabilities, and Owner's Equity Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

40) Credits are used to record: A) decreases in liabilities and increases in assets and owner's equity. B) decreases in assets and owner's equity and increases in liabilities. C) increases in liabilities and revenues. D) increases in assets, liabilities, and owner's equity. Answer: C Explanation: A) B) C) D) Diff: 1 Topic: Transactions That Affect Assets, Liabilities, and Owner's Equity; Transactions That Affect Revenue, Expenses, and Withdrawals Learning Objective: 03-01 Set up T accounts for assets, liabilities, and owner's equity.; 03-04 Set up T accounts for revenue and expenses. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

41) Debits are used to record increases in: A) assets and liabilities. C) revenue and owner's equity. Answer: B Explanation: A) B) C) D)

B) assets and expenses. D) assets and revenue.

Diff: 1 Topic: Transactions That Affect Assets, Liabilities, and Owner's Equity; Transactions That Affect Revenue, Expenses, and Withdrawals Learning Objective: 03-01 Set up T accounts for assets, liabilities, and owner's equity.; 03-04 Set up T accounts for revenue and expenses. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

42) A firm paid cash to apply against a debt. To record this transaction, the accountant would: A) credit Cash and credit Accounts Payable. B) debit Accounts Payable and credit Cash. C) debit Accounts Receivable and credit Cash. D) debit Cash and credit Accounts Payable. Answer: B Explanation: A) B) C) D) Diff: 1 Topic: Transactions That Affect Assets, Liabilities, and Owner's Equity Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

43) The ABC Company paid cash on account for supplies purchased last month. This would be recorded in the T-accounts as a: A) debit Supplies and credit Accounts Payable. B) debit to Accounts Payable and credit Cash. C) debit Accounts Receivable and credit Cash. D) debit Cash and credit Supplies. Answer: B Explanation: A) B) C) D) Diff: 1 Topic: Transactions That Affect Assets, Liabilities, and Owner's Equity Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

44) When revenue is earned from charge account sales, the accountant: A) debits Cash and credits a revenue account. B) debits Accounts Receivable and credits a revenue account. C) debits a revenue account and credits the capital account. D) debits a revenue account and credits Accounts Receivable. Answer: B Explanation: A) B) C) D) Diff: 1 Topic: Transactions That Affect Assets, Liabilities, and Owner's Equity Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

45) When charge customers pay cash to apply against their accounts, the amount is recorded: A) on the left side of the Cash account and the right side of the Fees Income account. B) on the left side of the Cash account and the right side of the Accounts Receivable account. C) on the left side of the Accounts Payable account and the right side of the Cash account. D) on the left side of the Cash account and the left side of the Accounts Receivable account. Answer: B Explanation: A) B) C) D) Diff: 2 Topic: Transactions That Affect Assets, Liabilities, and Owner's Equity Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

46) The total of the figures on the left side of a Cash account is $36,700. The total of the figures on the right side is $16,250. The balance of this account: A) is $52,950 and would be recorded on the right side of the account. B) is $20,450 and would be recorded on the left side of the account. C) is $52,950 and would be recorded on the left side of the account. D) is $20,450 and would be recorded on the right side of the account. Answer: B Explanation: A) $36,700 debit (left) - $16,250 credit (right) = $20,450 debit (left). B) $36,700 debit (left) - $16,250 credit (right) = $20,450 debit (left). C) $36,700 debit (left) - $16,250 credit (right) = $20,450 debit (left). D) $36,700 debit (left) - $16,250 credit (right) = $20,450 debit (left). Diff: 1 Topic: Transactions That Affect Assets, Liabilities, and Owner's Equity Learning Objective: 03-03 Determine the balance of an account. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

47) The account used to record increases in owner's equity from the sale of goods or services is: A) the capital account. B) the cash account. C) the fees income account. D) the drawing account. Answer: C Explanation: A) B) C) D) Diff: 1 Topic: Transactions That Affect Assets, Liabilities, and Owner's Equity; Transactions That Affect Revenue, Expenses, and Withdrawals Learning Objective: 03-01 Set up T accounts for assets, liabilities, and owner's equity.; 03-04 Set up T accounts for revenue and expenses. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

48) Which of the following types of accounts normally have debit balances? A) liabilities and owner's equity B) assets and revenue C) assets, liabilities, and owner's equity D) expenses and assets Answer: D Explanation: A) B) C) D) Diff: 1 Topic: Transactions That Affect Assets, Liabilities, and Owner's Equity; Transactions That Affect Revenue, Expenses, and Withdrawals Learning Objective: 03-01 Set up T accounts for assets, liabilities, and owner's equity.; 03-04 Set up T accounts for revenue and expenses. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

49) Which of the following accounts have normal credit balances? A) Accounts Payable and Equipment B) Salaries Expense and Accounts Payable C) Fees Income and John Smith, Capital D) Accounts Receivable and Fees Income Answer: C Explanation: A) B) C) D) Diff: 1 Topic: Transactions That Affect Assets, Liabilities, and Owner's Equity; Transactions That Affect Revenue, Expenses, and Withdrawals Learning Objective: 03-01 Set up T accounts for assets, liabilities, and owner's equity.; 03-04 Set up T accounts for revenue and expenses. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

50) If the trial balance totals are not equal, this may have been caused by a transposition error if the difference is divisible by: A) 9. B) 7. C) 3. D) 5. Answer: A Explanation:

A) B) C) D)

Diff: 1 Topic: Transactions That Affect Revenue, Expenses, and Withdrawals Learning Objective: 03-05 Prepare a trial balance from T accounts. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement

51) When the trial balance totals are not equal, the error may have been caused by recording a debit as a credit if the difference is divisible by: A) 9. B) 5. C) 3. D) 2. Answer: D Explanation: A) B) C) D) Diff: 1 Topic: Transactions That Affect Revenue, Expenses, and Withdrawals Learning Objective: 03-05 Prepare a trial balance from T accounts. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement

52) Which of the following transactions increase owner's equity? A) owner withdrawals for personal use B) receiving cash from customers on account C) earning revenue D) paying expenses Answer: C Explanation: A) B) C) D) Diff: 1 Topic: Transactions That Affect Assets, Liabilities, and Owner's Equity; Transactions That Affect Revenue, Expenses, and Withdrawals Learning Objective: 03-01 Set up T accounts for assets, liabilities, and owner's equity.; 03-04 Set up T accounts for revenue and expenses. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

53) If assets are numbered from 100-199, which of the following accounts would not be given a number in the 100 series? A) Prepaid Rent B) Supplies C) Accounts Receivable D) Accounts Payable Answer: D Explanation: A) B) C) D) Diff: 1 Topic: Transactions That Affect Revenue, Expenses, and Withdrawals Learning Objective: 03-07 Develop a chart of accounts. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

54) Which of the following accounts is not a permanent account? A) Cash B) Thomas Bernard, Capital C) Salaries Expense D) Accounts Payable Answer: C Explanation: A) B) C) D) Diff: 1 Topic: Transactions That Affect Revenue, Expenses, and Withdrawals Learning Objective: 03-07 Develop a chart of accounts. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

55) The "Net Income" or "Net Loss" is transferred from the income statement to the A) chart of accounts. B) trial balance. C) balance sheet. D) statement of owner's equity. Answer: D Explanation: A) B) C) D) Diff: 1 Topic: Transactions That Affect Revenue, Expenses, and Withdrawals Learning Objective: 03-06 Prepare an income statement, a statement of owner's equity, and a balance sheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

56) The ending capital balance appears on what financial statement(s) A) income statement and the statement of owner's equity. B) statement of owner's equity and the balance sheet. C) income statement and balance sheet. D) only on the balance sheet. Answer: B Explanation: A) B) C) D) Diff: 1 Topic: Transactions That Affect Revenue, Expenses, and Withdrawals Learning Objective: 03-06 Prepare an income statement, a statement of owner's equity, and a balance sheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

57) The normal balance of an account is the: A) the right side of the account. C) increase side of the account. Answer: C Explanation: A) B) C) D)

B) decrease side of the account. D) the left side of the account.

Diff: 1 Topic: Transactions That Affect Assets, Liabilities, and Owner's Equity Learning Objective: 03-03 Determine the balance of an account. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

58) Which of the accounts below would ALL appear on the balance sheet. A) Utility Expense, Salary Expense, Cash B) Owner's Capital (beginning), Owner's Drawing, Supplies Expense C) Accounts Receivable, Accounts Payable, Fee Income D) Cash, Accounts Payable, Owner's Capital (ending balance) Answer: D Explanation: A) B) C) D) Diff: 1 Topic: Transactions That Affect Revenue, Expenses, and Withdrawals Learning Objective: 03-06 Prepare an income statement, a statement of owner's equity, and a balance sheet. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

59) If a trial balance is not in balance (the Debit and Credit columns are not equal), a logical first step is to A) check each account balance in the general ledger to the trial balance number. B) divide the difference by either 9 or 2. C) check the addition of each column. D) check each account balance calculation. Answer: C Explanation: A) B) C) D) Diff: 1 Topic: Transactions That Affect Revenue, Expenses, and Withdrawals Learning Objective: 03-05 Prepare a trial balance from T accounts. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

60) The Net Income amount from the Income Statement is transferred to which of the following statements? A) the profit and loss statement B) the statement of owner's equity C) the trial balance D) the balance sheet Answer: B Explanation: A) B) C) D) Diff: 1 Topic: Transactions That Affect Revenue, Expenses, and Withdrawals Learning Objective: 03-06 Prepare an income statement, a statement of owner's equity, and a balance sheet. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

61) The Net Income appears as a separate line item on what two statements? A) the statement of owner's equity and the income statement B) the trial balance and the income statement C) the income statement and the balance sheet D) the statement of owner's equity and the balance sheet Answer: A Explanation: A) B) C) D) Diff: 1 Topic: Transactions That Affect Revenue, Expenses, and Withdrawals Learning Objective: 03-06 Prepare an income statement, a statement of owner's equity, and a balance sheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

62) Which of the following accounts is NOT a nominal account? A) Salaries Expense B) Office Supplies C) Moriah Paige, Drawing D) Rent Revenue Answer: B Explanation: A) B) C) D) Diff: 1 Topic: Transactions That Affect Revenue, Expenses, and Withdrawals Learning Objective: 03-07 Develop a chart of accounts. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

63) An accounting system that involves recording the effects of each transaction as debits and credits is: A) preparing financial statements. B) the double-entry system. C) completing one T account. D) analyzing a business transaction. Answer: B Explanation: A) B) C) D) Diff: 1 Topic: Transactions That Affect Assets, Liabilities, and Owner's Equity Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

64) Which of the following does NOT describe a transposition? A) It is an error. B) It causes the difference between the debit total and the credit total to be divisible by 2. C) It involves misplaced digits in a number. D) It causes the trial balance to be out of balance. Answer: B Explanation: A) B) C) D) Diff: 1 Topic: Transactions That Affect Revenue, Expenses, and Withdrawals; Defining Accounting Terms Learning Objective: 03-05 Prepare a trial balance from T accounts.; 03-08 Define the accounting terms new to this chapter. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

65) Which of the following would result in an error when preparing the Trial Balance? A) Placing the Accounts Payable balance in the Credit column B) Placing the Withdrawal account balance in the Debit column C) Placing a Revenue account balance in the Credit column D) Placing the balance in Prepaid Rent in the Credit column Answer: D Explanation: A) B) C) D) Diff: 2 Topic: Transactions That Affect Revenue, Expenses, and Withdrawals Learning Objective: 03-05 Prepare a trial balance from T accounts. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

66) Which of the following would cause the Trial Balance to be out of balance? A) Placing the Capital account balance in the Credit column B) Placing the Rent Expense account balance in the Debit column C) Placing the Accounts Receivable balance in the Credit column D) Placing the Equipment account balance in the Debit column Answer: C Explanation: A) B) C) D) Diff: 2 Topic: Transactions That Affect Revenue, Expenses, and Withdrawals Learning Objective: 03-05 Prepare a trial balance from T accounts. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

67) Which of the following would cause the Debit column and the Credit column of the Trial Balance to be unequal? A) Placing the Prepaid Rent balance in the Credit column B) Placing the Rent Expense balance in the Debit column C) Placing the Fees Income balance in the Credit column D) Placing the Office Equipment balance in the Debit column Answer: A Explanation: A) B) C) D) Diff: 2 Topic: Transactions That Affect Revenue, Expenses, and Withdrawals Learning Objective: 03-05 Prepare a trial balance from T accounts. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

SHORT ANSWER QUESTIONS 68) Separate written records called equity of a business. Answer: accounts Explanation:

are kept for each asset and liability and for the owner's

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

69) The right side of an account is referred to as the ________ side of an account. Answer: credit Explanation: Diff: 1 Topic: Debits and Credits Learning Objective: 03-01 Set up T accounts for assets, liabilities, and owner's equity. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Measurement; FN Reporting

70) A decrease in a liability is recorded on the ________ side of the account. Answer: debit or left Explanation: Diff: 1 Topic: Debits and Credits Learning Objective: 03-01 Set up T accounts for assets, liabilities, and owner's equity. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Measurement; FN Reporting

71) Revenue and expense accounts are called

accounts.

Answer: nominal or temporary Explanation: Diff: 1 Topic: Assets, Liabilities, Owner's Equity, Revenue, Expense Accounts Learning Objective: 03-07 Develop a chart of accounts.; 03-08 Define the accounting terms new to this chapter. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting

72) Expense accounts are increased on the ________ side of the account. Answer: debit or left Explanation: Diff: 1 Topic: Assets, Liabilities, Owner's Equity, Revenue, Expense Accounts Learning Objective: 03-04 Set up T accounts for revenue and expenses. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Measurement

73) When equipment is purchased for cash, the cash account is credited and the ________ account is debited. Answer: equipment Explanation: Diff: 1 Topic: Business Transactions in Accounts Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Bloom's: Understand AACSB: Analytic AICPA: BB Industry; FN Measurement; FN Reporting

74) A(n) services.

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

Answer: revenue Explanation: Diff: 1 Topic: Business Transactions in Accounts Learning Objective: 03-04 Set up T accounts for revenue and expenses. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Measurement; FN Reporting

75) The difference between the debit and credit side of an account is called the account ________. Answer: balance Explanation: Diff: 1 Topic: Debits and Credits Learning Objective: 03-03 Determine the balance of an account. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Measurement; FN Reporting

76) A small pencil figure written at the base of an amount column showing the sum of the entries in the column is called a ________. Answer: footing Explanation: Diff: 1 Topic: Debits and Credits Learning Objective: 03-03 Determine the balance of an account. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Measurement

77) The increase side of an account represents the

_ balance of the account.

Answer: normal Explanation: Diff: 1 Topic: Debits and Credits Learning Objective: 03-03 Determine the balance of an account. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Measurement

78) A statement prepared to test the equality of total debits and credits after transactions have been recorded is called a(n) ________. Answer: trial balance Explanation: Diff: 1 Topic: Trial Balance Learning Objective: 03-05 Prepare a trial balance from T accounts. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting

79) A special type of owner's equity account set up to record withdrawals of assets by the owner for personal use is called a(n) account. Answer: drawing Explanation: Diff: 1 Topic: Assets, Liabilities, Owner's Equity, Revenue, Expense Accounts Learning Objective: 03-01 Set up T accounts for assets, liabilities, and owner's equity. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Measurement; FN Reporting

80) The error that occurs when the number $5.00 is written as $50.00 is called a(n) ________ error. Answer: slide Explanation: Diff: 1 Topic: Business Transactions in Accounts Learning Objective: 03-08 Define the accounting terms new to this chapter. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Measurement

81) The error that occurs when the number $272.00 is written as $27.20 is called a(n) ________ error. Answer: slide Explanation: Diff: 1 Topic: Business Transactions in Accounts Learning Objective: 03-08 Define the accounting terms new to this chapter. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Measurement

82) The error that occurs when the number $916 is written as $961 is called a(n) ________ error. Answer: transposition Explanation: Diff: 1 Topic: Business Transactions in Accounts Learning Objective: 03-08 Define the accounting terms new to this chapter. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Measurement

83) An entry on the right side of an account is called a(n) Answer: credit Explanation:

Diff: 1 Topic: Debits and Credits Learning Objective: 03-04 Set up T accounts for revenue and expenses.; 03-08 Define the accounting terms new to this chapter. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Measurement

84) An entry on the left side of an account is called a(n) ________. Answer: debit Explanation: Diff: 1 Topic: Debits and Credits Learning Objective: 03-04 Set up T accounts for revenue and expenses.; 03-08 Define the accounting terms new to this chapter. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Measurement

85) Rent Revenue is increased by ________ the account. Answer: crediting Explanation: Diff: 1 Topic: Debits and Credits Learning Objective: 03-04 Set up T accounts for revenue and expenses. Bloom's: Understand AACSB: Analytic AICPA: BB Industry; FN Measurement

86) Another name for the profit and loss statement is the ________. Answer: Income Statement Explanation: Diff: 1 Topic: Financial Statements Learning Objective: 03-06 Prepare an income statement, a statement of owner's equity, and a balance sheet. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting

87) The account Moriah Paige, Capital, would appear on both the Statement of Owner's Equity and the ________. Answer: Balance Sheet Explanation: Diff: 2 Topic: Financial Statements Learning Objective: 03-06 Prepare an income statement, a statement of owner's equity, and a balance sheet. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Reporting

88) The order in which financial statements are prepared is determined by the fact that information from one statement is needed to prepare the next. Which statement is prepared last? _. Answer: Balance Sheet Explanation: Diff: 2 Topic: Financial Statements Learning Objective: 03-06 Prepare an income statement, a statement of owner's equity, and a balance sheet. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Reporting

89) In a Chart of Accounts, each category of accounts is given a ________ of numbers with gaps so that additional accounts can be added when needed. Answer: series Explanation: Diff: 2 Topic: Chart of Accounts Learning Objective: 03-07 Develop a chart of accounts. Bloom's: Understand AACSB: Analytic AICPA: BB Industry; FN Reporting

ESSAY QUESTIONS The following information should be used for questions 90-97. Cash Accounts Receivable Office Equipment Office Supplies Accounts Payable Brandon Phipps, Capital Brandon Phipps, Drawing Fees Income Rent Expense Salaries Expense Utilities Expense For each of the following transactions determine the accounts to be debited and credited.

90) Performed services for cash Answer: Debit Cash; credit Fees Income Diff: 1 Topic: Business Transactions in Accounts Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Measurement; FN Reporting

91) Purchased office equipment on credit Answer: Debit Office Equipment; credit Accounts Payable Diff: 1 Topic: Business Transactions in Accounts Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

92) Received cash from credit customers Answer: Debit Cash; credit Accounts Receivable Diff: 1 Topic: Business Transactions in Accounts Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

93) Issued a check to a creditor Answer: Debit Accounts Payable; credit Cash Diff: 1 Topic: Business Transactions in Accounts Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

94) Performed services on credit Answer: Debit Accounts Receivable; credit Fees Income Diff: 1 Topic: Business Transactions in Accounts Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

95) Received a credit for damaged office equipment that was returned Answer: Debit Accounts Payable; credit Office Equipment Diff: 1 Topic: Business Transactions in Accounts Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

96) Paid Cash to purchase Office Supplies Answer: Debit Office Supplies; credit Cash Diff: 1 Topic: Business Transactions in Accounts Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

97) Issued checks to pay salaries Answer: Debit Salaries Expense; credit Cash Diff: 1 Topic: Business Transactions in Accounts Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

98) The consulting firm of Martin and Associates uses the accounts listed below. On a separate sheet of paper, set up T accounts for each of the accounts listed and record the balances as of December 1, 2019 on the normal balance side of the accounts. Cash Accounts Receivable Office Equipment Accounts Payable Joan Martin, Capital Joan Martin, Drawing

$ 5,800 9,500 8,900 5,000 19,200 -0-

Fees Income Rent Expense Utilities Expense Salaries Expense

-0-0-0-0-

The firm has the following transactions during the month of December 2019. Record the effects of these transactions in the T accounts. a. Paid $2,100 for one month's rent b. Collected $4,500 in cash from credit customers c. Performed services for $8,300 in cash d. Paid $5,300 for salaries e. Issued a check for $2,750 to a creditor f. Performed services for $11,650 on credit g. Purchased office equipment for $3,200 on credit h. The owner withdrew $2,800 in cash for personal expenses i. Issued a check for $925 to pay the monthly utility bill Determine the account balances after the transactions have been recorded Prepare a trial balance as of December 31, 2019.

Answer: Cash Bal. 5,800 (b) 4,500 (c) 8,300

Bal.

Bal. (g) Bal.

(a) (d) (e) (h) (i)

2,100 5,300 2,750 2,800 925

Accounts Receivable Bal. 9,500 (f) 11,650

4,725 Office Equipment 8,900 3,200 12,100 Joan Martin, Capital Bal. 19,2 00

(b)

4,500

Bal. 16,650 Accounts Payable (e) 2,750

(h)

Bal. (g) Bal.

5,000 3,200 5,450

Joan Martin, Drawing 2,800

Answer:

Bal.

19,200

(h)

Fees Income (c) 8,300 (f) 11,650 Bal. 19,950

(i)

Utilities Expense 925

2,800

Rent Expense (a) 2,100

(d)

Salaries Expense 5,300

MARTIN AND ASSOCIATES Trial Balance December 31, 2019 ACCOUNT NAME Cash Accounts Receivable Office Equipment Accounts Payable Joan Martin, Capital Joan Martin, Drawing Fees Income Rent Expense Utilities Expense Salaries Expense Totals

DEBIT $4,725 16,650 12,100

CREDIT

$5,450 19,200 2,800 19,950 2,100 925 5,300 $44,600

$44,600

Diff: 3 Topic: Business Transactions in Accounts Learning Objective: 03-05 Prepare a trial balance from T accounts. Bloom's: Create AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

99) The account balances from the December 31, 2019, trial balance for Haman Accounting Services are shown below. Prepare an income statement, a statement of owner's equity, and a balance sheet for the month ended December 31, 2019. HAMAN ACCOUNTING Trial Balance December 31, 2019 39 Copyright © McGraw-Hill Education.All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

ACCOUNT NAME Cash Accounts Receivable Supplies Prepaid Rent Equipment Accounts Payable Erik Haman, Capital Erik Haman, Drawing Fees Income Salaries Expense Utilities Expense Totals

Answer:

DEBIT 7,300 3,200 1,200 12,000 15,500

CREDIT

9,450 20,000 4,200 21,000 6,200 850 50,450

50,450

HAMAN ACCOUNTING SERVICES Income Statement Month Ended December 31, 2019 Revenue Fees Income Expenses Salaries Expense Utilities Expense Total Expenses Net Income

$21,000 $6,200 850 7,050 $13,950

HAMAN ACCOUNTING SERVICES Statement of Owner's Equity Month Ended December 31, 2019 Erik Haman, Capital, Dec 1, 2019 Net Income $13,950 Less Withdrawals 4,200 Increase in Capital Erik Haman, Capital, Dec. 31, 2016

$ 20,000

9,750 $ 29,750

HAMAN ACCOUNTING SERVICES Balance Sheet December 31, 2019 Assets Liabilities Cash $7,300 Accounts Payable Accounts Receivable 3,200 Supplies Owner's Equity 1,24000

$9,450

Answer: Supplies Prepaid Rent Equipment Total Assets

1,200 Owner's Equity 12,000 Erik Haman, Capital 15,500 Total Liabilities and Owner's Equity $ 39,200

29,750

$ 39,200

Diff: 3 Topic: Financial Statements Learning Objective: 03-06 Prepare an income statement, a statement of owner's equity, and a balance sheet. Bloom's: Create AACSB: Analytic AICPA: BB Industry; FN Measurement; FN Reporting

SHORT ANSWER QUESTIONS The following information should be used for questions 100-102. The accounts and balances for Paw Prints Pet Sitters on November 1 are provided below. Cash Accounts Receivable Office Equipment Supplies Accounts Payable Kelly Connor, Capital Kelly Connor, Drawing

19,450 Fees Income 890 Rent Expense 2,300 Utilities Expense 250 Salaries Expense 1,400 21,490 -0-

-0-0-0-0-

The following transactions occurred during the month of November. a. Collected $350 from credit customers b. Issued a check for $700 for November's rent c. Paid $1,900 for salaries d. The owner withdrew $500 in cash for personal expenses e. Issued a check for $200 to pay the monthly utility bill f. Received $2,845 in cash for services performed g. Purchased office equipment for $1,350 on credit

100) Using the information shown, set up T accounts for all accounts. Determine the balance for each account after all transactions have been recorded. Answer: Cash Accounts Receivable Supplies Office Equipment Accounts Payable

Explanation:

19,345 DR 540 DR 250 DR 3,650 DR 2,750 CR

Cash Bal. 19,450 700 (a) 350 1,900 (f) 2,845 500 200 Bal. 19,345

Bal.

(b) (c) (d) (e)

Accounts Receivable Bal. 890 350 Bal.

21,490 CR 500 DR 2,845 CR 700 DR 200 DR 1,900 DR

(a)

540

Supplies 250

Office Equipment Bal. 2,300 (g) 1,350 Bal. 3,650

(e)

Kelly Connor, Capital Kelly Connor, Drawing Fees Income Rent Expense Utilities Expense Salaries Expense

Accounts Payable Bal. (g) Bal.

1,400 1,350 2,750

Kelly Connor, Capital Bal. 21,490

Kelly Connor, Drawing (d) 500

Fees Income 2,845

Rent Expense (b) 700

(f)

Utilities Expense 200

Salaries Expense (c) 1,900

Diff: 2 Topic: Assets, Liabilities, Owner's Equity, Revenue, Expense Accounts Learning Objective: 03-04 Set up T accounts for revenue and expenses. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Measurement; FN Reporting

ESSAY QUESTIONS 101) Using the information shown, prepare a trial balance for Paw Prints Pet Sitters at November 30, 2019. Answer:

PAW PRINTS PET SITTERS Trial Balance November 30, 2019 ACCOUNT NAME Cash Accounts Receivable Supplies Office Equipment Accounts Payable Kelly Connor, Capital Kelly Connor, Drawing Fees Income Rent Expense Utilities Expense Salaries Expense Totals

DEBIT $19,345 540 250 3,650

CREDIT

$2,750 21,490 500 2,845 700 200 1,900 $27,085

$27,085

Diff: 2 Topic: Trial Balance Learning Objective: 03-05 Prepare a trial balance from T accounts. Bloom's: Create AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

102) Using the information shown, prepare an income statement, statement of owner's equity, and balance sheet for Paw Prints Pet Sitters for the month ended November 30, 2019. Answer: PAW PRINTS PET SITTERS Income Statement Month Ended November 30, 2019 Revenue Fees Income $2,845 Expenses Rent Expense $700 Salaries Expense 1,900 Utilities Expense 200 Total Expenses 2,800 Net Income $ 45

Answer: PAW PRINTS PET SITTERS Statement of Owner's Equity Month Ended November 30, 2019 Kelly Connor, Capital, November 1, 2019 Net Income $45 Less Withdrawals (500) Decrease in Capital Kelly Connor, Capital, November 30, 2019

Assets Cash Accounts Receivable Supplies Office Equipment Total Assets

$21,490

(455) $ 21,035

PAW PRINTS PET SITTERS Balance Sheet November 30, 2019 Liabilities $19,345 Accounts Payable $2,750 540 250 Owner's Equity 3,650 Kelly Connor, Capital 21,035 23,785 Total Liabilities and Owner's $ 23,785 Equity

The following information should be used for questions 103-109. Conway Copy Shop is owned and operated by Gerald Conway. The shop's accounts are presented below. Review the transactions presented and determine the appropriate debits and credits to the affected accounts. Cash Accounts Receivable Office Supplies Prepaid Rent Copier Equipment Accounts Payable G. Conway, Capital G. Conway, Drawing Fees Income Rent Expense Utilities Expense Salaries Expense

103) Purchased copier equipment for $9,200 on account Answer: Debit Copier Equipment $9,200; credit Accounts Payable $9,200 Diff: 2 Topic: Business Transactions in Accounts Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Measurement; FN Reporting

104) Received $2,200 in cash for copy services Answer: Debit Cash $2,200; credit Fees Income $2,200 Diff: 2 Topic: Business Transactions in Accounts Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

105) Paid $6,000 in cash for the next six months' rent Answer: Debit Prepaid Rent $6,000; credit Cash $6,000 Diff: 2 Topic: Business Transactions in Accounts Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Measurement; FN Reporting

106) Paid cash for office supplies for $320 Answer: Debit Office Supplies $320; credit Cash $320 Diff: 2 Topic: Business Transactions in Accounts Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Measurement; FN Reporting

107) Issued a check for $3,400 to pay salaries Answer: Debit Salaries Expense $3,400; credit Cash $3,400 Diff: 2 Topic: Business Transactions in Accounts Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Measurement; FN Reporting

108) Issued a check for $2,000 in partial payment to pay creditor for copier equipment. Answer: Debit Accounts Payable $2,000; credit Cash $2,000 Diff: 2 Topic: Business Transactions in Accounts Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Measurement; FN Reporting

109) Gerald Conway makes an additional investment of $3,000 in cash to his business Answer: Debit Cash $3,000; credit G. Conway, Capital $3,000 Diff: 2 Topic: Business Transactions in Accounts Learning Objective: 03-02 Analyze business transactions and enter them in the accounts. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

The following information should be used for questions 110-111. The accounts with their respective balances for Dom's Delivery Service as of June 1 are given below. All accounts have normal balances. Cash Accounts Receivable Supplies

$23,350 14,600 450

Office Equipment Delivery Equipment Accounts Payable

12,800 20,000 6,900

Dominic Goggin, Capital Dominic Goggin, Drawing Delivery Fees Income Rent Expense Salaries Expense Utilities Expense Advertising Expense

64,300 -0-0-0-0-0-0-

Dom's had the following transactions during the month of June. a. Paid rent for June, $1,200 b. Dominic Goggin withdrew $5,800 from the business for personal use c. Performed services for $5,350 in cash d. Performed services for $21,800 on credit e. Received $12,400 from credit customers on account f. Paid the administrative assistant salary of $2,000 and delivery service messenger/driver salary of $3,000 for the month g. Paid the electric and phone bills for a total of $580 h. Paid creditors $6,000 on account i. Purchased $3,500 in supplies on account. j. Paid $2,500 cash for advertising in the local newspaper in June

110) Using the information above, set up T accounts and enter transactions a-j. Foot each account as of June 30, 2019. Prepare a Trial Balance. Answer: Cash 23,350 (c) (e)

5,350 12,400

(a) (b) (f) (g) (h) (j)

Accounts Receivable 14,600

1,200 5,800 5,000 580 6,000 2,500

(d)

21,800

Bal.

24,000

(e)

12,400

Bal. 20,020

Supplies 450 (l) 3,500

Delivery Equipment 20,000 47

Answer: (l)

3,500

Bal. 3,950

Bal.

20,000

Office Equipment 12,800 Bal. 12,800

Accounts Payable (h) 6,000

D. Goggin, Capital 64,300

(i)

6,900 3,500

Bal.

4,400

Bal. 64,300

D.Goggin, Drawing (b) 5,800

Bal.

5,800

Delivery Service Fees (c) (d)

Rent Expense (a) 1,200

5,350 21,800

Bal. 1,200 Bal.

27,150

Answer:

Advertising Expense (j) 2,500 Bal.

Utilities Expense (g) 580

2,500

Bal. 580

DOM'S DELIVERY SERVICE Trial Balance June 30, 2019 Account Name Debit Cash 20,020 Accounts Receivable 24,000 Supplies 3,950 Office Equipment 12,800 Delivery Equipment 20,000 Accounts Payable Dominic Goggin, Capital Dominic Goggin, Drawing 5,800 Delivery Service Fees Rent Expense 1,200 Salaries Expense 5,000 Advertising Expense 2,500 Utilities Expense 580 Totals 95,850

Credit

4,400 64,300 27,150

______ 95,850

Diff: 3 Topic: Business Transactions in Accounts Learning Objective: 03-05 Prepare a trial balance from T accounts. Bloom's: Create AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

111) Using the information shown, create a Chart of Accounts with appropriate account numbers for the accounts given for Dom's Delivery Service. Answer: Note: Student answers will vary. Look for basic numbering blocks with categories in the same block. Whether or not titles are required is at the instructor's discretion.

Account Number

DOM'S DELIVERY SERVICE Chart of Accounts Account Name

Balance Sheet Accounts 100-199

Assets

101

Cash

121

Accounts Receivable

131

Supplies

151

Office Equipment

161 200-299

Delivery Equipment Liabilities

201

Accounts Payable

300-399

Equity

301 Statement of Owner's Equity Account

Dominic Goggin, Capital

302 Income Statement Accounts

Dominic Goggin, Drawing

400-499

Revenue

401

Delivery Service Fees

500-599

Expenses

511

Rent Expense

551

Salaries Expense

561

Advertising Expense

581

Utilities Expense

Diff: 2 Topic: Chart of Accounts Learning Objective: 03-07 Develop a chart of accounts. Bloom's: Create AACSB: Analytic AICPA: BB Industry; FN Reporting

The following information should be used for questions 112-113. The T account balances for the accounts of Rya's Planning Services as of January 31, 2019 are listed below. Cash Accounts Receivable Office Supplies Equipment Accounts Payable Rya Page, Capital Rya Page, Drawing Planning Fees Income Office Supplies Expense Rent Expense Salaries Expense Utilities Expense

$21,500 17,500 500 15,000 9,750 28,200 5,000 26,250 200 800 3,000 700

112) Using the information given for Rya's Planning Services, create a Trial Balance as of January 31, 2019. Answer: RYA'S PLANNING SERVICES Trial Balance January 31, 2019 Account Name Debit Cash 21,500 Accounts Receivable 17,500 Office Supplies 500 Equipment 15,000 Accounts Payable Rya Page, Capital Rya Page, Drawing 5,000 Planning Fees Income Office Supplies Expense 200 Rent Expense 800 Salaries Expense 3,000 Utilities Expense __ 700 Totals 64,200

Credit

9,750 28,200 26,250

______ 64,200

Diff: 2 Topic: Trial Balance Learning Objective: 03-05 Prepare a trial balance from T accounts. Bloom's: Create AACSB: Analytic AICPA: BB Industry; FN Measurement; FN Reporting

113) Using the information given for Rya's Planning Services, create an Income Statement, Statement of Owner's Equity, and Balance Sheet for January 2019. Answer: Answer: Rya's Planning Services Income Statement Month Ended January 31, 2019 Revenue Planning Fees Income Expenses Office Supplies Expense Rent Expense Salaries Expense Utilities Expense

$ 26,250

$ 200 800 3,000 ___700

Answer: Utilities Expense Total Expenses Net Income

___700 4,700 $ 21,550

Rya's Planning Services Statement of Owner's Equity Month Ended January 31, 2019 Rya Page, Capital, January 1, 2019 Net Income for January $ 21,550 Less Withdrawals for January 5,000 Increase in Capital Rya Page, Capital, January 31, 2019

Assets Cash Accounts Receivable Office Supplies Equipment Total Assets

$ 28,200

16,550 $ 44,750

Rya's Planning Services Balance Sheet January 31, 2019 Liabilities $ 21,500 Accounts Payable $ 9,750 17,500 500 Owner's Equity 15,000 Rya Page, Capital 44,750 Total Liabilities & Owner's 54,500 $ 54,500 Equity

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

Assets: 101 Cash 105 Accounts Receivable 109 Prepaid Rent 110 Office Supplies

Chart of Accounts Revenues: 401 Consulting Revenue Expenses: 510 Salaries Expense 53

110 Office Supplies 180 Equipment Liabilities: 201 Accounts Payable 210 Wages Payable

510 Salaries Expense 515 Utilities Expense 520 Insurance Expense 525 Rent Expense 530 Supplies Expense 570 Miscellaneous Expense

Owner's Equity: 310 S. Smart, Capital 311 S. Smart, Drawing Transaction Account No. of Account debited 1. Owner, Sam Smart, invested in business, $10,000 ________ 2. Received $2,200 from customer due on accounts receivable ________ 3. Issued a check for $1,000 to purchase office supplies ________ 4. Bought equipment for $8,000, on account ________ 5. Paid $500 to apply against the amount owed on the equipment ________ 6. Issued a check for $1,500 for advance payment of two months rent ________ 7. Consulting revenue earned of $6,000 but client will pay amt. owed, next week________ 8. Charge account clients paid $1,000, reducing amount owed to the firm ________ 9. Paid $600 to employees for salaries earned ________ 10. Owner withdrew, $100 for personal use ________

Answer: Account No. of Account debited 1. 101 2. 101 3. 110 4. 180 5. 201 6. 109 7. 105 8. 101 9. 510 10 . 311 Diff: 2 Topic: Business Transactions in Accounts Learning Objective: 03-04 Set up T accounts for revenue and expenses. Bloom's: Apply AACSB: Analytic AICPA: BB Critical Thinking; FN Measurement; FN Reporting

115) The balances for the accounts listed below appear in the trial balance of Bubbles, Inc. Identify whether each balance would appear on the Income Statement (IS), the Balance Sheet (BS) or the Statement of Owner's Equity (OE), by entering the appropriate letters in the spaces below. (There is only one correct answer for each) (1) (2) (3) (4) (5)

Salaries Expense Fees Income Accounts Receivable Utilities Expense Accounts Payable

________ ________ ________ ________ ________

(6) T. Bubbles, Drawing (7) Prepaid Rent (8) Cash (9) Office Supplies (10) Equipment

________ ________ ________ ________ ________

Answer: (1) IS (2) IS (3) BS (4) IS (5) BS (6) OE (7) BS (8) BS (9) BS (10) BS Diff: 2 Topic: Financial Statements Learning Objective: 03-06 Prepare an income statement, a statement of owner's equity, and a balance sheet. Bloom's: Understand AACSB: Analytic AICPA: BB Industry; FN Reporting

Chapter 04 The General Journal and the General Ledger MULTIPLE CHOICE QUESTIONS 1) When transactions are entered in a general journal, the asset accounts are listed first, followed by the liability and owner's equity accounts. A) True B) False Answer: B Explanation: Diff: 2 Topic: The General Journal Learning Objective: 04-01 Record transactions in the general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

2) When a transaction is entered in a general journal, the first account title is indented about half an inch from the left margin of the Description column. A) True B) False Answer: B Explanation: Diff: 1 Topic: The General Journal Learning Objective: 04-01 Record transactions in the general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

3) A ledger account contains a complete record of the individual transaction activity in each account. A) True B) False Answer: A Explanation: Diff: 1 Topic: The General Ledger Learning Objective: 04-03 Post journal entries to general ledger accounts. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

4) Account names are written in the general journal exactly as they appear in the chart of accounts. A) True B) False Answer: A Explanation: Diff: 1 Topic: The General Journal Learning Objective: 04-01 Record transactions in the general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

5) Transactions are entered in the journal in chronological order. A) True B) False Answer: A Explanation: Diff: 1 Topic: The General Journal Learning Objective: 04-01 Record transactions in the general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

6) A journal entry can consist of no more than one account to be debited and one account to be credited. A) True B) False Answer: B Explanation: Diff: 2 Topic: The General Journal Learning Objective: 04-02 Prepare compound journal entries. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

7) A ledger is sometimes referred to as a record of original entry. A) True B) False Answer: B Explanation: Diff: 1 Topic: The General Ledger Learning Objective: 04-03 Post journal entries to general ledger accounts. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

8) Transactions are recorded in either a journal or a ledger, but not in both. A) True B) False Answer: B Explanation: Diff: 1 Topic: The General Ledger Learning Objective: 04-03 Post journal entries to general ledger accounts. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

9) An amount debited to Cash in a journal entry should be posted as a credit to the Cash account in the ledger. A) True B) False Answer: B Explanation: Diff: 1 Topic: The General Ledger Learning Objective: 04-03 Post journal entries to general ledger accounts. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

10) The balance ledger form always shows the current balance of an account. A) True B) False Answer: A Explanation: Diff: 1 Topic: The General Ledger Learning Objective: 04-03 Post journal entries to general ledger accounts. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

11) Posting references are part of the audit trail. A) True B) False Answer: A Explanation: Diff: 2 Topic: The General Journal Learning Objective: 04-01 Record transactions in the general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

12) The revenue accounts come before the expense accounts in the general ledger. A) True B) False Answer: A Explanation: Diff: 2 Topic: The General Ledger Learning Objective: 04-03 Post journal entries to general ledger accounts. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

13) Posting references provide a useful cross-reference when entries must be traced and verified. A) True B) False Answer: A Explanation: Diff: 1 Topic: The General Ledger Learning Objective: 04-03 Post journal entries to general ledger accounts. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

14) If a journal entry that contains an error has already been posted, a correcting entry should be journalized and posted. A) True B) False Answer: A Explanation: Diff: 1 Topic: The General Ledger Learning Objective: 04-04 Correct errors made in the journal or ledger. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement; FN Decision Making

15) If an error is discovered before the entry is posted, the incorrect amount can be erased and the correct amount recorded. A) True B) False Answer: B Explanation: Diff: 2 Topic: The General Ledger Learning Objective: 04-04 Correct errors made in the journal or ledger. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement; FN Decision Making

16) Which of the following statements is NOT correct? A) A firm should be able to trace amounts through the accounting records and back to their source documents. B) The description of a journal entry should include a reference to the source of the information contained in the entry. C) The credit portion of a general journal entry is always recorded first. D) If goods are purchased on credit, the supplier's invoice number is used as the source document for the transaction. Answer: C Explanation: A) B) C) D) Diff: 1 Topic: The General Journal Learning Objective: 04-01 Record transactions in the general journal. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

17) Transactions in a journal are initially recorded in: A) chronological order. C) dollar amount order. Answer: A Explanation: A) B) C) D)

B) randomly. D) alphabetical order.

Diff: 1 Topic: The General Journal Learning Objective: 04-01 Record transactions in the general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

18) When an entry is made in the general journal, A) the accounts to be credited should be indented. B) liability, capital, and revenue accounts should be indented. C) asset accounts should be indented. D) the first account entered should be indented. Answer: A Explanation: A) B) C) D) Diff: 1 Topic: The General Journal Learning Objective: 04-01 Record transactions in the general journal. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

19) When an entry is made in the general journal, A) accounts to be increased should be listed first. B) assets should be listed first. C) accounts may be listed in any order. D) accounts to be debited should be listed first. Answer: D Explanation: A) B) C) D) Diff: 1 Topic: The General Journal Learning Objective: 04-01 Record transactions in the general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

20) The journal entry to record the sale of services on credit should include: A) a debit to Accounts Receivable and a credit to Capital. B) a debit to Accounts Receivable and a credit to Fees Income. C) a debit to Cash and a credit to Accounts Receivable. D) a debit to Fees Income and a credit to Accounts Receivable. Answer: B Explanation: A) B) C) D) Diff: 1 Topic: The General Journal Learning Objective: 04-01 Record transactions in the general journal. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

21) In which of the following transactions would Utilities Expense be debited: A) the company paid a utility bill on account B) the company received and paid a bill for utilities C) the company received a bill for utilities to be paid the following month D) both A and B Answer: D Explanation: A) B) C) D) Diff: 3 Topic: The General Journal Learning Objective: 04-01 Record transactions in the general journal. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

22) If a transaction is properly analyzed and recorded, A) one asset account will be debited and one liability account will be credited. B) the total dollar amount debited will equal the total dollar amount credited. C) only two accounts will be used to record the transaction. D) one account balance will increase and another will decrease. Answer: B Explanation: A) B) C) D) Diff: 2 Topic: The General Journal Learning Objective: 04-01 Record transactions in the general journal.; 04-02 Prepare compound journal entries. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

23) The journal entry to record the payment of the monthly rent would include: A) a debit to Rent Expense and a credit to Capital. B) a debit to Rent Expense and a credit to Accounts Receivable. C) a debit to Capital and a credit to Cash. D) a debit to Rent Expense and a credit to Cash. Answer: D Explanation: A) B) C) D) Diff: 1 Topic: The General Journal Learning Objective: 04-01 Record transactions in the general journal. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

24) When recording a business transaction into the journal, certain steps are followed. Identify the statement below that is CORRECT regarding the journalizing process. A) All transactions are recorded first in the general ledger and then they are journalized in the journal. B) An explanation is indented and entered on the line underneath the last credit in the entry. C) All credited accounts are listed first and then all debited accounts are indented and listed on the next lines. D) No dates are used in the journal. Answer: B Explanation: A) B) C) D) Diff: 1 Topic: The General Journal Learning Objective: 04-01 Record transactions in the general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

25) The journal entry to record the performance of services for cash would include: A) a debit to Cash and a credit to Fees Income. B) a debit to Accounts Receivable and a credit to Cash. C) a debit to Fees Income and a credit to Cash. D) a debit to Cash and a credit to Accounts Receivable. Answer: A Explanation: A) B) C) D) Diff: 1 Topic: The General Journal Learning Objective: 04-01 Record transactions in the general journal. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

26) The journal entry to record the receipt of cash from credit clients would include: A) a debit to Cash and a credit to Fees Income. B) a debit to Cash and a credit to Accounts Receivable. C) a debit to Accounts Receivable and a credit to Cash. D) a debit to Fees Income and a credit to Cash. Answer: B Explanation: A) B) C) D) Diff: 1 Topic: The General Journal Learning Objective: 04-01 Record transactions in the general journal. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

27) The journal entry to record the withdrawal of cash by Sue Snow, the owner, to pay a personal utility bill would include: A) a debit to Utilities Expense and a credit to Cash. B) a debit to Sue Snow, Drawing and a credit to Cash. C) a debit to Sue Snow, Capital and a credit to Utilities Expense. D) a debit to Sue Snow, Capital, and a credit to Cash. Answer: B Explanation: A) B) C) D) Diff: 2 Topic: The General Journal Learning Objective: 04-01 Record transactions in the general journal. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

28) The journal entry to record a payment made in January for rent for the months of February and March would include: A) a debit to Rent Expense, and a credit to Sue Snow, Capital. B) a debit to Sue Snow, Drawing and a credit to Rent Expense. C) a debit to Rent Expense and a credit to Cash. D) a debit to Prepaid Rent and a credit to Cash. Answer: D Explanation: A) B) C) D) Diff: 2 Topic: The General Journal Learning Objective: 04-01 Record transactions in the general journal. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

29) The journal entry to record the payment of salaries should include: A) a debit to Salaries Expense. B) a credit to Accounts Receivable. C) a credit to Salaries Expense. D) a debit to Salaries Payable. Answer: A Explanation:

A) B) C) D)

Diff: 1 Topic: The General Journal Learning Objective: 04-01 Record transactions in the general journal. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

30) Identify the entry below that records the purchase of office supplies on account. A) debit Office Supplies Expense; credit Accounts Payable B) debit Office Supplies; credit Cash C) debit Accounts Payable; credit Office Supplies D) debit Office Supplies; credit Accounts Payable Answer: D Explanation: A) B) C) D) Diff: 1 Topic: The General Journal Learning Objective: 04-01 Record transactions in the general journal. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

31) On July 3, the ABC Company received $865 in cash on account from customers. The correct journal entry to record this transaction is: A) debit Cash, $865; credit Accounts Receivable, $865 B) debit Accounts Receivable, $865; credit Cash, $865 C) debit Cash, $865; credit Accounts Payable, $865 D) debit Cash, $865; credit Income from Services, $865 Answer: A Explanation: A) B) C) D) Diff: 1 Topic: The General Journal Learning Objective: 04-01 Record transactions in the general journal. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

32) The first place a transaction is recorded is in the: A) journal C) source document Answer: A Explanation: A) B) C) D)

B) trial balance D) general ledger

Diff: 1 Topic: The General Journal Learning Objective: 04-01 Record transactions in the general journal. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

33) Business papers, such as checks, invoices, receipts, letters, and memos, that furnish proof that a transaction has taken place are called: A) source documents B) accounts C) debits D) ledgers Answer: A Explanation:

A) B) C) D)

Diff: 1 Topic: The General Journal Learning Objective: 04-01 Record transactions in the general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

34) If the owner of the business wants to see both the debit and credit entry for a specific transaction, he would look in: A) the journal B) the source document C) the chart of accounts D) the ledger Answer: A Explanation: A) B) C) D) Diff: 2 Topic: The General Journal Learning Objective: 04-01 Record transactions in the general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

35) A purchase of office equipment for cash is journalized as: A) Debit Office Equipment; Credit Cash B) Debit Office Equipment; Credit Accounts Payable C) Debit Equipment Expense; Credit Cash D) Debit Cash; Credit Office Equipment Answer: A Explanation:

A) B) C) D)

Diff: 2 Topic: The General Journal Learning Objective: 04-01 Record transactions in the general journal. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

36) The process of transferring the data from the journal to the general ledger is called: A) footing B) journalizing C) posting D) transposing Answer: C Explanation: A) B) C) D) Diff: 2 Topic: The General Ledger; Defining Accounting Terms Learning Objective: 04-03 Post journal entries to general ledger accounts.; 04-05 Define the accounting terms new to this chapter. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

37) Agatha Panthis Landscape Architect Company earned $2,500 of revenue collecting $1,000 immediately and will correct the remaining amount in 30 days. The journal entry to record this transaction is: A) Debit Fees Income $2,500; Credit Cash $1,000; credit Accounts Receivable $1,500 B) Debit Cash $1,000; Debit Accounts Receivable $1,500; Credit Fees Income $2,500 C) Debit Fees Income $2,500; Credit Accounts Receivable $2,500 D) Debit Cash $1,000; Credit Fees Income $1,000 Answer: B Explanation:

A) B) C) D)

Diff: 2 Topic: The General Journal Learning Objective: 04-01 Record transactions in the general journal. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

38) The journal entry to record the payment of salaries for the month is: A) Debit Cash; Credit Salaries Payable B) Debit Salaries; Credit Accounts Payable C) Debit Salaries Expense; Credit Cash D) Debit Cash; Credit Salaries Expense Answer: C Explanation: A) B) C) D) Diff: 2 Topic: The General Journal Learning Objective: 04-01 Record transactions in the general journal. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

39) Anna Conda Landscaping service received a bill for the utilities used during September. The bill will be paid in October. The journal entry to record the utility bill received is: A) Debit Utilities Expense; Credit Accounts Payable B) Debit Utilities Expense; Credit Cash C) Debit Accounts Payable; Credit Cash D) Debit Cash; Credit Utilities Expense Answer: A Explanation:

A) B) C) D)

Diff: 2 Topic: The General Journal Learning Objective: 04-01 Record transactions in the general journal. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

40) Which of the following statements is CORRECT? A) Accounts being debited should always follow the accounts being credited in a compound entry. B) Compound entries affect more than one debit and/or more than one credit. C) All transactions require compound entries. D) Compound entries include only debits. Answer: B Explanation: A) B) C) D) Diff: 2 Topic: The General Journal Learning Objective: 04-02 Prepare compound journal entries. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

41) On June 1, XYZ Inc. paid $400 to its landlord for rent for the current month. The journal entry to record this transaction is: A) Cash $ 400 Rent Expense $ 400

B) Prepaid Rent Cash

$ 400

Prepaid Rent Rent Expense

$ 400

Rent Expense Cash

$ 400

C) $ 400

Answer: D Explanation:

A) B) C) D)

$ 400

D) Diff: 2 Topic: The General Journal Learning Objective: 04-01 Record transactions in the general journal. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

42) On September 1, Lazy A, Inc. paid $2,200 for a one year insurance policy. The journal entry to record this transaction is: A) Cash $ 2,200 Prepaid Insurance $ 2,200

B) Insurance Expense Cash

$ 2,200

Prepaid Insurance Cash

$ 2,200

Prepaid Insurance Insurance Expense

$ 2,200

C) $ 2,200

Answer: C Explanation:

$ 2,200

A) B) C) D)

Diff: 2 Topic: The General Journal Learning Objective: 04-01 Record transactions in the general journal. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

43) On December 5, Honor Consulting Services issued a check to purchase $1,800 of office equipment. The journal entry to record this transaction is: A) Cash $ 1,800 Accounts Payable $ 1,800

B) Office Equipment Accounts Receivable

$ 1,800

Office Equipment Cash

$ 1,800

Cash Office Equipment

$ 1,800

C) $ 1,800

Answer: C Explanation:

$ 1,800

A) B) C) D)

Diff: 2 Topic: The General Journal Learning Objective: 04-01 Record transactions in the general journal. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

44) The journal entry to record the purchase of equipment for a $100 cash down payment and a balance of $400 due in 30 days would include: A) a debit to Equipment for $100 and a credit to Accounts Payable for $400. B) a debit to Equipment for $100 and a credit to Cash for $100. C) a debit to Equipment for $500, a credit to Cash for $100, and a credit to Accounts Payable for $400. D) debit to Equipment for $500 and a credit to Cash for $500. Answer: C Explanation: A) B) C) D) Diff: 2 Topic: The General Journal Learning Objective: 04-02 Prepare compound journal entries. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

45) A company purchased equipment costing $15,000. They paid $1,000 right away and agreed to pay the balance in 30 days, the journal entry to record the purchase of equipment would include: A) a debit to Equipment for $14,000 and a credit to Accounts Payable for $14,000. B) a debit to Equipment for $15,000 and a credit to Cash for $15,000. C) a debit to Equipment for $1,000 and a credit to Cash for $1,000. D) a debit to Equipment for $15,000, a credit to Cash for $1,000 and a credit to Accounts Payable for $14,000. Answer: D Explanation:

A) B) C) D)

Diff: 2 Topic: The General Journal Learning Objective: 04-02 Prepare compound journal entries. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

46) ABC Co. performed $5,000 of consulting work. Their customer paid them $3,500 right away and agreed to pay the balance in 30 days. Select the correct journal entry from the options below to record the transaction: A) a debit to Cash for $3,500, a debit to Accounts Receivable for $1,500 and a credit to Capital for $5,000. B) a debit to Cash for $3,500 and a credit to Fees Income for $3,500. C) a debit to Fees Income for $5,000, a credit to Cash for $3,500 and a credit to Accounts Receivable for $1,500. D) a debit to Cash for $3,500; a debit to Accounts Receivable for $1,500 and a credit to Fees Income for $5,000. Answer: D Explanation:

A) B) C) D)

Diff: 2 Topic: The General Journal Learning Objective: 04-02 Prepare compound journal entries. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

47) On December 10, Yummy Catering purchased a new oven costing $10,000. They issued a check a check for $2,000 and promised to pay the balance in 30 days. The journal entry to record this transaction is: A) Equipment $ 8,000 Cash $ 2,000 Accounts Payable $ 10,000

B) Equipment Cash

$ 8,000

Equipment Accounts Payable

$ 2,000

$ 8,000

C) $ 8,000

D) Equipment Cash Accounts Payable

Answer: D Explanation:

$ 10,000 $ 2,000 $ 8,000

A) B) C) D)

Diff: 2 Topic: The General Journal Learning Objective: 04-02 Prepare compound journal entries. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

48) When recording a business transaction into the general ledger, certain steps are followed. Identify the statement below that is NOT CORRECT regarding this process. A) All transactions are recorded first in the general journal and then they are transferred to the general ledger. B) After posting a transaction, the new balance in an account can be seen in the general ledger. C) The process of transferring data from the journal to the ledger is called posting. D) All transactions are recorded first in the general ledger and then they are transferred to the journal. Answer: D Explanation:

A) B) C) D)

Diff: 1 Topic: The General Ledger; Defining Accounting Terms Learning Objective: 04-03 Post journal entries to general ledger accounts.; 04-05 Define the accounting terms new to this chapter. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

49) Listed below in random order are the steps in the accounting cycle. (1) prepare the financial statements (2) post the journal entries to the ledger (3) record journal entries (4) prepare a trial balance What is the proper order of these steps? A) (3), (2), (1), (4) B) (2), (3), (4), (1)

Answer: D Explanation:

C) (4), (3), (2), (1)

D) (3), (2), (4), (1)

A) B) C) D)

Diff: 2 Topic: The General Ledger Learning Objective: 04-03 Post journal entries to general ledger accounts. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

50) The general ledger accounts are usually arranged in the following order: A) first the temporary accounts, then the permanent accounts. B) first the accounts with debit balances, then the accounts with credit balances. C) first the accounts used most often, then those used less frequently. D) first the balance sheet accounts, then the income statement accounts. Answer: D Explanation: A) B) C) D) Diff: 2 Topic: The General Ledger Learning Objective: 04-03 Post journal entries to general ledger accounts. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

51) The accounts on the Trial Balance are always listed in the following order: A) Assets, Liabilities, Equity, Revenue, Expense B) Assets, Expense, Liabilities, Equity, Revenue C) Assets, Equity, Expense, Liabilities, Revenue D) Expense, Revenue, Equity, Liabilities, Assets Answer: A Explanation: A) B) C) D) Diff: 2 Topic: The General Ledger Learning Objective: 04-03 Post journal entries to general ledger accounts. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

52) The Accounts Payable account has a $3,000 credit balance. An entry for the payment of $1,000 on the amount owed is recorded and posted. The new balance of the Accounts Payable account is: A) a $2,000 debit balance. B) a $1,000 debit balance. C) a $2,000 credit balance. D) a $4,000 credit balance. Answer: C Explanation:

A) $3,000 credit - $1,000 debit = $2,000 credit B) $3,000 credit - $1,000 debit = $2,000 credit C) $3,000 credit - $1,000 debit = $2,000 credit D) $3,000 credit - $1,000 debit = $2,000 credit

Diff: 2 Topic: The General Ledger Learning Objective: 04-03 Post journal entries to general ledger accounts. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

53) On December 1, the Accounts Receivable account had a $5,000 balance. The business received $400 during the month from its charge-account customer. After posting this transaction, the new balance in the Accounts Receivable account is: A) a $5,400 debit balance. B) a $4,600 debit balance. C) a $4,600 credit balance. D) a $5,400 credit balance. Answer: B Explanation: A) $5,000 debit - $400 credit = $4,600 debit B) $5,000 debit - $400 credit = $4,600 debit C) $5,000 debit - $400 credit = $4,600 debit D) $5,000 debit - $400 credit = $4,600 debit Diff: 2 Topic: The General Journal; The General Ledger Learning Objective: 04-01 Record transactions in the general journal.; 04-03 Post journal entries to general ledger accounts. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

54) On December 1, the Accounts Receivable account had a $22,000 debit balance. During December the business earned $10,500 in revenue on account and collected $13,200 from its charge-account customers. After posting these transaction, the balance in the Accounts Receivable account on December 31 is: A) a $24,700 credit balance. B) a $24,700 debit balance. C) a $19,300 debit balance. D) a $23,700 credit balance. Answer: C Explanation: A) $5,000 debit - $400 credit = $4,600 debit B) $5,000 debit - $400 credit = $4,600 debit C) $5,000 debit - $400 credit = $4,600 debit D) $5,000 debit - $400 credit = $4,600 debit Diff: 3 Topic: The General Journal; The General Ledger Learning Objective: 04-01 Record transactions in the general journal.; 04-03 Post journal entries to general ledger accounts. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

55) The Cash account has a $15,000 debit balance. A $5,000 credit entry and a $7,000 debit entry are posted to the account. The final balance of the Cash account is: A) a $17,000 debit balance. B) a $27,000 debit balance. C) a $3,000 debit balance. D) a $13,000 debit balance. Answer: A Explanation: A) $15,000 debit + $7,000 debit - $5,000 credit = $17,000 debit B) $15,000 debit + $7,000 debit - $5,000 credit = $17,000 debit C) $15,000 debit + $7,000 debit - $5,000 credit = $17,000 debit D) $15,000 debit + $7,000 debit - $5,000 credit = $17,000 debit Diff: 1 Topic: The General Ledger Learning Objective: 04-03 Post journal entries to general ledger accounts. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

56) The account numbers from the ledger are recorded in the Posting Reference column of the general journal: A) as the first amount written in the journal. B) as the transaction is journalized. C) after each amount is posted. D) after all entries on the journal page have been posted. Answer: C Explanation: A) B) C) D) Diff: 2 Topic: The General Ledger Learning Objective: 04-03 Post journal entries to general ledger accounts. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

57) The Posting Reference column of a journal is used to: A) record the number of the ledger account to which the information is posted. B) record the number of amounts posted to that ledger account since the beginning of the current accounting period. C) record the page number of the ledger account. D) record the date on which an amount is posted to a ledger account. Answer: A Explanation: A) B) C) D) Diff: 2 Topic: The General Ledger Learning Objective: 04-03 Post journal entries to general ledger accounts. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

58) Which of the following statements is CORRECT? A) When entries are posted from the general journal to the general ledger, the account number is written in the Posting Reference column in the general ledger. B) The general ledger contains the accounts that are used to prepare the financial statements. C) Some companies use the general ledger instead of a general journal. D) When entries are posted from the general journal to the general ledger, the page number is written in the Posting Reference column in the general journal. Answer: B Explanation:

A) B) C) D)

Diff: 2 Topic: The General Ledger Learning Objective: 04-03 Post journal entries to general ledger accounts. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

59) If a journal entry that contains an error has already been posted, A) the journal need not be corrected but the posting to the ledger should be corrected by crossing out the incorrect data and writing the correct data above it. B) the incorrect items should be corrected by crossing out the incorrect data and writing the correct data above it in both the journal and the ledger. C) the incorrect items should be erased and replaced with the correct data. D) a correcting entry should be journalized and posted. Answer: D Explanation: A) B) C) D) Diff: 2 Topic: The General Ledger Learning Objective: 04-04 Correct errors made in the journal or ledger. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

60) A firm purchased telephone equipment for cash. By mistake, the accountant debited Utilities Expense instead of Office Equipment. The error was discovered after the data posted. The correcting entry should contain: A) a debit to Utilities Expense and a credit to Cash. B) a debit to Cash and a credit to Office Equipment. C) a debit to Office Equipment and a credit to Utilities Expense. D) a debit to Office Equipment and a credit to Cash. Answer: C Explanation: A) B) C) D) Diff: 2 Topic: The General Ledger Learning Objective: 04-04 Correct errors made in the journal or ledger. Bloom's: Analyze AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement; FN Decision Making; BB Critical Thinking

61) Bertrand Inc. performed services for clients in the amount of $1,350 on credit. If this transaction had been posted in error to the Cash account instead of the Accounts Receivable account, what correcting entry would be necessary? A) Debit Accounts Receivable $1,350; credit Fees Income $1,350 B) Debit Fees Income $1,350; credit Cash $1,350 C) Debit Accounts Receivable $1,350; credit Cash $1,350 D) Debit Cash $1,350; credit Accounts Receivable $1,350 Answer: C Explanation: A) B) C) D) Diff: 2 Topic: The General Ledger Learning Objective: 04-04 Correct errors made in the journal or ledger. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement; FN Decision Making; BB Critical Thinking

62) Bertrand Inc. purchased some shop equipment for $4,500 in cash. By mistake, the journal entry debited the Office Equipment account rather than the Shop Equipment account. What correcting entry would be necessary? A) Debit Shop Equipment $4,500; credit Office Equipment $4,500 B) Debit Cash $4,500; credit Shop Equipment $4,500 C) Debit Office Equipment $4,500; credit Cash $4,500 D) Debit Office Equipment $4,500; credit Shop Equipment $4,500 Answer: A Explanation: A) B) C) D) Diff: 2 Topic: The General Ledger Learning Objective: 04-04 Correct errors made in the journal or ledger. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement; FN Decision Making; BB Critical Thinking

63) Constantine Corporation reported Net Income for the year ended December 31, 2019, of $23,760 then discovered that the entry to pay the rent for December in the amount of $1,600 was not journalized and posted. What is the Net Income after the correcting journal entry is journalized and posted? A) $20,560 B) $22,160 C) $25,360 D) $23,760 Answer: B Explanation:

A) B) C) D)

Diff: 3 Topic: The General Ledger Learning Objective: 04-04 Correct errors made in the journal or ledger. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement; FN Decision Making; BB Critical Thinking

64) Kelly Corporation reported Net Income for the year ended December 31, 2019, of $16,900 then discovered that an entry for revenue earned on December 30, 2019, in the amount of $1,400 had not been journalized and posted. What is the Net Income after the correcting journal entry is journalized and posted? A) $15,500 B) $16,900 C) $14,100 D) $18,300 Answer: D Explanation:

A) B) C) D)

65) Which of the following statements is CORRECT? A) If an error in a journal entry is discovered before the entry is posted to the general ledger, the entry can simply be erased and replaced with the correct journal entry. B) If an error in a journal entry is discovered before the entry is posted to the general ledger, the error in the entry should be crossed out and the correct data written above it. C) If an error in a journal entry is discovered before the entry is posted to the general ledger, a journal entry should be made to correct the erroneous entry. D) All errors made in journal entries should be corrected by the preparation of a correcting journal entry. Answer: B Explanation: A) B) C) D) Diff: 3 Topic: The General Ledger Learning Objective: 04-04 Correct errors made in the journal or ledger. Bloom's: Analyze AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement; FN Decision Making; BB Critical Thinking

SHORT ANSWER QUESTIONS 66) When a transaction is entered in the general journal, the account to be first in the Description column. Answer: debited Explanation:

is always recorded

Diff: 2 Topic: Journal Entries Learning Objective: 04-01 Record transactions in the general journal. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

67) A description should accompany each entry made in the ________. Answer: general journal Explanation: Diff: 1 Topic: Journal Entries Learning Objective: 04-01 Record transactions in the general journal. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

68) A ________ is referred to as a record of original entry. Answer: journal or general journal Explanation: Diff: 2 Topic: Accounting Records Learning Objective: 04-01 Record transactions in the general journal. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

69) A permanent, classified record of all accounts used in a firm's operation is called a(n) ________. Answer: ledger Explanation: Diff: 2 Topic: Accounting Records Learning Objective: 04-01 Record transactions in the general journal. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

70) The process of recording transactions in a journal is referred to as ________. Answer: journalizing Explanation: Diff: 1 Topic: Journal Entries Learning Objective: 04-01 Record transactions in the general journal.; 04-05 Define the accounting terms new to this chapter. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

71) A journal entry containing more than one debit or more than one credit is called a(n) ________ entry. Answer: compound Explanation: Diff: 1 Topic: Journal Entries Learning Objective: 04-02 Prepare compound journal entries.; 04-05 Define the accounting terms new to this chapter. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

72) The

is referred to as the record of final entry.

Answer: ledger or general ledger Explanation: Diff: 2 Topic: Accounting Records Learning Objective: 04-03 Post journal entries to general ledger accounts.; 04-05 Define the accounting terms new to this chapter. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

73) When posting, the ________ is recorded in the Posting Reference column of the journal. Answer: ledger account number Explanation: Diff: 2 Topic: Posting Journal Entries to General Ledger Learning Objective: 04-03 Post journal entries to general ledger accounts. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

74) The process of transferring data from a journal to a ledger is known as ________. Answer: posting Explanation: Diff: 1 Topic: Posting Journal Entries to General Ledger Learning Objective: 04-03 Post journal entries to general ledger accounts.; 04-05 Define the accounting terms new to this chapter. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

75) Notations that allow transactions to be quickly and easily traced from the journal to the ledger or from the ledger to the journal are called references. Answer: posting Explanation: Diff: 2 Topic: Posting Journal Entries to General Ledger Learning Objective: 04-03 Post journal entries to general ledger accounts. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

76) The ________ is recorded in the Posting Reference column of the ledger account. Answer: journal page number Explanation: Diff: 2 Topic: Posting Journal Entries to General Ledger Learning Objective: 04-03 Post journal entries to general ledger accounts. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

77) A(n) posted.

_ entry is recorded when there is an error in data that has been journalized and

Answer: correcting Explanation: Diff: 2 Topic: Correcting Errors Learning Objective: 04-04 Correct errors made in the journal or ledger.; 04-05 Define the accounting terms new to this chapter. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

ESSAY QUESTIONS 78) For each of the accounts listed below, enter the words, Increase or Decrease, in the Debit and Credit columns to indicate the effects of each on the account balance. The first row has been completed for reference. Account A. B. C. D. E. F. G. H. I. J. K.

Cash Accounts Payable Accounts Receivable Fees Income Supplies Expense Laurie Fellowes, Drawing Office Equipment Rent Expense Office Supplies Laurie Fellows, Capital Prepaid Rent

Debit Increase

Credit Decrease

Answer:

Account A. B. C. D. E. F. G. H. I. J. K.

Debit Increase Decrease Increase Decrease Increase Increase Increase Increase Increase Decrease Increase

Cash Accounts Payable Accounts Receivable Fees Income Supplies Expense Laurie Fellowes, Drawing Office Equipment Rent Expense Office Supplies Laurie Fellows, Capital Prepaid Rent

Credit Decrease Increase Decrease Increase Decrease Decrease Decrease Decrease Decrease Increase Decrease

Diff: 1 Topic: Journal Entries Learning Objective: 04-01 Record transactions in the general journal. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Decision Making; FN Reporting; FN Measurement

79) For each of the accounts listed below, enter the words, Increase or Decrease, in the Debit and Credit columns to indicate the effects of each on the account balance. The first row has been completed for reference. Account A. B. C. D. E. F. G. H.

Debit Increase

Cash Accounts Payable Fees Income Ian Roberts, Capital Ian Roberts, Drawing Rent Expense Store Equipment Telephone Expense

Answer:

Account A. B. C. D. E. F. G. H.

Credit Decrease

Debit Increase Decrease Decrease Decrease Increase Increase Increase Increase

Cash Accounts Payable Fees Income Ian Roberts, Capital Ian Roberts, Drawing Rent Expense Store Equipment Telephone Expense

Credit Decrease Increase Increase Increase Decrease Decrease Decrease Decrease

Diff: 1 Topic: Journal Entries Learning Objective: 04-01 Record transactions in the general journal. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Measurement; FN Reporting

80) For each of the accounts listed below, enter the words, Increase or Decrease, in the Debit and Credit columns to indicate the effects of each on the account balance. Account A. Accounts Payable B. Accounts Receivable C. Cash D. Equipment Repair Expense E. Fees Income F. Greg Ginova, Capital G. Greg Ginova, Drawing H. Prepaid Rent

Debit

Credit

H. I. J. K. L.

Prepaid Rent Salaries Expense Shop Equipment Supplies Utilities Expense

Answer:

Account A. Accounts Payable B. Accounts Receivable C. Cash D. Equipment Repair Expense E. Fees Income F. Greg Ginova, Capital G. Greg Ginova, Drawing H. Prepaid Rent I. Salaries Expense J. Shop Equipment K. Supplies L. Utilities Expense

Debit Decrease Increase Increase Increase Decrease Decrease Increase Increase Increase Increase Increase Increase

Credit Increase Decrease Decrease Decrease Increase Increase Decrease Decrease Decrease Decrease Decrease Decrease

Diff: 2 Topic: Journal Entries Learning Objective: 04-01 Record transactions in the general journal. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

81) Indicate how each of the following would be reflected in the journal entry required to record the effects described by using debit or credit to indicate the increase or decrease in each affected account. Debit or Credit A. B. C. D. E. F. G. H. I. J.

An increase in Cash A decrease in Accounts Receivable An increase in Supplies A decrease in Delivery Equipment An increase in Accounts Payable An increase in John Doe, Capital An increase in John Doe, Drawing An increase in Fee Income An increase in Rent Expense An increase in Salaries Expense 38

Answer: A. B. C. D. E. F. G. H. I. J.

Debit or Credit Debit Credit Debit Credit Credit Credit Debit Credit Debit Debit

Diff: 1 Topic: Journal Entries Learning Objective: 04-01 Record transactions in the general journal. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

82) Indicate how each of the following would be reflected in the journal entry required to record the effects described by using debit or credit to indicate the increase or decrease in each affected account. Debit or Credit A. B. C. D. E. F. G. H. I. J. K.

An increase in Savannah Smith, Drawing A decrease in Cash An increase in Fee Income A decrease in Supplies A decrease in Office Equipment An increase in Delivery Equipment An increase in Utilities Expense An increase in Prepaid Rent A decrease in Accounts Payable An increase in Savannah Smith, Capital An increase in Salaries Expense

Answer: A. B. C. D.

An increase in Savannah Smith, Drawing A decrease in Cash An increase in Fee Income A decrease in Supplies 39

Debit or Credit Debit Credit Credit Credit

Answer: D. E. F. G. H. I. J. K.

A decrease in Supplies A decrease in Office Equipment An increase in Delivery Equipment An increase in Utilities Expense An increase in Prepaid Rent A decrease in Accounts Payable An increase in Savannah Smith, Capital An increase in Salaries Expense

Credit Credit Debit Debit Debit Debit Credit Debit

Diff: 2 Topic: Journal Entries Learning Objective: 04-01 Record transactions in the general journal. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

83) Indicate how each of the following would be reflected in the journal entry required to record the effects described by using debit or credit to indicate the increase or decrease in each affected account. Debit or Credit A. An increase in Advertising Expense B. A decrease in Cash C. An increase in Myra Taylor, Capital D. An increase in Supplies E. An increase in Fee Income F. A decrease in Delivery Equipment G. An increase in Office Equipment H. An increase in Accounts Payable I. A decrease in Accounts Receivable J. An increase in Myra Taylor, Drawing K. An increase in Prepaid Rent L. An increase in Equipment Repairs Expense Answer: A. B. C. D. E. F. G. H. I.

An increase in Advertising Expense A decrease in Cash An increase in Myra Taylor, Capital An increase in Supplies An increase in Fee Income A decrease in Delivery Equipment An increase in Office Equipment An increase in Accounts Payable A decrease in Accounts Receivable 40

Debit or Credit Debit Credit Credit Debit Credit Credit Debit Credit Credit

Answer: I. J. K. L.

A decrease in Accounts Receivable An increase in Myra Taylor, Drawing An increase in Prepaid Rent An increase in Equipment Repairs Expense

Credit Debit Debit Debit

Diff: 2 Topic: Journal Entries Learning Objective: 04-01 Record transactions in the general journal. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

84) Determine the accounts and amounts to be debited and credited for the following transactions for Madison's Clock Repair. A. Purchased new equipment for $3,400 by issuing a check for $1,400 as a down payment with the balance due in 30 days. B. Returned damaged supplies and received a $80 cash refund. C. Purchased supplies for $300 on account. D. Provided services for $8,600 on credit. E. Issued a check for $700 to pay a creditor on account. F. Issued checks for $3,800 to pay the employees their monthly salaries. G. Issued a check for $180 to pay the monthly telephone bill Answer: A. Equipment (dr. $3,400); Cash (cr. $1,400) and Accounts Payable (cr. $2,000) B. Cash (dr. $80); Supplies (cr. $80) C. Supplies (dr. $300); Accounts Payable (cr. $300) D. Accounts Receivable (dr. $8,600); Fees Income (cr. $8,600) E. Accounts Payable (dr. $700); Cash (cr. $700) F. Salaries Expense (dr. $3,800); Cash (cr. $3,800) G. Telephone Expense (dr. $180); Cash (cr. $180) Diff: 2 Topic: Journal Entries Learning Objective: 04-01 Record transactions in the general journal.; 04-02 Prepare compound journal entries. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

85) Determine the accounts and amounts to be debited and credited for the following transactions for Folk Furniture Repair. A. Issued a check for $950 to pay the monthly rent B. Issued a $2,000 check to pay a creditor on account. C. Purchased new equipment for $1,700 and paid $500 immediately by check with the remainder due in 30 days. D. Provided services on credit in the amount of $1,050 E. Performed services for cash in the amount of $1,200. F. The owner made an additional investment of $2,000 in cash and $800 in equipment. G. Purchased $130 worth of supplies on credit. H. Sent a $110 check to the utility company to pay the monthly bill. I. Collected $700 from credit customers. Answer: A. Rent Expense (dr.$950); Cash (cr.$950) B. Accounts Payable (dr.$2,000); Cash (cr.$2,000) C. Equipment (dr.$1,700); Cash (cr.$500); Accounts Payable (cr. $1,200) D. Accounts Receivable (dr.$1,050); Fees Income (cr.$1,050) E. Cash (dr.$1,200); Fees Income (cr.$1,200) F. Cash (dr.$2,000); Equipment (dr. $800); Folk, Capital (cr.$2,800) G. Supplies (dr.$130); Accounts Payable (cr.$130) H. Utilities Expense (dr.$110 ); Cash (cr.$110) I. Cash (dr.$700); Accounts Receivable (cr.$700) Diff: 2 Topic: Journal Entries Learning Objective: 04-01 Record transactions in the general journal.; 04-02 Prepare compound journal entries. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

86) Determine the accounts and amounts to be debited and credited for the following transactions for Monroe's Auto Repair. A. Marilyn Monroe invested $50,000 in cash to start the firm B. Issued check for $4,000 to pay the rent for current month C. Purchased an automobile that will be used to visit clients; issued check for $32,500 in full payment D. Purchased supplies for $800; paid immediately by check E. Purchased office equipment for $18,500 on credit from Denton, Inc.; received invoice, payable in 30 days F. Performed services for $2,580 in cash G. Returned damaged supplies for a cash refund of $50 H. Issued check for $15,600 to Denton, Inc., as payment on account I. Paid $120 for monthly telephone bill by check J. Withdrew $500 in cash for personal expenses Answer: A. Cash (dr. $50,000); Marilyn Monroe, Capital (cr. $50,000) B. Rent Expense (dr. $4,000); Cash (cr. $4,000) C. Automobile (dr. $32,500); Cash (cr. $32,500) D. Supplies (dr. $800); Cash (cr. $800) E. Office Equipment (dr. $18,500); Accounts Payable (cr. $18,500) F. Cash (dr. $2,580); Fees Income (cr. $2,580) G. Cash (dr. $50); Supplies (cr. $50) H. Accounts Payable (dr. $15,600); Cash (cr. $15,600) I. Telephone Expense (dr. $120); Cash (cr. $120) J. Marilyn Monroe, Drawing (dr. $500); Cash (cr. $500) Diff: 2 Topic: Journal Entries Learning Objective: 04-01 Record transactions in the general journal.; 04-02 Prepare compound journal entries. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Measurement; FN Reporting

87) The accounts with identification letters for Orly Delivery Services are listed below. Letter A B C D E F G H

Account Title Cash Accounts Receivable Supplies Prepaid Rent Delivery Equipment Office Equipment Accounts Payable Orly, Capital

Letter I J K L M N O

Account Title Orly, Drawing Delivery Fee Income Advertising Expense Equipment Repairs Expense Rent Expense Salaries Expense Utilities Expense

During the current month, the company completed the transactions listed below. Indicate the 43 Copyright © McGraw-Hill Education.All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

appropriate journal entry that needs to be recorded for each transaction by providing the account letter and amount. Some entries may need more than one debit and/or more than one credit. The first transaction is completed as an example.

A. B. C. D. E. F.

Transaction The owner invested $25,000 cash in the business Purchased delivery equipment on account $16,500. Performed delivery services for $6,200 cash Issued check for $7,200 to pay the rent for six months Issued check for $360 to purchase supplies Issued check for $4,000 in partial payment of the delivery equipment purchased in 'B' above Purchased an advertisement space in the local newspaper for $600 for one month

Debit Credit Letter Amount Letter A $25,000 H

Answer: A. B. C. D. E. F.

Amount $25,000

Debit Letter Amount A $25,000

Credit Letter H

Amount $25,000

16,500

6,200

7,200

360

4,000

600

Answer: G.

Issued a check to purchase an K. advertisement space in the local newspaper for $600 for one month

600

Diff: 2 Topic: Journal Entries Learning Objective: 04-01 Record transactions in the general journal. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

88) The accounts with identification letters for Smart Delivery Services are listed below. Letter A B C D E F G H

Account Title Cash Accounts Receivable Supplies Prepaid Rent Delivery Equipment Office Equipment Accounts Payable Smart, Capital

Letter I J K L M N O

Account Title Smart, Drawing Delivery Fee Income Advertising Expense Equipment Repairs Expense Rent Expense Salaries Expense Utilities Expense

During the current month, the company completed the transactions listed below. Indicate the appropriate journal entry that needs to be recorded for each transaction by providing the account letter and amount. Some entries may need more than one debit and/or more than one credit. The first transaction is completed as an example.

A. B. C.

E. F.

Transaction The owner invested $25,000 cash in the business Purchased delivery equipment for $3,200 on account Received a bill for $960 for equipment repairs that will be paid next month Performed delivery services for $12,800; received $4,400 in cash immediately and the remainder was on account Issued check for $500 for a newspaper advertisement Issued check for $750 for

Debit Letter Amount A $25,000

Credit Letter H

Amount $25,000

F. G. H.

Issued check for $750 for current month's utilities The owner withdrew $1,500 cash for personal use Received $900 on account from credit clients

Answer: A. B. C.

E. F. G. H.

Debit Letter Amount A $25,000

Transaction The owner invested $25,000 cash in the business Purchased delivery equipment E for $3,200 on account Received a bill for $960 for L equipment repairs that will be paid next month Performed delivery services for A $12,800; received $4,400 in cash immediately and the B remainder was on account Issued check for $500 for a K newspaper advertisement Issued check for $750 for O current month's utilities The owner withdrew $1,500 I cash for personal use Received $900 on account from A credit clients

Credit Letter H

Amount $25,000

3,200

960

4,000 8,800

12,800

500

750

1,500

900

Diff: 2 Topic: Journal Entries Learning Objective: 04-01 Record transactions in the general journal. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Measurement; FN Reporting

89) The accounts with identification letters for Sealy Delivery Services are listed below. Letter A B C D E F

Account Title Cash Accounts Receivable Supplies Prepaid Rent Delivery Equipment Office Equipment

Letter Account Title I Sealy, Drawing J Delivery Fee Income K Advertising Expense L Equipment Repairs Expense M Rent Expense 46 Salaries Expense N

F G H

Office Equipment Accounts Payable Sealy, Capital

N O

Salaries Expense Utilities Expense

A. B.

C. D.

E. F.

Transaction The owner invested $25,000 cash in the business Issued check for $330 to pay creditor for supplies purchased previously on account Performed delivery services for $14,000 on credit Performed delivery services for $1,000 in cash and $4,000 on credit Received $900 on account from credit clients Purchased a newspaper advertisement for $2,500 on account

Debit Letter Amount A $25,000

Letter H

Credit Amount $25,000

Answer: Answer:

A. B.

C. D.

E. F.

Debit Letter Amount A $25,000

Transaction The owner invested $25,000 cash in the business Issued check for $330 to pay G creditor for supplies purchased previously on account Performed delivery services for B $14,000 on credit Performed delivery services for A $1,000 in cash and $4,000 on B credit Received $900 on account from A credit clients Purchased a newspaper K

Letter H

Credit Amount $25,000

330

14,000

1,000 4,000

5,000

900

2,500

Hill Educ

ucation.

Answer: F.

Purchased a newspaper advertisement for $2,500 on account

2,500

Diff: 3 Topic: Journal Entries Learning Objective: 04-01 Record transactions in the general journal.; 04-02 Prepare compound journal entries. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

90) The accounts with identification letters for Able Delivery Services are listed below. Letter A B C D E F G H

Account Title Cash Accounts Receivable Supplies Prepaid Rent Delivery Equipment Office Equipment Accounts Payable Able, Capital

Letter I J K L M N O

Account Title Able, Drawing Delivery Fee Income Advertising Expense Equipment Repairs Expense Rent Expense Salaries Expense Utilities Expense

During the January, the company completed the transactions listed below. Indicate the appropriate journal entry that needs to be recorded for each transaction by providing the account letter and amount. Some entries may need more than one debit and/or more than one credit. The first transaction is completed as an example.

A. B.

D. E. F.

Transaction The owner invested $25,000 cash in the business Issued check for $1,000 to Able, the owner, for utilities in personal residence Bought delivery equipment for $120,000. Issued check for $70,000; balance is due in 30 days Returned damaged supplies and received a cash refund of $30 Received $900 on account from credit clients Issued check for $5,000 to

Debit Letter Amount A $25,000

Letter H

Credit Amount $25,000

Issued check for $5,000 to purchase $3,500 of office equipment and $1,500 of supplies Returned damaged office equipment and received a cash refund of $500 Issued check for $12,000 for rent for the months of February and March

Answer: A. B.

D. E. F.

Debit Letter Amount A $25,000

Transaction The owner invested $25,000 cash in the business Issued check for $1,000 to Able, I the owner, for utilities in personal residence Bought delivery equipment for E $120,000. Issued check for $70,000; balance is due in 30 days Returned damaged supplies and A received a cash refund of $30 Received $900 on account from A credit clients Issued check for $5,000 to F purchase $3,500 of office C equipment and $1,500 of supplies Returned damaged office A equipment and received a cash refund of $500 Issued check for $12,000 for D rent for the months of February and March

Letter H

Credit Amount $25,000

1,000

120,000

A G

70,000 50,000

900

3,500 1,500

5,000

500

12,000

91) Antonio Baldez operates a delivery service. During the month of April, the firm had the following transactions. Record these transactions on page 5 of a general journal. Omit the descriptions April 1 2 4 6 7

Issued a check in the amount of $1,000 to pay the monthly rent Antonio made an additional investment of cash in amount of $8,500 Performed services for $730 in cash Sent a check in the amount of $350 to the utility company to pay the monthly bill Purchased supplies in the amount of $750 on credit

Answer:

GENERAL JOURNAL DATE April 1

DESCRIPTION Rent Expense Cash

P.R.

DEBIT 1,000

PAGE 5 CREDIT 1,000

Cash Antonio Baldez, Capital

8,500

Cash Fees Income

730

Utilities Expense Cash

350

Supplies Accounts Payable

750

8,500

730

350

750

Diff: 2 Topic: Journal Entries Learning Objective: 04-01 Record transactions in the general journal. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Measurement; FN Reporting

92) Maria Sanchez operates a typing service. During the month of July, the first month of operations, the firm had the following transactions. Record these transactions on page 2 of a general journal. Omit the descriptions July 4 5

Provided services for $3,550 on credit Purchased a new computer for $1,250, issued a check for a $500 down 50

5 7 8 9

Purchased a new computer for $1,250, issued a check for a $500 down payment, with the balance payable in 30 days Issued a check in the amount of $1,800 to pay a creditor on account Collected $1,000 in cash from credit customers Issued check for $3,000 for the August and September rent

Answer:

GENERAL JOURNAL DATE July 4

DESCRIPTION Accounts Receivable Fees Income

P.R.

DEBIT 3,550

PAGE 2 CREDIT 3,550

Computer Cash Accounts Payable

1,250

Accounts Payable Cash

1,800

Cash Accounts Receivable

1,000

Prepaid Rent Cash

3,000

500 750

1,800

1,000

3,000

Diff: 2 Topic: Journal Entries Learning Objective: 04-01 Record transactions in the general journal.; 04-02 Prepare compound journal entries. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

93) Lourdes Yabar opened a computer repair business on May 1, 2019. During the first month of operations, the firm had the following transactions. Record these transactions on page 1 of the general journal. Omit the descriptions. Set up a Cash general ledger account and post the appropriate transactions to this account, account 101. May 1 2 3 4 6 12

Lourdes Yabar invested $21,000 cash in the business Issued Check 101 for $1,100 to pay the rent for May Purchased supplies for $1,000. Paid with Check 102 Bought equipment for $9,000. Issued Check 103 for $2,000 as a down payment; balance is due in 30 days Returned damaged supplies, and received a cash refund of $200 Performed services for $900 on credit 51

12 19 26 28 29 29 31 31

Performed services for $900 on credit Issued Check 104 for $250 to pay for a newspaper advertisement Issued Check 105 for $350 to pay the monthly electric bill Performed services for $600 cash Received $400 on account from credit customers Issued Check 106 for $150 to pay the monthly telephone bill Issued Check 107 for $7,000 to pay a creditor Issued Check 108 for $2,500 to Lourdes Yabar for personal expenses

Answer:

GENERAL JOURNAL Date May 1

Description Cash Lourdes Yabar, Capital

P.R. 101

Debit 21,000

21,000

Rent Expense Cash

1,100 101

Supplies Cash

1,100 1,000

101

Equipment Cash Accounts Payable

1,000 9,000

101

Cash Supplies

101

2,000 7,000 200 200

Accounts Receivable Fees Income

900

Advertising Expense Cash

250

900

101

Utilities Expense Cash

250 350

101

Cash Fees Income Cash

PAGE 1 Credit

101

350 600 600

101

400

Answer: 29

Cash Accounts Receivable

101

400 400

Telephone Expense Cash

150 101

Accounts payable Cash

150 7,000

101

Lourdes Yabar, Drawing Cash

7,000 2,500

101

2,500

GENERAL LEDGER ACCOUNT: CASH DATE EXPLANATION May 1 2 3 4 6 19 26 28 29 29 31 31

P.R. J1 J1 J1 J1 J1 J1 J1 J1 J1 J1 J1 J1

DEBIT 21,000

CREDIT 1,100 1,000 2,000

200 250 350 600 400 150 7,000 2,500

ACCOUNT NO. 101 BALANCE DEBIT CREDIT 21,000 19,900 18,900 16,900 17,100 16,850 16,500 17,100 17,500 17,350 10,350 7,850

Diff: 3 Topic: Journal Entries, Posting Journal Entries to General Ledger Learning Objective: 04-01 Record transactions in the general journal.; 04-02 Prepare compound journal entries.; 04-03 Post journal entries to general ledger accounts. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Measurement; FN Reporting

94) Global Delivery opened for business on July 1, 2019. The company uses the general ledger accounts listed below. During the first month of business, the firm had the transactions listed below. Record the transactions on page 1 of a general journal. Omit descriptions. Set up a Cash general ledger account and post the appropriate transactions to this account, account 101. 101 Cash 103 Accounts Receivable

301 305

Colleen Miriam, Capital 5C 3 olleen Miriam, Drawing

103 105 107 201

Accounts Receivable Supplies Delivery Equipment Accounts Payable

July 1 1 5 9 11 12 15 15 22 26 27 31

305 401 501 505 510

Colleen Miriam, Drawing Delivery Fee Income Advertising Expense Rent Expense Utilities Expense

Colleen Miriam, the owner, invested $64,000 cash in the business Issued Check 101 for $1,950 to pay the rent for July Bought delivery equipment for $13,800. Issued Check 102 for $6,800; balance is due in 60 days Purchased supplies for $280 cash, Check 103 Returned damaged supplies and received a cash refund of $54 Performed delivery services for $1,350 on credit Purchased supplies for $190 cash, Check 104 Issued Check 105 for $225 for a newspaper advertisement Issued Check 106 for $580 to pay creditor for supplies Issued Check 107 for $2,800 to Colleen Miriam for personal expenses Performed delivery services for $3,350 cash Issued Check 108 for $285 for utilities

Answer:

GENERAL JOURNAL Page 1 DATE DESCRIPTION July 1 Cash Colleen Miriam, Capital 1

Rent Expense Cash

P.R. DEBIT CREDIT 101 64,000 64,000 1,950 101

Delivery Equipment Cash Accounts Payable

1,950 13,800

101

Supplies Cash

6,800 7,000 280

101

Cash Supplies

101

280 54 54

Accounts Receivable Delivery Fee Income

1,350 1,350 54

Answer: 15

Supplies Cash

190 101

Advertising Expense Cash

190 225

101

Accounts Payable Cash

225 580

101

Colleen Miriam, Drawing Cash Cash Delivery Fee Income

580 2,800

101 101

2,800 3,350 3,350

Utilities Expense Cash

285 101

285

95) The following errors in recording the transactions for June were discovered in the general journal the next month after the data had been posted to the ledger. Record the necessary correcting entries on page 2 of a general journal. Omit the descriptions. June 1 2

3 4

Discovered that a purchase of supplies for $800 cash was recorded as a debit to Equipment and a credit to Cash Discovered that a check for $1,100 to the owner, Hank Rudolph, to pay one month's rent on his personal apartment was recorded as a debit to Rent Expense and a credit to Cash Discovered that a receipt of $3,000 cash from a credit customer was recorded as a debit to Cash and a credit to Accounts Payable Discovered that $350 services performed on credit were recorded as a debit to Cash and a credit to Fees Income

Answer:

GENERAL JOURNAL DATE June 1

June 2

June 3

June 4

DESCRIPTION Supplies Equipment

P.R.

DEBIT 800

PAGE 2 CREDIT 800

Hank Rudolph, Drawing Rent Expense

1,100

Accounts Payable Accounts Receivable

3,000

Accounts Receivable Cash

350

1,100

3,000

350

Diff: 3 Topic: Journal Entries Learning Objective: 04-04 Correct errors made in the journal or ledger. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Measurement; FN Reporting

96) The following errors in recording the transactions for December were discovered in the general journal the next month after the data had been posted to the ledger. Record the necessary correcting entries on page 12 of a general journal. Omit the descriptions. Dec. 5 10

Discovered that a purchase of office equipment for $1,000 cash was recorded as a debit to Shop Equipment and a credit to Cash Discovered that a check for $2,500 to the owner, Hank Rudolph, to pay one month's utilities on his personal apartment was recorded as a debit to Utilities Expense and a credit to Cash Discovered that a receipt of $30,000 cash from a customer for services performed was recorded as a debit to Cash and a credit to Accounts Receivable Discovered that $3,000 for this month's rent was recorded as a debit to Cash and a credit to Prepaid Rent

Answer:

GENERAL JOURNAL DATE Dec. 5

Dec. 10

DESCRIPTION Office Equipment Shop Equipment

P.R.

DEBIT 1,000

PAGE 12 CREDIT 1,000

Hank Rudolph, Drawing

2,500 56

Answer: Dec. 10

Dec. 15

Dec. 20

Hank Rudolph, Drawing Utilities Expense

2,500

Accounts Receivable Fees Income

30,000

Prepaid Rent Rent Expense Cash

3,000 3,000

2,500

30,000

6,000

Diff: 3 Topic: Journal Entries Learning Objective: 04-04 Correct errors made in the journal or ledger. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

97) Match the accounting terms with the description by entering the proper letter in the space provided. A. Accounting cycle B. Audit trail C. Balance ledger form D. Chronological order E. Compound entry F. Correcting entry G. General journal H. General ledger I. Journal J. Journalizing K. Ledger L. Posting ________ 1. A financial record for entering all types of business transactions; a record of original entry ________ 2. Transferring data from a journal to a ledger ________ 3. A series of steps performed during each accounting period to classify, record, and summarize data for a business and to produce needed financial information ________ 4. A permanent, classified record of all accounts used in a firm's operation; a record of final entry ________ 5. Recording transactions in a journal ________ 6. A ledger account form that shows the balance of the account after each entry is posted ________ 7. A journal entry with more than one debit or credit ________ 8. Organized in the order in which the events occur 9. A chain of references that makes it possible to trace information, locate errors, and 57 Copyright © McGraw-Hill Education.All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

prevent fraud ________ 10. A journal entry made to correct an erroneous entry 11. The record of original entry ________ 12. The record of final entry

Answer: (1) G, (2) L, (3) A, (4) H, (5) J, (6) C, (7) E, (8) D, (9) B, (10) F, (11) I, (12) K Diff: 2 Topic: Journal Entries, Accounting Records, Correcting Errors, Posting Journal Entries to General Ledger Learning Objective: 04-01 Record transactions in the general journal.; 04-02 Prepare compound journal entries.; 04-03 Post journal entries to general ledger accounts.; 04-04 Correct errors made in the journal or ledger.; 04-05 Define the accounting terms new to this chapter. Bloom's: Understand AACSB: Analytic AICPA: BB Industry; FN Decision Making

Chapter 05 Adjustments and the Worksheet MULTIPLE CHOICE QUESTIONS 1) Prepaid expenses, such as prepaid rent and prepaid insurance, represent assets for a business until they are used. A) True B) False Answer: A Explanation: Diff: 1 Topic: The Worksheet Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

2) The cost of a long-term asset, such as equipment, is transferred to expense as it is used during its useful life. A) True B) False Answer: A Explanation: Diff: 1 Topic: The Worksheet Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

3) If the adjustment for supplies used is not recorded, the firm's assets will be overstated. A) True B) False Answer: A Explanation: Diff: 2 Topic: The Worksheet Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

4) If the adjustment for expired rent is not recorded, the firm's expenses will be overstated. A) True B) False Answer: B Explanation: Diff: 2 Topic: The Worksheet Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

5) The normal balance of a contra asset account is a debit. A) True B) False Answer: B Explanation: Diff: 2 Topic: The Worksheet Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

6) Letters are used to label the corresponding debit and credit transactions of an adjustment on the worksheet. A) True B) False Answer: A Explanation: Diff: 1 Topic: The Worksheet Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

7) Land is a long-term asset that is not subject to depreciation. A) True B) False Answer: A Explanation: Diff: 1 Topic: The Worksheet Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

8) The balances of the revenue accounts are recorded in the Trial Balance Credit column, the Adjusted Trial Balance Credit column, and the Balance Sheet Credit column of the worksheet. A) True B) False Answer: B Explanation: Diff: 1 Topic: Financial Statements Learning Objective: 05-03 Complete the worksheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

9) Preparation of a worksheet eliminates the necessity of preparing an income statement and a balance sheet. A) True B) False Answer: B Explanation: Diff: 1 Topic: Financial Statements Learning Objective: 05-03 Complete the worksheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

10) In the Adjusted Trial Balance section of the worksheet the total debits should equal the total credits. A) True B) False Answer: A Explanation: Diff: 1 Topic: Financial Statements Learning Objective: 05-03 Complete the worksheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

11) The balance of the owner's drawing account is extended to the Income Statement Debit column of the worksheet. A) True B) False Answer: B Explanation: Diff: 2 Topic: Financial Statements Learning Objective: 05-03 Complete the worksheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

12) The balance of a liability account is extended to the Balance Sheet Credit column of the worksheet. A) True B) False Answer: A Explanation: Diff: 1 Topic: Financial Statements Learning Objective: 05-03 Complete the worksheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

13) The statement of owner's equity is prepared from the data in the Balance Sheet section of the worksheet. A) True B) False Answer: A Explanation: Diff: 2 Topic: Financial Statements Learning Objective: 05-04 Prepare an income statement, statement of owner's equity, and balance sheet from the completed worksheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

14) If adjustments are entered on a worksheet, it is not necessary to record them in the journal or the ledger. A) True B) False Answer: B Explanation: Diff: 1 Topic: Financial Statements Learning Objective: 05-05 Journalize and post the adjusting entries. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

15) Which of the following need not be completed separately if a worksheet is prepared? A) a trial balance B) a balance sheet C) an income statement D) a statement of owner's equity Answer: A Explanation: A) B) C) D) Diff: 1 Topic: The Worksheet Learning Objective: 05-01 Complete a trial balance on a worksheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

16) When a trial balance is in balance, A) adjusting entries are not required. B) the company has earned a net income. C) the general ledger is free of errors. D) the debit account balances equal the credit account balances. Answer: D Explanation: A) B) C) D) Diff: 2 Topic: The Worksheet Learning Objective: 05-01 Complete a trial balance on a worksheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

17) A total of $2,800 in supplies was purchased during the year. At the end of the year $700 of the supplies were left. The adjusting entry needed at the end of the year is: A) debit Supplies Expense $700; credit Supplies $700 B) debit Supplies Expense $2,800; credit Supplies $2,800 C) debit Supplies Expense $2,100; credit Supplies $2,100 D) debit Supplies $2,100; credit Supplies Expense $2,100 Answer: C Explanation: A) $2,800 - $700 = $2,100 B) $2,800 - $700 = $2,100 C) $2,800 - $700 = $2,100 D) $2,800 - $700 = $2,100 Diff: 1 Topic: The Worksheet Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

18) A total of $3,700 in supplies was purchased during the year. By the end of the year, the company had used $2,200 of the supplies. The adjusting entry needed at the end of the year is: A) debit Supplies $2,200; credit Supplies Expense $2,200 B) debit Supplies Expense $3,700; credit Supplies $3,700 C) debit Supplies Expense $1,500; credit Supplies $1,500 D) debit Supplies Expense $2,200; credit Supplies $2,200 Answer: D Explanation: A) Since the problem stated that $2,200 had been used, that is the amount that needs to be credited from the supplies account and recognized as an expense. B) Since the problem stated that $2,200 had been used, that is the amount that needs to be credited from the supplies account and recognized as an expense. C) Since the problem stated that $2,200 had been used, that is the amount that needs to be credited from the supplies account and recognized as an expense. D) Since the problem stated that $2,200 had been used, that is the amount that needs to be credited from the supplies account and recognized as an expense. Diff: 1 Topic: The Worksheet Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

19) MacGyver Company bought equipment on January 3, 2019, for $52,000. At the time of purchase, the equipment was estimated to have a useful life of five years and a salvage value of $4,000. Using the straight-line method, the amount of one year's depreciation is: A) $1,200. B) $4,000. C) $9,600. D) $10,400. Answer: C Explanation:

A) ($52,000 – $4,000)/5 years = $9,600 per year B) ($52,000 – $4,000)/5 years = $9,600 per year C) ($52,000 – $4,000)/5 years = $9,600 per year D) ($52,000 – $4,000)/5 years = $9,600 per year

Diff: 1 Topic: The Worksheet Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

20) Adjusting Entries are: A) updating entries for previously unrecorded expenses or revenues. B) corrections of errors. C) not required. D) will always affect cash. Answer: A Explanation: A) B) C) D) Diff: 1 Topic: The Worksheet Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

21) Equipment costing $27,000 with an estimated salvage value of $2,040 and an estimated life of 4 years was purchased on October 31, 2019. Using the straight-line depreciation method, what is the amount of depreciation expense to be recorded at December 31, 2019? A) $520 B) $1,560 C) $1,125 D) $1,040 Answer: D Explanation:

A) ($27,000 – $2,040)/48 months = $520 per month * 2 months = $1,040 B) ($27,000 – $2,040)/48 months = $520 per month * 2 months = $1,040 C) ($27,000 – $2,040)/48 months = $520 per month * 2 months = $1,040 D) ($27,000 – $2,040)/48 months = $520 per month * 2 months = $1,040

22) Which of the following entries records the depreciation on equipment for the fiscal year-end adjustment? A) Debit Depreciation; credit Depreciation Expense B) Debit Depreciation Expense; credit Equipment C) Debit Depreciation Expense; credit Accumulated Depreciation D) Debit Accumulated Depreciation; credit Depreciation Expense Answer: C Explanation: A) B) C) D) Diff: 1 Topic: The Worksheet Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

23) On January 1, ABC Catering purchased an oven for $5,000. The oven is expected to last five years and have no salvage value. Select the adjusting entry made on December 31, to record the depreciation of the oven for one year. A) Depreciation Expense $ 500 Accumulated Depreciation--Equipment $ 500

B) Accumulated Depreciation-Equipment Equipment

$ 500 $ 500

C) Depreciation Expense Equipment

$ 1,000

Depreciation Expense Accumulated Depreciation-Equipment

$ 1,000

Answer: D Explanation:

$ 1,000

A) ($5,000-0)/5 years = $1,000 B) ($5,000-0)/5 years = $1,000 9

C) ($5,000-0)/5 years = $1,000 D) ($5,000-0)/5 years = $1,000 Diff: 2 Topic: The Worksheet; Financial Statements Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions.; 05-05 Journalize and post the adjusting entries. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

24) On January 1, 2019, Johnson Consulting purchased a truck for $18,000. The truck is expected to last 60 months and have no salvage value. Calculate the book value of the truck on December 31, 2020. A) $3,600 B) $14,400 C) $7,200 D) $10,800 Answer: D Explanation:

A) ($18,000-0)/5 years = $3,600; (2 years * $3,600 = $7,200); $18,000 - $7,200 = $10,800 B) ($18,000-0)/5 years = $3,600; (2 years * $3,600 = $7,200); $18,000 - $7,200 = $10,800 C) ($18,000-0)/5 years = $3,600; (2 years * $3,600 = $7,200); $18,000 - $7,200 = $10,800 D) ($18,000-0)/5 years = $3,600; (2 years * $3,600 = $7,200); $18,000 - $7,200 = $10,800

Diff: 2 Topic: The Worksheet Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

25) On September 1, 2019, Jay Walker Company purchased a one-year insurance policy for $1,320. The correct adjusting entry on December 31, 2019, is: A) debit Prepaid Insurance $110; credit Insurance Expense $110 B) debit Insurance Expense $330; credit Prepaid Insurance $330 C) debit Prepaid Insurance $1,320; credit Insurance Expense $1,320 D) debit Insurance Expense $440; credit Prepaid Insurance $440 Answer: D Explanation: A) $1,320/12 months = $110 per month * 4 months = $440 B) $1,320/12 months = $110 per month * 4 months = $440 C) $1,320/12 months = $110 per month * 4 months = $440 D) $1,320/12 months = $110 per month * 4 months = $440 Diff: 2 Topic: The Worksheet Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

26) On November 1, 2019, Peaches Consulting Service paid $4,800 for 12 months of advance rent on its office space. The correct adjusting entry on December 31, 2019, to show the amount of rent that had expired would include: A) debit Rent Expense $4,800; credit Prepaid Rent $4,800 B) debit Rent Expense $800; credit Prepaid Rent $800 C) debit Rent Expense $400; credit Prepaid Rent $400 D) debit Prepaid Rent $4,000; credit Rent Expense $4,000 Answer: B Explanation: A) $4,800/12 months = $400 per month * 2 months = $800 B) $4,800/12 months = $400 per month * 2 months = $800 C) $4,800/12 months = $400 per month * 2 months = $800 D) $4,800/12 months = $400 per month * 2 months = $800 Diff: 2 Topic: The Worksheet Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

27) Equipment cost $36,000 and is expected to be useful for 5 years and have no salvage value. Under the straight-line method, monthly depreciation will be: A) $12. B) $600. C) $60. D) $720. Answer: B Explanation: A) ($36,000 – $0)/60 months = $600 per month B) ($36,000 – $0)/60 months = $600 per month C) ($36,000 – $0)/60 months = $600 per month D) ($36,000 – $0)/60 months = $600 per month Diff: 2 Topic: The Worksheet Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

28) J. B. Consulting purchased a machine for $6,000 on August 1, 2019. The company expects the useful life of the machine to be 5 years and no salvage value is expected. If the company uses the straight-line method to depreciate the machine, what will be the depreciation adjustment for the year ending December 31, 2019? A) Debit Depreciation Expense $500 and Credit Equipment $500. B) Debit Depreciation Expense $400 and Credit Accumulated Depreciation $400. C) Debit Depreciation Expense $500 and Credit Accumulated Depreciation $500. D) Debit Accumulated Depreciation $100 and Credit Depreciation Expense $100. Answer: C Explanation: A) ($6,000 – $0)/60 months = $100 per month; 5 months * $100 = $500 B) ($6,000 – $0)/60 months = $100 per month; 5 months * $100 = $500 C) ($6,000 – $0)/60 months = $100 per month; 5 months * $100 = $500 D) ($6,000 – $0)/60 months = $100 per month; 5 months * $100 = $500 Diff: 2 Topic: The Worksheet Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

29) On a worksheet, the adjusting entry to account for depreciation of equipment consists of: A) a debit to Accumulated Depreciation and a credit to Equipment. B) a debit to Depreciation Expense and a credit to Accumulated Depreciation. C) a debit to Depreciation Expense and a credit to Equipment. D) a debit to Accumulated Depreciation and a credit to Depreciation Expense. Answer: B Explanation: A) B) C) D) Diff: 2 Topic: The Worksheet Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

30) If the prepaid expenses are not adjusted, assets on the balance sheet: A) will be understated. B) will be overstated. C) may be either overstated or understated. D) will not be affected. Answer: B Explanation: A) B) C) D) Diff: 3 Topic: The Worksheet Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Bloom's: Analyze AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

31) If long-term assets are not adjusted, expenses on the income statement: A) will be overstated. B) will be understated. C) will not be affected. D) may be either overstated or understated. Answer: B Explanation: A) B) C) D) Diff: 3 Topic: The Worksheet Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Bloom's: Analyze AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

32) On October 25, 2019, the company paid $24,000 rent in advance for the six-month period (November 2019 through April 2020). On December 31, 2019, the adjustment for expired rent would include: A) a $4,000 credit to Prepaid Rent. B) a $8,000 credit to Rent Expense. C) a $8,000 debit to Rent Expense. D) a $24,000 credit to Cash. Answer: C Explanation: A) $24,000/6 months = $4,000 per month; 4,000/mo. * 2 months = $8,000 B) $24,000/6 months = $4,000 per month; 4,000/mo. * 2 months = $8,000 C) $24,000/6 months = $4,000 per month; 4,000/mo. * 2 months = $8,000 D) $24,000/6 months = $4,000 per month; 4,000/mo. * 2 months = $8,000 Diff: 2 Topic: The Worksheet Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

33) On March 1, 2019, the company paid $6,000 rent in advance for a 12-month period. On December 31, 2019, the company's adjustment for expired rent would include: A) a $6,000 debit to Prepaid Rent; a $6,000 credit to Rent Expense. B) a $1,000 debit to Rent Expense; a $1,000 credit to Prepaid Rent. C) a $5,000 debit to Rent Expense; a $5,000 credit to Prepaid Rent. D) a $5,000 debit to Prepaid Rent; a $5,000 credit to Rent Expense. Answer: C Explanation: A) $6,000/12 months = $500 per month; ($500 * 10 months = $5,000) B) $6,000/12 months = $500 per month; ($500 * 10 months = $5,000) C) $6,000/12 months = $500 per month; ($500 * 10 months = $5,000) D) $6,000/12 months = $500 per month; ($500 * 10 months = $5,000) Diff: 2 Topic: The Worksheet Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

34) On July 1, Sidney Consulting Services paid $18,000 for 12 months of advance rent on its office building. Select the adjusting entry made on December 31, to record the amount of rent that had expired during the year. A) Rent Expense $ 10,500 Prepaid Rent $ 10,500

B) Prepaid Rent Rent Expense

$ 18,000

Prepaid Rent Rent Expense

$ 10,500

Rent Expense Prepaid Rent

$ 18,000

C) $ 10,500

Answer: D Explanation:

9,000 $

9,000

A) $18,000/12 months = $1,500 per month; ($1,500 * 6 months = $9,000) B) $18,000/12 months = $1,500 per month; ($1,500 * 6 months = $9,000) 15

C) $18,000/12 months = $1,500 per month; ($1,500 * 6 months = $9,000) D) $18,000/12 months = $1,500 per month; ($1,500 * 6 months = $9,000) Diff: 2 Topic: The Worksheet; Financial Statements Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions.; 05-05 Journalize and post the adjusting entries. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

35) The balance in the Prepaid Rent account before adjustment at the end of the year is $12,000, which represents 12 months rent paid on November 1. The adjusting entry required on December 31 to show the amount of rent that had expired is: A) Rent Expense $ 1,000 Prepaid Rent $ 1,000

B) Rent Expense Prepaid Rent

$ 2,000

Rent Expense Cash

$ 12,000

Prepaid Rent Rent Expense

$ 12,000

$ 2,000

C) $ 12,000

Answer: B Explanation:

$ 12,000

A) $12,000/12 months = $1,000 per month; ($1,000 * 2 months = $2,000) B) $12,000/12 months = $1,000 per month; ($1,000 * 2 months = $2,000) C) $12,000/12 months = $1,000 per month; ($1,000 * 2 months = $2,000) D) $12,000/12 months = $1,000 per month; ($1,000 * 2 months = $2,000)

Diff: 2 Topic: The Worksheet; Financial Statements Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions.; 05-05 Journalize and post the adjusting entries. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

36) The adjusting entry to account for the use of supplies consists of: A) a debit to Supplies and a credit to Accumulated Depreciation. B) a debit to Accumulated Depreciation and a credit to Supplies. C) a debit to Supplies and a credit to Supplies Expense. D) a debit to Supplies Expense and a credit to Supplies. Answer: D Explanation: A) B) C) D) Diff: 1 Topic: The Worksheet Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

37) On December 31, Treats Catering Inc.'s trial balance shows a $1,000 balance in the Supplies account. However, a physical count of the supplies determined that only $350 of supplies actually remain in the supply cabinet. Select the adjusting entry made on December 31, to record the amount of supplies that had been used during the year. A) Supplies Expense. $ 350 Supplies $ 350

B) Supplies Supplies Expense

$ 350

Supplies Expense Supplies

$ 650

Supplies Supplies Expense

$ 650

$ 350

C) $ 650

Answer: C Explanation:

$ 650

A) $1,000 - $350 = $650 of supplies had been used. B) $1,000 - $350 = $650 of supplies had been used. 17

C) $1,000 - $350 = $650 of supplies had been used. D) $1,000 - $350 = $650 of supplies had been used. Diff: 2 Topic: The Worksheet; Financial Statements Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions.; 05-05 Journalize and post the adjusting entries. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

38) During its first year of business, XYZ Inc. purchased $1,600 of supplies. By the end of the year, only $500 of supplies remain in the supply cabinet. Determine the amount to be reported in the Supplies account in the Adjusted Trial Balance section of the worksheet prepared on December 31. A) $500 B) $1,600 C) $1,100 D) $2,100 Answer: A Explanation:

A) It is stated that $500 in supplies remain, therefore that is the adjusted supplies balance. B) It is stated that $500 in supplies remain, therefore that is the adjusted supplies balance. C) It is stated that $500 in supplies remain, therefore that is the adjusted supplies balance. D) It is stated that $500 in supplies remain, therefore that is the adjusted supplies balance.

Diff: 1 Topic: Financial Statements Learning Objective: 05-03 Complete the worksheet. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

39) Adjusting entries can be journalized: A) only once per accounting quarter. B) only once a month. C) as often as necessary. D) only once a year at the end of the accounting year. Answer: C Explanation: A) B) C) D) Diff: 2 Topic: The Worksheet Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

40) The adjusting entry to account for the expiration of prepaid insurance consists of: A) a debit to Accumulated Depreciation and a credit to Prepaid Insurance. B) a debit to Insurance Expense and a credit to Prepaid Insurance. C) a debit to Insurance Expense and a credit to Accumulated Depreciation. D) a debit to Prepaid Insurance and a credit to Accumulated Depreciation. Answer: B Explanation: A) B) C) D) Diff: 2 Topic: The Worksheet Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

41) The adjusting entry to account for the expiration of prepaid advertising consists of: A) a debit to Prepaid Advertising and a credit to Accumulated Depreciation. B) a debit to Prepaid Advertising and a credit to Advertising Expense. C) a debit to Advertising Expense and a credit to Accumulated Depreciation. D) a debit to Advertising Expense and a credit to Prepaid Advertising. Answer: D Explanation: A) B) C) D) Diff: 1 Topic: The Worksheet Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

42) Which of the following statements is not correct? A) The book value of a long-term asset is reduced each year as depreciation is recorded. B) Buildings and trucks are examples of long-term assets. C) Salvage value is computed by subtracting the accumulated depreciation from the cost of a long-term asset. D) Generally accepted accounting principles require that the original cost of a long-term asset continue to appear in the asset account until the disposition of the asset. Answer: C Explanation: A) B) C) D) Diff: 2 Topic: The Worksheet Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

43) On a worksheet, the adjusted balance of the Accumulated Depreciation account is extended to: A) the Balance Sheet Credit column. B) the Income Statement Debit column. C) the Income Statement Credit column. D) the Balance Sheet Debit column. Answer: A Explanation: A) B) C) D) Diff: 2 Topic: Financial Statements Learning Objective: 05-03 Complete the worksheet. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

44) On a worksheet, the adjusted balance of the Depreciation Expense account is extended to: A) the Income Statement Debit column. B) the Balance Sheet Debit column. C) the Income Statement Credit column. D) the Balance Sheet Credit column. Answer: A Explanation: A) B) C) D) Diff: 1 Topic: Financial Statements Learning Objective: 05-03 Complete the worksheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

45) On a worksheet, the adjusted balance of the Supplies account is extended to: A) the Income Statement Debit column. B) the Balance Sheet Credit column. C) the Income Statement Credit column. D) the Balance Sheet Debit column. Answer: D Explanation: A) B) C) D) Diff: 1 Topic: Financial Statements Learning Objective: 05-03 Complete the worksheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

46) On a worksheet, the adjusted balance of the Supplies Expense account is extended to: A) the Balance Sheet Debit column. B) the Income Statement Debit column. C) the Balance Sheet Credit column. D) the Income Statement Credit column. Answer: B Explanation: A) B) C) D) Diff: 1 Topic: Financial Statements Learning Objective: 05-03 Complete the worksheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

47) Which of the following statements is correct? A) Accumulated Depreciation--Equipment is presented in the Liabilities section of a balance sheet. B) The cost of supplies used is reported on the statement of owner's equity. C) The cost of supplies used represents an operating expense of the business. D) At the time of their acquisition, prepaid expenses are recorded in expense accounts. Answer: C Explanation: A) B) C) D) Diff: 2 Topic: The Worksheet; Financial Statements Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions.; 05-04 Prepare an income statement, statement of owner's equity, and balance sheet from the completed worksheet. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

48) On a worksheet, the adjusted balance of the Prepaid Rent account is extended to the: A) Income Statement Debit column. B) Balance Sheet Credit column. C) Balance Sheet Debit column. D) Income Statement Credit column. Answer: C Explanation: A) B) C) D) Diff: 1 Topic: Financial Statements Learning Objective: 05-03 Complete the worksheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

49) On a worksheet, the adjusted balance of the revenue account Fees Income would be extended to: A) the Balance Sheet Credit column. B) the Income Statement Debit column. C) the Income Statement Credit column. D) the Balance Sheet Debit column. Answer: C Explanation: A) B) C) D) Diff: 1 Topic: Financial Statements Learning Objective: 05-03 Complete the worksheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

50) On the worksheet, the Balance Sheet columns should balance: A) after the net income amount is added to the Balance Sheet Credit column. B) before the net income amount is added to the Balance Sheet Credit column. C) before the net income amount is added to the Balance Sheet Debit column. D) after the net income amount is added to the Balance Sheet Debit column. Answer: A Explanation: A) B) C) D) Diff: 2 Topic: Financial Statements Learning Objective: 05-03 Complete the worksheet. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

51) On a worksheet, the adjusted balance of a contra asset account would be extended to: A) the Income Statement Debit column. B) the Balance Sheet Debit column. C) the Income Statement Credit column. D) the Balance Sheet Credit column. Answer: D Explanation: A) B) C) D) Diff: 2 Topic: Financial Statements Learning Objective: 05-03 Complete the worksheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

52) On a worksheet, a net loss is: A) recorded in the Income Statement Debit column. B) not recorded. C) recorded in the Balance Sheet Credit column. D) recorded in the Balance Sheet Debit column. Answer: D Explanation: A) B) C) D) Diff: 2 Topic: Financial Statements Learning Objective: 05-03 Complete the worksheet. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

53) If a worksheet is prepared at the end of the accounting year, A) the financial statements are prepared using the worksheet data. B) preparation of the financial statements is not required. C) the adjusting entries do not need to be journalized. D) only a balance sheet is required. Answer: A Explanation: A) B) C) D) Diff: 1 Topic: Financial Statements Learning Objective: 05-03 Complete the worksheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

54) Which of the following statements is not correct? A) If an account has a debit balance in the Trial Balance section of the worksheet and there is a credit entry in the Adjustments section, the credit amount is added when computing the balance to be shown in the Adjusted Trial Balance section of the worksheet. B) Net loss is recorded on the worksheet in the Income Statement Credit column and the Balance Sheet Debit column. C) Net income is recorded on the worksheet in the Income Statement Debit column and the Balance Sheet Credit column. D) The difference between the total of the Income Statement Debit column and the total of the Income Statement Credit column of the worksheet represents either net income or net loss. Answer: A Explanation:

A) B) C) D)

Diff: 2 Topic: Financial Statements Learning Objective: 05-03 Complete the worksheet. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

55) On a balance sheet, Accumulated Depreciation—Equipment is reported: A) as a contra-asset on the Balance Sheet. B) as a liability on the Income Statement. C) as an expense on the Income Statement. D) as owner's equity on the Balance Sheet. Answer: A Explanation: A) B) C) D) Diff: 2 Topic: Financial Statements Learning Objective: 05-04 Prepare an income statement, statement of owner's equity, and balance sheet from the completed worksheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

56) The book value of long-term assets is reported on: A) the worksheet. C) the income statement. Answer: D Explanation: A) B) C) D)

B) the statement of owner's equity. D) the balance sheet.

Diff: 2 Topic: Financial Statements Learning Objective: 05-04 Prepare an income statement, statement of owner's equity, and balance sheet from the completed worksheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

57) The balance in the account Accumulated Depreciation, Equipment will: A) be reported on the Statement of Owner's Equity. B) will be reported on the Balance Sheet. C) not appear on any financial statement. D) be reported on the Income Statement. Answer: B Explanation: A) B) C) D) Diff: 1 Topic: Financial Statements Learning Objective: 05-04 Prepare an income statement, statement of owner's equity, and balance sheet from the completed worksheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

58) A consecutive, twelve-month accounting period is called a(n): A) adjusted year. B) fiscal year. C) accounting year. D) accrual year. Answer: B Explanation: A) B) C) D) Diff: 1 Topic: Financial Statements Learning Objective: 05-04 Prepare an income statement, statement of owner's equity, and balance sheet from the completed worksheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

59) Accumulated Depreciation, Equipment, is shown as: A) an addition to expenses on the Income Statement. B) a deduction of Capital on the Statement of Owner's Equity. C) an addition to assets on the Balance Sheet. D) a deduction from assets on the Balance Sheet. Answer: D Explanation: A) B) C) D) Diff: 1 Topic: Financial Statements Learning Objective: 05-04 Prepare an income statement, statement of owner's equity, and balance sheet from the completed worksheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

60) The adjustments made on the worksheet: A) need not be entered in the journal or the ledger. B) are posted to the ledger but are not recorded in the journal. C) are recorded in the journal but are not posted to the ledger. D) are recorded in the journal and then posted to the general ledger accounts. Answer: D Explanation: A) B) C) D) Diff: 2 Topic: Financial Statements Learning Objective: 05-05 Journalize and post the adjusting entries. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

61) The unadjusted net income on the income statement was $46,850. After journalizing and posting the adjusting entry for the $2,300 of supplies used during the year, the adjusted net income is: A) $46,850. B) $44,550. C) $49,150. D) $45,700. Answer: B Explanation: A) $46,850 - $2,300 = $44,550 B) $46,850 - $2,300 = $44,550 C) $46,850 - $2,300 = $44,550 D) $46,850 - $2,300 = $44,550 Diff: 3 Topic: Financial Statements Learning Objective: 05-03 Complete the worksheet. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

62) The unadjusted net income on the income statement was $23,760. After journalizing and posting the adjusting entries for the $1,620 of supplies used and $3,700 of depreciation on the company's equipment for the year, the adjusted net income is: A) $25,840. B) $18,440. C) $21,680. D) $29,080. Answer: B Explanation: A) $23,760 - $1,620 - $3,700 = $18,440 B) $23,760 - $1,620 - $3,700 = $18,440 C) $23,760 - $1,620 - $3,700 = $18,440 D) $23,760 - $1,620 - $3,700 = $18,440 Diff: 3 Topic: Financial Statements Learning Objective: 05-03 Complete the worksheet. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

63) The unadjusted net income on the income statement was $41,800. After journalizing and posting the adjusting entry for the $600 of prepaid advertising that expired and $1,600 in supplies used during the year, the adjusted net income is: A) $41,800. B) $39,600. C) $40,200. D) $41,200. Answer: B Explanation: A) $41,800 - $600 - $1,600 = $39,600 B) $41,800 - $600 - $1,600 = $39,600 C) $41,800 - $600 - $1,600 = $39,600 D) $41,800 - $600 - $1,600 = $39,600 Diff: 3 Topic: Financial Statements Learning Objective: 05-03 Complete the worksheet. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

64) The unadjusted net income on the income statement was $64,916. After journalizing and posting the adjusting entries for expired insurance during the year of $3,400 and for supplies used during the year of $1,480, the adjusted net income is: A) $69,796. B) $61,516. C) $64,916. D) $60,036. Answer: D Explanation: A) $64,916 - $3,400 - $1,480 = $60,036 B) $64,916 - $3,400 - $1,480 = $60,036 C) $64,916 - $3,400 - $1,480 = $60,036 D) $64,916 - $3,400 - $1,480 = $60,036 Diff: 3 Topic: Financial Statements Learning Objective: 05-03 Complete the worksheet. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

65) The total assets on the balance sheet was $128,800 before journalizing and posting the adjusting entries for $800 of expired insurance, $2,400 of expired rent and $900 of depreciation. What are the total assets after journalizing and posting the adjusting? A) $128,800. B) $124,700. C) $126,500. D) $132,900. Answer: B Explanation: A) $128,800 - $800 - $2,400 - $900 = $124,700 B) $128,800 - $800 - $2,400 - $900 = $124,700 C) $128,800 - $800 - $2,400 - $900 = $124,700 D) $128,800 - $800 - $2,400 - $900 = $124,700 Diff: 3 Topic: Financial Statements Learning Objective: 05-03 Complete the worksheet. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Reporting

SHORT ANSWER QUESTIONS 66) The process of allocating the cost of a long-term asset as an expense of operations during the asset's expected useful life is known as ________. Answer: depreciation Explanation: Diff: 1 Topic: Adjustments Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions.; 05-06 Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

67) The difference between the debit balance of the Equipment account and the credit balance of the Accumulated Depreciation–Equipment account is called the ________ of an asset. Answer: book value Explanation: Diff: 2 Topic: Adjustments Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

68) The Supplies account had a balance of $1,200 when a physical count indicated that supplies on hand totaled $250. This means that supplies in the amount of ________ were used during the accounting period. Answer: $950 Explanation: $1,200 - $250 = $950 Diff: 1 Topic: Adjustments Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

69) The process of updating accounts at the end of an accounting period for previously unrecorded items that belong to the period is referred to as making ________. Answer: adjustments or adjusting entries Explanation: Diff: 1 Topic: Adjustments Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions.; 05-06 Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

70) The account credited in the adjusting entry made to record the expiration of a portion of prepaid rent is the ________ account. Answer: Prepaid Rent Explanation: Diff: 2 Topic: Adjustments Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

71) Accumulated depreciation is classified as a(n) ________ account. Answer: contra-asset Explanation: Diff: 1 Topic: Adjustments Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

72) When the ________ method of depreciation is used, an equal amount of depreciation is charged to each accounting period during the asset's useful life. Answer: straight-line Explanation: Diff: 1 Topic: Adjustments Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

73) The account accumulated depreciation has a normal

balance.

Answer: credit Explanation: Diff: 1 Topic: Adjustments Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

74) A(n) ________ is prepared at the end of each accounting period to organize and summarize the data needed for the preparation of the financial statements. Answer: worksheet Explanation: Diff: 1 Topic: The Worksheet Learning Objective: 05-03 Complete the worksheet. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

75) On a worksheet, the adjusted balance of Supplies is extended from the Adjusted Trial Balance Debit column to the ________ Debit column. Answer: Balance Sheet Explanation: Diff: 1 Topic: The Worksheet Learning Objective: 05-03 Complete the worksheet. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

76) On a worksheet, the adjusted balance of Depreciation Expense is extended from the Adjusted Trial Balance Debit column to the ________ Debit column. Answer: Income Statement Explanation: Diff: 1 Topic: The Worksheet Learning Objective: 05-03 Complete the worksheet. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

77) For each of the accounts listed below, enter the words, Increase or Decrease, in the Debit and Credit columns to indicate the effects of each on the account balance. Account A. Accumulated Deprecation B. Depreciation Expense C. Equipment D. Prepaid Rent E. Rent Expense F. Supplies G. Supplies Expense

Answer:

Debit

Account A. Accumulated Deprecation B. Depreciation Expense C. Equipment D. Prepaid Rent E. Rent Expense F. Supplies G. Supplies Expense

Credit

Debit Decrease Increase Increase Increase Increase Increase Increase

Credit Increase Decrease Decrease Decrease Decrease Decrease Decrease

Explanation: Diff: 1 Topic: The Worksheet; Adjustments Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

78) For each of the accounts listed below, enter the words, Increase or Decrease, in the Debit and Credit columns to indicate the effects of each on the account balance. Account A. Accumulated Deprecation B. Advertising Expense C. Depreciation Expense D. Insurance Expense E. Land F. Prepaid Advertising G. Prepaid Insurance

Answer:

Debit

Account A. Accumulated Deprecation B. Advertising Expense C. Depreciation Expense D. Insurance Expense E. Land F. Prepaid Advertising G. Prepaid Insurance

Credit

Debit Decrease Increase Increase Increase Increase Increase Increase

Credit Increase Decrease Decrease Decrease Decrease Decrease Decrease

79) Read each of the following transactions for Patel's Repair Services. Determine the accounts and amounts to be debited and credited in the necessary end-of-May adjustments. A. On May 1, 2019, Patel's Repair Services, a new firm, paid $6,600 rent in advance for a six-month period. The $6,600 was debited to the Prepaid Rent account. B. On May 1, 2019, the firm bought supplies for $2,000. The $2,000 was debited to the Supplies account. An inventory of supplies at the end of May showed that supplies costing $800 were on hand. C. On May 1, 2019, the firm bought equipment costing $12,000. The equipment has an expected useful life of 10 years and no salvage value. The firm will use the straight-line method of depreciation.

Answer: A. Rent Expense (dr.) $1,100; Prepaid Rent (cr.) $1,100 B. Supplies Expense (dr.) $1,200; Supplies (cr.) $1,200 C. Depreciation Expense (dr.) $100; Accumulated Depreciation (cr.) $100 Explanation: A. $6,600/6 months = $1,100 per month B. $2,000 - $800 = $1,200 used C. ($12,000 - $0)/120 months = $100 per month Diff: 2 Topic: The Worksheet; Adjustments Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Measurement; FN Reporting

80) Read each of the following transactions for Pickerton Printer Repair Services. Determine the accounts and amounts to be debited and credited in the necessary end-of-April adjustments. A. On April 1, 2019, Pickerton Printer Repair Services, a new firm, bought supplies for $2,500. The $2,500 was debited to the Supplies account. An inventory of supplies at the end of April showed that supplies costing $1,500 were on hand. B. On April 1, 2019, the firm bought equipment costing $25,000. The equipment has an expected useful life of 10 years and a salvage value of $1,000. The firm will use the straight-line method of depreciation. C. On April 1, 2019, the firm paid $7,200 rent in advance for a six-month period. The $7,200 was debited to the Prepaid Rent account.

Answer: A. Supplies Expense (dr.) $1,000; Supplies (cr.) $1,000 B. Depreciation Expense (dr.) $200; Accumulated Depreciation (cr.) $200 C. Rent Expense (dr.) $1,200; Prepaid Rent (cr.) $1,200 Explanation: A. $2,500-$1,500 = $1,000 used B. ($25,000 - $1,000)/120 months = $200 per month C. $7,200/6 months = $1,200 per month Diff: 2 Topic: The Worksheet; Adjustments Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

81) Read each of the following transactions for Gallagher Enterprises. Determine the accounts and amounts to be debited and credited in the necessary end-of-January adjustments. A. On January 1, 2019, Gallagher Enterprises, a new firm, paid $4,800 rent in advance for a three-month period. The $4,800 was debited to the Prepaid Rent account. B. On January 1, 2019, the firm bought supplies for $3,000. The $3,000 was debited to the Supplies account. An inventory of supplies at the end of January showed that supplies costing $1,300 were on hand. C. On January 1, 2019, the firm bought equipment costing $15,000. The equipment has an expected useful life of 8 years and a salvage value of $1,560. The firm will use the straight-line method of depreciation.

Answer: A. Rent Expense (dr.) $1,600; Prepaid Rent (cr.) $1,600 B. Supplies Expense (dr.) $1,700; Supplies (cr.) $1,700 C. Depreciation Expense (dr.) $140; Accumulated Depreciation (cr.) $140 Explanation: A. $4,800/3 months = $1,600 per month B. $3,000 - $1,300 = $1,700 used C. ($15,000 - $1,560)/96 months = $140 per month Diff: 2 Topic: The Worksheet; Adjustments Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

82) Read each of the following transactions for Enterprises Security Systems. Determine the accounts and amounts to be debited and credited in the necessary end-of-July adjustments. A. On July 1, 2019, Enterprises Security Systems, a new firm, bought supplies for $2,300. The $2,300 was debited to the Supplies account. An inventory of supplies at the end of July showed that supplies costing $900 were on hand. B. On July 1, 2019, the firm bought equipment costing $24,000. The equipment has an expected useful life of 10 years and no salvage value. The firm will use the straight-line method of depreciation. C. On July 1, 2019, the firm paid $4,500 rent in advance for a nine-month period. The $4,500 was debited to the Prepaid Rent account.

Answer: A. Supplies Expense (dr.) $1,400; Supplies (cr.) $1,400 B. Depreciation Expense (dr.) $200; Accumulated Depreciation (cr.) $200 C. Rent Expense (dr.) $500; Prepaid Rent (cr.) $500 Explanation: A. $2,300 - $900 = $1,400 B. ($24,000 - $0)/120 months = $200 per month C. $4,500/9 = $500 per month Diff: 2 Topic: The Worksheet; Adjustments Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

83) Read the description of the following adjustments that are required at the end of the accounting period for Riley Furniture Restoration. Determine the account and amount to be debited and the account and amount to be credited. A. Purchased supplies for $1,000 on June 1, 2019. Inventory of supplies was $300 on June 30, 2019. Record the adjustment for the amount of the supplies used during the month of June 2019. B. Signed a 4-month contract for $1,200 of prepaid advertising on June 1, 2019. Record the adjustment for the amount of the advertising contract that expired during the month of June 2019. C. Prepaid rent for one year on June 1, 2019, in the amount of $12,600. D. Depreciation is computed using the straight-line method. Equipment purchased on June 1, 2019, for $16,800 has an estimated useful life of 5 years with no salvage value. Record the adjustment on June 30, 2019.

Answer: A. Debit Supplies Expense, $700; credit Supplies, $700 B. Debit Advertising Expense, $300; credit Prepaid Advertising, $300 C. Debit Rent Expense, $1,050; credit Prepaid Rent, $1,050 D. Debit Depreciation Expense--Equipment, $280; credit Accumulated Depreciation--Equipment, $280 Explanation: A. $1,000 - $300 = $700 used B. $1,200/4 = $300 per month C. $12,600/12 = $1,050 expired D. ($16,800-$0)/60 months = $280 per month Diff: 2 Topic: The Worksheet; Adjustments Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

84) Read the description of following adjustments that are required at the end of the accounting period for Hubbard Repair Services. Determine the account and amount to be debited and the account and amount to be credited. A. Purchased supplies for $2,000 on November 1, 2019. Inventory of supplies was $600 on November 30, 2019. Record the adjustment for the amount of the supplies that were used during the month of November 2019. B. Signed a 4-month contract for $2,400 of prepaid advertising on November 1, 2019. Record the adjustment for the amount of the advertising contract that expired during the month of November 2019. C. Prepaid rent for the year on November 1, 2019. Rent expired during the month of November 2019, $1,500. Record the adjustment on November 30, 2019. D. Depreciation is computed using the straight-line method. Equipment purchased on November 1, 2019, for $6,000 has an estimated useful life of 5 years with no salvage value. Record the adjustment on November 30, 2019.

Answer: A. Debit Supplies Expense, $1,400; credit Supplies, $1,400 B. Debit Advertising Expense, $600; credit Prepaid Advertising, $600 C. Debit Rent Expense, $1,500; credit Prepaid Rent, $1,500 D. Debit Depreciation Expense--Equipment, $100; credit Accumulated Depreciation--Equipment, $100 Explanation: A. $2,000 - $600 = $1,400 B. $2,400/4 = $600 per month C. $1,500 expired D. ($6,000 - $0)/60 months = $100 per month Diff: 2 Topic: The Worksheet; Adjustments Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

85) Read the description of following adjustments that are required at the end of the accounting period for Hubbard Repair Services. Determine the account and amount to be debited and the account and amount to be credited. A. Prepaid rent for the year on April 1, 2019. Rent expired during the month of April 2019, $3,500. Record the adjustment on April 30, 2019. B. Purchased supplies for $2,000 on April 1, 2019. Inventory of supplies was $1,600 on April 30, 2019. Record the adjustment for the amount of the supplies that were used during the month of April 2019. C. Depreciation is computed using the straight-line method. Equipment purchased on April 1, 2019, for $18,000 has an estimated useful life of 5 years with no salvage value. Record the adjustment on April 30, 2019. D. Signed a 6-month contract for $2,400 of prepaid advertising on April 1, 2019. Record the adjustment for the amount of the contract that expired during the month of April 2019.

Answer: A. Debit Rent Expense, $3,500; credit Prepaid Rent, $3,500 B. Debit Supplies Expense, $400; credit Supplies, $400 C. Debit Depreciation Expense--Equipment, $300; credit Accumulated Depreciation--Equipment, $300 D. Debit Advertising Expense, $400; credit Prepaid Advertising, $400 Explanation: A. $3,500 expired B. $2,000 - $1,600 = $400 C. ($18,000 - $0)/60 = $300 per month D. $2,400/6 = $400 Diff: 2 Topic: The Worksheet; Adjustments Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

86) Read the description of following adjustments that are required at the end of the accounting period for Drake Consulting Services. Determine the account and amount to be debited and the account and amount to be credited. A. Prepaid rent for one year on January 1, 2019, in the amount of $26,400. Record the adjustment on January 31, 2019. B. Purchased supplies for $1,600 on January 1, 2019. The inventory of supplies was $400 on January 31, 2019. Record the adjustment for the amount of the supplies that were used during the month of January 2019. C. Depreciation is computed using the straight-line method. Equipment purchased on January 1, 2019, for $36,000 has an estimated useful life of 6 years with no salvage value. Record the adjustment on January 31, 2019. D. Signed a 12-month contract for $3,000 of prepaid advertising on January 1, 2019. Record the adjustment for the amount of the advertising contract that expired during the month of January 2019.

Answer: A. Debit Rent Expense, $2,200; credit Prepaid Rent, $2,200 B. Debit Supplies Expense, $1,200; credit Supplies, $1,200 C. Debit Depreciation Expense--Equipment, $500; credit Accumulated Depreciation--Equipment, $500 D. Debit Advertising Expense, $250; credit Prepaid Advertising, $250 Explanation: A. ($26,400/12 = $2,200 expired B. $1,600 - $400 = $1,200 C. ($36,000 - $0)/72 months = $500 per month D. $3,000/12 = $250 Diff: 2 Topic: The Worksheet; Adjustments Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

87) Read the description of following adjustments that are required at the end of the accounting period for AAA Appliance Repair Services. Record the necessary adjusting entries required at the end of January on page 2 of a general journal. Omit the descriptions. A. Prepaid rent for the year on January 1, 2019. Rent expired during the month of January 2019, $2,000. B. Purchased supplies for $7,600 on January 1, 2019. Inventory of supplies was $1,600 on January 31, 2019. C. Depreciation is computed using the straight-line method. Equipment purchased on January 1, 2019, for $15,000 has an estimated useful life of 5 years with no salvage value. D. Signed a 3-month contract for $600 of prepaid advertising on January 1, 2019.

Answer:

GENERAL JOURNAL DATE 1/31

1/31

DESCRIPTION Rent Expense Prepaid Rent

P.R.

DEBIT 2,000

PAGE 2 CREDIT 2,000

Supplies Expense Supplies

6,000

Depreciation Expense Accumulated Depreciation

250

Advertising Expense Prepaid Advertising

200

6,000

250

200

Explanation: A. $2,000 expired B. $7,600 - $1,600 = $6,000 C. ($15,000 - $0)/60 = $250 D. $600/3 = $200 Diff: 2 Topic: Adjustments Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

88) Read the description of following adjustments that are required at the end of the accounting period for Anise's Repair Services. Record the necessary adjusting entries required at the end of January on page 2 of a general journal. Omit the descriptions. A. Prepaid rent for the year on January 1, 2019. Rent expired during the month of January 2019, $1,600. B. Purchased supplies for $4,000 on January 1, 2019. Inventory of supplies was $1,200 on January 31, 2019. C. Depreciation is computed using the straight-line method. Equipment purchased on January 1, 2019, for $3,000 has an estimated useful life of 5 years with no salvage value. D. Signed a 3-month contract for $450 of prepaid advertising on January 1, 2019.

Answer:

GENERAL JOURNAL DATE 1/31

1/31

DESCRIPTION Rent Expense Prepaid Rent

P.R.

DEBIT 1,600

PAGE 2 CREDIT 1,600

Supplies Expense Supplies

2,800

Depreciation Expense Accumulated Depreciation

Advertising Expense Prepaid Advertising

150

2,800

150

Explanation: A. $1,600 expired B. $4,000 - $1,200 = $2,800 C. ($3,000 - $0)/60 = $50 D. $450/3 = $150 Diff: 2 Topic: Adjustments Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

89) Read the description of following adjustments that are required at the end of the accounting period for Paulo Consulting Services. Record the necessary adjusting entries required at the end of January on page 2 of a general journal. Omit the descriptions. A. Equipment was purchased on January 1, 2019, for $60,000 and has an estimated useful life of 7 years with a salvage value of $3,720. Depreciation is computed using the straight-line method. B. Signed a 5-month contract for $4,500 of prepaid advertising on January 1, 2019. C. Prepaid rent for the year on January 1, 2019, in the amount of $22,200. D. Purchased supplies for $3,200 on January 1, 2019. Inventory of supplies was $2,800 on January 31, 2019.

Answer:

GENERAL JOURNAL DATE 1/31

1/31

DESCRIPTION Depreciation Expense Accumulated Depreciation

P.R.

DEBIT 670

PAGE 2 CREDIT 670

Advertising Expense Prepaid Advertising

900

Rent Expense Prepaid Rent

1,850

Supplies Expense Supplies

400

900

1,850

400

Explanation: A. ($60,000 - $3,720)/84 = $670 B. $4,500/5 = $900 C. $22,200/12 = $1,850 expired D. $3,200 - $2,800 = $400 Diff: 2 Topic: Adjustments Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

90) Read the description of following adjustments that are required at the end of the accounting period for River Front Repair. Record the necessary adjusting entries required at the end of January on page 2 of a general journal. Omit the descriptions. A. Prepaid rent for the year on January 1, 2019. Rent expired during the month of January, $7,200. B. Equipment purchased on January 1, 2019, for $8,100 has an estimated useful life of 5 years with no salvage value. Depreciation is computed using the straight-line method. C. Purchased supplies for $650 on January 1, 2019. Inventory of supplies was $100 on January 31, 2019. D. Signed a 12-month contract for $4,800 of prepaid advertising on January 1, 2019.

Answer:

GENERAL JOURNAL PAGE 2 DATE DESCRIPTION 1/31 Rent Expense Prepaid Rent 1/31

1/31

P.R.

DEBIT 7,200

CREDIT 7,200

Depreciation Expense Accumulated Depreciation

135

Supplies Expense Supplies

550

Advertising Expense Prepaid Advertising

400

135

550

400

Explanation: A. $7,200 expired B. ($8,100 - $0)/60 = $135 C. $650 - $100 = $550 D. $4,800/12 = $400 Diff: 2 Topic: Adjustments Learning Objective: 05-02 Prepare adjustments for unrecorded business transactions. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

91) The balances of the ledger accounts for Oleman Services on January 31, 2019, and the information needed for adjustments are shown below. Prepare the Trial Balance section, record the adjustments, and complete the worksheet. Account Name Cash Accounts Receivable Supplies Prepaid Insurance Equipment Accumulated Depreciation -Equipment Accounts Payable Jeff Oleman, Capital Jeff Oleman, Drawing Fees Income Advertising Expense Rent Expense Salaries Expense

Balance $6,500 3,500 1,200 3,000 7,500 -3,400 17,500 1,500 9,500 600 1,200 54,7000

Salaries Expense Supplies Expense Insurance Expense Utilities Expense Depreciation Expense - Equipment

5,000 --400 --

Adjustment information: (a) The supplies were purchased on January 1, 2019. An inventory of supplies showed $600 on hand on January 31, 2019. (b) The amount of Prepaid Insurance represents a payment made January 1, 2019, for a six-month insurance policy. (c) The equipment, purchased January 1, 2019, has an estimated useful life of 5 years with no salvage value. The firm uses the straight-line method of depreciation. OLEMAN SERVICES Worksheet Month Ended January 31, 2019

ACCOUNT NAME

TRIAL BALANCE DEBIT CREDIT

ADJUSTMENTS DEBIT CREDIT

OLEMAN SERVICES Worksheet (Continued) Month Ended January 31, 2019 ADJ. TRIAL BAL. DEBIT CREDIT

INCOME STATEMENT DEBIT CREDIT

BALANCE SHEET DEBIT CREDIT

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Answer:

OLEMAN SERVICES Worksheet Month Ended January 31, 2019

1 2 3 4 5

ACCOUNT NAME Cash Accounts Receivable Supplies Prepaid Insurance Equipment

TRIAL BALANCE DEBIT CREDIT 6,500 3,500 1,200 3,000 7,500

ADJUSTMENTS DEBIT CREDIT

(a) 600 (b) 500

Answer: 5 6 7 8 9 10 11 12 13 14 15 16 17 18

Equipment Accum. Depr.–Equip. Accounts Payable Jeff Oleman, Capital Jeff Oleman, Drawing Fees Income Advertising Expense Rent Expense Salaries Expense Supplies Expense Insurance Expense Utilities Expense Depr. Exp.–Equip. Totals

7,500 (c) 125 3,400 17,500 1,500 9,500 600 1,200 5,000 (a) 600 (b) 500 400 30,400 30,400

1,225

19 Net Income 20 OLEMAN SERVICES Worksheet (Continued) Month Ended January 31, 2019

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

ADJ. TRIAL BAL. INCOME STATEMENT DEBIT CREDIT DEBIT CREDIT 6,500 3,500 600 2,500 7,500 125 3,400 17,500 1,500 9,500 9,500 600 600 1,200 1,200 5,000 5,000 600 600 500 500 400 400 125 125

BALANCE SHEET DEBIT CREDIT 6,500 3,500 600 2,500 7,500 125 3,400 17,500 1,500

Answer: 17 18

125 30,525

30,525

19 20

125 8,425 1,075 9,500

9,500 9,500

22,100

21,025

22,100

1,075 22,100

Explanation: A. $1,200 - $600 = $600 B. $3,000/6 = $500 C. ($7,500 - $0)/60 = $125 Diff: 3 Topic: The Worksheet; Adjustments Learning Objective: 05-01 Complete a trial balance on a worksheet.; 05-02 Prepare adjustments for unrecorded business transactions.; 05-03 Complete the worksheet. Bloom's: Create AACSB: Analytic AICPA: BB Industry; BB Critical Thinking; FN Reporting; FN Measurement; FN Decision Making

92) The balances of the ledger accounts for Buffet Services on September 30, 2019, and the information needed for adjustments are shown below. Prepare the Trial Balance section, record the adjustments, and complete the worksheet. Account Name Cash Accounts Receivable Supplies Prepaid Insurance Equipment Accumulated Depreciation - Equipment Accounts Payable Jane Buffet, Capital Jane Buffet, Drawing Fees Income Advertising Expense Rent Expense Salaries Expense Supplies Expense Insurance Expense Utilities Expense Depreciation Expense - Equipment

Balance $13,000 7,000 2,400 6,000 15,000 -6,800 35,000 3,000 19,000 1,200 2,400 10,000 --800 --

Adjustment information: (a) The supplies were purchased on September 1, 2019. An inventory of supplies showed $1,200 on hand on September 30, 2019. (b) The amount of Prepaid Insurance represents a payment made September 1, 2019, for a six-month 51 Copyright © McGraw-Hill Education.All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

insurance policy. (c) The equipment, purchased September 1, 2019, has an estimated useful life of 5 years with no salvage value. The firm uses the straight-line method of depreciation. BUFFET SERVICES Worksheet Month Ended September 30, 2019

ACCOUNT NAME

TRIAL BALANCE DEBIT CREDIT

ADJUSTMENTS DEBIT CREDIT

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

BUFFET SERVICES Worksheet (Continued) Month Ended September 30, 2019 ADJ. TRIAL BAL. DEBIT CREDIT 1 2 3

INCOME STATEMENT DEBIT CREDIT

BALANCE SHEET DEBIT CREDIT

3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Answer:

BUFFET SERVICES Worksheet Month Ended September 30, 2019

1 2 3 4 5 6 7 8 9 10 11 12 13 14

ACCOUNT NAME Cash Accounts Receivable Supplies Prepaid Insurance Equipment Accum. Depr.–Equip. Accounts Payable Jane Buffet, Capital Jane Buffet, Drawing Fees Income Advertising Expense Rent Expense Salaries Expense Supplies Expense

TRIAL BALANCE DEBIT CREDIT $13,000 7,000 2,400 6,000 15,000

ADJUSTMENTS DEBIT CREDIT

(a) 1,200 (b) 1,000 (c) 250

6,800 35,000 3,000 19,000 1,200 2,400 10,000 --

(a) 1,200

Answer: 14 15 16 17 18 19 20

Supplies Expense Insurance Expense Utilities Expense Depr. Exp.–Equip. Totals

--800 --

(a) 1,200 (b) 1,000

60,800 60,800

2,450

Net Income

BUFFET SERVICES Worksheet (Continued) Month Ended January 31, 2019

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

ADJ. TRIAL BAL. DEBIT CREDIT $13,000 7,000 1,200 5,000 15,000 250 6,800 35,000 3,000 19,000 1,200 2,400 10,000 1,200 1,000 800 250 61,050 61,050

INCOME STATEMENT DEBIT CREDIT

BALANCE SHEET DEBIT CREDIT 13,000 7,000 1,200 5,000 15,000 250 6,800 35,000 3,000

19,000 1,200 2,400 10,000 1,200 1,000 800 250 16,850 2,150 19,000

19,000 19,000

44,200

42,050

44,200

2,150 44,200

Explanation: A. $2,400 - $1,200 = $1,200 B. $6,000/6 = $1,000 C. ($15,000 - $0)/60 = $250

Din ffs :w 3 er: A Topic: The Worksheet; Adjustments Learning Objective: 05-01 Complete a trial balance on a worksheet.; 05-02 Prepare adjustments for unrecorded business transactions.; 05-03 Complete the worksheet. Bloom's: Apply AACSB: Analytic AICPA: BB Critical Thinking; BB Industry; FN Reporting; FN Measurement; FN Decision Making

93) The balances of the ledger accounts for Lance's Landscaping Design on March 31, 2019, and the information needed for adjustments are shown below. Prepare the Trial Balance section, record the adjustments, and complete the worksheet. Account Name Cash Accounts Receivable Supplies Prepaid Insurance Equipment Accumulated Depreciation - Equipment Accounts Payable Lance, Capital Lance, Drawing Fees Income Advertising Expense Rent Expense Salaries Expense Supplies Expense Insurance Expense Utilities Expense Depreciation Expense - Equipment

Balance $3,250 1,750 600 1,500 3,000 -950 8,750 750 4,750 300 600 2,500 --200 --

Adjustment information: (a) The supplies were purchased on March 1, 2019 An inventory of supplies showed $300 on hand on March 31, 2019. (b) The amount of Prepaid Insurance represents a payment made March 1, 2019, for a six-month insurance policy. (c) The equipment, purchased March 1, 2019, has an estimated useful life of 5 years with no salvage value. The firm uses the straight-line method of depreciation. LANCE'S LANDSCAPING DESIGN Worksheet Month Ended March 31, 2019 TRIAL BALANCE 55

ADJUSTMENTS

ACCOUNT NAME

TRIAL BALANCE DEBIT CREDIT

ADJUSTMENTS DEBIT CREDIT

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

LANCE'S LANDSCAPING DESIGN Worksheet (Continued) Month Ended March 31, 2019 ADJ. TRIAL BAL. DEBIT CREDIT

INCOME STATEMENT DEBIT CREDIT

BALANCE SHEET DEBIT CREDIT

10 11 12 13 14 15 16 17 18 19 20

Answer:

LANCE'S LANDSCAPING DESIGN Worksheet Month Ended March 31, 2019

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

ACCOUNT NAME Cash Accounts Receivable Supplies Prepaid Insurance Equipment Accum. Depr.–Equip. Accounts Payable Lance, Capital Lance, Drawing Fees Income Advertising Expense Rent Expense Salaries Expense Supplies Expense Insurance Expense Utilities Expense Depr. Exp.–Equip. Totals

TRIAL BALANCE DEBIT CREDIT 3,250 1,750 600 1,500 3,000

ADJUSTMENTS DEBIT CREDIT

(a) 300 (b) 250 (c) 50

950 8,750 750 4,750 300 600 2,500 --200 --

(a) 300 (b) 250

14,450 14,450

600

Answer: LANCE'S LANDSCAPING DESIGN Worksheet Month Ended March 31, 2019

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

TRIAL BALANCE DEBIT CREDIT 3,250 1,750 600 1,500 3,000

ADJUSTMENTS DEBIT CREDIT

(a) 300 (b) 250 (c) 50

950 8,750 750 4,750 300 600 2,500 --200 --

(a) 300 (b) 250

14,450 14,450

600

Net Income

Explanation: A. $600 - $300 = $300 B. $1,500/6 = $250 C. ($3,000 - $0)/60 = $50 Diff: 3 Topic: The Worksheet; Adjustments Learning Objective: 05-01 Complete a trial balance on a worksheet.; 05-02 Prepare adjustments for unrecorded business transactions.; 05-03 Complete the worksheet. Bloom's: Create AACSB: Analytic AICPA: BB Critical Thinking; BB Industry; FN Reporting; FN Measurement; FN Decision Making

94) The partial worksheet for the Lorado Insurance Agency for the month ended October 31, 2019, is shown below. Using this data, prepare an income statement, a statement of owner's equity, and a balance sheet. The owner made no additional investments during the month.

ACCOUNT NAME Cash Accounts Receivable Supplies Equipment Accum. Depr.--Equip. Accounts Payable Ashleigh Lorado, Capital Ashleigh Lorado, Drawing Fees Income Salaries Expense Rent Expense Supplies Expense Depr. Exp.--Equip. Totals Net Income

Answer:

INCOME STATEMENT DEBIT CREDIT

BALANCE SHEET DEBIT CREDIT 9,000 11,000 5,500 30,000 8,000 9,000 32,000 2,000

23,300 12,200 1,000 600 1,000 14,800 23,300 8,500 23,300 23,300

57,500 57,500

49,000 8,500 57,500

LORADO INSURANCE AGENCY Income Statement Month Ended October 31, 2019 Revenue Fees Income Expenses Salaries Expense $12,200 Rent Expense 1,000 Supplies Expense 600 Depreciation Expense--Equipment 1,000 Total Expenses Net Income

$23,300

14,800 $ 8,500

LORADO INSURANCE AGENCY Statement of Owner's Equity Month Ended October 31, 2019 Ashleigh Lorado, Capital, Oct. 1, 2019 Net Income for October $8,500 59

$32,000

Answer: Net Income for October Less Withdrawals for October Increase in Capital Ashleigh Lorado, Capital, Oct. 31, 2019

$8,500 2,000 6,500 $38,500

LORADO INSURANCE AGENCY Balance Sheet October 31, 2019 ASSETS Cash Accounts Receivable Supplies Equipment Less: Accumulated Depreciation Total Assets

$9,000 11,000 5,500 $30,000 8,000

LIABILITIES AND OWNER'S EQUITY Liabilities Accounts Payable Owner's Equity Ashleigh Lorado, Capital Total Liabilities and Owner's Equity

22,000 $47,500

9,000 38,500 $47,500

Explanation: Diff: 2 Topic: Financial Statements Learning Objective: 05-04 Prepare an income statement, statement of owner's equity, and balance sheet from the completed worksheet. Bloom's: Create AACSB: Analytic AICPA: BB Critical Thinking; BB Industry; FN Reporting; FN Measurement; FN Decision Making

95) The partial worksheet for the Marion Consulting Services for the month ended January 31, 2019, is shown below. Using this data, prepare an income statement, a statement of owner's equity, and a balance sheet. The owner made no additional investments during the month.

ACCOUNT NAME Cash Accounts Receivable Supplies Equipment Accum. Depr.--Equip.

INCOME STATEMENT DEBIT CREDIT

BALANCE SHEET DEBIT CREDIT 18,000 22,000 11,000 60,000 16,000

Accum. Depr.--Equip. Accounts Payable Mary Marion, Capital Mary Marion, Drawing Fees Income Salaries Expense Rent Expense Supplies Expense Depr. Exp.--Equip. Totals Net Income

16,000 18,000 64,000 4,000 46,600 24,400 2,000 1,200 2,000 29,600 17,000

46,600 115,000

Answer:

115,000 98,000 17,000 46,600 46,600 115,000

MARION CONSULTING SERVICES Income Statement Month Ended January 31, 2019 Revenue Fees Income Expenses Salaries Expense Rent Expense Supplies Expense Depreciation Expense--Equipment Total Expenses Net Income

$46,600 $24,400 2,000 1,200 2,000 29,600 $ 17,000

MARION CONSULTING SERVICES Statement of Owner's Equity Month Ended January 31, 2019 Mary Marion, Capital, Jan. 1, 2019 Net Income for January Less Withdrawals for January Increase in Capital Mary Marion, Capital, Jan. 31, 2019

$64,000 $17,000 4,000 13,000 $77,000

MARION CONSULTING SERVICES Balance Sheet January 31, 2019 ASSETS 61 Copyright © McGraw-Hill Education.All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Answer: ASSETS Cash Accounts Receivable Supplies Equipment Less Accumulated Depreciation Total Assets

$18,000 22,000 11,000 $60,000 16,000

LIABILITIES AND OWNER'S EQUITY Liabilities Accounts Payable Owner's Equity Mary Marion, Capital Total Liabilities and Owner's Equity

44,000 $95,000

18,000 77,000 $95,000

96) Match the accounting terms with the description by entering the proper letter in the space provided. A. Account form balance sheet B. Adjusting entries or adjustments C. Book value D. Contra account E. Contra asset account F. Depreciation G. Prepaid expenses H. Report form balance sheet I. Salvage value J. Straight-line depreciation K. Worksheet 1. Allocation of an asset's cost in equal amounts to each accounting period of the asset's useful life 2. Journal entries made to update accounts for items that were used or expired during the accounting period ________ 3. An estimate of the amount that could be received by selling or disposing of an asset at the end of its useful life 62 Copyright © McGraw-Hill Education.All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

________ 4. A balance sheet that lists assets on the left and liabilities and owner's equity on the right 5. An account with a normal balance that is opposite that of a related account ________ 6. A form used to gather all data needed at the end of an accounting period to prepare financial statements ________ 7. That portion of an asset's original cost that has not yet been depreciated ________ 8. Expense items acquired, recorded, and paid for in advance of their use ________ 9. An asset account with a credit balance, which is contrary to the normal balance of an asset account 10. A balance sheet that lists the asset accounts first, followed by liabilities and owner's equity ________ 11. Allocation of the cost of a long-term asset to operations during its expected useful life

Answer: (1) J, (2) B, (3) I, (4) A, (5) D, (6) K, (7) C, (8) G, (9) E, (10) H, (11) F Explanation: Diff: 2 Topic: The Worksheet; Assets, Liabilities, Equity; Adjustments; Financial Statements Learning Objective: 05-01 Complete a trial balance on a worksheet.; 05-02 Prepare adjustments for unrecorded business transactions.; 05-03 Complete the worksheet.; 05-04 Prepare an income statement, statement of owner's equity, and balance sheet from the completed worksheet.; 05-06 Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement; FN Decision Making

Chapter 06 Closing Entries and teh Postclosing Trial Balance MULTIPLE CHOICE QUESTIONS 1) One of the purposes of closing entries is to transfer net income or net loss for the period to the owner's capital account. A) True B) False Answer: A Explanation: Diff: 1 Topic: Closing Entries Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

2) The owner's capital account is closed at the end of each accounting period. A) True B) False Answer: B Explanation: Diff: 1 Topic: Closing Entries Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

3) The entry to close the revenue account, Fees Income, requires a debit to that account. A) True B) False Answer: A Explanation: Diff: 2 Topic: Closing Entries Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

4) The entry to close an expense account requires a credit to the Income Summary account. A) True B) False Answer: B Explanation: Diff: 2 Topic: Closing Entries Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

5) "Closing" is written in the Description column of the individual revenue and expense accounts in the general ledger. A) True B) False Answer: A Explanation: Diff: 1 Topic: Closing Entries Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

6) A compound entry in the general journal is made to close expense accounts. A) True B) False Answer: A Explanation: Diff: 1 Topic: Closing Entries Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

7) The entry to transfer net income to the owner's capital account would include a debit to the owner's capital account. A) True B) False Answer: B Explanation: Diff: 2 Topic: Closing Entries Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

8) Withdrawals by the owner for personal use do not affect net income or net loss of the business. A) True B) False Answer: A Explanation: Diff: 1 Topic: Closing Entries Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

9) After the closing entries are posted, the balance of the owner's capital account agrees with the amount of owner's equity shown on the balance sheet for the period. A) True B) False Answer: A Explanation: Diff: 1 Topic: Closing Entries Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

10) The temporary owner's equity accounts are closed because they apply to only one accounting period. A) True B) False Answer: A Explanation: Diff: 1 Topic: Closing Entries Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

11) "Income and Expense Summary" is another name for the Income Summary account. A) True B) False Answer: A Explanation: Diff: 1 Topic: Closing Entries Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

12) The heading "Closing Entries" is usually written in the Description column of the general journal above the first closing entry. A) True B) False Answer: A Explanation: Diff: 1 Topic: Closing Entries Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

13) The postclosing trial balance contains balance sheet accounts only. A) True B) False Answer: A Explanation: Diff: 1 Topic: Using Accounting Information Learning Objective: 06-02 Prepare a postclosing trial balance. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

SHORT ANSWER QUESTIONS 14) The postclosing trial balance lists only the ________ accounts. Answer: asset, liability, and owner's capital Explanation: Diff: 1 Topic: Using Accounting Information Learning Objective: 06-02 Prepare a postclosing trial balance. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

MULTIPLE CHOICE QUESTIONS 15) One purpose of closing entries is to zero out the balances in the: A) liability and capital accounts. B) expense and capital accounts. C) asset and liability accounts. D) revenue and expense accounts. Answer: D Explanation: A) B) C) D) Diff: 1 Topic: Closing Entries Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

16) Use the following account balances from the adjusted trial balance of ABC Consulting: Account Cash Accounts Payable B. Conway, Drawing B. Conway, Capital Fees Revenue Salary Expense Rent Expense Supplies Expense Advertising Expense

Debit Balance 20,500

Credit Balance 2,000

600 13,000 18,000 2,600 3,000 1,900 800

Select the correct closing entry that ABC Consulting would make to close their revenue account(s) at the end of the accounting period. A) debit Income Summary and credit Fees Revenue for $18,000. B) debit Fees Revenue and credit Cash for $18,000. C) debit Fees Revenue and credit B. Conway, Capital for $18,000. D) debit Fees Revenue and credit Income Summary for $18,000.

Answer: D Explanation:

A) B) C) D)

Diff: 1 Topic: Closing Entries Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

17) Use the following account balances from the adjusted trial balance of ABC Consulting: Account Cash Accounts Payable B. Conway, Drawing B. Conway, Capital Fees Revenue Salary Expense Rent Expense Supplies Expense Advertising Expense

Debit Balance 20,500

Credit Balance 2,000

600 13,000 18,000 2,600 3,000 1,900 800 6

Select the correct closing entry that ABC Consulting would make to close their expense account(s) at the end of the accounting period. A) debit Salary Expense $2,600; debit Rent Expense $3,000; debit Supplies Expense $1,900; debit Advertising Expense $800 and credit Income Summary $8,300. B) debit Income Summary $8,300 and credit B. Conway, Capital for $8,300. C) debit B. Conway, Capital $8,300 and credit Salary Expense $2,600; credit Rent Expense $3,000; credit Supplies Expense $1,900; Advertising Expense $800. D) debit Income Summary $8,300 and credit Salary Expense $2,600; credit Rent Expense $3,000; credit Supplies Expense $1,900; Advertising Expense $800.

Answer: D Explanation:

A) B) C) D)

Diff: 2 Topic: Closing Entries Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Analyze AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

18) Use the following account balances from the adjusted trial balance of ABC Consulting: Account Cash Accounts Payable B. Conway, Drawing B. Conway, Capital Fees Revenue Salary Expense Rent Expense Supplies Expense Advertising Expense

Debit Balance 20,500

Credit Balance 2,000

600 13,000 18,000 2,600 3,000 1,900 800

Select the correct closing entry that ABC Consulting would make to close the income summary account at the end of the accounting period. A) debit B. Conway, Capital $600 credit B. Conway, Drawing for $600. B) debit B. Conway, Capital $9,700 and credit Income Summary for $9,700. C) debit B. Conway, Capital $18,000 and credit Income Summary for $18,000. D) debit Income Summary $9,700 and credit B. Conway, Capital for $9,700.

Explanation:

A) The company had net income ($18,000 – $2,600 – $3,000 – $1,900 – $800) = $9,700 income B) The company had net income ($18,000 – $2,600 – $3,000 – $1,900 – $800) = $9,700 income C) The company had net income ($18,000 – $2,600 – $3,000 – $1,900 – $800) = $9,700 income D) The company had net income ($18,000 – $2,600 – $3,000 – $1,900 – $800) = $9,700 income

Diff: 1 Topic: Closing Entries Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

19) Use the following account balances from the adjusted trial balance of ABC Consulting: Account Cash Accounts Payable B. Conway, Drawing B. Conway, Capital Fees Revenue Salary Expense Rent Expense Supplies Expense Advertising Expense

Debit Balance 20,500

Credit Balance 2,000

600 13,000 18,000 2,600 3,000 1,900 800

Select the correct closing entry that ABC Consulting would make to close the owner's drawing account at the end of the accounting period. A) debit B. Conway, Drawing $600 credit B. Conway, Capital for $600. B) debit B. Conway, Capital $600 and credit B. Conway, Drawing for $600. C) debit B. Conway, Drawing $600 and credit Income Summary for $600. D) debit Income Summary $600 and credit B. Conway, Drawing for $600.

Answer: B Explanation:

A) B) C) D)

Diff: 1 Topic: Closing Entries Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

20) Use the following account balances from the adjusted trial balance of ABC Consulting: Account Cash Accounts Payable B. Conway, Drawing B. Conway, Capital Fees Revenue Salary Expense Rent Expense Supplies Expense Advertising Expense

Debit Balance 20,500

Credit Balance 2,000

600 13,000 18,000 2,600 3,000 1,900 800

What is the amount that ABC Consulting would report as the ending balance in the B. Conway, Capital account at the end of the year? A) $22,100. B) $3,900 C) $13,000. D) $31,000.

Answer: A Explanation:

A) ($13,000 + $9,700 – $600) = $22,100 B) ($13,000 + $9,700 – $600) = $22,100 C) ($13,000 + $9,700 – $600) = $22,100 D) ($13,000 + $9,700 – $600) = $22,100

Diff: 1 Topic: Closing Entries Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

21) Use the following account balances from the adjusted trial balance of Gees Catering: Account Cash Accounts Payable R. Gees, Drawing R. Gees, Capital Fees Revenue Salary Expense Rent Expense Supplies Expense

Debit Balance 10,000

Credit Balance 2,000

1,000 18,000 10,000 7,000 6,000 6,000

Select the correct closing entry that Gees Catering would make to close their revenue account(s) at the end of the accounting period. 10 Copyright © McGraw-Hill Education.All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

A) Fees Revenue Income Summary

$ 10,000

R. Gees, Capital Fees Revenue

$ 10,000

Income Summary Fees Revenue

$ 10,000

Fees Revenue R. Gees, Capital

$ 10,000

B) $ 10,000

C) $ 10,000

Answer: A Explanation:

$ 10,000

A) B) C) D)

Diff: 1 Topic: Closing Entries Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

22) Use the following account balances from the adjusted trial balance of Gees Catering: Account Cash Accounts Payable R. Gees, Drawing R. Gees, Capital Fees Revenue Salary Expense Rent Expense Supplies Expense

Debit Balance 10,000

Credit Balance 2,000

1,000 18,000 10,000 7,000 6,000 6,000 11

Select the correct closing entry that Gees Catering would make to close their Income Summary account at the end of the accounting period. A) R. Gees, Capital $ 19,000 Income Summary $ 19,000

B) Income Summary R. Gees, Capital

$ 9,000

R. Gees, Capital Income Summary

$ 9,000

Income Summary R. Gees, Capital

$ 11,000

$ 9,000

C) $ 9,000

Answer: C Explanation:

$ 11,000

A) The company had a net loss ($10,000 – $7,000 – $6,000 – $6,000) = $9,000 loss B) The company had a net loss ($10,000 – $7,000 – $6,000 – $6,000) = $9,000 loss C) The company had a net loss ($10,000 – $7,000 – $6,000 – $6,000) = $9,000 loss D) The company had a net loss ($10,000 – $7,000 – $6,000 – $6,000) = $9,000 loss

Diff: 2 Topic: Closing Entries Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

23) Use the following account balances from the adjusted trial balance of Gees Catering: Account Cash Accounts Payable R. Gees, Drawing R. Gees, Capital Fees Revenue Salary Expense

Debit Balance 10,000

Credit Balance 2,000

1,000 18,000 10,000 7,000 12

Rent Expense Supplies Expense

6,000 6,000

Select the correct closing entry that Gees Catering would make to close the owner's withdrawal account at the end of the accounting period. A) R. Gees, Capital $ 1,000 R. Gees, Drawing $ 1,000

B) Income Summary R. Gees, Drawing

$ 1,000

R. Gees, Drawing R. Gees, Capital

$ 1,000

R. Gees, Drawing Income Summary

$ 1,000

C) $ 1,000

Answer: A Explanation:

$ 1,000

A) B) C) D)

Diff: 1 Topic: Closing Entries Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

24) Use the following account balances from the adjusted trial balance of Gees Catering: Account Cash Accounts Payable R. Gees, Drawing R. Gees, Capital Fees Revenue Salary Expense Rent Expense Supplies Expense

Debit Balance 10,000

Credit Balance 2,000

1,000 18,000 10,000 7,000 6,000 6,000

What is the amount that Gees Consulting would report as the ending balance in the R. Gees, Capital account at the end of the year? A) $18,000 B) $28,000 C) $ 8,000 D) $26,000

Answer: C Explanation:

A) $18,000 – $9,000 – $1000 = $8,000 B) $18,000 – $9,000 – $1000 = $8,000 C) $18,000 – $9,000 – $1000 = $8,000 D) $18,000 – $9,000 – $1000 = $8,000

Diff: 1 Topic: Closing Entries Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

25) After the closing entries are posted to the ledger, each expense account will have: A) a zero balance. B) a negative balance. C) a debit balance. D) a credit balance. Answer: A Explanation: A) B) C) D) Diff: 1 Topic: Closing Entries Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

26) Which of the following accounts is not closed? A) Rent Expense C) Fees Income Answer: D Explanation: A) B) C) D)

B) Joan Wilson, Drawing D) Cash

Diff: 1 Topic: Closing Entries Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

27) The entry to close the Income Summary account may include: A) a debit to Income Summary and a credit to Cash. B) a debit to Income Summary and a credit to the owner's drawing account. C) a debit to Cash and a credit to Income Summary. D) a debit to Income Summary and a credit to the owner's capital account. Answer: D Explanation: A) B) C) D) Diff: 2 Topic: Closing Entries Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Decision Making

28) Which of the following accounts will not normally have a zero balance after the closing entries have been posted? A) Fees Income B) Rent Expense C) Capital D) Income Summary Answer: C Explanation: A) B) C) D) Diff: 1 Topic: Closing Entries Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Decision Making

29) One purpose of closing entries is to: A) reduce the owner's capital account balance to zero so that the account is ready for the next period. B) transfer the results of operations to owner's equity. C) adjust the ledger account balances to provide complete and accurate figures for use on financial statements. D) close all accounts so that the ledger is ready for the next accounting period. Answer: B Explanation: A) B) C) D) Diff: 2 Topic: Closing Entries Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

30) The entry to transfer a net loss to the owner's capital account would include: A) a debit to the Capital account and a credit to Income Summary. B) a debit to Income Summary and a credit to Capital. C) a debit to the Capital account and a credit to Cash. D) a debit to the Capital account and a credit to the Drawing account. Answer: A Explanation: A) B) C) D) Diff: 2 Topic: Closing Entries Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

31) The revenue account Fees Income is closed by: A) debiting Income Summary and crediting Fees Income. B) debiting the owner's capital account and crediting Fees Income. C) debiting Cash and crediting Fees Income. D) debiting Fees Income and crediting Income Summary. Answer: D Explanation: A) B) C) D) Diff: 1 Topic: Closing Entries Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

32) The owner's drawing account is closed by: A) debiting the owner's capital account and crediting the owner's drawing account. B) debiting the owner's drawing account and crediting the owner's capital account. C) debiting Income Summary and crediting the owner's drawing account. D) debiting the owner's drawing account and crediting Income Summary. Answer: A Explanation: A) B) C) D) Diff: 2 Topic: Closing Entries Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

33) Which of the following statements is not correct? A) The owner's drawing account is closed to the Income Summary account. B) Before the Income Summary account is closed, its balance represents the net income or net loss for the accounting period. C) The Income Summary account is used only at the end of an accounting period to help with the closing procedure. D) The Income Summary account is a temporary owner's equity account. Answer: A Explanation: A) B) C) D) Diff: 2 Topic: Closing Entries Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Analyze AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Decision Making

34) The entry to close the Depreciation Expense account would include a debit to: A) the Income Summary and a credit to Cash. B) the Income Summary account and a credit to the Depreciation Expense account. C) the Cash account and a credit to the Income Summary account. D) the Depreciation Expense account and a credit to the Income Summary account. Answer: B Explanation: A) B) C) D) Diff: 1 Topic: Closing Entries Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

35) The entry to close the owner's drawing account would include a debit to the: A) owner's drawing account and a credit to the Income Summary account. B) owner's capital account and a credit to the owner's drawing account. C) owner's drawing account and a credit to Cash. D) Income Summary account and a credit to the owner's drawing account. Answer: B Explanation: A) B) C) D) Diff: 2 Topic: Closing Entries Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

36) The entry to close the Depreciation Expense account may include a debit to: A) the Depreciation Expense account and a credit to the Accumulated Depreciation account. B) the Accumulated Depreciation account and a credit to the Income Summary account. C) the Depreciation Expense account and a credit to the Income Summary account. D) the Income Summary account and a credit to the Depreciation Expense account. Answer: D Explanation: A) B) C) D) Diff: 2 Topic: Closing Entries Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

37) Which of the following accounts would be closed at the end of the year? A) Joan Wilson, Capital B) Accounts Receivable C) Accumulated Depreciation D) Supplies Expense Answer: D Explanation: A) B) C) D) Diff: 1 Topic: Closing Entries Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Analyze AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Decision Making

38) Entries required to zero the balances of the temporary accounts at the end of the year are called: A) adjusting entries. B) correcting entries. C) closing entries. D) posting entries. Answer: C Explanation: A) B) C) D) Diff: 1 Topic: Closing Entries Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

39) If a business has a net loss for a fiscal period, the journal entry to close the Income Summary account is: A) a debit to Capital and a credit to Drawing. B) a debit to Income Summary and a credit to Fees Income. C) a debit to Income Summary and a credit to Capital. D) a debit to Capital and a credit to Income Summary. Answer: D Explanation: A) B) C) D) Diff: 1 Topic: Closing Entries Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

40) Which of the following entries records the closing of Penny Pincher, Drawing at the end of the accounting period? A) Debit Penny Pincher, Drawing; credit Penny Pincher, Capital B) Debit Penny Pincher, Capital; credit Income Summary C) Debit Penny Pincher, Capital; credit Penny Pincher, Drawing D) Debit Income Summary; credit Penny Pincher, Drawing Answer: C Explanation: A) B) C) D) Diff: 1 Topic: Closing Entries Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

41) Which of the following accounts would not be involved in any of the closing entries? A) Fred Sanford, Drawing B) Advertising Expense C) Accounts Payable D) Income from Services Answer: C Explanation: A) B) C) D) Diff: 1 Topic: Closing Entries Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

42) The first step in the closing process is to close: A) the capital account. C) the drawing account. Answer: D Explanation: A) B) C) D)

B) the expense account(s). D) the revenue account(s).

Diff: 1 Topic: Closing Entries Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

43) Identify the accounts below that are ALL permanent accounts. A) Accounts Receivable, Depreciation Expense, Fees Income B) Accounts Receivable, Accumulated Depreciation, Accounts Payable C) Accounts Payable, Owner's Capital, Income Summary D) Accounts Payable, Wages Expense, Income Summary Answer: B Explanation: A) B) C) D) Diff: 1 Topic: Closing Entries Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

44) Identify the accounts below that are ALL classified as temporary accounts. A) Wages Expense, Accumulated Depreciation, Fees Income B) Owner's Drawing, Owner's Capital, Income Summary C) Owner's Drawing, Depreciation Expense, Income Summary D) Accounts Receivable, Depreciation Expense, Fees Income Answer: C Explanation: A) B) C) D) Diff: 1 Topic: Closing Entries Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

45) The first two closing entries to the Income Summary account indicate a debit of $53,000 and a credit of $64,000. The third closing entry would be: A) debit Capital $11,000; credit Income Summary $11,000. B) debit Revenue $64,000; credit Expenses $53,000. C) debit Income Summary $11,000; credit Drawing $11,000. D) debit Income Summary $11,000; credit Capital $11,000. Answer: D Explanation: A) $64,000 credit (total revenue) – $53,000 debit (total expenses) = $11,000 Net Income B) $64,000 credit (total revenue) – $53,000 debit (total expenses) = $11,000 Net Income C) $64,000 credit (total revenue) – $53,000 debit (total expenses) = $11,000 Net Income D) $64,000 credit (total revenue) – $53,000 debit (total expenses) = $11,000 Net Income Diff: 1 Topic: Closing Entries Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

46) The first two closing entries to the Income Summary account indicate a debit of $47,000 and a credit of $41,000. The third closing entry would be: A) debit Income Summary $41,000; credit Expenses $41,000 B) debit Capital $6,000; credit Income Summary $6,000 C) debit Income Summary $6,000; credit Drawing $6,000 D) debit Income Summary $47,000; credit Capital $47,000 Answer: B Explanation: A) $41,000 credit (total revenue) – $47,000 debit (total expenses) = $6,000 Net Loss B) $41,000 credit (total revenue) – $47,000 debit (total expenses) = $6,000 Net Loss C) $41,000 credit (total revenue) – $47,000 debit (total expenses) = $6,000 Net Loss D) $41,000 credit (total revenue) – $47,000 debit (total expenses) = $6,000 Net Loss Diff: 1 Topic: Closing Entries Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

47) When done properly, how many journal entries are involved in the closing process? A) 2 B) 5 C) 3 D) 4 Answer: D Explanation: A) B) C) D) Diff: 1 Topic: Closing Entries Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

48) After the closing entries are posted to the ledger, each revenue account will have: A) either a debit or a credit balance. B) a credit balance. C) a debit balance. D) a zero balance. Answer: D Explanation: A) B) C) D) Diff: 1 Topic: Using Accounting Information Learning Objective: 06-02 Prepare a postclosing trial balance. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

49) A post-closing trial balance could include all of the following accounts except the: A) Accounts Receivable account. B) Fees Income account. C) owner's capital account. D) Cash account. Answer: B Explanation: A) B) C) D) Diff: 2 Topic: Using Accounting Information Learning Objective: 06-02 Prepare a postclosing trial balance. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

50) Which of the following accounts is a permanent account? A) Supplies B) Owner's drawing C) Supplies Expense D) Fees Income Answer: A Explanation: A) B) C) D) Diff: 1 Topic: Using Accounting Information Learning Objective: 06-02 Prepare a postclosing trial balance. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

51) All of the following accounts will appear on the post-closing trial balance except: A) Accumulated Depreciation-Equipment. B) Accounts Payable. C) Equipment. D) Depreciation Expense-Equipment. Answer: D Explanation: A) B) C) D) Diff: 1 Topic: Using Accounting Information Learning Objective: 06-02 Prepare a postclosing trial balance. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

52) All of the following accounts will appear on the post-closing trial balance except: A) Capital B) Depreciation Expense C) Accounts Payable D) Land Answer: B Explanation: A) B) C) D) Diff: 1 Topic: Using Accounting Information Learning Objective: 06-02 Prepare a postclosing trial balance. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

53) Which of the following statements is not correct? A) After closing entries are posted, the revenue, expense, and drawing accounts will have zero balances. B) A post-closing trial balance will not contain revenue and expense account balances. C) Adjusting entries must be journalized and posted before the closing entries are journalized and posted. D) At the end of each accounting period, asset and liability account balances are reduced to zero. Answer: D Explanation: A) B) C) D) Diff: 3 Topic: Closing Entries; Using Accounting Information Learning Objective: 06-01 Journalize and post closing entries.; 06-02 Prepare a postclosing trial balance. Bloom's: Analyze AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

54) Which of the following statements is not correct? A) The audit trail should be used to trace data through the accounting records to find and correct errors. B) The balance of the owner's capital account on the adjusted trial balance will usually be different than that reported on the post-closing trial balance. C) The balance of the owner's capital account, as reflected on the post-closing trial balance, will match the amount reported on the income statement. D) If the post-closing trial balance does not balance, there are errors in the accounting records. Answer: C Explanation: A) B) C) D) Diff: 3 Topic: Using Accounting Information Learning Objective: 06-02 Prepare a postclosing trial balance. Bloom's: Analyze AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Decision Making

55) During the closing process, Accumulated Depreciation, Equipment will: A) be closed to the income summary account. B) not be closed. C) be closed to the drawing account. D) be closed to the capital account. Answer: B Explanation: A) B) C) D) Diff: 1 Topic: Using Accounting Information Learning Objective: 06-02 Prepare a postclosing trial balance. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

56) Which of the following accounts has a normal debit balance? A) T. Stark, Capital B) Accounts Payable C) Fees Income D) Accounts Receivable Answer: D Explanation: A) B) C) D) Diff: 1 Topic: Using Accounting Information Learning Objective: 06-02 Prepare a postclosing trial balance. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

57) Which of the following accounts has a normal credit balance? A) T. Stark, Drawing B) Accounts Payable C) Supplies Expense D) Accounts Receivable Answer: B Explanation: A) B) C) D) Diff: 1 Topic: Using Accounting Information Learning Objective: 06-02 Prepare a postclosing trial balance. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

58) Which of the following statements is correct? A) Preparation of the post-closing trial balance is the last step in the end-of-period routine. B) Closing entries are entered directly on the worksheet. C) The balance of the owner's drawing account will appear on the post-closing trial balance. D) The Balance Sheet section of the worksheet contains the data that is used to make closing entries. Answer: A Explanation:

A) B) C) D)

Diff: 3 Topic: Closing Entries; Using Accounting Information Learning Objective: 06-01 Journalize and post closing entries.; 06-02 Prepare a postclosing trial balance. Bloom's: Analyze AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making

59) Information in the financial statements provides answers to many questions, including: A) Has the business achieved its net income goal for the year? B) Has there been a lot of employee turnover? C) How much do customers owe the business? D) What are the business' current and long term plans for expansion? Answer: C Explanation: A) B) C) D) Diff: 1 Topic: Using Accounting Information Learning Objective: 06-03 Interpret financial statements. Bloom's: Remember AACSB: Analytical Thinking; Communication AICPA: BB Industry; FN Decision Making

60) The asset, liability, and owner's capital accounts appear on all of the following except the: A) post-closing trial balance. B) balance sheet. C) worksheet. D) income statement. Answer: D Explanation:

A) B) C) D)

Diff: 2 Topic: Using Accounting Information Learning Objective: 06-03 Interpret financial statements. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

61) The Ending Capital balance would appear on all of the following except the: A) income statement. B) post-closing trial balance. C) balance sheet. D) statement of owner's equity. Answer: A Explanation: A) B) C) D) Diff: 2 Topic: Using Accounting Information Learning Objective: 06-03 Interpret financial statements. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

62) After the worksheet has been completed, the next step in the accounting cycle is to: A) prepare the financial statements. B) journalize the closing entries. C) prepare the post-closing trial balance. D) post the closing entries. Answer: A Explanation: A) B) C) D) Diff: 2 Topic: Using Accounting Information Learning Objective: 06-04 Review the steps in the accounting cycle. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Decision Making

63) After the transactions have been posted, the next step in the accounting cycle is to: A) prepare the post-closing trial balance. B) prepare the worksheet. C) journalize and post the adjusting entries. D) prepare the financial statements. Answer: B Explanation: A) B) C) D) Diff: 2 Topic: Using Accounting Information Learning Objective: 06-04 Review the steps in the accounting cycle. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Decision Making

64) Identify the item below that is NOT one of the steps in an accounting cycle. A) journalize and post the adjusting entries. B) prepare invoices for customers. C) prepare the financial statements. D) prepare the post-closing trial balance. Answer: B Explanation: A) B) C) D) Diff: 1 Topic: Using Accounting Information Learning Objective: 06-04 Review the steps in the accounting cycle. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making

65) Trial balances are prepared in a certain order. Given the choices below, which one depicts the trial balances in the correct order in which they would be prepared? A) trial balance, post-closing trial balance, adjusted trial balance. B) post-closing trial balance, adjusted trial balance, trial balance. C) trial balance, adjusted trial balance, post-closing trial balance. D) adjusted trial balance, trial balance, post-closing trial balance. Answer: C Explanation:

A) B) C) D)

Diff: 1 Topic: Using Accounting Information Learning Objective: 06-04 Review the steps in the accounting cycle. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making

66) Listed below in random order are the steps in the accounting cycle. (1) prepare the financial statements (2) post the journal entries to the ledger (3) record journal entries (4) prepare a trial balance What is the proper order of these steps? A) (2), (3), (4), (1) B) (3), (2), (1), (4)

Answer: C Explanation:

C) (3), (2), (4), (1)

D) (4), (3), (2), (1)

A) B) C) D)

Diff: 2 Topic: Using Accounting Information Learning Objective: 06-04 Review the steps in the accounting cycle. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making

SHORT ANSWER QUESTIONS 67) Data for the first two closing entries is taken from the Answer: Income Statement Explanation:

section of the worksheet.

Diff: 1 Topic: Closing Entries and Closing Process Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting

68) The ________ entries transfer the results of operations to owner's equity. Answer: closing Explanation: Diff: 1 Topic: Closing Entries and Closing Process Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting

69) The balance of the Income Summary account is transferred to the ________ account. Answer: owner's capital Explanation: Diff: 1 Topic: Closing Entries and Closing Process Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting

70) At the end of the accounting period, the balances of the revenue and expense accounts are transferred to the ________ account. Answer: Income Summary Explanation: Diff: 1 Topic: Closing Entries and Closing Process Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting

71) If the Income Summary account has a debit balance before it is closed, the firm experienced a net ________ from operations. Answer: loss Explanation: Diff: 2 Topic: Closing Entries and Closing Process Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Understand AACSB: Analytic AICPA: BB Industry; FN Reporting

72) In the closing procedure, the total of the ________ account balances are transferred to the debit side of the Income Summary account. Answer: expense Explanation: Diff: 2 Topic: Closing Entries and Closing Process Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting

73) The final closing entry transfers the balance of the ________ account to the owner's capital account. Answer: owner's drawing Explanation: Diff: 1 Topic: Closing Entries and Closing Process Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting

74) After all the closing entries are posted to the ledger, the Income Summary account will have a ________ balance. Answer: zero Explanation: Diff: 1 Topic: Closing Entries and Closing Process Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting

75) After all the closing entries are posted, the ________ account reflects the results of operations for the period. Answer: owner's capital Explanation: Diff: 2 Topic: Closing Entries and Closing Process Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Understand AACSB: Analytic AICPA: BB Industry; FN Reporting

76) The ________ entries reduce the balances of the revenue, expense, and drawing accounts to zero so they are ready to record data for the next period. Answer: closing Explanation: Diff: 1 Topic: Closing Entries and Closing Process Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Understand AACSB: Analytic AICPA: BB Industry; FN Reporting

77) The firm had net income if the entry to close the Income Summary account is recorded as a ________ to the owner's capital account. Answer: credit Explanation: Diff: 3 Topic: Closing Entries and Closing Process Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting

78) The trial balance is prepared to make sure that the general ledger is in balance after adjusting and closing entries have been recorded and posted. Answer: postclosing Explanation: Diff: 1 Topic: Post-Closing Trial Balance Learning Objective: 06-02 Prepare a postclosing trial balance. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting

79) The postclosing trial balance lists only the ________, and accounts. Answer: asset, liability, and owner's capital Explanation: Diff: 1 Topic: Post-Closing Trial Balance Learning Objective: 06-02 Prepare a postclosing trial balance. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting

80) The partial worksheet for the Jamison Company showed the following data on October 31, 2019. Record the closing entries on page 6 of a general journal.

ACCOUNT NAME Jason Jamison, Capital Jason Jamison, Drawing Fees Income Salaries Expense Rent Expense Supplies Expense Utilities Expense Depr. Exp.--Equip.

INCOME STATEMENT DEBIT CREDIT

BALANCE SHEET DEBIT CREDIT 30,000 1,500

20,000 10,400 1,000 400 500 850

Depr. Exp.--Equip. Totals Net Income

Answer:

850 13,150 20,000 6,850 20,000 20,000

41,650 41,650

34,800 6,850 41,650

GENERAL JOURNAL PAGE 6 DATE DESCRIPTION Closing Entries 2019 Oct. 31 Fees Income Income Summary 31

P.R. DEBIT CREDIT

20,000 20,000

Income Summary Salaries Expense Rent Expense Supplies Expense Utilities Expense Depr. Exp.–Equipment

13,150

Income Summary Jason Jamison, Capital

6,850

Jason Jamison, Capital Jason Jamison, Drawing

1,500

10,400 1,000 400 500 850

6,850

1,500

Explanation: Diff: 1 Topic: Closing Entries and Closing Process Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Measurement; FN Reporting

81) The partial worksheet for the Roberts Company showed the following data on October 31, 2019. Record the closing entries on page 9 of a general journal.

ACCOUNT NAME R. Roberts, Capital R. Roberts, Drawing

INCOME STATEMENT DEBIT CREDIT 38

BALANCE SHEET DEBIT CREDIT 30,000 3,000

R. Roberts, Drawing Fees Income Salaries Expense Rent Expense Supplies Expense Utilities Expense Depr. Exp.--Equip. Totals Net Loss

Answer:

3,000 22,000 20,800 2,000 800 1,000 1,700 26,300 22,000 4,300 26,300 26,300

39,500 4,300 43,800

43,800 43,800

GENERAL JOURNAL PAGE 9 DATE 2019 Oct. 31

DESCRIPTION Closing Entries

P.R.

DEBIT

Fees Income Income Summary

22,000

Income Summary Salaries Expense Rent Expense Supplies Expense Utilities Expense Depr. Exp. - Equipment

26,300

R. Roberts, Capital Income Summary

4,300

R. Roberts, Capital R. Roberts, Drawing

3,000

CREDIT

22,000

20,800 2,000 800 1,000 1,700

4,300

3,000

Explanation: Diff: 2 Topic: Closing Entries and Closing Process Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

82) On December 31, the ledger of Hartley Engineering Company contained the following account balances: Accounts Payable Accounts Receivable Accumulated Depreciation Cash Depreciation Expense Equipment Eric Hartley, Drawing

$4,000 2,400 3,000 36,000 3,500 30,000 24,000

Fees Income Supplies Salaries Expense Supplies Expense Telephone Expense Eric Hartley, Capital Utilities Expense

$85,000 1,600 26,000 4,800 3,600 46,200 7,200

All the accounts have normal balances. Journalize the closing entries. Use 6 as the general journal page number. (Note: if you want the accounts to be in alpha order, they need to be re-arranged.) Answer: GENERAL JOURNAL PAGE 6 DATE DESCRIPTION P.R. DEBIT CREDIT Dec. 31 Fees Income 85,000 Income Summary 85,000 Dec. 31 Income Summary Depreciation Expense Salaries Expense Supplies Expense Telephone Expense Utilities Expense

45,100

Dec. 31 Income Summary Eric Hartley, Capital

39,900

Dec. 31 Eric Hartley, Capital Eric Hartley, Drawing

24,000

3,500 26,000 4,800 3,600 7,200

39,900

24,000

83) On December 31, the ledger of Davis Company contained the following account balances: Accounts Payable Accounts Receivable Accumulated Depreciation Cash Depreciation Expense Equipment Teresa Davis, Drawing

$8,000 4,800 6,000 72,000 6,000 60,000 48,000

Fees Income Supplies Prepaid Rent Rent Expense Supplies Expense Teresa Davis, Capital Utilities Expense

$170,000 3,200 56,000 8,000 7,200 92,400 14,400

All the accounts have normal balances. Journalize the closing entries. Use 11 as the general journal page number. (Note: if you want the accounts to be in alpha order, they need to be re-arranged.)

Answer:

GENERAL JOURNAL DATE Dec. 31

Dec. 31

DESCRIPTION Fees Income Income Summary

P.R.

DEBIT 170,000

PAGE 11 CREDIT 170,000

Income Summary Depreciation Expense Rent Expense Supplies Expense Utilities Expense

35,600

Income Summary Teresa Davis, Capital

134,400

Teresa Davis, Capital Teresa Davis, Drawing

48,000

6,000 8,000 7,200 14,400

134,400

48,000

84) The adjusted ledger accounts of RD Consulting on December 31, 2019, appear as follows. All accounts have normal balances and adjusting entries have been made. Extend the balances to the Balance Sheet and Income Statement columns of the worksheet. Then, journalize the closing entries on page 4 of a general journal.

Account Name Cash Accounts Receivable Supplies Prepaid Insurance Equipment Accumulated Depreciation - Equipment Accounts Payable Roger Dye, Capital Roger Dye, Drawing Fees Income Supplies Expense Insurance Expense Depreciation Expense - Equipment. Salaries Expense Utilities Expense

ACCOUNT NAME

Balance 6,000 1,400 1,250 600 12,000 1,850 2,600 13,100 2,500 11,300 650 500 450 2,600 900

INCOME STATEMENT DEBIT CREDIT

BALANCE SHEET DEBIT CREDIT

Answer: ACCOUNT NAME Cash Accounts Receivable Supplies Prepaid Insurance Equipment Accum. Depr.--Equip. Accounts Payable Roger Dye, Capital Roger Dye, Drawing Fees Income Supplies Expense Insurance Expense Depr. Exp.–Equip. Salaries Expense Utilities Expense Totals Net Income

INCOME STATEMENT DEBIT CREDIT

BALANCE SHEET DEBIT CREDIT 6,000 1,400 1,250 600 12,000 1,850 2,600 13,100 2,500

11,300 650 500 450 2,600 900 5,100 6,200 11,300

11,300

23,750

11,300

23,750

GENERAL JOURNAL DATE 2019 Dec

17,550 6,200 23,750 PAGE 4

DESCRIPTION Closing Entries

DEBIT

Fees Income Income Summary

11,300

Income Summary Supplies Expense Insurance Expense Depr. Exp.--Equip. Salaries Expense Utilities Expense

5,100

Income Summary Roger Dye, Capital

6,200

CREDIT

11,300

650 500 450 2,600 900

6,200

Roger Dye, Capital

2,500 43

Answer:

Roger Dye, Capital Roger Dye, Drawing

2,500 2,500

85) The adjusted ledger accounts of Miraldi Landscaping Design on December 31, 2019, appear as follows. All accounts have normal balances and adjusting entries have been made. Extend the balances to the Balance Sheet and Income Statement columns of the worksheet. Then, journalize the closing entries on page 12 of a general journal. Account Name Cash Accounts Receivable Supplies Prepaid Insurance Equipment Accumulated Depreciation - Equipment Accounts Payable G. Miraldi, Capital G. Miraldi, Drawing Fees Income Supplies Expense Insurance Expense Depreciation Expense - Equipment. Salaries Expense Utilities Expense

ACCOUNT NAME

Balance 12,000 2,800 2,500 1,200 24,000 3,700 5,200 26,200 5,000 22,600 1,300 1,000 900 5,200 1,800

INCOME STATEMENT DEBIT CREDIT

BALANCE SHEET DEBIT CREDIT

Answer: ACCOUNT NAME Cash Accounts Receivable Supplies Prepaid Insurance Equipment Accum. Depr.--Equip. Accounts Payable G. Miraldi, Capital G. Miraldi, Drawing Fees Income Supplies Expense Insurance Expense Depr. Exp.–Equip. Salaries Expense Utilities Expense Totals Net Income

INCOME STATEMENT DEBIT CREDIT

BALANCE SHEET DEBIT CREDIT 12,000 2,800 2,500 1,200 24,000 3,700 5,200 26,200 5,000

22,600 1,300 1,000 900 5,200 1,800 10,200 12,400 22,600

22,600

47,500

22,600

47,500

GENERAL JOURNAL DATE 2019 Dec

35,100 12,400 47,500

PAGE 12

DESCRIPTION Closing Entries

DEBIT

Fees Income Income Summary45

22,600

CREDIT

22,600

Answer:

Income Summary 31

22,600

Income Summary Supplies Expense Insurance Expense Depr. Exp.--Equip. Salaries Expense Utilities Expense

10,200

Income Summary G. Miraldi, Capital

12,400

G. Miraldi, Capital G. Miraldi, Drawing

5,000

1,300 1,000 900 5,200 1,800

12,400

5,000

86) The Income Summary and Karen Randall, Capital accounts for Randall Printing Company at the end of its accounting period follow. ACCOUNT: Income Summary DATE Dec. 31 31 31

DESCRIPTION Closing Closing Closing

P.R. J7 J7 J7

DEBIT

CREDIT 46,500

30,300 16,200

ACCOUNT: Karen Randall, Capital DATE Dec. 31 31 31

DESCRIPTION Closing Closing

P.R. ? J7 J7

DEBIT

CREDIT 16,200

6,000

ACCOUNT NO.399 BALANCE DEBIT CREDIT 46,500 16,200 0 ACCOUNT NO.301 BALANCE DEBIT CREDIT 150,000 166,200 160,200

Complete the following statements. A. Total revenue for the period is ________. B. Total expenses for the period are ________. C. Net income (loss) for the period is ________. D. Owner's withdrawals for the period are ________.

Answer: (A) $46,500, (B) $30,300, (C) $16,200 Net Income, (D) $6,000 Explanation: (C) $46,500 revenue - $30,300 expenses = $16,200 Net Income Diff: 2 Topic: Closing Entries and Closing Process Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Analyze AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

87) The Income Summary and Meryl Sussman, Capital accounts for Sussman Interior Design Services at the end of its accounting period follow. ACCOUNT: Income Summary DATE Dec. 31 31 31

DESCRIPTION Closing Closing Closing

P.R. J7 J7 J7

DEBIT

CREDIT 65,000

98,000 33,000

ACCOUNT: Meryl Sussman, Capital DATE Dec. 31 31 31

DESCRIPTION Closing Closing

P.R. DEBIT ? J7 33,000 J7 16,000

CREDIT

ACCOUNT NO.399 BALANCE DEBIT CREDIT 65,000 33,000 0 ACCOUNT NO.301 BALANCE DEBIT CREDIT 300,000 267,000 251,000

Answer: (A) $65,000, (B) $98,000, (C) $33,000 Net Loss, (D) $16,000 Explanation: $65,000 revenue - $98,000 expenses =$33,000 Net Loss Diff: 2 Topic: Closing Entries and Closing Process Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Analyze AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

88) On December 31, the Income Summary account of Coulter Company has a credit balance of $20,000 after revenue of $89,000 and expenses of $69,000 were closed to the account. Joseph Coulter, Drawing has a debit balance of $3,000 and Joseph Coulter, Capital has a credit balance of $45,000. Record the journal entries necessary to complete closing the accounts. Use 14 as the general journal page number. Then, post the closing entries to the Joseph Coulter, Capital account. Answer:

GENERAL JOURNAL DATE Dec. 31

Dec. 31

DESCRIPTION

P.R.

Income Summary Joseph Coulter, Capital

20,000

Joseph Coulter, Capital Joseph Coulter, Drawing

3,000

20,000

3,000

ACCOUNT: Joseph Coulter, Capital DATE Dec. 31 31 31

DEBIT

PAGE 14 CREDIT

DESCRIPTION

P.R.

DEBIT

Closing Closing

J14 J14

3,000

ACCOUNT NO.301 BALANCE CREDIT DEBIT CREDIT 45,000 20,000 65,000 62,000

Explanation: $89,000 revenue - $69,000 expenses = Net Income $20,000 Net Income Diff: 2 Topic: Closing Entries and Closing Process Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Measurement; FN Reporting

89) On December 31 the Income Summary account of Cook Company has a debit balance of $18,000 after revenue of $49,000 and expenses of $67,000 were closed to the account. Maria Cook, Drawing has a debit balance of $23,000 and Maria Cook, Capital has a credit balance of $84,000. Record the journal entries necessary to complete closing the accounts. Use 22 as the general journal page number. Then, post the closing entries to the Maria Cook, Capital account. Answer: GENERAL JOURNAL PAGE 22 DATE DESCRIPTION Dec. 31

Dec. 31

P.R.

Maria Cook, Capital Income Summary

18,000

Maria Cook, Capital Maria Cook, Drawing

23,000

CREDIT

18,000

23,000

ACCOUNT: Maria Cook, Capital DATE Dec. 31 31 31

DEBIT

DESCRIPTION

P.R.

DEBIT

Closing Closing

J22 J22

18,000 23,000

ACCOUNT NO.301 BALANCE CREDIT DEBIT CREDIT 84,000 66,000 43,000

Explanation: $49,000 revenue - $67,000 expenses = $18,000 net loss Diff: 2 Topic: Closing Entries and Closing Process Learning Objective: 06-01 Journalize and post closing entries. Bloom's: Understand AACSB: Analytic AICPA: BB Industry; FN Measurement; FN Reporting

90) From the following list identify the accounts that will appear on the post-closing trial balance by placing an X before those accounts. ________ A. Cash ________ B. Accounts Receivable ________ C. Supplies ________ D. Equipment ________ E. Accumulated Depreciation ________ F. Accounts Payable ________ G. Jane Nelson, Capital ________ H. Jane Nelson, Drawing ________ I. Fees Income ________ J. Depreciation Expense K. Salaries Expense ________ L. Supplies Expense ________ M. Utilities Expense

Answer: A, B, C, D, E, F, G Explanation: Diff: 1 Topic: Post-Closing Trial Balance Learning Objective: 06-02 Prepare a postclosing trial balance. Bloom's: Analyze AACSB: Analytic AICPA: BB Industry; FN Reporting

91) From the following list identify the accounts that will appear on the post-closing trial balance by placing an X before those accounts. ________ A. Accounts Payable ________ B. Accounts Receivable ________ C. Accumulated Depreciation ________ D. Cash ________ E. Depreciation Expense ________ F. Equipment ________ G. Fees Income H. Allie Lee, Capital ________ I. Allie Lee, Drawing ________ J. Salaries Expense ________ K. Supplies ________ L. Supplies Expense ________ M. Utilities Expense

Answer: A, B, C, D, F, H, K Explanation: Diff: 1 Topic: Post-Closing Trial Balance Learning Objective: 06-02 Prepare a postclosing trial balance. Bloom's: Analyze AACSB: Analytic AICPA: BB Industry; FN Reporting

92) Dorsey Company's partial worksheet for the month ended March 31, 2019, is shown below. Open the owner's capital account (account number 301) in the general ledger and record the March 1, 2019, balance of $32,000 shown on the worksheet. Journalize the closing entries on page 3 of a general journal. Post the closing entries to the owner's capital account. Prepare a post-closing trial balance.

ACCOUNT NAME Cash Accounts Receivable Supplies Equipment Accum. Depr.- Equip. Accounts Payable N. Dorsey, Capital N. Dorsey, Drawing Fees Income Salaries Expense Rent Expense

INCOME STATEMENT DEBIT CREDIT

BALANCE SHEET DEBIT CREDIT 8,500 11,000 4,500 30,000 10,000 9,500 32,000 3,000

23,000 13,400 1,400

Rent Expense Supplies Expense Depr. Exp.- Equip. Totals Net Income

1,400 700 2,000 17,500 23,000 5,500 23,000 23,000

57,000

51,500 5,500 57,000

57,000

GENERAL JOURNAL

Answer: DATE

DESCRIPTION Closing Entries

P.R.

PAGE 3 DEBIT CREDIT

2019 Mar. 31 Fees Income Income Summary

23,000

Income Summary Salaries Expense Rent Expense Supplies Expense Depr. Exp.–Equip.

17,500

Income Summary N. Dorsey, Capital

5,500

23,000

13,400 1,400 700 2,000

301

N. Dorsey, Capital 301 N. Dorsey, Drawing

5,500 3,000 3,000

GENERAL LEDGER ACCOUNT: N. Dorsey, Capital DATE EXPLANATION 2019 Mar. 1 Balance 31 Closing 31 Closing

ACCOUNT NO. 301 BALANCE P.R. DEBIT CREDIT DEBIT CREDIT

J3 J3

5,500 3,000

32,000 37,500 34,500

DORSEY COMPANY Postclosing Trial Balance March 31, 2019 53 Copyright © McGraw-Hill Education.All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Answer: ACCOUNT NAME Cash Accounts Receivable Supplies Equipment Accumulated Depreciation--Equipment Accounts Payable N. Dorsey, Capital Totals

DEBIT 8,500 11,000 4,500 30,000

CREDIT

10,000 9,500 34,500 54,000 54,000

Explanation: Diff: 2 Topic: Post-Closing Trial Balance Learning Objective: 06-02 Prepare a postclosing trial balance. Bloom's: Create AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

93) Danos Company's partial worksheet for the month ended December 31, 2019, is shown below. Open the owner's capital account (account number 301) in the general ledger and record the December 1, 2019, balance of $64,000 shown on the worksheet. Journalize the closing entries on page 8 of a general journal. Post the closing entries to the owner's capital account. Prepare a post-closing trial balance.

ACCOUNT NAME Cash Accounts Receivable Supplies Equipment Accum. Depr.- Equip. Accounts Payable D. Danos, Capital D. Danos, Drawing Fees Income Salaries Expense Rent Expense Supplies Expense Depr. Exp.- Equip. Totals Net Income

INCOME STATEMENT DEBIT CREDIT

BALANCE SHEET DEBIT CREDIT 17,000 22,000 9,000 60,000 20,000 19,000 64,000 6,000

46,000 26,800 2,800 1,400 4,000 35,000 46,000 11,000 46,000 46,00054

114,000 114,000

103,000 11,000 114,000

46,000

Answer:

114,000

GENERAL JOURNAL DATE 2019 Dec. 31

DESCRIPTION Closing Entries

P.R.

PAGE 8 CREDIT

DEBIT

Fees Income Income Summary

46,000

Income Summary Salaries Expense Rent Expense Supplies Expense Depr. Exp.–Equip.

35,000

Income Summary D. Danos, Capital

11,000

46,000

26,800 2,800 1,400 4,000

301

D. Danos, Capital D. Danos, Drawing

11,000

301

6,000 6,000

GENERAL LEDGER ACCOUNT: D. Danos, Capital DATE 2019 Dec. 1 31 31

EXPLANATION Balance Closing Closing

P.R.

J8 J8

DEBIT CREDIT

ACCOUNT NO. 301 BALANCE DEBIT CREDIT 64,000 75,000 69,000

11,000 6,000

DANOS COMPANY Post-closing Trial Balance December 31, 2019 ACCOUNT NAME Cash Accounts Receivable Supplies Equipment Accumulated Depreciation--Equipm 55ent

DEBIT 17,000 22,000 9,000 60,000

CREDIT

20,000

Answer: Accumulated Depreciation--Equipment Accounts Payable D. Danos, Capital Totals

20,000 19,000 69,000 108,000 108,000

Explanation: Diff: 2 Topic: Closing Entries and Closing Process, Post-Closing Trial Balance Learning Objective: 06-01 Journalize and post closing entries.; 06-02 Prepare a postclosing trial balance. Bloom's: Create AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

94) Managers often consult financial statements for specific types of information. Indicate whether each of the following items would appear on the income statement, statement of owner's equity, or the balance sheet. Note that an item may appear on more than one statement. The first item is completed as an example.

Income Statement Cash on hand Accounts payable of the business Accounts receivable of the business Accumulated depreciation on the firm's equipment Amount of depreciation charged off on the firm's equipment during the period Book value of the firm's equipment Cost of supplies used during the period Net income for the period Original cost of the firm's equipment Owner's capital at the end of the period Owner's withdrawals for the period Revenue earned during the period Supplies on hand Total assets of the business Total expenses for the period

Statement of Owner's Equity

Balance Sheet X

Answer: Income Statement Cash on hand Accounts payable of the business Accounts receivable of the business Accumulated depreciation on the firm's equipment Amount of depreciation charged off on the firm's equipment during the period Book value of the firm's equipment Cost of supplies used during the period Net income for the period Original cost of the firm's equipment Owner's capital at the end of the period Owner's withdrawals for the period Revenue earned during the period Supplies on hand Total assets of the business Total expenses for the period

Statement of Owner's Balance Equity Sheet X X X X

X X X X

X X X

Explanation: Diff: 2 Topic: Financial Statements Learning Objective: 06-03 Interpret financial statements. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Decision Making

95) Managers often consult financial statements for specific types of information. Indicate whether each of the following items would appear on the income statement, statement of owner's equity, or the balance sheet. Note that an item may appear on more than one statement. The first item is completed as an example.

Income Statement Accounts Payable Accounts Receivable Accumulated Depreciation — Equipment Cash Depreciation Expense — Equipment Equipment

Statement of Owner's Equity

Balance Sheet X

Equipment Fees Income N. Dalton, Capital, beginning of period N. Dalton, Capital, end of period N. Dalton, Drawing Rent Expense Salaries Expense Supplies Supplies Expense Total assets of the business Total expenses for the period Total liabilities of the business Total revenues for the period

Answer: Income Statement Accounts Payable Accounts Receivable Accumulated Depreciation — Equipment Cash Depreciation Expense — Equipment Equipment Fees Income N. Dalton, Capital, beginning of period N. Dalton, Capital, end of period N. Dalton, Drawing Rent Expense Salaries Expense Supplies Supplies Expense Total assets of the business Total expenses for the period Total liabilities of the business Total revenues for the period

Statement of Owner's Balance Equity Sheet X X X X

X X X X X X

X X X X X X X X

Explanation: Diff: 2 Topic: Financial Statements Learning Objective: 06-03 Interpret financial statements. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Decision Making

96) Following are the steps in the accounting cycle. Arrange the steps in the proper sequence. A. Analyze transactions. B. Interpret the financial information. C. Journalize the transactions. D. Post the journal entries. E. Prepare a post-closing trial balance. F. Prepare financial statements. G. Prepare a worksheet. H. Record adjusting entries. I. Record closing entries. ________ 1. ________ 2. ________ 3. ________ 4. ________ 5. ________ 6. ________ 7. ________ 8. ________ 9.

Answer: (1) A, (2) C, (3) D, (4) G, (5) F, (6) H, (7) I, (8) E, (9) B Explanation: Diff: 2 Topic: Using Accounting Information Learning Objective: 06-04 Review the steps in the accounting cycle. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; BB Critical Thinking; FN Decision Making; FN Reporting

97) Match the accounting terms with the description by entering the proper letter in the space provided. A. Closing entries B. Income Summary account C. Interpret D. Post-closing trial balance ________ 1. To understand and explain the meaning and importance of something (such as financial statements) ________ 2. Journal entries that transfer the results of operations (net income or net loss) to owner's equity and reduce the revenue, expense, and drawing account balances to zero 3. A statement that is prepared to prove the equality of total debits and credits after the closing process is completed ________ 4. A special owner's equity account that is used only in the closing process to summarize the results of operations

Answer: (1) C, (2) A, (3) D, (4) B Explanation: Diff: 2 Topic: Closing Entries and Closing Process, Post-Closing Trial Balance Learning Objective: 06-01 Journalize and post closing entries.; 06-02 Prepare a postclosing trial balance.; 06-03 Interpret financial statements.; 06-04 Review the steps in the accounting cycle.; 06-05 Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Decision Making

Chapter 07 Accounting for Sales and Accounts Receivable, and Cash Reports MULTIPLE CHOICE QUESTIONS 1) A merchandising business sells goods that it produces. A) True B) False Answer: B Explanation: Diff: 1 Topic: Understanding Merchandising Companies Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

2) A subsidiary ledger is a ledger that contains accounts of a single type. A) True B) False Answer: A Explanation: Diff: 1 Topic: Understanding Merchandising Companies Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

3) A sales allowance is when a firm negotiates a reduction in the sales price of merchandise for paying within a predetermined number of days. A) True B) False Answer: B Explanation: Diff: 2 Topic: Understanding Merchandising Companies Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

4) A retail business is a manufacturer or distributor of goods that sells to retailers or large customers. A) True B) False Answer: B Explanation: Diff: 1 Topic: Special Topics in Merchandising Learning Objective: 07-02 Compute trade discounts. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

5) The balance of a customer's account in the accounts receivable ledger is circled to show that it is a debit amount. A) True B) False Answer: B Explanation: Diff: 2 Topic: Special Topics in Merchandising Learning Objective: 07-05 Prepare a schedule of accounts receivable. Bloom's: Understand AACSB: Analytical Thinking AICPA: FN Reporting

6) The Sales Returns and Allowances account has a normal debit balance. A) True B) False Answer: A Explanation: Diff: 1 Topic: Special Topics in Merchandising Learning Objective: 07-04 Post from the general journal to the general ledger accounts and to the subsidiary ledger. Bloom's: Remember AACSB: Analytical Thinking AICPA: FN Reporting

7) A customer who returns goods or receives an allowance is entitled to a credit for the appropriate amount of sales tax if tax was charged on the original sale. A) True B) False Answer: A Explanation: Diff: 2 Topic: Understanding Merchandising Companies Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: FN Reporting

8) The list price is also known as the established retail price. A) True B) False Answer: A Explanation: Diff: 1 Topic: Special Topics in Merchandising Learning Objective: 07-02 Compute trade discounts. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

9) The balance of the Sales Returns and Allowances account is subtracted from the balance of the Accounts Receivable account in the Assets section of the balance sheet. A) True B) False Answer: B Explanation: Diff: 2 Topic: Special Topics in Merchandising Learning Objective: 07-05 Prepare a schedule of accounts receivable. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

10) After all the transactions have been posted, the totals of the balances in the accounts receivable subsidiary ledgers should equal the balance of the Accounts Receivable account in the general ledger. A) True B) False Answer: A Explanation: Diff: 1 Topic: Special Topics in Merchandising Learning Objective: 07-05 Prepare a schedule of accounts receivable. Bloom's: Evaluate AACSB: Analytical Thinking AICPA: FN Reporting

11) In a small business, the customer accounts are usually kept in alphabetical order. A) True B) False Answer: A Explanation: Diff: 2 Topic: Special Topics in Merchandising Learning Objective: 07-04 Post from the general journal to the general ledger accounts and to the subsidiary ledger. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry

12) When a customer pays within a certain time, he/she is eligible to receive a trade discount. A) True B) False Answer: B Explanation: Diff: 1 Topic: Special Topics in Merchandising Learning Objective: 07-02 Compute trade discounts. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

13) The procedure used to account for credit card sales is similar to the procedure for recording open-account credit sales. A) True B) False Answer: A Explanation: Diff: 1 Topic: Understanding Merchandising Companies Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry

14) When a business makes a sale on a bank credit card, the business is responsible for collecting from the customer. A) True B) False Answer: B Explanation: Diff: 1 Topic: Understanding Merchandising Companies Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

15) The amount of sales tax due is required to be paid just once per year, at the end of the year, for all companies. A) True B) False Answer: B Explanation: Diff: 2 Topic: Special Topics in Merchandising Learning Objective: 07-06 Record the payment of sales taxes. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry

SHORT ANSWER QUESTIONS 16) When taxable goods are sold on credit, the sale of the goods and the ________ are recorded at the time of the sale. Answer: sales tax Explanation: Diff: 1 Topic: Understanding Merchandising Companies Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

17) A(n) _

_ business sells goods that it purchases for resale.

Answer: merchandising Explanation: Diff: 1 Topic: Understanding Merchandising Companies Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

18) The entry to record a sale of merchandise on credit that is subject to sales tax includes a(n) to Sales Tax Payable. Answer: credit Explanation: Diff: 1 Topic: Understanding Merchandising Companies Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Critical Thinking

19) A business that sells services directly to individual consumers is called a(n) ________ business. Answer: service Explanation: Diff: 1 Topic: Understanding Merchandising Companies Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry

20) The stock of goods on hand to sell to consumers is called ________. Answer: merchandise inventory Explanation: Diff: 1 Topic: Understanding Merchandising Companies Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

21) The account used to record products returned by a buyer on the seller's books is ________. Answer: sales returns and allowances Explanation: Diff: 1 Topic: Petty Cash and Internal Controls for Cash Learning Objective: 07-03 Compute and record cash discounts on sales. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

22) A ledger that contains accounts of a single type is called a(n)

ledger.

Answer: subsidiary Explanation: Diff: 1 Topic: Understanding Merchandising Companies Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry

23) Sales Tax Payable is classified as a(n) ________ account. Answer: liability Explanation: Diff: 1 Topic: Understanding Merchandising Companies Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Critical Thinking

24) Fees charged by the credit card company for processing sales are debited to an account called ________. Answer: credit card expense Explanation: Diff: 1 Topic: Understanding Merchandising Companies Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

25) The ________ ledger contains accounts for credit customers. Answer: accounts receivable Explanation: Diff: 1 Topic: Special Topics in Merchandising Learning Objective: 07-03 Compute and record cash discounts on sales. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

26) The Sales Returns and Allowances account has a normal Answer: debit Explanation:

balance.

Diff: 1 Topic: Special Topics in Merchandising Learning Objective: 07-04 Post from the general journal to the general ledger accounts and to the subsidiary ledger. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

27) A(n) _ is a business form that is issued to credit a customer's account upon acceptance of the return of previously purchased goods. Answer: credit memorandum Explanation: Diff: 1 Topic: Special Topics in Merchandising Learning Objective: 07-04 Post from the general journal to the general ledger accounts and to the subsidiary ledger. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

28) A list of all unpaid balances in the accounts receivable subsidiary ledger is called a(n) ________. Answer: schedule of accounts receivable Explanation: Diff: 1 Topic: Special Topics in Merchandising Learning Objective: 07-05 Prepare a schedule of accounts receivable. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

29) When an accounts receivable subsidiary ledger is used, the Accounts Receivable account in the general ledger is considered to be a(n) ________ account. Answer: control Explanation: Diff: 1 Topic: Special Topics in Merchandising Learning Objective: 07-04 Post from the general journal to the general ledger accounts and to the subsidiary ledger. Bloom's: Remember AACSB: Analytical Thinking AICPA: FN Reporting

30) The reductions from list prices that many wholesale businesses offer their customers are called ________. Answer: trade discounts Explanation: Diff: 1 Topic: Special Topics in Merchandising Learning Objective: 07-02 Compute trade discounts. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

MULTIPLE CHOICE QUESTIONS 31) All of the following are examples of the most common types of credit sales, except A) cards issued by credit card companies. B) closed-account credit cards. C) bank credit cards. D) business credit cards. Answer: B Explanation: A) B) C) D) Diff: 1 Topic: Understanding Merchandising Companies Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

32) If Lacy's Department Store charges 8 percent sales tax, the amount of sales tax collected on a $525 sale would be A) $42.00. B) $4.20. C) $567.00. D) $420.00. Answer: A Explanation:

A) $525 × .08 = $42 B) $525 × .08 = $42 C) $525 × .08 = $42 D) $525 × .08 = $42

Diff: 1 Topic: Understanding Merchandising Companies Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

33) Which of the following is not one of the three basic types of businesses? A) Merchandising B) Service C) Manufacturing Answer: D Explanation: A) B) C) D)

D) International

34) A credit policy that is too tight may result in A) high level of losses at the expense of increases in sales volume. B) low level of losses at the expense of increases in sales volume. C) high level of losses at the expense of decreases in sales volume. D) low level of losses at the expense of decreases in sales volume. Answer: D Explanation: A) B) C) D) Diff: 2 Topic: Understanding Merchandising Companies Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

35) A credit policy that is too lenient may result in A) increased sales volume accompanied by a high level of losses. B) decreased sales volume accompanied by a high level of losses. C) increased sales volume accompanied by a low level of losses. D) decreased sales volume accompanied by a low level of losses. Answer: A Explanation: A) B) C) D) Diff: 2 Topic: Understanding Merchandising Companies Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

36) A schedule of accounts receivable is prepared A) monthly. B) weekly. Answer: A Explanation: A) B) C) D)

C) daily.

D) yearly.

Diff: 2 Topic: Special Topics in Merchandising Learning Objective: 07-05 Prepare a schedule of accounts receivable. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

37)

are required to collect sales tax from customers, make periodic payments to the taxing authority, and pay the taxes due when reports are filed. A) Distributors B) Wholesalers C) Manufacturers D) Retailers

Answer: D Explanation:

A) B) C) D)

Diff: 2 Topic: Understanding Merchandising Companies Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

38) All of the following are situations that can cause accounts receivable to become uncollectible, except A) unexpected business developments. B) incorrect financial data. C) errors of judgment. D) efficient business practices. Answer: D Explanation: A) B) C) D) Diff: 2 Topic: Understanding Merchandising Companies Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

39) The Sales account is classified as A) an asset account. C) a liability account. Answer: B Explanation: A) B) C) D)

B) a revenue account. D) a contra revenue account.

Diff: 1 Topic: Understanding Merchandising Companies Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Critical Thinking

40) A firm that sells goods that it purchases for re-sale is a A) service business. B) merchandising business. C) non-profit business. D) manufacturing business. Answer: B Explanation: A) B) C) D) Diff: 1 Topic: Understanding Merchandising Companies Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry

41) Merchandise is sold on credit for $1,600 plus 6 percent sales tax. The journal entry to record the sale will include a debit to Accounts Receivable for A) $1,600.00. B) $2,560.00. C) $1,696.00. D) $1,504.00. Answer: C Explanation: A) $1,600 + ($1,600 × .06) =$1,696 B) $1,600 + ($1,600 × .06) =$1,696 C) $1,600 + ($1,600 × .06) =$1,696 D) $1,600 + ($1,600 × .06) =$1,696 Diff: 2 Topic: Understanding Merchandising Companies Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking

42) Which of the following is a common example of the distribution channel? A) Manufacturer sells to Wholesaler who sells to Retailer who sells to Customer B) Manufacturer sells to Retailer who sells to Wholesaler who sells to Customer C) Customer sells to Wholesaler who sells to Retailer who sells to Wholesaler D) Manufacturer sells to Customer who sells to Wholesaler who sells to Retailer Answer: A Explanation:

A) B) C) D)

Diff: 2 Topic: Understanding Merchandising Companies Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Critical Thinking

43) All of the following are other names for "sales slips" that are used in credit card transactions except A) sales vouchers. B) sales invoices. C) sales returns. D) sales drafts. Answer: C Explanation: A) B) C) D) Diff: 1 Topic: Understanding Merchandising Companies Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

44) The balance due from an individual customer can be found in: A) the Sales account in the general ledger. B) the accounts receivable subsidiary ledger. C) the Accounts Receivable account in the general ledger. D) the general journal. Answer: B Explanation: A) B) C) D) Diff: 1 Topic: Special Topics in Merchandising Learning Objective: 07-04 Post from the general journal to the general ledger accounts and to the subsidiary ledger. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry

45) The entry to record a return by a credit customer of defective merchandise on which no sales tax was charged includes A) a debit to Sales Returns and Allowances and a credit to Accounts Receivable. B) a debit to Accounts Receivable and a credit to Sales Returns and Allowances. C) a debit to Sales and a credit to Accounts Receivable. D) a debit to Sales and a credit to Sales Returns and Allowances. Answer: A Explanation: A) B) C) D) Diff: 2 Topic: Understanding Merchandising Companies Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Bloom's: Analyze AACSB: Analytical Thinking AICPA: FN Reporting

46) The entry to record the return of merchandise from a customer on which sales tax was charged includes A) a credit to Sales Tax Payable. B) a credit to Sales Returns and Allowances. C) a debit to Sales Tax Payable. D) a debit to Accounts Receivable. Answer: C Explanation: A) B) C) D) Diff: 2 Topic: Understanding Merchandising Companies Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: FN Reporting

47) The Sales Returns and Allowances account is classified as A) a revenue account. B) a contra asset account. C) an asset account. D) a contra revenue account. Answer: D Explanation: A) B) C) D) Diff: 1 Topic: Understanding Merchandising Companies Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Critical Thinking

48) The Sales Returns and Allowances account is reported A) on the balance sheet as a deduction from Capital. B) on the income statement as an addition to Sales. C) on the income statement as a deduction from Sales. D) on the balance sheet as a deduction from Accounts Receivable. Answer: C Explanation:

A) B) C) D)

Diff: 2 Topic: Special Topics in Merchandising Learning Objective: 07-03 Compute and record cash discounts on sales. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

49) If a firm had sales of $84,000 during a period and sales returns and allowances of $6,000, its net sales were A) $90,000. B) $78,000. C) $84,000. D) $6,000. Answer: B Explanation: A) $84,000 - $6,000 = $78,000 B) $84,000 - $6,000 = $78,000 C) $84,000 - $6,000 = $78,000 D) $84,000 - $6,000 = $78,000 Diff: 1 Topic: Special Topics in Merchandising Learning Objective: 07-03 Compute and record cash discounts on sales. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking

50) After all postings have been made, the total of the schedule of accounts receivable should equal A) the total of all sales on account for the accounting period. B) the balance of the Sales account. C) the balance of the Accounts Receivable account in the general ledger. D) the balance in the Accounts Payable account in the general ledger. Answer: C Explanation: A) B) C) D) Diff: 2 Topic: Special Topics in Merchandising Learning Objective: 07-05 Prepare a schedule of accounts receivable. Bloom's: Evaluate AACSB: Analytical Thinking AICPA: FN Reporting

51) A wholesale business sells goods with a list price of $800 and a trade discount of 36 percent. The net sales price is A) $1,088.00. B) $512.00. C) $288.00. D) $800.00. Answer: B Explanation: A) $800 - ($800 × .36) = $512 B) $800 - ($800 × .36) = $512 C) $800 - ($800 × .36) = $512 D) $800 - ($800 × .36) = $512 Diff: 1 Topic: Special Topics in Merchandising Learning Objective: 07-02 Compute trade discounts. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking

52) The amount used by wholesalers to record sales in the general journal is A) the retail price. B) the list price. C) the original price. D) the net price. Answer: D Explanation: A) B) C) D) Diff: 1 Topic: Special Topics in Merchandising Learning Objective: 07-02 Compute trade discounts. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

53) A retailer recorded the following in June: cash sales $2,000; credit sales, $9,000; sales returns and allowances, $1,000. Assuming the sales tax rate is 8 percent, the entry to record the sales tax payment includes a debit to Sales Tax Payable for A) $800. B) $640. C) $720. D) $880. Answer: A Explanation:

A) $2,000 + $9,000 = $11,000 - $1,000 = $10,000 × .08 = $800 B) $2,000 + $9,000 = $11,000 - $1,000 = $10,000 × .08 = $800 C) $2,000 + $9,000 = $11,000 - $1,000 = $10,000 × .08 = $800 D) $2,000 + $9,000 = $11,000 - $1,000 = $10,000 × .08 = $800

Diff: 2 Topic: Special Topics in Merchandising Learning Objective: 07-06 Record the payment of sales taxes. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking

54) On Deck Sports Memorabilia store sells a Babe Ruth rookie card for $6,400 on account. If the sales tax on the sale is 8%, what is the amount debited to Accounts Receivable. A) $6,512 B) $6,400 C) $5,888 D) $6,912 Answer: D Explanation: A) $6,400 + ($6,400 × .08) = $6,912 B) $6,400 + ($6,400 × .08) = $6,912 C) $6,400 + ($6,400 × .08) = $6,912 D) $6,400 + ($6,400 × .08) = $6,912 Diff: 1 Topic: Understanding Merchandising Companies Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry

55) Which of the following describes the Sales Tax Payable account? A) A revenue account with a normal credit balance. B) A liability account with a normal credit balance. C) An asset account with a normal debit balance. D) A liability account with a normal debit balance. Answer: B Explanation:

A) B) C) D)

Diff: 1 Topic: Understanding Merchandising Companies Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry

56) Hugh Snow, the buyer, returned merchandise to Farley Co., the seller. The entry on the books of Farley company to record the return of merchandise from Hugh Snow would include a: A) Debit to Sales Returns and Allowances B) Credit to Sales Returns and Allowances C) Debit to Accounts Payable D) Debit to Account Receivable Answer: A Explanation: A) B) C) D) Diff: 1 Topic: Understanding Merchandising Companies Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry

57) Sales Returns and Allowances have the effect of A) increasing expenses. C) increasing total revenue. Answer: B Explanation: A) B) C) D)

B) decreasing total revenue. D) increasing assets.

Diff: 1 Topic: Special Topics in Merchandising Learning Objective: 07-03 Compute and record cash discounts on sales. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry

58) A company that earns income by buying merchandise then reselling it to its customers in the same condition in which it was purchased is a(n) A) non-for profit business. B) merchandising business. C) service business. D) manufacturing business. Answer: B Explanation: A) B) C) D) Diff: 1 Topic: Understanding Merchandising Companies Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry

59) Hour Place Clock Shop sold a grandfather clock for $3,750 subject to a 7% sales tax. The entry in the general journal will include a debit to Accounts Receivable for A) $3,750.00. B) $4,012.50. C) $3,625.00. D) $3,487.50. Answer: B Explanation:

A) $3,750 + ($3,750 × .07) = $4,012.50 B) $3,750 + ($3,750 × .07) = $4,012.50 C) $3,750 + ($3,750 × .07) = $4,012.50 D) $3,750 + ($3,750 × .07) = $4,012.50

Diff: 2 Topic: Understanding Merchandising Companies Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry

60) Hour Place Clock Shop sold a grandfather clock for $3,750 subject to a 7% sales tax. The entry in the general journal will include a credit to Sales for A) $3,750.00. B) $3,625.00. C) $3,487.50. D) $4,012.50. Answer: A Explanation: A) B) C) D) Diff: 2 Topic: Understanding Merchandising Companies Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry

61) Which of the following describes the Sales Returns and Allowances account? A) A contra expense account with a normal debit balance. B) A contra revenue account with a normal debit balance. C) A revenue account with a normal credit balance. D) An expense account with a normal debit balance. Answer: B Explanation:

A) B) C) D)

Diff: 1 Topic: Understanding Merchandising Companies Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry

62) The amount of the trade discount taken by the customer is: A) not recorded directly as sales are recorded net of trade discounts. B) recorded as an expense. C) recorded as a liability. D) recorded as a revenue. Answer: A Explanation: A) B) C) D) Diff: 1 Topic: Special Topics in Merchandising Learning Objective: 07-02 Compute trade discounts. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking

63) Kay Sadia sold merchandise for $7,200 subject to a 8% sales tax. The entry in the general journal will include a debit to Accounts Receivable for: A) $6,624.00. B) $7,776.00. C) $7,200.00. D) $12,960.00. Answer: B Explanation:

A) $7,200.00 + ($7,200.00 × .08) = $7,776.00 B) $7,200.00 + ($7,200.00 × .08) = $7,776.00 C) $7,200.00 + ($7,200.00 × .08) = $7,776.00 D) $7,200.00 + ($7,200.00 × .08) = $7,776.00

Diff: 1 Topic: Understanding Merchandising Companies Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry

64) Modern Candy, a wholesaler, sold a crate of candy for $360.00 on account to a customer with credit terms of 1/10, n/30. If the customer pays within the discount period, how much cash will Modern Candy receive when it is paid? A) $324.00 B) $360.00 C) $363.60 D) $356.40 Answer: D Explanation:

A) $360.00 × .01= $3.60 discount $360.00 - $3.60 = $356.40 B) $360.00 × .01= $3.60 discount $360.00 - $3.60 = $356.40 C) $360.00 × .01= $3.60 discount $360.00 - $3.60 = $356.40 D) $360.00 × .01= $3.60 discount $360.00 - $3.60 = $356.40

Diff: 2 Topic: Special Topics in Merchandising Learning Objective: 07-03 Compute and record cash discounts on sales. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking; BB Industry; FN Measurement

65) Lamps Unlimited, a wholesaler, sold several crates of lighting for $1,500 on account, to a customer with credit terms of 1/10, n/30. If the customer pays within the discount period, the journal entry to record the receipt of payment would include: A) a credit to Sales Discounts for $150. B) a debit to Sales Discounts for $15. C) a debit to Accounts Receivable for $1,500. D) a credit to Accounts Receivable for $1,485. Answer: B Explanation: A) $1,500 × .01= $15 discount; $1,500 - $15 = 1,485. Debit Cash $1,485; Debit Sales Discounts $15; Credit Accounts Receivable $1,500 B) $1,500 × .01= $15 discount; $1,500 - $15 = 1,485. Debit Cash $1,485; Debit Sales Discounts $15; Credit Accounts Receivable $1,500 C) $1,500 × .01= $15 discount; $1,500 - $15 = 1,485. Debit Cash $1,485; Debit Sales Discounts $15; Credit Accounts Receivable $1,500 D) $1,500 × .01= $15 discount; $1,500 - $15 = 1,485. Debit Cash $1,485; Debit Sales Discounts $15; Credit Accounts Receivable $1,500 Diff: 2 Topic: Special Topics in Merchandising Learning Objective: 07-03 Compute and record cash discounts on sales. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking; BB Industry; FN Measurement

66) On June 12, Music, Inc. sells $4,000 of goods on account to a credit customer with credit terms of 1/10, n/30. If the customer pays on June 20, select the correct entry to record the receipt of the customer's payment: A) Cash Accounts Receivable

4,000

Cash Sales Discounts Accounts Receivable

3,960 40

Accounts Receivable Sales Discounts Cash

3,960 40

Cash Sales Discounts Accounts Receivable

4,000

Answer: B Explanation:

40 3,960

A) $4,000 × .01 = $40 discount. Cash received = $4,000 - $40 = $3,960 B) $4,000 × .01 = $40 discount. Cash received = $4,000 - $40 = $3,960 C) $4,000 × .01 = $40 discount. Cash received = $4,000 - $40 = $3,960 D) $4,000 × .01 = $40 discount. Cash received = $4,000 - $40 = $3,960 27

67) On October 12, Equipment Inc. sells $53,000 worth of equipment on account to a credit customer with credit terms of 1/10, n/30. Assume the sale is not subject to tax. Select the correct entry to record the sale on Oct 12. A) Cash Sales

53,000

Accounts Receivable Sales Discounts Sales

53,000

Accounts Receivable Sales

53,000

Sales Sales Discounts Accounts Receivable

53,000

530 52,470

53,000

Answer: C Explanation:

A) B)

530 52,470

B) C) D) Diff: 2 Topic: Special Topics in Merchandising Learning Objective: 07-03 Compute and record cash discounts on sales. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking; BB Industry; FN Measurement

68) On June 12, Candy Suppliers sells $5,000 of goods on account to a credit customer with credit terms 1/10, n/30. Assume the sale is not subject to tax. On June 15, the customer returned $500 of the goods due to defect. Assume the customer pays within the discount period, select the correct entry to record the receipt of the customer's payment: A) Accounts Receivable Sales Discounts Cash

4,500 50

Cash Sales Discounts Accounts Receivable

4,950 50

Cash Sales Discounts Accounts Receivable

4,455 45

4,550

5,000

4,500

D) Cash Accounts Receivable

Answer: C Explanation:

5,000 5,000

A) $5,000 - $500 return = $4,500; $4,500 × .01 = $45 disc. Cash received = $4,500 $45 = $4,455 B) $5,000 - $500 return = $4,500; $4,500 × .01 = $45 disc. Cash received = $4,500 $45 = $4,455 C) $5,000 - $500 return = $4,500; $4,500 × .01 = $45 disc. Cash received = $4,500 $45 = $4,455 D) $5,000 - $500 return = $4,500; $4,500 × .01 = $45 disc. Cash received = $4,500 $45 = $4,455

69) Modern Candy, a wholesaler, sold a crate of candy for $360.00 on account to a customer with credit terms of 1/10, n/30. If the customer pays within the discount period, what would be the total amount credited to the sales account? A) $356.40 B) $324.00 C) $360.00 D) $363.60 Answer: C Explanation:

A) B) C) D)

70) Lamps Unlimited, a wholesaler, sold several crates of lighting for $1,500 on account to a customer with credit terms of 1/10, n/30. If the customer pays within the discount period, the journal entry to record the receipt of payment would include: A) a credit to Accounts Receivable for $1,500. B) a credit to Sales Discounts for $15. C) a debit to Accounts Receivable for $1,485. D) a debit to Sales Discounts for $150. Answer: A Explanation: A) $1,500 × .01= $15 discount; $1,500 - $15 = 1,485. Debit Cash $1,485; Debit Sales Discounts $15; Credit Accounts Receivable $1,500 B) $1,500 × .01= $15 discount; $1,500 - $15 = 1,485. Debit Cash $1,485; Debit Sales Discounts $15; Credit Accounts Receivable $1,500 C) $1,500 × .01= $15 discount; $1,500 - $15 = 1,485. Debit Cash $1,485; Debit Sales Discounts $15; Credit Accounts Receivable $1,500 D) $1,500 × .01= $15 discount; $1,500 - $15 = 1,485. Debit Cash $1,485; Debit Sales Discounts $15; Credit Accounts Receivable $1,500 Diff: 2 Topic: Special Topics in Merchandising Learning Objective: 07-03 Compute and record cash discounts on sales. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking; BB Industry; FN Measurement

71) Kay Sadia sold merchandise for $7,200 subject to 8% sales tax. The entry in the general journal to record the sale will include: A) a debit to Accounts Receivable for $7,200.00. B) a credit to Sales for $7,776.00. C) a debit to Sales Tax Payable for $576.00. D) credit to Sales for $7,200.00. Answer: D Explanation: A) $7,200.00 + ($7,200.00 × .08) = $7,776.00; debit Accounts Receivable $7,776.00; credit Sales Tax Payable $576; credit sales $7,200. B) $7,200.00 + ($7,200.00 × .08) = $7,776.00; debit Accounts Receivable $7,776.00; credit Sales Tax Payable $576; credit sales $7,200. C) $7,200.00 + ($7,200.00 × .08) = $7,776.00; debit Accounts Receivable $7,776.00; credit Sales Tax Payable $576; credit sales $7,200. D) $7,200.00 + ($7,200.00 × .08) = $7,776.00; debit Accounts Receivable $7,776.00; credit Sales Tax Payable $576; credit sales $7,200. Diff: 1 Topic: Understanding Merchandising Companies Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry

72) On Deck Sports Memorabilia store sells a Babe Ruth rookie card for $6,400 on account. If the sales tax on the sale is 8%, the journal entry to record the sale would include: A) a debit to Sales for $6,400 B) a credit to Sales for $6,912 C) a debit to Sales Tax Payable for $512 D) a debit to Accounts Receivable for $6,912 Answer: D Explanation: A) $6,400 + ($6,400 × .08) = $6,912; debit Accounts Receivable $6,912; credit Sales Tax Payable $512; credit Sales $6,400 B) $6,400 + ($6,400 × .08) = $6,912; debit Accounts Receivable $6,912; credit Sales Tax Payable $512; credit Sales $6,400 C) $6,400 + ($6,400 × .08) = $6,912; debit Accounts Receivable $6,912; credit Sales Tax Payable $512; credit Sales $6,400 D) $6,400 + ($6,400 × .08) = $6,912; debit Accounts Receivable $6,912; credit Sales Tax Payable $512; credit Sales $6,400 Diff: 1 Topic: Understanding Merchandising Companies Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry

73) Hugh Snow, the buyer, returned merchandise to Farley Co., the seller. The entry on the books of Farley company to record the return of merchandise from Hugh Snow would include a: A) debit to Sales and a credit to Sales Returns and Allowances. B) debit to Sales Discounts and a credit to Accounts Receivable. C) debit to Sales Returns and Allowances and a credit to Account Receivable. D) debit to Accounts Payable and a credit to Sales Returns and Allowances. Answer: C Explanation: A) B) C) D) Diff: 1 Topic: Understanding Merchandising Companies Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry

74) Merchandise is sold for cash for $1,600 plus 6 percent sales tax. The journal entry to record the sale will include A) a debit to Cash for $1,600 and a credit to Sales for $1,600. B) a debit to Accounts Receivable for $1,600; a debit to Sales Tax Payable for $96 and a credit to Sales for $1,696. C) a debit to Accounts Receivable for $1,696 and a credit to Sales for $1,696. D) a debit to Cash for $1,696, a credit to Sales Tax Payable for $96 and a credit to Sales for $1,600. Answer: D Explanation:

A) $1,600 + ($1,600 × .06) =$1,696; debit Cash $1,696.00; credit Sales Tax Payable $96.00; credit Sales $1,600.00 B) $1,600 + ($1,600 × .06) =$1,696; debit Cash $1,696.00; credit Sales Tax Payable $96.00; credit Sales $1,600.00 C) $1,600 + ($1,600 × .06) =$1,696; debit Cash $1,696.00; credit Sales Tax Payable $96.00; credit Sales $1,600.00 D) $1,600 + ($1,600 × .06) =$1,696; debit Cash $1,696.00; credit Sales Tax Payable $96.00; credit Sales $1,600.00

Diff: 2 Topic: Understanding Merchandising Companies Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking

ESSAY QUESTIONS 75) For each of the businesses listed below, classify each as a service business, merchandising business, or manufacturing business. _____ A. Dietmar and Associates' Law Firm B. Granny's Candy Market C. Mega-Market Food and Apparel _____ D. Dr. Cabalona's Pediatrics _____ E. Arrowhead Mill and Factory _____ F. Woody's Tax Preparation _____ G. Meeko and Tinka's Dog Treats Factory H. Tracey's Travel Agency

Answer: (A) Service, (B) Retailer(Merchandising), (C) Retailer(Merchandising), (D) Service, (E) Manufacturer, (F) Service, (G) Manufacturer, (H) Service Diff: 1 Topic: Understanding Merchandising Companies Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Bloom's: Analyze AACSB: Analytical Thinking AICPA: BB Critical Thinking

76) Determine the account to be debited and the account to be credited for the following transactions of Drummond Contracting: A. Sold merchandise on credit. The transaction involved sales tax. B. Accepted a return of merchandise from a credit customer. The original sale involved sales tax. C. Received a check from a credit customer on account. (No discounts offered.) D. Sold merchandise on credit. The transaction did not involve sales tax. E. Gave an allowance to a credit customer for damaged merchandise. The original sale involved sales tax.

Answer: A. Debit Accounts Receivable; credit Sales and Sales Tax Payable B. Debit Sales Returns and Allowances and Sales Tax Payable; credit Accounts Receivable C. Debit Cash; credit Accounts Receivable D. Debit Accounts Receivable; credit Sales E. Debit Sales Returns and Allowances and Sales Tax Payable; credit Accounts Receivable Diff: 2 Topic: Understanding Merchandising Companies Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking

77) Determine the account and amount to be debited and the account and amount to be credited for the following transaction of Mario's Electronics. A. Gave a $300 allowance to a credit customer for damaged merchandise. The original sale involved a 10 percent sales tax. B. Accepted a return of $150 in merchandise from a credit customer. The original sale involved 5 percent sales tax. C. Sold $200 in merchandise for cash. The transaction involved 8 percent sales tax. D. Received a check for $50 from a credit customer on account. E. Sold $1,200 in merchandise on credit. The transaction did not involve sales tax.

Answer: A. Debit Sales Returns and Allowances $300, debit Sales Tax Payable $30; credit Accounts Receivable $330 B. Debit Sales Returns and Allowances $150, debit Sales Tax Payable $7.50; credit Accounts Receivable $157.50 C. Debit Cash $216; credit Sales $200 and credit Sales Tax Payable $16 D. Debit Cash $50; credit Accounts Receivable $50 E. Debit Accounts Receivable $1,200; credit Sales $1,200 Feedback: A. $300 + ($300 x .10) = $330 B. $150 + ($150 x .05) = $157.50 C. $200 + ($200 x .08) = $216 D. The amount includes the sales tax, which has already been recorded E. The transaction did not involve sales tax. Diff: 2 Topic: Understanding Merchandising Companies Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking

78) The general journal for Allie's Bakery is shown below. Describe how the amounts would be posted to the accounts receivable subsidiary ledger accounts. GENERAL JOURNAL DATE DESCRIPTION 2019 Aug 10 Accounts Receivable/K. Bourges Sales Tax Payable Sales Sales slip 711 15 Accounts Receivable/T. Sanders

P.R.

PAGE 8 DEBIT

CREDIT

4,325.00 356.81 3,968.19

524.00

15 Accounts Receivable/T. Sanders Sales Tax Payable Sales Sales slip 723

524.00

18 Accounts Receivable/R. Ballard Sales Tax Payable Sales Sales slip 740

1,811.00

30 Accounts Receivable/K. Fisher Sales Tax Payable Sales Sales slip 752

765.00

43.23 480.77

149.41 1,661.59

63.11 701.89

Answer: Dr. Kierra Bourges $4,325; Dr. Tamara Sanders $524; Dr. Randy Ballard $1,811; Dr. Kara Fisher $765 Diff: 2 Topic: Special Topics in Merchandising Learning Objective: 07-04 Post from the general journal to the general ledger accounts and to the subsidiary ledger. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking

79) The general journal for Simon Company is shown below. Describe how the amounts would be posted to the accounts receivable subsidiary ledger accounts. GENERAL JOURNAL DATE DESCRIPTION 2019 Jan 1 Accounts Receivable/J. Doe Sales Tax Payable Sales Sales slip 924

P.R.

PAGE 1 DEBIT

CREDIT

3,424.00 224.00 3,200.00

8 Accounts Receivable/S. Smith Sales Tax Payable Sales Sales slip 925

1,926.00

23 Accounts Receivable/T. Trent Sales Tax Payable Sales Sales slip 926

428.00

126.00 1,800.00

28.00 400.00

Answer: Dr. J. Doe $3,424; Dr. S. Smith $1,926; Dr. T. Trent $428 Diff: 2 Topic: Special Topics in Merchandising Learning Objective: 07-04 Post from the general journal to the general ledger accounts and to the subsidiary ledger. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking

80) Bradley's Appliance Store had the following transactions during the month of May 2019. Record the transactions on page 8 of a general journal. Date Transaction May 5 Sold a refrigerator to Mary Wilson that had a retail price of $650. Sales tax of $32.50 was also charged. 6 Sold a freezer to Sam Lee. Issued sales slip for $900 plus sales tax of $45 8 Gave Mary Wilson an allowance for scratches on her refrigerator sold on May 5. Issued credit memorandum for $78.75, which includes $3.75 of sales tax 15 Sold a television to Jill Hanna. Issued sales slip for $345 plus sales tax of $17.25 20 Sold two ovens to Steve Ferguson. Issued sales slip for $ 350 plus sales tax of $17.50 25 Accepted a return of a defective o3v7en from Steve Ferguson. The oven was Copyright © Mc Graw-Hill Education.All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

25 Accepted a return of a defective oven from Steve Ferguson. The oven was originally sold on May 20. Issued credit memorandum for $183.75, which included sales tax of $8.75

Answer: GENERAL JOURNAL DATE DESCRIPTION 2019 May 5 Accounts Receivable/M. Wilson Sales Tax Payable Sales Sales on account

P.R.

PAGE 8 DEBIT

CREDIT

682.50 32.50 650.00

6 Accounts Receivable/S. Lee Sales Tax Payable Sales Sales on account

945.00

8 Sales Returns & Allow. Sales Tax Payable Accounts Rec./M. Wilson Issued Cr. Memo

75.00 3.75

15 Accounts Receivable/J. Hana Sales Tax Payable Sales Sales on account

362.25

20 Accounts Rec./S. Ferguson Sales Tax Payable Sales Sales on account

367.50

25 Sales Returns and Allow. Sales Tax Payable Accts. Rec./S. Ferguson Issued Cr. Memo

175.00 8.75

45.00 900.00

78.75

17.25 345.00

17.50 350.00

183.75

Diff: 2 Topic: Understanding Merchandising Companies Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking

81) Barnett's Electronics Store had the following transactions during the month of January 2019. Record the transactions on page 1 of a general journal. Date

Transaction Jan 4 Sold a television to Loretta Miller that had a retail price of $325. Sales tax of $16.25 was also charged. 5 Sold a DVD player to Melvin Odom. Issued sales slip for $450 plus sales tax o f $22.50. 7 Gave Loretta Miller an allowance for scratches on her television sold on Jan 4. Issued credit memorandum for $52.50, which includes $2.50 of sales tax. 14 Sold a telephone system to Ginger Robinson. Issued sales slip for $172 plus sales tax of $8.60. 19 Sold a pair of speakers to Richard Simms. Issued sales slip for $87 plus sales tax of $4.35. 24 Accepted a return of defective speakers from Richard Simms. The speakers were originally sold on Jan 19. Issued credit memorandum for $91.35, which included sales tax of $4.35.

Answer: GENERAL JOURNAL DATE DESCRIPTION 2019 Jan 4 Accounts Receivable/L. Miller Sales Tax Payable Sales Sales on account

P.R.

PAGE 1 DEBIT

CREDIT

341.25 16.25 325.00

5 Accounts Rec./M. Odom Sales Tax Payable Sales Sales on account

472.50

7 Sales Returns & Allow. Sales Tax Payable Accounts Rec./L. Miller

50.00 2.50

22.50 450.00

52.50

Answer:

Accounts Rec./L. Miller Issued Cr. Memo

52.50

14 Accounts Rec./J. Robinson Sales Tax Payable Sales Sales on account

180.60

19 Accounts Rec./R. Simms

91.35

8.60 172.00

Diff: 2 Topic: Understanding Merchandising Companies Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking

82) All That Jazz Music Store had the following transactions during the month of August 2019. Record the transactions on page 18 of a general journal. Date Transaction Aug 5 Sold a violin to Jim Stombres that had a retail price of $6,500. Sales tax of $325 was also charged. 6 Sold a trombone to Kevin Folk. Issued sales slip for $2,300 plus sales tax of $115. 8 Gave Jim Stombres an allowance for scratches on the violin sold on Aug 5. Issued credit memorandum for $105, which includes $5.00 of sales tax. 15 Sold a trumpet to Jason Streng. Issued sales slip for $3,300 plus sales tax of $165. 20 Sold a synthesizer to Samuel Jacks. Issued sales slip for $175 plus sales tax of $8.75. 25 Accepted a return of a defective synthesizer from Samuel Jacks. The synthesizer was originally sold on Aug 20. Issued credit memorandum for $183.75, which included sales tax of $8.75.

Answer: GENERAL JOURNAL DATE DESCRIPTION 2019 Aug 5 Accounts Receivable/J. Stombres Sales Tax Payable

P.R.

PAGE 18 DEBIT

CREDIT

6,825.00 325.00

Answer:

Sales Tax Payable Sales Sales on account

325.00 6,500.00

6 Accounts Receivable/K. Folk Sales Tax Payable Sales Sales on account

2,415.00

8 Sales Returns & Allow. Sales Tax Payable Accounts Rec./J. Stombres Issued Cr. Memo

100.00 5.00

15 Accounts Receivable/J. Streng Sales Tax Payable Sales Sales on account

3 300.00

20 Accounts Receivable/S. Jacks Sales Tax Payable Sales Sales on account

183.75

25 Sales Returns and Allow. Sales Tax Payable Accounts Rec./S. Jacks Issued Cr. Memo

175.00 8.75

115.00 2,300.00

105.00

165.00 3,465.00

8.75 175.00

183.75

Diff: 2 Topic: Understanding Merchandising Companies Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking

83) One of the customer accounts from the accounts receivable ledger for Paragon Consulting Services is shown below. Explain each of the entries that have been posted to this customer's subsidiary ledger account. (No explanation is needed for the beginning balance.) Miami Video Rentals DATE EXPLANATION 2019 Mar. 1 Balance 12 Sales Slip 301 15 Cash receipt 28 CM 105

P.R.

DEBIT

J1 J1 J2

CREDIT

250 1,500 50

BALANCE 1,500 1,750 250 200

Answer: Mar. 12 – Sold merchandise in the amount of $250 on credit using sales slip 301. Mar. 15 – Collected $1,500 of cash on account. Mar. 28 – Sales return or allowance in the amount of $50 issued using CM 105. Diff: 2 Topic: Understanding Merchandising Companies; Special Topics in Merchandising Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal.; 07-04 Post from the general journal to the general ledger accounts and to the subsidiary ledger. Bloom's: Analyze AACSB: Analytical Thinking AICPA: BB Critical Thinking

84) One of the customer accounts from the accounts receivable ledger for Rogers Flooring is shown below. Explain each of the entries that have been posted to this customer's subsidiary ledger account. (No explanation is needed for the beginning balance.) Montmarte Company DATE EXPLANATION 2019 Sept. 1 Balance 8 CM 406 10 Sales Slip 1001 16 Cash receipt

P.R.

DEBIT

J8 J8 J9

CREDIT

500 250 6,250

BALANCE 10,500 10,000 10,250 4,000

Answer: Sept. 8 – Sales return or allowance in the amount of $500 issued using CM 406. Sept. 10 – Sold merchandise in the amount of $250 on credit using sales slip 1001. Sept. 16 – Collected $6,250 of cash on account. Diff: 2 Topic: Understanding Merchandising Companies; Special Topics in Merchandising Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal.; 07-04 Post from the general journal to the general ledger accounts and to the subsidiary ledger. Bloom's: Analyze AACSB: Analytical Thinking AICPA: BB Critical Thinking

85) One of the customer accounts from the accounts receivable ledger for Toulouse Company is shown below. Explain each of the entries that have been posted to this customer's subsidiary ledger account. (No explanation is needed for the beginning balance.) Loutrec Company DATE EXPLANATION 2019 June 1 Balance 3 Sales Slip 1307 15 CM 202 20 Cash receipt

P.R.

DEBIT

J6 J6 J7

CREDIT

2,000 100 1,500

BALANCE 100 2,100 2,000 500

Answer: June 3 – Sold merchandise in the amount of $2,000 on credit using sales slip 1307. June 15 – Sales return or allowance in the amount of $100 issued using CM 202. June 20 – Collected $1,500 cash on account. Diff: 2 Topic: Understanding Merchandising Companies; Special Topics in Merchandising Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal.; 07-04 Post from the general journal to the general ledger accounts and to the subsidiary ledger. Bloom's: Analyze AACSB: Analytical Thinking AICPA: BB Critical Thinking

86) Selected balances from the general ledger of the All Star Video Rentals on July 31, 2019, are listed below. Use the appropriate data to prepare the Revenue section of the firm's income statement for the month ended July 31, 2019. Accounts Receivable Sales Tax Payable Sales Sales Returns and Allowances

Answer:

$12,500 1,475 32,500 3,100

ALL STAR VIDEO RENTALS Income Statement Month Ended July 31, 2019 Revenue Sales Less Sales Returns and Allowances Net Sales

$32,500 (3,100) $29,400

Diff: 1 Topic: Special Topics in Merchandising Learning Objective: 07-03 Compute and record cash discounts on sales. Bloom's: Create AACSB: Analytical Thinking AICPA: BB Critical Thinking

87) Selected balances from the general ledger of the Valley Video Rentals on May 31, 2019, are listed below. Use the appropriate data to prepare the Revenue section of the firm's income statement for the month ended May 31, 2019. Accounts Receivable Sales Tax Payable Sales Sales Returns and Allowances

Answer:

$25,000 3,950 65,000 6,200

VALLEY VIDEO RENTALS Income Statement Month Ended May 31, 2019 Revenue Sales Less Sales Returns and Allowances Net Sales

$65,000 (6,200) $58,800

Diff: 1 Topic: Special Topics in Merchandising Learning Objective: 07-03 Compute and record cash discounts on sales. Bloom's: Create AACSB: Analytical Thinking AICPA: BB Critical Thinking

88) Selected balances from the general ledger of the Loren Company on March 31, 2019, are listed below. Use the appropriate data to prepare the Revenue section of the firm's income statement for the month ended March 31, 2019. Sales Accounts Receivable Sales Returns and Allowances Sales Tax Payable

Answer:

$16,250 6,250 1,550 68

THE LOREN COMPANY Income Statement Month Ended March 31, 2019 Revenue Sales Less Sales Returns and Allowances Net Sales

$16,250 (1,550) $14,700

Diff: 1 Topic: Special Topics in Merchandising Learning Objective: 07-03 Compute and record cash discounts on sales. Bloom's: Create AACSB: Analytical Thinking AICPA: BB Critical Thinking

89) The accounts receivable ledger for Acme Auto Parts is shown below. Prepare a schedule of accounts receivable as of March 31, 2019. Alison Arngrim DATE EXPLANATION 2019 Mar. 1 Balance 2 Cash receipt Johnathan Gilbert DATE EXPLANATION 2019 Mar. 1 Balance 15 Sales Slip 100 20 Cash Receipt Matthew Laborteaux DATE EXPLANATION

P.R.

DEBIT

CREDIT

2,000

P.R.

DEBIT

J3 J3

CREDIT

1,000 2,545

P.R.

DEBIT

CREDIT

BALANCE 5,000 3,000

BALANCE 2,545 3,545 1,000

BALANCE

DATE EXPLANATION 2019 Mar. 1 Balance 25 Sales Slip 101 28 Sales Slip 102

Answer:

P.R.

DEBIT

J3 J3

CREDIT

BALANCE 500 750 2,750

250 2,000

Acme Auto Parts Schedule of Accounts Receivable March 31, 2019

Alison Arngrim Johnathan Gilbert Matthew Laborteaux Total

$3,000 1,000 2,750 $6,750

Diff: 2 Topic: Special Topics in Merchandising Learning Objective: 07-05 Prepare a schedule of accounts receivable. Bloom's: Create AACSB: Analytical Thinking AICPA: BB Critical Thinking

90) A wholesale firm reported sales with the following list prices and trade discounts. Calculate the amount the firm will use to record each sale in the general journal. Show your calculation. A. List price of $900 and trade discount of 45 percent. B. List price of $500 and trade discount of 35 percent. C. List Price of $1,600 and trade discounts of 25 and 15 percent.

Answer: A. $900 x .45 = $405; $900 - $405 = $495; B. $500 x .35 = $175; $500 - $175 = $325; C. $1,600 x .25 = $400; $1,600 - $400 = $1,200; $1,200 x .15 = $180; $1,200 - $180 = $1,020; Diff: 2 Topic: Petty Cash and Internal Controls for Cash Learning Objective: 07-02 Compute trade discounts. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking

91) A wholesale firm made sales with the following list prices and trade discounts. Calculate the amount the firm will use to record each sale in the general journal. Show your calculation and round to the nearest dollar. A. List price of $2,300 and trade discount of 40 percent. B. List price of $3,500 and trade discounts of 25 and 15 percent.

Answer: A. $2,300 x .40 = $920, $2,300 - $920 = $1,380; B. $3,500 x .25 = $875, $3,500 - $875 = $2,625; $2,625 x .15 = $394, $2,625 - $394 = $2,231; Diff: 2 Topic: Special Topics in Merchandising Learning Objective: 07-02 Compute trade discounts. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking

92) The balances of selected accounts of Casper Company on February 28, 2019, were as follows: Sales $200,000 and Sales Returns and Allowances $5,000. The firm's net sales are subject to an 8 percent sales tax. Record the payment of the sales tax payable on February 28, 2019 on page 8 of a general journal. Answer: GENERAL JOURNAL

PAGE 8

DATE DESCRIPTION 2019 Feb 28 Sales Tax Payable Cash

P.R.

DEBIT

CREDIT

15,600 15,600

Feedback: $200,000 - $5,000 = $195,000 x .08 = $15,600 Diff: 2 Topic: Special Topics in Merchandising Learning Objective: 07-06 Record the payment of sales taxes. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking

93) Match the accounting terms with the description by entering the proper letter in the space provided. A. Accounts receivable ledger B. Charge-account sales C. Contra revenue account D. Control account E. Credit Memorandum F. Invoice G. List Price

L. Net Sales M. Open-account credit N. Retail business O. Sales allowance P. Schedule of accounts receivable Q. Service business R. Subsidiary ledger 49

H. Manufacturing business I. Merchandise inventory J. Merchandising business K. Net price

S. Wholesale business

1. A subsidiary ledger that contains credit customer accounts ___ 2. An account with a debit balance, which is contrary to the normal balance for a revenue account ___ 3. A note verifying that a customer's account is being reduced by the amount of a sales return or sales allowance plus any sales tax that may have been involved ___ 4. A ledger dedicated to accounts of a single type and showing details to support a general ledger account ___ 5. A business that sells services ___ 6. The list price less all trade discounts ___ 7. The stock of goods a merchandising business keeps on hand ___ 8. A system that allows the sale of services or goods with the understanding that payment will be made at a later date ___ 9. A reduction in the price originally charged to customers for goods or services ___ 10. An established retail price ___ 11. A business that manufactures goods for or distributes goods to retail businesses or large consumers such as hotels and hospitals 12. The difference between the balance in the Sales account and the balance in the Sales Returns and Allowances account 13. An account that links a subsidiary ledger and the general ledger since its balance summarizes the balances of the accounts in the subsidiary ledger ___ 14. A customer billing for merchandise bought on credit ___ 15. A business that sells goods purchased for resale ___ 16. A business that sells directly to individual consumers ___ 17. A business that sells goods that it has produced 18. Sales made through the use of open-account credit or one of various types of credit cards ___ 19. A listing of all balances of the accounts in the accounts receivable subsidiary ledger

Answer: (1) A, (2) C, (3) E, (4) R, (5) Q, (6) K, (7) I, (8) M, (9) O, (10) G, (11) S, (12) L, (13) D, (14) F, (15) J, (16) N, (17) H, (18) B, (19) P; Diff: 2 Topic: Understanding Merchandising Companies; Special Topics in Merchandising Learning Objective: 07-01 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal.; 07-02 Compute trade discounts.; 07-03 Compute and record cash discounts on sales.; 07-04 Post from the general journal to the general ledger accounts and to the subsidiary ledger.; 07-05 Prepare a schedule of accounts receivable.; 07-07 Define the accounting terms new to this chapter. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Critical Thinking

Chapter 08 Accounting for Purchases, Accounts Payable, and Cash Payments MULTIPLE CHOICE QUESTIONS 1) When a sales department needs goods, it sends the purchasing department a purchase invoice. A) True B) False Answer: B Explanation: Diff: 1 Topic: Merchandising Purchases Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Critical Thinking

2) A receiving report is prepared to show the quantity and condition of goods received. A) True B) False Answer: A Explanation: Diff: 1 Topic: Merchandising Purchases Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Critical Thinking

3) The supplier's invoice is the source document for a purchase on credit transaction. A) True B) False Answer: A Explanation: Diff: 1 Topic: Merchandising Purchases Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Critical Thinking

4) Purchase Discounts is a contra expense account with a normal credit balance. A) True B) False Answer: A Explanation: Diff: 1 Topic: Merchandising Purchases Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Critical Thinking

5) A purchase allowance is when a business returns goods to the seller. A) True B) False Answer: B Explanation: Diff: 1 Topic: Merchandising Purchases Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Critical Thinking

6) The accounts payable ledger provides information about the individual accounts for all creditors. A) True B) False Answer: A Explanation: Diff: 1 Topic: Accounts Payable Learning Objective: 08-04 Post transactions to the accounts payable subsidiary ledger. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Critical Thinking

7) When an accounts payable subsidiary ledger is used, the entry to Accounts Payable requires two posting references in the general journal. A) True B) False Answer: A Explanation: Diff: 2 Topic: Accounts Payable Learning Objective: 08-04 Post transactions to the accounts payable subsidiary ledger. Bloom's: Remember AACSB: Analytical Thinking AICPA: FN Reporting

8) A firm's accounts payable ledger may include accounts for creditors who are not suppliers of merchandise. A) True B) False Answer: A Explanation: Diff: 2 Topic: Accounts Payable Learning Objective: 08-04 Post transactions to the accounts payable subsidiary ledger. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry

9) A balance that is circled in the accounts payable ledger is a credit balance. A) True B) False Answer: B Explanation: Diff: 2 Topic: Accounts Payable Learning Objective: 08-04 Post transactions to the accounts payable subsidiary ledger. Bloom's: Remember AACSB: Analytical Thinking AICPA: FN Reporting

10) A schedule of accounts payable is a list of all balances owed to creditors. A) True B) False Answer: A Explanation: Diff: 1 Topic: Accounts Payable Learning Objective: 08-05 Prepare a schedule of accounts payable. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Critical Thinking

11) Assuming a periodic inventory system is used, the entry to record the return of merchandise purchased on credit includes a debit to Accounts Payable and a credit to Purchases Returns and Allowances. A) True B) False Answer: A Explanation: Diff: 2 Topic: Merchandising Purchases Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Bloom's: Understand AACSB: Analytical Thinking AICPA: FN Reporting

12) If an amount recorded in the general journal requires two postings, a diagonal line is used in the posting reference column to separate the two posting references. A) True B) False Answer: A Explanation: Diff: 1 Topic: Accounts Payable Learning Objective: 08-04 Post transactions to the accounts payable subsidiary ledger. Bloom's: Remember AACSB: Analytical Thinking AICPA: FN Reporting

13) The Purchases Returns and Allowances account has a normal debit balance. A) True B) False Answer: B Explanation: Diff: 1 Topic: Merchandising Purchases Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: FN Reporting

14) Assuming a periodic inventory system is used, Freight In and Purchases Returns and Allowances are deducted from Purchases to determine the net delivered cost of purchases. A) True B) False Answer: B Explanation: Diff: 2 Topic: Merchandising Purchases Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal.; 08-02 Compute the net delivered cost of purchases. Bloom's: Remember AACSB: Analytical Thinking AICPA: FN Reporting

15) If a business uses pre-numbered purchase orders, it is not necessary to account for every purchase order. A) True B) False Answer: B Explanation: Diff: 2 Topic: Accounts Payable Learning Objective: 08-06 Demonstrate a knowledge of the procedures for effective internal control of purchases. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

SHORT ANSWER QUESTIONS 16) When a sales department needs goods, it sends a form called a(n) department. Answer: purchase requisition Explanation:

to the purchasing

Diff: 2 Topic: Merchandising Purchases Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

17) The discounts that are offered by suppliers to encourage quick payment of invoices by customers are known as ________ discounts. Answer: cash; purchase Explanation: Diff: 1 Topic: Merchandising Purchases Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

18) The Freight In account has a(n) normal ________ balance. Answer: debit Explanation: Diff: 1 Topic: Merchandising Purchases Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

19) The ________ is the cost to the business of the merchandise sold to customers. Answer: cost of goods sold Explanation: Diff: 1 Topic: Merchandising Purchases Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Critical Thinking

20) The form sent to the supplier to order goods is called a(n) ________. Answer: purchase order Explanation: Diff: 1 Topic: Merchandising Purchases Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

21) Since they are liability accounts, creditors' accounts in the accounts payable ledger normally have ________ balances. Answer: credit Explanation: Diff: 1 Topic: Accounts Payable Learning Objective: 08-04 Post transactions to the accounts payable subsidiary ledger. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Reporting

22) Assuming a periodic inventory system is used, purchases returns and allowances are recorded in the general journal as a debit to Accounts Payable and a credit to ________. Answer: Purchases returns and allowances Explanation: Diff: 1 Topic: Merchandising Purchases Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Reporting

23) An allowance received from a creditor is posted to the Answer: debit Explanation:

column of the creditor's account.

Diff: 1 Topic: Merchandising Purchases Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Reporting

24) The entry to record a return of merchandise purchased on credit includes a debit to the ________ account in the general ledger. Answer: Accounts Payable Explanation: Diff: 1 Topic: Merchandising Purchases Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Reporting

25) After damaged goods are returned, the supplier issues a(n) ________ memorandum. Answer: credit Explanation: Diff: 1 Topic: Merchandising Purchases Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Critical Thinking

26) The Purchases Returns and Allowances account is a(n) ________ cost of goods sold account. Answer: contra Explanation: Diff: 1 Topic: Merchandising Purchases Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

27) A list of creditors and the balances owed to them is called a

Answer: schedule of accounts payable Explanation: Diff: 1 Topic: Accounts Payable Learning Objective: 08-05 Prepare a schedule of accounts payable. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

28) When an accounts payable subsidiary ledger is used, the Accounts Payable account in the general ledger becomes a(n) ________ account. Answer: control Explanation: Diff: 1 Topic: Accounts Payable Learning Objective: 08-04 Post transactions to the accounts payable subsidiary ledger. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Reporting

29) In a small firm, the creditor accounts are placed in

order in the accounts payable ledger.

Answer: alphabetical Explanation: Diff: 1 Topic: Accounts Payable Learning Objective: 08-04 Post transactions to the accounts payable subsidiary ledger. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry

30) Good internal control requires a ________ of duties. Answer: separation Explanation: Diff: 1 Topic: Accounts Payable Learning Objective: 08-06 Demonstrate a knowledge of the procedures for effective internal control of purchases. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

MULTIPLE CHOICE QUESTIONS 31) Purchases is a temporary ________ account. A) revenue B) expense Answer: B Explanation: A) B) C) D)

C) asset

D) liability

Diff: 2 Topic: Merchandising Purchases Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Bloom's: Understand AACSB: Analytical Thinking AICPA: FN Decision Making

32) Which of the following statements is correct? A) To the customer, a supplier's invoice is a sales invoice. B) The credit terms, 2/10, n/30, allow the customer to take a 2 percent discount if payment is made within 10 days of the invoice, otherwise payment is due in full in 30 days. C) The purchase requisition is the form sent to a supplier to order goods. D) The Purchases account is reported as an asset on the balance sheet. Answer: B Explanation: A) B) C) D) Diff: 2 Topic: Merchandising Purchases Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Bloom's: Understand AACSB: Analytical Thinking AICPA: FN Decision Making

33) When merchandise is ordered, the purchasing department issues a form called: A) a purchase requisition. B) a sale invoice. C) a purchase order. D) a purchase invoice. Answer: C Explanation: A) B) C) D) Diff: 1 Topic: Merchandising Purchases Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

34) Assuming a periodic inventory system is used, the entry to record a purchase of merchandise on credit includes: A) a debit to Purchases and a credit to Accounts Payable. B) a debit to Purchases and a credit to Accounts Receivable. C) a debit to Accounts Payable and a credit to Purchases. D) a credit to Purchases and a credit to Accounts Payable. Answer: A Explanation: A) B) C) D) Diff: 1 Topic: Merchandising Purchases Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Bloom's: Understand AACSB: Analytical Thinking AICPA: FN Reporting

35) Assuming a periodic inventory system is used, freight charges on merchandise purchases should be debited to: A) the Accounts Payable account. B) the Freight In account. C) the Purchases account. D) the creditor's account in the subsidiary ledger. Answer: B Explanation: A) B) C) D) Diff: 1 Topic: Merchandising Purchases Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

36) The Purchases account is: A) a permanent account. C) a subsidiary account. Answer: B Explanation: A) B) C) D)

B) a temporary account. D) a liability account.

Diff: 1 Topic: Merchandising Purchases Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

37) Freight – In is a(n) ________ account. A) liability B) revenue Answer: C Explanation: A) B) C) D)

C) expense

D) asset

38) The source document for recording a purchase of merchandise on credit is: A) the receiving report. B) the purchase invoice. C) the purchase requisition. D) the purchase order. Answer: B Explanation: A) B) C) D) Diff: 1 Topic: Merchandising Purchases Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Critical Thinking

39) Assuming a periodic inventory system is used, purchases of supplies on credit that are to be used in the business are debited to: A) supplies. B) accounts receivable. C) purchases. D) accounts payable. Answer: A Explanation: A) B) C) D) Diff: 1 Topic: Merchandising Purchases Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: FN Reporting

40) When the sales department needs merchandise, it sends the purchasing department a form called: A) a purchase order. B) a sales invoice. C) a purchase requisition. D) a purchase invoice. Answer: C Explanation: A) B) C) D) Diff: 1 Topic: Merchandising Purchases Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

41) When a payment is due is determined by the invoice date and the: A) credit terms. B) delivery date. C) accounting cycle. D) transportation schedule. Answer: A Explanation: A) B) C) D) Diff: 1 Topic: Merchandising Purchases Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

42) The total of the individual creditor accounts in the subsidiary ledger must ________ the balance of the Accounts Payable control account. A) be greater than B) be less than C) be subtracted from D) be equal to Answer: D Explanation: A) B) C) D) Diff: 1 Topic: Accounts Payable Learning Objective: 08-05 Prepare a schedule of accounts payable. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

43) The objective of internal control of purchases is to: A) create a disciplined work environment. B) create more organized invoices. C) make the sales process more complex. D) create written proof that purchases and payments are authorized. Answer: D Explanation: A) B) C) D) Diff: 1 Topic: Accounts Payable Learning Objective: 08-06 Demonstrate a knowledge of the procedures for effective internal control of purchases. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

44) Which of the following statements is correct? A) The person who ordered the goods should also authorize payment. B) Purchase requisitions do not need to be printed on pre-numbered forms. C) Purchases should be made only after receiving proper written authorization. D) Calculations on an invoice are assumed to be correct if computer generated. Answer: C Explanation: A) B) C) D) Diff: 1 Topic: Merchandising Purchases; Accounts Payable Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal.; 08-06 Demonstrate a knowledge of the procedures for effective internal control of purchases. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry

45) Credit terms of 1/10, n/30 mean: A) payment in full is due 30 days after date of the invoice with no discounts offered. B) payment in full is due 10 days after date of the invoice. C) if the invoice is paid within 10 days of its date, a 1% discount may be taken; otherwise the total amount is due in 20 days. D) if the invoice is paid within 10 days of its date, a 1% discount may be taken; otherwise the total amount is due in 30 days. Answer: D Explanation:

A) B) C) D)

Diff: 1 Topic: Merchandising Purchases Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry

46) Credit terms of 2/10, n/45 mean: A) payment in full is due 2 days after date of the invoice. B) payment in full is due 45 days after date of the invoice with no discount offered. C) if the invoice is paid within 10 days of its date, a 2% discount may be taken; otherwise the total amount is due in 45 days. D) if the invoice is paid within 10 days of its date, a 2% discount may be taken; otherwise the total amount is due in 35 days. Answer: C Explanation: A) B) C) D) Diff: 1 Topic: Merchandising Purchases Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry

47) Postings to the accounts payable ledger should be made: A) daily. B) monthly. C) at the end of the fiscal period. D) weekly. Answer: A Explanation: A) B) C) D) Diff: 1 Topic: Accounts Payable Learning Objective: 08-04 Post transactions to the accounts payable subsidiary ledger. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

48) Which of the following statements is correct? A) Purchases Discounts is an asset account with a normal credit balance. B) Purchases Discounts is a revenue account with a normal credit balance. C) Purchases Discounts is a contra expense account with a normal credit balance. D) Purchases Discounts is an expense account with a normal debit balance. Answer: C Explanation: A) B) C) D) Diff: 1 Topic: Merchandising Purchases Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry

49) Assuming a periodic inventory system is used, the entry to record a return of merchandise purchased on credit would: A) debit Purchases Returns and Allowances and credit Accounts Receivable. B) debit Accounts Payable and credit Purchases Returns and Allowances. C) debit Purchases Returns and Allowances and credit Purchases. D) debit Purchases and credit Purchases Returns and Allowances. Answer: B Explanation: A) B) C) D) Diff: 1 Topic: Merchandising Purchases Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Bloom's: Understand AACSB: Analytical Thinking AICPA: FN Reporting

50) The total of the balances in the creditors' accounts should agree with the balance of: A) the Sales account in the general ledger. B) the Accounts Receivable account in the general ledger. C) the Accounts Payable account in the general ledger. D) the Purchases account in the general ledger. Answer: C Explanation: A) B) C) D) Diff: 1 Topic: Accounts Payable Learning Objective: 08-05 Prepare a schedule of accounts payable. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Critical Thinking

51) Assuming a periodic inventory system is used, identify the statement below that is correct? A) Freight charges that are listed on the invoice received from a supplier are not part of the total credit to Accounts Payable to record the credit purchase. B) Freight In is subtracted from Purchases to arrive at delivered cost of purchases. C) Another name that may be used for the Freight In account is "Transportation In." D) None of these statements are correct. Answer: C Explanation: A) B) C) D) Diff: 1 Topic: Merchandising Purchases Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: FN Decision Making

52) The amount of the purchases for a period is presented in: A) the Liabilities section of the balance sheet. B) the Operating Expenses section of the income statement. C) the Revenue section of the income statement. D) the Cost of Goods Sold section of the income statement. Answer: D Explanation: A) B) C) D) Diff: 1 Topic: Merchandising Purchases Learning Objective: 08-02 Compute the net delivered cost of purchases. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

53) A firm had purchases of $18,400, freight charges of $600, and purchases returns and allowances of $850 during one month. Its net delivered cost of purchases was: A) $18,150. B) $16,950. C) $18,650. D) $19,850. Answer: A Explanation:

A) $18,400 + $600 - $850 = $18,150 B) $18,400 + $600 - $850 = $18,150 C) $18,400 + $600 - $850 = $18,150 D) $18,400 + $600 - $850 = $18,150

Diff: 3 Topic: Merchandising Purchases Learning Objective: 08-02 Compute the net delivered cost of purchases. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking

54) Hugh Snow, the buyer, returned merchandise to Farley Co., the seller. The entry on the books of Hugh Snow to record the return of merchandise assuming a periodic inventory system is used, would include a: A) Credit to Account Receivable. B) Debit to Sales Returns and Allowances. C) Credit to Purchase Returns and Allowances. D) Credit to Accounts Payable. Answer: C Explanation: A) Debit Accounts Payable; credit Purchase Returns and Allowances B) Debit Accounts Payable; credit Purchase Returns and Allowances C) Debit Accounts Payable; credit Purchase Returns and Allowances D) Debit Accounts Payable; credit Purchase Returns and Allowances Diff: 2 Topic: The Perpetual Inventory System Learning Objective: 08-07 Appendix: Record transactions for a retailer using the perpetual inventory system. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Decision Making

55) Assuming a periodic inventory system, the journal entry to record the purchase on account of $900 of merchandise with freight of $65 prepaid and added to the invoice is: A) debit Purchases $900, debit Freight in $65; credit Accounts Payable $965. B) debit Purchases $965; credit Accounts Payable $965. C) debit Accounts Receivable $965; credit Sales $965. D) debit Accounts Payable $965, debit Freight in $65; credit Purchases $900. Answer: A Explanation: A) $900 + $65 = $965 B) $900 + $65 = $965 C) $900 + $65 = $965 D) $900 + $65 = $965 Diff: 2 Topic: Merchandising Purchases Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Decision Making

56) Assuming a periodic inventory system is used, the journal entry to record the purchase of merchandise on account for $2,750 with freight of $125 prepaid and added to the invoice is: A) debit Purchases $2,750, debit Freight In $125; credit Accounts Payable $2,875. B) debit Accounts Receivable $2,875; credit Sales $2,875. C) debit Accounts Payable $2,875, credit Freight in $125; credit Purchases $2,750. D) debit Purchases $2,750; credit Accounts Payable $2,750. Answer: A Explanation: A) $2,750 + $125 = $2,875 B) $2,750 + $125 = $2,875 C) $2,750 + $125 = $2,875 D) $2,750 + $125 = $2,875 Diff: 2 Topic: Merchandising Purchases Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Decision Making

57) Tune Tones Instrument Tuning Company owes Mandy Lynn's Music Studio $6,854 as of November 1. During November, Tune Tones purchased merchandise from Mandy Lynn totaling $9,548 and made payments on account to Mandy Lynn in the amount of $7,250. The amount Tune Tones owes Mandy Lynn on November 30 is: A) $6,854. B) $9,548. C) $4,556. D) $9,152. Answer: D Explanation:

A) $6,854 + $9,548 - $7,250 = $9,152 B) $6,854 + $9,548 - $7,250 = $9,152 C) $6,854 + $9,548 - $7,250 = $9,152 D) $6,854 + $9,548 - $7,250 = $9,152

Diff: 2 Topic: Merchandising Purchases; Accounts Payable Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal.; 08-04 Post transactions to the accounts payable subsidiary ledger. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Decision Making

58) Nadal, Inc. owes Wozniaki Company $12,860 as of April 1. During April, Nadal, Inc. purchased $14,280 of merchandise from Wozniaki Company and made payments on account to Wozniaki Company totaling $9,160. The amount Nadal, Inc. owes Wozniaki Company on April 30 is: A) $77,400. B) $91,600. C) $12,860. D) $17,980. Answer: D Explanation:

A) $12,860 + $14,280 - $9,160 = $17,980 B) $12,860 + $14,280 - $9,160 = $17,980 C) $12,860 + $14,280 - $9,160 = $17,980 D) $12,860 + $14,280 - $9,160 = $17,980

59) If a business pays $1,100 on account to a creditor, the effect of the payment is a decrease to cash and a: A) decrease to accounts receivable. B) decrease to Fees Income. C) decrease to accounts payable. D) increase of capital. Answer: C Explanation:

A) B) C) D)

Diff: 2 Topic: Merchandising Purchases Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Decision Making

60) Which of the following accounts has a normal debit balance? A) Purchases B) Accounts Payable C) Purchase Returns D) Sales Answer: A Explanation: A) B) C) D) Diff: 2 Topic: Merchandising Purchases Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Decision Making

61) During March a firm purchased $22,650 of merchandise and paid freight charges of $1,720. If the net delivered cost of purchases for the March is $21,900, what is the total purchase returns for March? A) $2,470 B) $3,440 C) $0 D) $970 Answer: A Explanation:

A) $22,650 + $1,720 - $21,900 = $2,470 B) $22,650 + $1,720 - $21,900 = $2,470 C) $22,650 + $1,720 - $21,900 = $2,470 D) $22,650 + $1,720 - $21,900 = $2,470

Diff: 3 Topic: Merchandising Purchases Learning Objective: 08-02 Compute the net delivered cost of purchases. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Decision Making

62) During the year, a firm purchased $256,900 of merchandise and paid freight charges of $36,870. If the total purchases returns and allowances were $13,690 and purchase discounts were $9,160 for the year, what is the net delivered cost of purchases? A) $270,920 B) $298,300 C) $289,240 D) $197,180 Answer: A Explanation:

A) $256,900 + $36,870 - $13,690 - $9,160 = $270,920 B) $256,900 + $36,870 - $13,690 - $9,160 = $270,920 C) $256,900 + $36,870 - $13,690 - $9,160 = $270,920 D) $256,900 + $36,870 - $13,690 - $9,160 = $270,920

Diff: 2 Topic: Merchandising Purchases Learning Objective: 08-02 Compute the net delivered cost of purchases. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Decision Making

63) During the year, a firm purchased $56,970 of merchandise and paid freight charges of $12,680. If the total purchases returns and allowances were $6,495 and purchase discounts were $2,050 for the year, what is the net delivered cost of purchases? A) $69,650 B) $61,105 C) $72,349 D) $35,745 Answer: B Explanation:

A) $56,970 + $12,680 - $6,495 - $2,050 = $61,105 B) $56,970 + $12,680 - $6,495 - $2,050 = $61,105 C) $56,970 + $12,680 - $6,495 - $2,050 = $61,105 D) $56,970 + $12,680 - $6,495 - $2,050 = $61,105

Diff: 2 Topic: Merchandising Purchases Learning Objective: 08-02 Compute the net delivered cost of purchases. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Decision Making

64) On Oct 1, Jerry's Lighting purchased merchandise with a list price of $5,000 with credit terms of 1/10, n/30. On Oct 3, Jerry's returns $500 of the merchandise. Assuming a periodic inventory system is used and Jerry's pays the remaining amount owed on the purchase within the discount period, Jerry's journal entry to record the payment, would include: A) a debit to Merchandise Inventory for $45. B) a debit to Accounts Payable for $4,500. C) a credit to Purchase Discounts for $45. D) a debit to Accounts Receivable for $4,500. Answer: B Explanation: A) $5,000 - $500 = $4,500; $4,500 × .01 = $45 disc.; $4,500 - $45 = $4,455 cash payment B) $5,000 - $500 = $4,500; $4,500 × .01 = $45 disc.; $4,500 - $45 = $4,455 cash payment C) $5,000 - $500 = $4,500; $4,500 × .01 = $45 disc.; $4,500 - $45 = $4,455 cash payment D) $5,000 - $500 = $4,500; $4,500 × .01 = $45 disc.; $4,500 - $45 = $4,455 cash payment Diff: 2 Topic: The Perpetual Inventory System Learning Objective: 08-07 Appendix: Record transactions for a retailer using the perpetual inventory system. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking; BB Industry; FN Measurement

65) On April 5, Fair Coffee, Inc. purchased merchandise with a list price of $1,000 and credit terms 2/10, n/30. On April 6, Fair Coffee returns $200 of the merchandise. Assuming Fair Coffee uses a perpetual inventory system, their journal entry on April 5, to record the purchase, would include: A) a debit to Accounts Payable for $1,000. B) a debit to Merchandise Inventory for $1,000. C) a credit to Merchandise Inventory for $16. D) a debit to Purchases for $1,000. Answer: B Explanation:

A) B) C) D)

Diff: 2 Topic: The Perpetual Inventory System Learning Objective: 08-07 Appendix: Record transactions for a retailer using the perpetual inventory system. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking; BB Industry; FN Measurement

66) On April 5, Fair Coffee, Inc. purchased merchandise with a list price of $1,000 and credit terms 2/10, n/30. On April 6, Fair Coffee returns $200 of the merchandise. Assuming Fair Coffee uses a perpetual inventory system, the journal entry on April 13, to record the payment of the amount owed, would be: DEBIT 1,000

A) Accounts Payable Cash

1,000

B) Accounts Reveivable Sales Discounts Cash

1,000

C) Accounts Payable Merchandise Inventory Cash

800

D) Accounts Payable Purchase Discounts Cash

800

A) Option A. Answer: C Explanation:

CREDIT

16 984

16 784

B) Option B.

C) Option C.

D) Option D.

A) ($1,000 - $200 = $800); $800 x .02 = $16 disc. $800 - $16= $784 pmt. B) ($1,000 - $200 = $800); $800 x .02 = $16 disc. $800 - $16= $784 pmt. C) ($1,000 - $200 = $800); $800 x .02 = $16 disc. $800 - $16= $784 pmt. D) ($1,000 - $200 = $800); $800 x .02 = $16 disc. $800 - $16= $784 pmt.

67) On April 5, Fair Coffee, Inc. purchased merchandise with a list price of $1,000 and credit terms 2/10, n/30. On April 6, Fair Coffee returns $200 of the merchandise. Assuming Fair Coffee uses a perpetual inventory system, the journal entry on April 6, to record the return, would be: DEBIT 200

A) Accounts Payable Cash

200

B) Accounts Payable Purchase Returns and Allowances

200

C) Purchase Returns and Allowances Accounts Payable

200

D) Accounts Payable Merchandise Inventory

200

A) Option A. Answer: D Explanation: A) B) C) D)

CREDIT

200

B) Option B.

C) Option C.

D) Option D.

68) On Feb 16, Gourmet Cakes purchased $20,000 of merchandise on account from JB Baking. Credit terms of the purchase were 2/10, n/30. On Feb 24, Gourmet Cakes pays the amount owed. Assuming Gourmet Cakes uses a perpetual inventory system, the journal entry on Feb 24, to record the payment, would be:

A) Accounts Payable/JB Baking Inventory Cash

DEBIT CREDIT 20,000 Merchandise 400 19,600

B) Accounts Payable/JB Baking Sales Discounts

19,600 400 27

Cash

20,000

C) Accounts Payable/JB Baking Cash

19,600

D) Accounts Payable/JB Baking Purchase Discounts Cash

20,000

19,600

400 19,600

A) Option A. B) Option B. C) Option C. D) Option D. Answer: A Explanation: A) ($20,000 × .02 = $400 disc.) $20,000 - $400 = $19,600 pmt. B) ($20,000 × .02 = $400 disc.) $20,000 - $400 = $19,600 pmt. C) ($20,000 × .02 = $400 disc.) $20,000 - $400 = $19,600 pmt. D) ($20,000 × .02 = $400 disc.) $20,000 - $400 = $19,600 pmt. Diff: 2 Topic: The Perpetual Inventory System Learning Objective: 08-07 Appendix: Record transactions for a retailer using the perpetual inventory system. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking; BB Industry; FN Decision Making

69) On Jan. 3, Gourmet Cakes sold $15,000 of merchandise, on account with terms 2/10, n/30, to Jerry Hines. Assuming that the original cost of the merchandise to Gourmet Cakes was $4,000 and the perpetual inventory system is used, the journal entry on Jan. 3, to record the sale, would be: DEBIT 15,000

A) Sales Accounts Receivable/J.Hines

CREDIT 15,000

B) Accounts Receivable/J.Hines Sales Cost of Goods Sold Merchandise Inventory

15,000

C) Accounts Payable/J.Hines Sales Merchandise Inventory Cost of Goods Sold

15,000

D) Accounts Receivable/J.Hines Sales

15,000

15,000 4,000 4,000

11,000 28

Cost of Goods Sold

A) Option A. Answer: B Explanation: A) B) C) D)

4,000

B) Option B.

C) Option C.

D) Option D.

70) On Jan. 3, Gourmet Cakes sold $15,000 of merchandise on account to Jerry Hines. On Jan. 10, Jerry returned $2,000 of the merchandise because they bought too much. Assuming the cost of the returned merchandise to Gourmet Cakes was $500 and they use a perpetual inventory system, the journal entry on Jan. 10, to record the return of the merchandise from Jerry Hines, would be: DEBIT 2,000

A) Sales Returns and Allowances Accounts Payable

2,000

B) Accounts Receivable Sales Returns and Allowances

2,000

C) Sales Returns and Allowances Accounts Receivable/J.Hines Merchandise Inventory Cost of Goods Sold

2,000

D) Sales Accounts Receivable/J.Hines Cost of Goods Sold

2,000

A) Option A. Answer: C Explanation:

2,000

2,000 500 500

1,500 500

B) Option B. A) B)

CREDIT

C) Option C.

D) Option D.

B) C) D) Diff: 2 Topic: The Perpetual Inventory System Learning Objective: 08-07 Appendix: Record transactions for a retailer using the perpetual inventory system. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking; BB Industry; FN Decision Making

71) Tune Tones Instrument Tuning Company owes Mandy Lynn's Music Studio $6,854 as of November 1. During November, Tune Tones purchased merchandise from Mandy Lynn totaling $9,548 and owes Mandy Lynn $9,152 on November 30, the total payments made by Tune Tones to Mandy Lynn during November: A) $7,250. B) $9,548. C) $6,854. D) $9,152. Answer: A Explanation:

A) $6,854 + $9,548 - $9,152 = $7,250 B) $6,854 + $9,548 - $9,152 = $7,250 C) $6,854 + $9,548 - $9,152 = $7,250 D) $6,854 + $9,548 - $9,152 = $7,250

72) On Sept. 1, Jerry's Lighting purchased merchandise with a list price of $7,600 with credit terms of 1/10, n/30. On Sept. 3, Jerry's returns $900 of the merchandise. If payment is made within the discount period, the total amount paid by Jerry's Lighting is: A) 6,700. B) 6,633. C) 7,600. D) 7,524. Answer: B Explanation:

A) $7,600 - $900 = $6,700; $6,700 x .01 = $67 disc.; $6,700 - $67 = $6,633 cash payment B) $7,600 - $900 = $6,700; $6,700 x .01 = $67 disc.; $6,700 - $67 = $6,633 cash payment C) $7,600 - $900 = $6,700; $6,700 x .01 = $67 disc.; $6,700 - $67 = $6,633 cash payment D) $7,600 - $900 = $6,700; $6,700 x .01 = $67 disc.; $6,700 - $67 = $6,633 cash payment

73) On Sept. 1, Jerry's Lighting purchased merchandise with a list price of $12,500 with credit terms of 3/5, n/60. On Sept. 3, Jerry's returns $1,300 of the merchandise. If payment is made within the discount period, the total amount paid by Jerry's Lighting is: A) 10,864. B) 10,640. C) 11,200. D) 12,125. Answer: A Explanation:

A) $12,500 - $1,300 = $11,200; $11,200 x .03 = $336 disc.; $11,200 - $336 = $10,864 cash payment B) $12,500 - $1,300 = $11,200; $11,200 x .03 = $336 disc.; $11,200 - $336 = $10,864 cash payment C) $12,500 - $1,300 = $11,200; $11,200 x .03 = $336 disc.; $11,200 - $336 = $10,864 cash payment D) $12,500 - $1,300 = $11,200; $11,200 x .03 = $336 disc.; $11,200 - $336 = $10,864 cash payment

74) On Sept. 1, Jerry's Lighting purchased merchandise with a list price of $12,500 with credit terms of 2/10, n/30; freight of $400 prepaid and added to the invoice. On Sept. 3, Jerry's returns $1,300 of the merchandise. If payment is made within the discount period, the total amount paid by Jerry's Lighting is: A) 10,640. B) 11,264. C) 11,600. D) 11,368. Answer: B Explanation:

A) $12,500 - $1,300 = $11,200; $11,200 x .03 = $336 disc.; $11,200 - $336 + $400 = $11,264 cash payment B) $12,500 - $1,300 = $11,200; $11,200 x .03 = $336 disc.; $11,200 - $336 + $400 = $11,264 cash payment C) $12,500 - $1,300 = $11,200; $11,200 x .03 = $336 disc.; $11,200 - $336 + $400 = $11,264 cash payment D) $12,500 - $1,300 = $11,200; $11,200 x .03 = $336 disc.; $11,200 - $336 + $400 = $11,264 cash payment

ESSAY QUESTIONS 75) Explain each of the following credit terms. A) n/30 B) n/10 EOM C) 2/10, n/30 D) 1/10, n/20 E) 3/5, n/30 Answer: A) Net amount of the invoice is due 30 days after the date of the invoice. B) The amount of the invoice is due 10 days after the end of the month in which the invoice is issued. C) If the invoice is paid within 10 days of its date, a 2% discount may be taken; otherwise, the total amount is due in 30 days. D) If the invoice is paid within 10 days of its date, a 1% discount may be taken; otherwise the total amount is due in 20 days. E) If payment is made within 5 days of its date, a 3% discount may be taken; otherwise the total amount is due in 30 days. Diff: 1 Topic: Merchandising Purchases Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Bloom's: Analyze AACSB: Analytical Thinking AICPA: BB Critical Thinking

76) On June 1, Lulu's Performing Arts School purchased merchandise with a list price of $6,000 from Monty's Inc. with credit terms 2/10, n/30. On June 3, Lulu's returns $800 of the merchandise. Compute the amount owed by Lulu's if the store pays within the discount period. Answer: List Price: Less purchase return Difference Less discount ($5,200 x 2%) Amount paid:

$ 6,000 (800) 5,200 (104) $5,096

Diff: 2 Topic: Merchandising Purchases Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Bloom's: Analyze AACSB: Analytical Thinking AICPA: FN Decision Making

77) Assuming a periodic inventory system, determine the account to be debited and the account to be credited for the following transactions of Drummond Contracting during the month. A) Purchased merchandise on terms of net 30 days. B) Returned some damaged merchandise to a supplier and received a credit memorandum. C) Issued a check to a supplier as a payment on account. D) Received an allowance for some merchandise that was slightly damaged but can be sold at a reduced price and received a credit memorandum. E) Purchased merchandise on terms of 2/10, n/30. The supplier's invoice includes a freight charge Answer: A) Debit Purchases; credit Accounts Payable B) Debit Accounts Payable; credit Purchases Returns and Allowances C) Debit Accounts Payable; credit Cash D) Debit Accounts Payable; credit Purchases Returns and Allowances E) Debit Purchases and Freight In; credit Accounts Payable Diff: 2 Topic: Merchandising Purchases Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Bloom's: Analyze AACSB: Analytical Thinking AICPA: FN Decision Making

78) Assuming a periodic inventory system, determine the account to be debited and the account to be credited for the following transactions of Hughly Office Supplies during the month. A) Issued a check to a supplier as a payment on account. (No discounts offered.) B) Purchased merchandise; the supplier's invoice, which includes a freight charge, has payment terms of 2/10, n/30. C) Returned some damaged merchandise to a supplier and received a credit memorandum. D) Received an allowance for some merchandise that was slightly damaged but can be sold at a reduced price; received a credit memorandum. E) Purchased merchandise on terms of net 30 days. Answer: A) Debit Accounts Payable; credit Cash B) Debit Purchases and Freight In; credit Accounts Payable C) Debit Accounts Payable; credit Purchases Returns and Allowances D) Debit Accounts Payable; credit Purchases Returns and Allowances E) Debit Purchases; credit Accounts Payable Diff: 2 Topic: Merchandising Purchases Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Bloom's: Analyze AACSB: Analytical Thinking AICPA: FN Decision Making

79) The Lone Cactus Nursery has the following general ledger account balances as of August. Purchases $56,211 Freight In 3,000 Purchases Returns and Allowances 500 Purchases Discounts 300 Calculate the net delivered cost of purchases for August. Answer: Purchases Freight In Delivered Cost of Purchases Less Purchases Returns and Allowances Less Purchases Discounts Net Delivered Cost of Purchases

$56,211 3,000 $59,211 500 300 $58,411

Feedback: $56,211 + $3,000 - $500 - $300 = $58,411 Diff: 2 Topic: Merchandising Purchases Learning Objective: 08-02 Compute the net delivered cost of purchases. Bloom's: Apply AACSB: Analytic AICPA: BB Critical Thinking

80) Ellie's Electronics has the following general ledger account balances as of December. Purchases $42,500 Freight In 2,150 Purchases Returns and Allowances 575 Purchases Discounts 520 Calculate the net delivered cost of purchases for December. Answer: Purchases $42,500 Freight In 2,150 Delivered Cost of Purchases $44,650 Less Purchases Returns and Allowances 575 Less Purchases Discounts 520 $43,555 Net Delivered Cost of Purchases Feedback: $42,500 + $2,150 - $575 - $520 = $43,555 Diff: 2 Topic: Merchandising Purchases Learning Objective: 08-02 Compute the net delivered cost of purchases. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking

81) Myra's Mechanics has the following general ledger account balances as of October. Purchases $18,000 Freight In 1,200 Purchases Returns and Allowances 360 Purchases Discounts 350 Calculate the net delivered cost of purchases for October. Answer: Purchases Freight In Delivered Cost of Purchases Less Purchases Returns and Allowances Less Purchases Discounts Net Delivered Cost of Purchases

$18,000 1,200 $19,200 360 350 $18,490

Feedback: $18,000 + $1,200 - $360 - $350 = $18,490 Diff: 2 Topic: Merchandising Purchases Learning Objective: 08-02 Compute the net delivered cost of purchases. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking

82) Complete the table listed below Name of Accounts Purchases Purchases Returns and Allowances Purchases Discounts Freight In or Transportation In

Type of Account

Normal Balance

Used to Record

Answer: Name of Accounts

Type of Account

Normal Balance

Purchases

Expense

Purchases Returns and Allowances

Contra Expense

Expense

Purchases Discounts

Freight In or Transportation In

Used to Record Purchases of merchandise inventory Returns of merchandise inventory to seller Cash discounts taken for early payments to the seller Amount of transportation costs on merchandise inventory purchased

Diff: 2 Topic: Merchandising Purchases Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking

83) The Picture Perfect Camera Shop had the following transactions for the month of August 2019. Record the transactions on page 9 of a general journal assuming the company uses the periodic inventory system to keep track of its inventory. Aug. 1 Purchased cameras for $3,500 plus a freight charge of $160 from the Mason Company, Invoice 532, dated July 29, net payable in 60 days. 6 Purchased color film for $475 from Digital Products, Invoice 989, dated 36 Copyright © McGraw-Hill Education.All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Purchased color film for $475 from Digital Products, Invoice 989, dated August 4, net payable in 30 days. 10 Purchased camera cases for $925 from Raven Leathers, Invoice 668, dated August 8; terms are 2/10, n/30. 15 Returned defective cameras to Mason Company and received Credit Memorandum 205 for $540. The cameras were originally purchased on Invoice 532 of July 29. 20 Purchased cameras for $3,575 plus freight of $90 from the Braemer Cameras, Invoice 2093, dated August 18; terms are 1/10, n/60. 23 Received Credit Memorandum 597 for $60 from Raven Leathers. The amount is an allowance for slightly damaged but usable goods purchased on Invoice 668 of August 8.

Answer: GENERAL JOURNAL DATE DESCRIPTION 2019 Aug 1 Purchases Freight In Accounts Payable/Mason Inv # 532

P.R.

DEBIT 3,500.00 160.00

3,660.00

6 Purchases Accounts Payable/Digital Inv #989

475.00

10 Purchases Accounts Payable/Raven Inv #668

925.00

15 Accounts Pay./Mason Co. Purch. Ret. & Allow. Received Cr. Memo 205

540.00

20 Purchases Freight In Accounts Payable/Braemer Inv # 2093 23 Accounts Pay./Raven Purch. Ret. & Allow. Received Cr. Memo 597

PAGE 9 CREDIT

475.00

925.00

540.00

3,575.00 90.00 3,665.00

60.00

Answer: Diff: 2 Topic: Merchandising Purchases Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking

84) The Fast Frame Shop had the following transactions for the month of January 2019. Record the transactions on page 9 of a general journal assuming the company uses the periodic inventory system to keep track of its inventory. Jan. 6 Purchased frames for $2,000 plus a freight charge of $100 from the Murphy Company, Invoice 454, dated January 3, net payable in 60 days. 9 Purchased glass for $400 from Gunther Glass, Invoice 566, dated January 5; terms are 2/10, n/30. 14 Returned defective frames to Murphy Company and received Credit Memorandum 103 for $50. The frames were originally purchased on Invoice 454 of January 3. 15 Purchased mats for $400 from Wilson Company Products, Invoice 299, dated January 11, net payable in 30 days. 22 Received Credit Memorandum 496 for $150 from Gunther Glass. The amount is an allowance for slightly discolored but usable glass purchased on Invoice 566 of January 5. Answer: GENERAL JOURNAL DATE DESCRIPTION 2019 Jan 6 Purchases Freight In Accounts Payable/Murphy Inv # 454

P.R.

DEBIT 2,000.00 100.00

2,100.00

9 Purchases Accounts Payable/Gunther Inv #566

400.00

14 Accounts Payable/Murphy Purchases Returns & Allow. Rec’d credit memo #103

50.00

15 Purchases Accounts Payable/Wilson

400.00

Inv # 299

PAGE 9 CREDIT

400.00

50.00

400.00

Answer:

Inv # 299 22 Accounts Pay./Gunther Purch. Ret. & Allow. Received Cr. Memo 496

150.00 150.00

Diff: 2 Topic: Merchandising Purchases Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking

85) One of the supplier accounts from the accounts payable ledger for Paragon Video is shown below. Explain each of the entries that have been posted to this supplier's subsidiary ledger account. (Omit the description for the beginning balance.) Miami Video Supply DATE EXPLANATION 2019 Mar. 1 Balance 12 Invoice 301 15 Cash payment 28 CM 105

P.R.

DEBIT

J3 J3 J4

CREDIT

250 1,500 50

BALANCE 1,500 1,750 250 200

Answer: Mar. 12 – Purchased merchandise in the amount of $250 on credit. Mar. 15 – Paid $1,500 in cash on account. Mar. 28 – Purchase return or allowance in the amount of $50 as per CM 105 received from vendor. Diff: 2 Topic: Accounts Payable Learning Objective: 08-04 Post transactions to the accounts payable subsidiary ledger. Bloom's: Evaluate AACSB: Analytical Thinking AICPA: BB Critical Thinking

86) One of the supplier accounts from the accounts payable ledger for Thompson Consulting Services is shown below. Explain each of the entries that have been posted to this supplier's subsidiary ledger account. (Omit the description for the beginning balance.) Viking Office Supply DATE EXPLANATION 2019 Feb. 1 Balance 2 Invoice 744 5 CM 1103 7 Cash payment

P.R.

DEBIT

J2 J2 J2

CREDIT

1,250 200 550

BALANCE 2,000 3,250 3,050 2,500

Answer: Feb. 2 – Purchased merchandise in the amount of $1,250 on credit. Feb. 5 – Purchase return or allowance in the amount of $200 as per CM 1103 received from vendor. Feb. 7 – Paid $550 in cash on account. Diff: 2 Topic: Accounts Payable Learning Objective: 08-04 Post transactions to the accounts payable subsidiary ledger. Bloom's: Evaluate AACSB: Analytical Thinking AICPA: BB Critical Thinking

87) One of the supplier accounts from the accounts payable ledger for Allen Company is shown below. Explain each of the entries that have been posted to this supplier's subsidiary ledger account. (Omit the description for the beginning balance.) Geneva Company DATE EXPLANATION 2019 Dec. 1 Balance 10 Invoice 967 15 CM 810 20 Cash payment

P.R.

DEBIT

J9 J9 J9

CREDIT

BALANCE 7,500 10,500 10,100 3,000

3,000 400 7,100

Answer: Dec. 10 – Purchased merchandise in the amount of $3,000 on credit. Dec. 15 – Purchase return or allowance in the amount of $400 as per CM 810 received from vendor. Dec. 20 – Paid $7,100 of cash on account. Diff: 2 Topic: Accounts Payable Learning Objective: 08-04 Post transactions to the accounts payable subsidiary ledger. Bloom's: Evaluate AACSB: Analytical Thinking AICPA: BB Critical Thinking

88) The accounts payable ledger for Dora's Dollar Shop is shown below. Prepare a schedule of accounts payable as of March 31, 2019. Miller Enterprises DATE EXPLANATION 2019 Mar. 1 Balance 15 Invoice 1450 20 Cash payment Molson Company DATE EXPLANATION 2019 Mar. 1 Balance 2 Cash payment Odom, Inc. DATE EXPLANATION 2019 Mar. 1 Balance 25 Invoice 960

P.R.

DEBIT

J3 J3

P.R.

BALANCE 2,545 3,545 1,545

1,000 2,000

DEBIT

P.R.

CREDIT

5,000 2,000

3,000

DEBIT

BALANCE

CREDIT

200

BALANCE 500 700

25 Invoice 960 28 Invoice 972

J3 J3

200 1,000

700 1,700

Answer: Dora's Dollar Shop Schedule of Accounts Payable March 31, 2019

Miller Enterprises Molson Company Odom, Inc

$1,545 2,000 1,700 $5,245

Diff: 2 Topic: Accounts Payable Learning Objective: 08-05 Prepare a schedule of accounts payable. Bloom's: Create AACSB: Analytical Thinking AICPA: BB Critical Thinking

89) On June 30, 2019, the general ledger of the Shoe Closet, a retail store, showed the following balances: Purchases $22,800; Freight In, $1,900; Purchases Returns and Allowances, $1,250. Determine the following: A) What was the delivered cost of purchases for June? B) What was the net delivered cost of purchases for June? Answer: A) $24,700 B) $23,450 Feedback: A. $22,800 + $1,900 = $24,700 B. $24,700 - $1,250 = $23,450 Diff: 2 Topic: Merchandising Purchases Learning Objective: 08-02 Compute the net delivered cost of purchases. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking

90) On April 30, 2019, the general ledger of the Danielle's Dress Shop showed the following balances: Purchases $9,000; Freight In, $50; Purchases Returns and Allowances, $90. Determine the following: A) What was the delivered cost of purchases for April? B) What was the net delivered cost of purchases for April?

Answer: A) $9,050 B) $8,960 Feedback: A. $9,000 + $50 = $9,050 B. $9,050 - $90 = $8,960 Diff: 2 Topic: Merchandising Purchases Learning Objective: 08-02 Compute the net delivered cost of purchases. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking

91) On November 30, the general ledger of Hinges and More Hardware, a retail store, showed the following balances: Purchases, $163,750; Freight In, $5,200; Purchases Returns and Allowances, $4,000. Determine the following: A) What was the delivered cost of purchases for November? B) What was the net delivered cost of purchases for November?

Answer: A) $168,950 B) $164,950 Feedback: A. $163,750 + $5,200 = $168,950 B. $168,950 - $4,000 = $164,950 Diff: 2 Topic: Merchandising Purchases Learning Objective: 08-02 Compute the net delivered cost of purchases. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking

92) Discuss the difference between a purchase order, a purchase requisition, and a purchase invoice. Answer: Purchase order: An order to the supplier of goods specifying items needed, quantity, price, and credit terms Purchase requisition: A list sent to the purchasing department showing the items to be ordered Purchase invoice: A bill received for goods purchased Diff: 2 Topic: Merchandising Purchases Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

93) Match the accounting terms with the description by entering the proper letter in the space provided. A. Cost of goods sold B. Freight In account C. Purchase allowance D. Purchase invoice E. Purchase order F. Purchase requisition G. Purchase return

H. Purchases account I. Purchases discount J. Receiving report K. Sales discount L. Sales invoice M. Schedule of accounts payable

___ 1. An account used to record cost of goods bought for resale during a period ___ 2. A form showing quantity and condition of goods received ___ 3. A list sent to the purchasing department showing the items to be ordered ___ 4. A list of all balances owed to creditors 5. The cost to the business of the merchandise sold to customers ___ 6. An account showing transportation charges for items purchased ___ 7. An order to the supplier of goods specifying items needed, quantity, price, and credit terms ___ 8. A cash discount offered and taken for payment within a specified period ___ 9. A bill received for goods purchased ___ 10. A price reduction from the amount originally billed 11. A cash discount offered by the seller for receipt of payment within a specified period _ 12. Return of unsatisfactory goods ___ 13. A supplier's billing document

Answer: (1) H, (2) J, (3) F, (4) M, (5) A, (6) B, (7) E (8) I, (9) D, (10) C, (11) K, (12) G, (13) L Diff: 2 Topic: Merchandising Purchases; Accounts Payable Learning Objective: 08-01 Record purchases of merchandise on credit in a general journal.; 08-04 Post transactions to the accounts payable subsidiary ledger.; 08-05 Prepare a schedule of accounts payable.; 08-06 Demonstrate a knowledge of the procedures for effective internal control of purchases. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

Chapter 09 Cash MULTIPLE CHOICE QUESTIONS 1) Cash Short or Over is an expense account when it has a debit balance. A) True B) False Answer: A Explanation: Diff: 1 Topic: Cash Receipts Learning Objective: 09-01 Account for cash short or over. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

2) Most cash transactions involve checks. A) True B) False Answer: A Explanation: Diff: 1 Topic: Cash Receipts Learning Objective: 09-01 Account for cash short or over. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Critical Thinking

3) As a part of internal controls, petty cash funds should be kept in a safe, locked cash box, or a locked drawer. A) True B) False Answer: A Explanation: Diff: 1 Topic: Petty Cash and Internal Controls for Cash Learning Objective: 09-02 Demonstrate a knowledge of procedures for a petty cash fund. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Critical Thinking

4) Transactions completed with a debit card appear on a statement separate from other banking transactions. A) True B) False Answer: B Explanation: Diff: 1 Topic: Banking Procedures Learning Objective: 09-04 Write a check, endorse checks, prepare a bank deposit slip, and maintain a checkbook balance. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Critical Thinking

5) Endorsements are placed on the front of a check. A) True B) False Answer: B Explanation: Diff: 1 Topic: Banking Procedures Learning Objective: 09-04 Write a check, endorse checks, prepare a bank deposit slip, and maintain a checkbook balance. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Critical Thinking

6) The full endorsement is the safest endorsement of a check. A) True B) False Answer: B Explanation: Diff: 1 Topic: Banking Procedures Learning Objective: 09-04 Write a check, endorse checks, prepare a bank deposit slip, and maintain a checkbook balance. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Critical Thinking

7) A bank usually provides pre-printed deposit slips. A) True B) False Answer: A Explanation: Diff: 1 Topic: Banking Procedures Learning Objective: 09-04 Write a check, endorse checks, prepare a bank deposit slip, and maintain a checkbook balance. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Critical Thinking

8) Outstanding checks are checks that are recorded in the journal but have not yet been paid by the bank. A) True B) False Answer: A Explanation: Diff: 1 Topic: Banking Procedures Learning Objective: 09-05 Reconcile the monthly bank statement. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Critical Thinking

9) Service charges and other deductions listed on the bank statement have typically already been recorded in the business records. A) True B) False Answer: B Explanation: Diff: 1 Topic: Banking Procedures Learning Objective: 09-05 Reconcile the monthly bank statement. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Critical Thinking

10) The entry to replenish petty cash includes a debit to Petty Cash Fund and a credit to Cash. A) True B) False Answer: B Explanation: Diff: 2 Topic: Petty Cash and Internal Controls for Cash Learning Objective: 09-02 Demonstrate a knowledge of procedures for a petty cash fund. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Critical Thinking

11) In a firm that has a good system of internal control, cash receipts are deposited often. A) True B) False Answer: A Explanation: Diff: 1 Topic: Petty Cash and Internal Controls for Cash Learning Objective: 09-03 Demonstrate a knowledge of internal control routines for cash. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry

12) The monthly bank statement should be received and reconciled by the employee who deposits cash receipts and writes the checks. A) True B) False Answer: B Explanation: Diff: 2 Topic: Petty Cash and Internal Controls for Cash Learning Objective: 09-03 Demonstrate a knowledge of internal control routines for cash. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

13) A strong system of internal control requires that all payments be made by check except those made from a carefully controlled cash fund, such as a petty cash fund. A) True B) False Answer: A Explanation: Diff: 1 Topic: Petty Cash and Internal Controls for Cash Learning Objective: 09-02 Demonstrate a knowledge of procedures for a petty cash fund.; 09-03 Demonstrate a knowledge of internal control routines for cash. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Critical Thinking

14) A check that has a full endorsement can be further endorsed by any bearer and, therefore, is not as safe as a check with a blank endorsement. A) True B) False Answer: B Explanation: Diff: 2 Topic: Banking Procedures Learning Objective: 09-04 Write a check, endorse checks, prepare a bank deposit slip, and maintain a checkbook balance. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

15) To arrive at the accurate balance on a bank reconciliation statement, it is necessary to deduct an NSF check from the bank statement balance. A) True B) False Answer: B Explanation: Diff: 2 Topic: Banking Procedures Learning Objective: 09-05 Reconcile the monthly bank statement. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

SHORT ANSWER QUESTIONS 16) A(n) ________ is a written promise to pay a specified amount of money at a specified time. Answer: promissory note Explanation: Diff: 1 Topic: Cash Receipts Learning Objective: 09-01 Account for cash short or over. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

17) The Cash Short or Over account is debited if the amount of cash available for deposit is ________ than the amount listed on the audit tape taken from the cash register. Answer: less Explanation: Diff: 1 Topic: Cash Receipts Learning Objective: 09-01 Account for cash short or over. Bloom's: Analyze AACSB: Analytical Thinking AICPA: BB Critical Thinking

18) The entry to record the receipt of a check in settlement of an interest-bearing promissory note includes a debit to Cash, a credit to Notes Receivable, and a credit to ________. Answer: Interest Income Explanation: Diff: 1 Topic: Cash Receipts Learning Objective: 09-01 Account for cash short or over. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking

19)

is the process by which employees are investigated by an insurance company that will insure the business against losses through employee theft or mishandling of funds.

Answer: Bonding Explanation: Diff: 1 Topic: Petty Cash and Internal Controls for Cash Learning Objective: 09-03 Demonstrate a knowledge of internal control routines for cash. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

20) The Petty Cash fund account has a normal ________ balance. Answer: debit Explanation: Diff: 1 Topic: Petty Cash and Internal Controls for Cash Learning Objective: 09-02 Demonstrate a knowledge of procedures for a petty cash fund. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

21) The person or firm that issues a check is called the

, or payor, of the check.

Answer: drawer Explanation: Diff: 1 Topic: Banking Procedures Learning Objective: 09-04 Write a check, endorse checks, prepare a bank deposit slip, and maintain a checkbook balance. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

22) If a payee indicates, as part of the endorsement, the name of the person, firm, or bank to whom the check is to be payable, the payee has made a(n) ________ endorsement. Answer: full Explanation: Diff: 1 Topic: Banking Procedures Learning Objective: 09-04 Write a check, endorse checks, prepare a bank deposit slip, and maintain a checkbook balance. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

23) To transfer ownership of a check from one party to another, it is necessary to ________ the check. Answer: endorse Explanation: Diff: 1 Topic: Banking Procedures Learning Objective: 09-04 Write a check, endorse checks, prepare a bank deposit slip, and maintain a checkbook balance. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

24) A(n) is a form received from the bank showing all transactions recorded in the depositor's account during the month. Answer: bank statement Explanation: Diff: 1 Topic: Banking Procedures Learning Objective: 09-05 Reconcile the monthly bank statement. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

25) When a bank deducts any amount other than a paid check from a depositor's account, it issues a form called a(n) ________ memorandum. Answer: debit Explanation: Diff: 1 Topic: Banking Procedures Learning Objective: 09-05 Reconcile the monthly bank statement. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

26) Checks issued by a firm and entered in its records that have not yet been paid by the bank are called ________ checks. Answer: outstanding Explanation: Diff: 1 Topic: Banking Procedures Learning Objective: 09-05 Reconcile the monthly bank statement. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

27) The process of determining why a difference exists between a firm's records and the bank's records and bringing the two sets of records into balance is known as ________ the bank statement. Answer: reconciling Explanation: Diff: 1 Topic: Banking Procedures Learning Objective: 09-05 Reconcile the monthly bank statement. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

28) Checks issued by a firm that were paid by the bank and returned to the firm with the bank statement are called ________ checks. Answer: canceled Explanation: Diff: 1 Topic: Banking Procedures Learning Objective: 09-05 Reconcile the monthly bank statement. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

29) A(n)

check is a check dated in the future.

Answer: postdated Explanation: Diff: 1 Topic: Banking Procedures Learning Objective: 09-04 Write a check, endorse checks, prepare a bank deposit slip, and maintain a checkbook balance. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

30) If a firm's bank reconciliation statement shows a bank statement balance of $13,200, total deposits in transit of $1,400, and total outstanding checks of $980, the adjusted bank balance is ________. Answer: $13,620 Feedback: $13,200 + $1,400 - $980 = $13,620 Explanation: Diff: 1 Topic: Banking Procedures Learning Objective: 09-05 Reconcile the monthly bank statement. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking

MULTIPLE CHOICE QUESTIONS 31) Which of the following statements is not correct? A) The petty cash account balance is usually listed separately from the Cash account on the Balance Sheet. B) In a well managed business, most bills are paid by cash. C) In accounting, the term "cash" includes checks, money orders, and funds on deposit in a bank as well as currency and coins. D) The cash register proof is used to enter the cash sales and sales tax in the journal. Answer: B Explanation: A) B) C) D) Diff: 2 Topic: Cash Receipts; Petty Cash and Internal Controls for Cash Learning Objective: 09-01 Account for cash short or over.; 09-02 Demonstrate a knowledge of procedures for a petty cash fund. Bloom's: Analyze AACSB: Analytical Thinking AICPA: FN Decision Making

32) Which of the following is not a reason why the book balance of cash may not agree with the balance on the bank statement? A) End of the month B) Service charges and other deductions C) Outstanding checks D) Deposit in transit Answer: A Explanation: A) B) C) D) Diff: 1 Topic: Banking Procedures Learning Objective: 09-05 Reconcile the monthly bank statement. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Critical Thinking

33) The journal entry to record the collection of the amount due on an interest-bearing promissory note from a customer would debit Cash, credit Notes Receivable, and A) credit Interest Income. B) credit Interest Expense. C) debit Interest Income. D) debit Interest Expense. Answer: A Explanation: A) B) C) D) Diff: 1 Topic: Cash Receipts Learning Objective: 09-01 Account for cash short or over. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Critical Thinking

34) Most businesses use the petty cash fund to pay for A) small expenditures. C) accounts payable. Answer: A Explanation: A) B) C) D)

B) internal expenses. D) merchandise purchases.

Diff: 1 Topic: Petty Cash and Internal Controls for Cash Learning Objective: 09-02 Demonstrate a knowledge of procedures for a petty cash fund. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Critical Thinking

35) Which of the following statements is correct? A) A check is a written order signed by an authorized person, the drawee. B) An endorsement is a written authorization that transfers ownership of a check. C) If a check is negotiable, it means that ownership cannot be transferred. D) Most businesses make one monthly deposit of cash receipts in order to maintain better control over their cash. Answer: B Explanation: A) B) C) D) Diff: 2 Topic: Banking Procedures Learning Objective: 09-04 Write a check, endorse checks, prepare a bank deposit slip, and maintain a checkbook balance. Bloom's: Analyze AACSB: Analytical Thinking AICPA: FN Decision Making

36) The entry to replenish a petty cash fund typically includes A) a debit to Cash and a credit to Petty Cash. B) debits to various asset and expense accounts and a credit to Cash. C) a debit to Petty Cash Fund and a credit to Cash. D) debits to various expense accounts and a credit to Petty Cash Fund. Answer: B Explanation: A) B) C) D) Diff: 2 Topic: Petty Cash and Internal Controls for Cash Learning Objective: 09-02 Demonstrate a knowledge of procedures for a petty cash fund. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking

37) On April 1, Java Brewers created a petty cash fund starting with $100. On April 30, there was only $5 remaining in the petty cash box. The custodian of the fund presented vouchers to the company accountant for Supplies of $55 and Delivery Expenses of $40. The journal entry on April 30, to replenish the fund, would be:

(A) (B) (C)

(D)

DEBIT CREDIT Petty Cash Cash Cash Petty Cash Delivery Expenses Supplies Petty Cash Delivery Expenses Supplies Cash

A) Option A. Answer: D Explanation:

95 95 95 95 40 55 95 40 50 95

B) Option B.

C) Option C.

D) Option D.

A) B) C) D)

Diff: 2 Topic: Petty Cash and Internal Controls for Cash Learning Objective: 09-02 Demonstrate a knowledge of procedures for a petty cash fund. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking; BB Industry

38) George's Grocers keeps a $100 change fund in its cash register. The cash sales per the cash register tape on January 30 were $405. The cash count was $502. Identify the correct journal entry below to record the sales and cash overage (or shortage) for January 30.

DEBIT CREDIT 402 3 405 502 502 505 3 502 405 405

(A) Cash Cash Short or Over Sales (B) Cash Sales (C) Sales Cash Short or Over Cash (D) Cash Sales

A) Option A. Answer: A Explanation: A) B) C) D)

B) Option B.

C) Option C.

D) Option D.

Diff: 2 Topic: Cash Receipts Learning Objective: 09-01 Account for cash short or over. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking; BB Industry

39) ABC Office Suppliers keeps a $200 change fund in its cash register. The cash sales per the cash register tape on May 30 were $700. The cash count was $908. Identify the correct journal entry below to record the sales and cash overage (or shortage) for May 30.

DEBIT CREDIT 700 8 708 700 700 708 8 700 908 900 8

(A) Cash Cash Short or Over Sales (B) Cash Sales (C) Cash Cash Short or Over Sales (D) Cash Sales Cash Short or Over

A) Option A. Answer: C Explanation: A) B) C) D)

B) Option B.

C) Option C.

D) Option D.

Diff: 2 Topic: Cash Receipts Learning Objective: 09-01 Account for cash short or over. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking; BB Industry

40) On August 3, Marley's Sporting Goods accepted a six-month promissory note from J.J. Brown, who owed $490 on account. (J. J. had needed more time to pay his balance.) The promissory note had a 10 percent interest rate. The journal entry on August 3 to record the transaction would be:

DEBIT CREDIT 490 490 490 490 490 490 490 490

(A) Notes Receivable Accounts Receivable (B) Cash Notes Receivable (C) Cash Accounts Receivable (D) Accounts Receivable Notes Receivable

A) Option A. Answer: A Explanation:

B) Option B.

C) Option C.

D) Option D.

A) B) C) D)

Diff: 2 Topic: Cash Receipts Learning Objective: 09-01 Account for cash short or over. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking; BB Industry

41) The most appropriate form of endorsement of a check for business purposes is A) the full endorsement. B) the blank endorsement. C) the restrictive endorsement. D) no endorsement. Answer: C Explanation: A) B) C) D) Diff: 1 Topic: Banking Procedures Learning Objective: 09-04 Write a check, endorse checks, prepare a bank deposit slip, and maintain a checkbook balance. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

42) You would find all of the following on a bank reconciliation statement, except: A) a list of outstanding checks. B) the bank service charge. C) a list of NSF checks. D) a list of canceled checks. Answer: D Explanation: A) B) C) D) Diff: 2 Topic: Banking Procedures Learning Objective: 09-05 Reconcile the monthly bank statement. Bloom's: Analyze AACSB: Analytical Thinking AICPA: BB Industry

43) A firm's bank reconciliation statement shows a book balance of $15,820, an NSF check of $400, and a service charge of $20. Its adjusted book balance is A) $16,200. B) $16,240. C) $15,400. D) $15,440. Answer: C Explanation:

A) $15,820 - $400 - $20 = $15,400 B) $15,820 - $400 - $20 = $15,400 C) $15,820 - $400 - $20 = $15,400 D) $15,820 - $400 - $20 = $15,400

Diff: 2 Topic: Banking Procedures Learning Objective: 09-05 Reconcile the monthly bank statement. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking

44) A firm's bank reconciliation statement shows a book balance of $36,410, an NSF check of $1,150, and a service charge of $60. Its adjusted book balance is A) $36,410. B) $37,500. C) $35,200. D) $35,320. Answer: C Explanation: A) $36,410 - $1,150 - $60 = $35,200 B) $36,410 - $1,150 - $60 = $35,200 C) $36,410 - $1,150 - $60 = $35,200 D) $36,410 - $1,150 - $60 = $35,200 Diff: 2 Topic: Banking Procedures Learning Objective: 09-05 Reconcile the monthly bank statement. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking

45) On March 30, a firm's bank reconciliation statement shows a book balance of $31,640, an NSF check of $800, and a service charge of $40. The journal entry on March 30 to record these items would be:

DEBIT (A) Accounts Receivable Bank Fees Expense Cash (B) Cash Bank Fees Expense NSF Expense (C) Miscellaneous Expenses Cash (D) Cash Accounts Receivable Bank Fees Expense

A) Option A. Answer: A Explanation: A) B) C) D)

CREDIT 800 40 840 840 40 800 840 840 840 800 40

B) Option B.

C) Option C.

D) Option D.

Diff: 2 Topic: Banking Procedures Learning Objective: 09-05 Reconcile the monthly bank statement. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking

46) To arrive at an accurate balance on a bank reconciliation statement, outstanding checks should be A) added to the bank statement balance. B) deducted from the bank statement balance. C) deducted from the book balance. D) added to the book balance. Answer: B Explanation: A) B) C) D) Diff: 1 Topic: Banking Procedures Learning Objective: 09-05 Reconcile the monthly bank statement. Bloom's: Understand AACSB: Analytical Thinking AICPA: FN Decision Making

47) To arrive at an accurate balance on a bank reconciliation statement, a credit memorandum from the bank for the collection of a note and interest should be A) deducted from the bank statement balance. B) deducted from the book balance. C) added to the book balance. D) added to the bank statement balance. Answer: C Explanation: A) B) C) D) Diff: 1 Topic: Banking Procedures Learning Objective: 09-05 Reconcile the monthly bank statement. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Critical Thinking

48) To arrive at an accurate balance on a bank reconciliation statement, a service charge should be A) deducted from the bank statement balance. B) deducted from the book balance. C) added to the bank statement balance. D) added to the book balance. Answer: B Explanation: A) B) C) D) Diff: 1 Topic: Banking Procedures Learning Objective: 09-05 Reconcile the monthly bank statement. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Critical Thinking

49) To arrive at an accurate balance on a bank reconciliation statement, a debit memorandum for a customer check marked NSF should be A) added to the bank statement balance. B) added to the book balance. C) deducted from the bank statement balance. D) deducted from the book balance. Answer: D Explanation: A) B) C) D) Diff: 1 Topic: Banking Procedures Learning Objective: 09-05 Reconcile the monthly bank statement. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Critical Thinking

50) To arrive at an accurate balance on a bank reconciliation statement, an error made by the bank in which the bank deducted a check issued by another business from the balance of the company's bank account should be A) deducted from the book balance. B) added to the bank statement balance. C) added to the book balance. D) deducted from the bank statement balance. Answer: B Explanation: A) B) C) D) Diff: 2 Topic: Banking Procedures Learning Objective: 09-05 Reconcile the monthly bank statement. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Critical Thinking

51) A check issued for $890 to pay a vendor on account was recorded in the firm's records as $980; the canceled check was properly listed on the bank statement at $890. To arrive at an accurate balance on a bank reconciliation statement, the error should be A) deducted from the book balance. B) added to the bank statement balance. C) deducted from the bank statement balance. D) added to the book balance. Answer: D Explanation: A) B) C) D) Diff: 2 Topic: Banking Procedures Learning Objective: 09-05 Reconcile the monthly bank statement. Bloom's: Analyze AACSB: Analytical Thinking AICPA: BB Critical Thinking

52) A check issued for $1,980 to pay a vendor on account was recorded in the firm's records as $1,890; the canceled check was properly listed on the bank statement at $1,980. To arrive at an accurate balance on a bank reconciliation statement, the error should be A) deducted from the book balance. B) deducted from the bank statement balance. C) added to the book balance. D) added to the bank statement balance. Answer: A Explanation: A) B) C) D) Diff: 2 Topic: Banking Procedures Learning Objective: 09-05 Reconcile the monthly bank statement. Bloom's: Analyze AACSB: Analytical Thinking AICPA: BB Critical Thinking

53) To arrive at an accurate balance on a bank reconciliation statement, deposits in transit should be A) deducted from the bank statement balance. B) added to the book balance. C) added to the bank statement balance. D) deducted from the book balance. Answer: C Explanation: A) B) C) D) Diff: 1 Topic: Banking Procedures Learning Objective: 09-05 Reconcile the monthly bank statement. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Critical Thinking

54) A firm appropriately wrote a check for $78 but entered the amount as payment of $87 in its records. On a bank reconciliation statement this error would be shown as A) a deduction of $9 from the bank statement balance. B) an addition of $9 to the bank statement balance. C) a deduction of $9 from the book balance. D) an addition of $9 to the book balance. Answer: D Explanation: A) B) C) D) Diff: 2 Topic: Banking Procedures Learning Objective: 09-05 Reconcile the monthly bank statement. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking

55) Which of the following would not be shown as an adjustment to the book balance on a bank reconciliation statement? A) A charge for printing new checks B) Bank service charges C) NSF checks D) Deposits in transit Answer: D Explanation: A) B) C) D) Diff: 1 Topic: Banking Procedures Learning Objective: 09-05 Reconcile the monthly bank statement. Bloom's: Analyze AACSB: Analytical Thinking AICPA: FN Decision Making

56) Included with its bank statement a firm may receive a credit memorandum, which could indicate A) a fee for printing new business checks. B) an addition to the firm's account balance because the bank collected the amount due on a promissory note from a customer of the firm. C) a bank service charge deducted from the firm's account balance. D) the bank's return of a dishonored (NSF) check that was issued by a credit customer of the firm. Answer: B Explanation: A) B) C) D) Diff: 2 Topic: Banking Procedures Learning Objective: 09-05 Reconcile the monthly bank statement. Bloom's: Evaluate AACSB: Analytical Thinking AICPA: FN Decision Making

57) If a check written by a firm is not canceled by the bank and returned with the month's bank statement, the firm should A) immediately notify the bank requesting that it correct its records. B) adjust the balance in the firm's checkbook to reflect the data that appears in the bank's records. C) consider this check as outstanding when preparing the bank reconciliation. D) make no adjustment when preparing the bank reconciliation. Answer: C Explanation: A) B) C) D) Diff: 1 Topic: Banking Procedures Learning Objective: 09-05 Reconcile the monthly bank statement. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

58) Identify the items below that would all appear as an addition or subtraction from the Book Balance side of a bank reconciliation statement. A) Outstanding checks, deposits in transit. B) Deposits in transit, bank service charges. C) Bank service charges, customer NSF check. D) Outstanding checks, customer NSF check. Answer: C Explanation: A) B) C) D) Diff: 2 Topic: Banking Procedures Learning Objective: 09-05 Reconcile the monthly bank statement. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking

59) After a bank reconciliation statement is completed, a firm may have to make an entry in its accounting records for A) the bank statement balance. B) deposits in transit. C) outstanding checks. D) NSF checks. Answer: D Explanation: A) B) C) D) Diff: 2 Topic: Banking Procedures Learning Objective: 09-06 Record any adjusting entries required from the bank reconciliation. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Critical Thinking

60) The entry in a firm's accounting records for a credit customer's check that was returned by the bank marked "NSF" would include A) a debit to Accounts Receivable and a credit to Cash. B) a debit to Accounts Receivable and a credit to Accounts Payable. C) a debit to Cash and a credit to Accounts Receivable. D) a debit to Miscellaneous Expense and a credit to Cash. Answer: A Explanation: A) B) C) D) Diff: 2 Topic: Banking Procedures Learning Objective: 09-06 Record any adjusting entries required from the bank reconciliation. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Critical Thinking

61) Of the four categories listed in a bank reconciliation, which one(s) require a journal entry(ies) in the firm's records? A) Bank Statement Balance Additions and Bank Statement Balance Deductions B) Bank Statement Balance Additions and Book Balance of Cash Additions C) Book Balance of Cash Additions and Book Balance of Cash Deductions D) Bank Statement Balance Deductions and Book Balance of Cash Deductions Answer: C Explanation: A) B) C) D) Diff: 1 Topic: Banking Procedures Learning Objective: 09-06 Record any adjusting entries required from the bank reconciliation. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry

62) During the month a company paid $54.75 for office supplies and $63.22 for miscellaneous expenses from the petty cash fund. The entry to replenish the petty cash fund at the end of the month would include A) a debit to Petty Cash for $117.97. B) a debit to Cash for $117.97. C) a credit to Cash for $117.97. D) a credit to Office Supplies for $54.75. Answer: C Explanation: A) $54.75 + $63.22 = $117.97 B) $54.75 + $63.22 = $117.97 C) $54.75 + $63.22 = $117.97 D) $54.75 + $63.22 = $117.97 Diff: 2 Topic: Petty Cash and Internal Controls for Cash Learning Objective: 09-02 Demonstrate a knowledge of procedures for a petty cash fund. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry

63) A check issued for $890 to pay a vendor on account was recorded in the firm's records as $980; the canceled check was properly listed on the bank statement at $890. The journal entry for this reconciling item would include: A) a debit to Cash for $890. B) a credit to Accounts Payable for $890. C) a debit to cash for $90. D) a debit to Accounts Payable for $90. Answer: C Explanation: A) $980 - $890 = $90 understatement of cash; debit Cash $90, credit Accounts Payable $90 B) $980 - $890 = $90 understatement of cash; debit Cash $90, credit Accounts Payable $90 C) $980 - $890 = $90 understatement of cash; debit Cash $90, credit Accounts Payable $90 D) $980 - $890 = $90 understatement of cash; debit Cash $90, credit Accounts Payable $90 Diff: 2 Topic: Banking Procedures Learning Objective: 09-05 Reconcile the monthly bank statement. Bloom's: Analyze AACSB: Analytical Thinking AICPA: BB Critical Thinking

64) A check issued for $785 to pay a vendor on account was recorded in the firm's records as $758; the canceled check was properly listed on the bank statement at $785. The journal entry for this reconciling item would include: A) a debit to Accounts Payable for $758. B) a debit to cash for $785. C) a credit to Cash for $27. D) a credit to Accounts Payable for $27. Answer: C Explanation: A) $785 - $758 = $27 overstatement of cash; debit Accounts Payable $27, credit Cash $27 B) $785 - $758 = $27 overstatement of cash; debit Accounts Payable $27, credit Cash $27 C) $785 - $758 = $27 overstatement of cash; debit Accounts Payable $27, credit Cash $27 D) $785 - $758 = $27 overstatement of cash; debit Accounts Payable $27, credit Cash $27 Diff: 2 Topic: Banking Procedures Learning Objective: 09-05 Reconcile the monthly bank statement. Bloom's: Analyze AACSB: Analytical Thinking AICPA: BB Critical Thinking

65) The bank statement showed an NSF check from a customer, which the company listed as a reconciling item on the bank reconciliation statement. The journal entry needed for this reconciling item includes: A) a debit to cash. B) a credit to Accounts Receivable. C) a debit to NSF Expense. D) a credit to Cash. Answer: D Explanation: A) debit Accounts Receivable, credit Cash B) debit Accounts Receivable, credit Cash C) debit Accounts Receivable, credit Cash D) debit Accounts Receivable, credit Cash Diff: 2 Topic: Banking Procedures Learning Objective: 09-05 Reconcile the monthly bank statement. Bloom's: Analyze AACSB: Analytical Thinking AICPA: BB Critical Thinking

66) The bank statement showed a non-interest bearing note receivable from a customer that was collected by the bank, which the company listed as a reconciling item on the bank reconciliation statement. The journal entry needed for this reconciling item includes: A) a debit to Accounts Receivable. B) a credit to Cash. C) a credit to Interest Income. D) a debit to cash. Answer: D Explanation: A) debit Cash, credit Notes Receivable B) debit Cash, credit Notes Receivable C) debit Cash, credit Notes Receivable D) debit Cash, credit Notes Receivable Diff: 2 Topic: Banking Procedures Learning Objective: 09-05 Reconcile the monthly bank statement. Bloom's: Analyze AACSB: Analytical Thinking AICPA: BB Critical Thinking

67) The bank statement did not show a deposit of $850 that had been recorded by the firm. The journal entry needed for this reconciling item includes: A) a credit to Cash. B) a debit to cash. C) a credit to Accounts Receivable. D) no journal entry is required for the reconciling item. Answer: D Explanation: A) B) C) D) Diff: 2 Topic: Banking Procedures Learning Objective: 09-05 Reconcile the monthly bank statement. Bloom's: Analyze AACSB: Analytical Thinking AICPA: BB Critical Thinking

68) The bank statement did not show a check for $630 that was written and recorded by the company during the month. The journal entry needed for this reconciling item includes: A) a debit to cash. B) a credit to Accounts Payable. C) no journal entry is required for the reconciling item. D) a credit to Cash. Answer: C Explanation: A) B) C) D) Diff: 2 Topic: Banking Procedures Learning Objective: 09-05 Reconcile the monthly bank statement. Bloom's: Analyze AACSB: Analytical Thinking AICPA: BB Critical Thinking

ESSAY QUESTIONS BANK RECONCILIATION: Use the information below to answer the following question(s). Indicate in which section of the Bank Reconciliation Statement the following reconciling items would appear. John Bosley Co., Bank Reconciliation, April 30, 2019 Bank Statement Balance Additions: Deductions: Adjusted Balance per Bank Statement

$XX A B $XX

Book Balance of Cash Additions: Deductions: Adjusted Book Balance of Cash

$XX C D $XX

69) A check written by the company for $186 but recorded in the company's records as $168. Answer: D Feedback: check was understated in its recording so the error must be deducted from the Book balance Diff: 2 Topic: Banking Procedures Learning Objective: 09-05 Reconcile the monthly bank statement. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry

70) An NSF check from a customer. Answer: D Diff: 1 Topic: Banking Procedures Learning Objective: 09-05 Reconcile the monthly bank statement. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry

71) A canceled check for $47 erroneously listed on bank statement as $174. Answer: A Diff: 2 Topic: Banking Procedures Learning Objective: 09-05 Reconcile the monthly bank statement. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry

72) A deposit in transit. Answer: A Diff: 1 Topic: Banking Procedures Learning Objective: 09-05 Reconcile the monthly bank statement. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry

73) A service charge charged by the bank. Answer: D Diff: 1 Topic: Banking Procedures Learning Objective: 09-05 Reconcile the monthly bank statement. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry

74) Read each of the following transactions. Determine the accounts to be debited and credited. A) Issued a check for $2,500 to Jaime Gomez, the owner, as a cash withdrawal for personal use. B) Issued a check for $75 to establish a petty cash fund. C) Issued a check for $50 to replenish the petty cash fund. An analysis of the payments from the fund showed the following totals: Supplies, $25; Delivery Expense, $10; Miscellaneous Expense, $15. Answer: A) Debit Jaime Gomez, Drawing; credit Cash B) Debit Petty Cash Fund; credit Cash C) Debit Supplies, Delivery Expense, and Miscellaneous Expense; credit Cash Diff: 2 Topic: Petty Cash and Internal Controls for Cash Learning Objective: 09-02 Demonstrate a knowledge of procedures for a petty cash fund. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking

75) Read each of the following transactions. Determine the accounts to be debited and credited. A) Sold merchandise for $500 on credit plus sales tax of $42. B) Collected $3,400 from credit customers on account. C) Sold merchandise for $3,500 in cash plus sales tax of $175. There was a cash overage of $25. Answer: A) Debit Accounts Receivable; credit Sales and Sales Tax Payable B) Debit Cash; credit Accounts Receivable C) Debit Cash; credit Sales, Sales Tax Payable and Cash Short or Over Diff: 2 Topic: Cash Receipts Learning Objective: 09-01 Account for cash short or over. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking

76) Read each of the following transactions. Determine the accounts to be debited and credited. A) Issued a check for $750 to Adriana Taylor, the owner, as a cash withdrawal for personal use. B) Issued a check for $50 to establish a petty cash fund. C) Issued a check for $50 to replenish the petty cash fund. An analysis of the payments from the fund showed the following totals: Equipment, $225; Telephone Expense, $20; Miscellaneous Expense, $50. Answer: A) Debit Adriana Taylor, Drawing; credit Cash B) Debit Petty Cash Fund; credit Cash C) Debit Equipment, Telephone Expense, and Miscellaneous Expense; credit Cash Diff: 2 Topic: Cash Receipts Learning Objective: 09-01 Account for cash short or over. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking

77) Read each of the following transactions. Determine the accounts to be debited and credited. A) The cash sales per a register tape were $4,400. The cash count is $4,300. B) The cash sales per a register tape were $4,400. The cash count is $4,500. Answer: A) Debit Cash; debit Cash Short and Over; credit Sales B) Debit Cash; credit Cash Short and Over; credit Sales Diff: 2 Topic: Cash Receipts Learning Objective: 09-01 Account for cash short or over. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking

78) Read each of the following transactions. Determine the accounts and amounts to be debited and credited. A) The cash sales per a register tape were $670. The cash count is $655. B) The cash sales per a register tape were $8,500. The cash count is $8,100. Answer: A) Debit Cash $655; debit Cash Short and Over $15; credit Sales $670 B) Debit Cash $8,100; debit Cash Short and Over $400; credit Sales $8,500 Feedback: A. $655 - $670 = $15 short B. $8,100 - $8,500 = $400 short Diff: 2 Topic: Cash Receipts Learning Objective: 09-01 Account for cash short or over. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking

79) Read each of the following transactions. Determine the accounts and amounts to be debited and credited. A) Sold merchandise for $240 on credit plus sales tax of $24. B) Collected $2,500 from credit customers on account. C) Sold merchandise for $960 on credit plus sales tax of $96. Answer: A) Debit Accounts Receivable $264; credit Sales $240 and Sales Tax Payable $24 B) Debit Cash $2,500; credit Accounts Receivable $2,500 C) Debit Accounts Receivable $1056; credit Sales $960 and Sales Tax Payable $96 Diff: 2 Topic: Cash Receipts Learning Objective: 09-01 Account for cash short or over. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking

80) Read each of the following transactions. Determine the accounts and amounts to be debited and credited. A) Issued a check for $100 to establish a petty cash account B) Collected $2,200 from credit customers on account C) Sold merchandise for $500 in cash plus sales tax of $30. There was a cash overage of $25 D) Issued a check for $250 to Savannah, the owner, as a cash withdrawal for personal use Answer: A) Debit Petty Cash $100; credit Cash $100 B) Debit Cash $2,200; credit Accounts Receivable $2,200 C) Debit Cash $555; credit Sales $500, Sales Tax Payable $30 and Cash Short or Over $25 D) Debit Savannah, Drawing $250; credit Cash $250 Diff: 2 Topic: Cash Receipts; Petty Cash and Internal Controls for Cash Learning Objective: 09-01 Account for cash short or over.; 09-02 Demonstrate a knowledge of procedures for a petty cash fund. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking

81) Read the following transactions. Calculate the amount over or short. Lourdes LLC. keeps a $150 change fund in its cash register. At the end of the day, cash sales per the register tape were $4,200. The cash count was $4,390. Answer: $40 over Cash count Less Change Fund Bank Deposit Sales Per Cash Register Receipt Amount Over

$4,390 (150) 4,240 4,200 $40

Diff: 2 Topic: Cash Receipts Learning Objective: 09-01 Account for cash short or over. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking

82) Read the following transactions. Calculate the amount over or short. Bianca's Bakery does not keep a change fund in its cash register. At the end of the day, cash sales per the register tape were $745. The cash count was $715. Answer: Cash count Less Change Fund Bank Deposit Sales Per Cash Register Rec ipt Amount Short

$715 0 715 7 45 $30

Diff: 1 Topic: Cash Receipts Learning Objective: 09-01 Account for cash short or over. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking

83) Read the following transactions. Calculate the amount over or short. Johannes and Associates keeps a $500 change fund in its cash register. At the end of the day, cash sales transactions totaled $800. The cash count was $1,285. Answer: $15 short Cash count Less Change Fund Bank Deposit Sales Per Cash Log Amount Short

$1,285 (500) 785 800 $15

Diff: 2 Topic: Cash Receipts Learning Objective: 09-01 Account for cash short or over. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking

84) Read the following transactions. Calculate the amount over or short. Miss Tracey's Dance Studio keeps a $25 change fund in its cash register. At the end of the day, cash sales per the register tape were $250. The cash count was $273. Answer: $2 short Cash count Less Change Fund Bank Deposit Sales Per Cash Register Receipt Amount Short

$273 (25) 248 250 $2

Diff: 2 Topic: Cash Receipts Learning Objective: 09-01 Account for cash short or over. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking

85) In a business it is important to maintain control of cash payments. Discuss (4) of the essential cash payment controls. Answer: Students' answers may vary. A) Make all payments by check B) Issue checks only with an approved document C) Have only designated personnel approve invoices D) Have checks recorded by someone other the person who approves payments E) Have another person sign and mail checks to creditors F) During reconciliation, compare canceled checks to the checkbook G) Enter all cash payment transactions promptly H) Use pre-numbered check forms Diff: 2 Topic: Petty Cash and Internal Controls for Cash Learning Objective: 09-03 Demonstrate a knowledge of internal control routines for cash. Bloom's: Analyze AACSB: Analytical Thinking AICPA: BB Critical Thinking

86) Why is it important to closely control cash and cash receipts? Answer: It is the asset that is most easily stolen, lost, or mishandled. Diff: 1 Topic: Petty Cash and Internal Controls for Cash Learning Objective: 09-03 Demonstrate a knowledge of internal control routines for cash. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking

87) List and explain 3 types of endorsements Answer: a. Blank Endorsement: Signature of the payee that transfers ownership of the check without specifying to whom or for what purpose b. Full Endorsement: Signature transferring a check to a specific person, business or bank c. Restrictive Endorsement: Signature that transfers the check to a specific party for a specific purpose Diff: 2 Topic: Banking Procedures Learning Objective: 09-04 Write a check, endorse checks, prepare a bank deposit slip, and maintain a checkbook balance. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking

88) Discuss the difference between a debit memorandum and a credit memorandum as listed on the bank statement. Answer: A credit memorandum explains additions other than deposits to a checking account. Example: Collection on a notes receivable A debit memorandum explains deductions other than a check to a checking account Example: Service charges and dishonored checks Diff: 1 Topic: Banking Procedures Learning Objective: 09-05 Reconcile the monthly bank statement. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking

89) Discuss 3 bank errors that may occur resulting in a difference between a bank balance and a book balance. Answer: a. Arithmetic error b. Give credit to the wrong depositor c. Charge a check against the wrong account Diff: 1 Topic: Banking Procedures Learning Objective: 09-05 Reconcile the monthly bank statement. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Critical Thinking

90) On March 31, 2019, Home Decorating Pavilion received a bank statement showing a balance of $9,840. The balance in the firm's checkbook and Cash account on the same date was $10,745. The difference between the two balances is caused by the items listed below. a. A $3,260 deposit made on March 30 does not appear on the bank statement. b. Check 358 for $560 issued on March 29 and Check 359 for $1,480 issued on March 30 have not yet been paid by the bank. c. A credit memorandum shows that the bank has collected a $1,300 note receivable and interest of 37 Copyright © McGraw-Hill Education.All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

$130 for the firm. d. A service charge of $40 appears on the bank statement. e. A debit memorandum shows an NSF check for $525. (The check was issued by Dane Jaris, a credit customer.) f. The firm's records indicate that Check 341 of March 1 was issued for $890 to pay the month's rent. However, the canceled check and the listing on the bank statement show that the actual amount of the check was $880. g. The bank made an error by deducting a check for $560 issued by another business from the balance of Home Decorating Pavilion's account. Instructions: 1. Prepare a bank reconciliation statement for the firm as of March 31, 2019. 2. Record entries for any items on the bank reconciliation statement that must be journalized. Date the entries March 31, 2019. Use page 4 of a general journal.

Answer: HOME DECORATING PAVILION Bank Reconciliation Statement March 31, 2019 Balance on bank statement Additions: Deposit of March 30 in transit Check incorrectly charged to account

$ 9,840

$ 3,260 560

Deductions for outstanding checks: Check 358 of March 29 Check 359 of March 30 Total outstanding checks Adjusted bank balance

560 1,480 2,040 $ 11,620

Balance in books Additions: Note receivable and interest collected by bank Correction of error recording check 341

$ 10,745

$1,430 10

Deductions: NSF check Bank service charge Adjusted book balance GENERAL JOURNAL DATE DESCRIPTION 38 2019

_ 3,820 13,660

525 40

P.R.

DEBIT

1,440 11,600

565 $ 11,620 PAGE 19 CREDIT

Answer: 2019 Dec.

Cash

2,420

Notes Receivable

2,200

Interest Income

220

To record note collected by bank 31

Cash

200

Rent Expense

200

To correct error for check 341 31

Accounts Receivable/R. Donnelley

1,050

Cash

1,050

To record NSF check 31

Miscellaneous Expense

Cash

To record bank service charge Diff: 3 Topic: Banking Procedures Learning Objective: 09-05 Reconcile the monthly bank statement. Bloom's: Create AACSB: Analytical Thinking AICPA: BB Critical Thinking

91) On December 31, 2019, Designer's Warehouse received a bank statement containing a balance of $19,500. The balance in the firm's checkbook and Cash account on the same date was $20,580. The difference between the two balances is caused by the items listed below. a. A $5,750 deposit made on December 30 does not appear on the bank statement. b. Check 1312 for $970 issued on November 29 and Check 1375 for $3,300 issued on December 30 have not yet been paid by the bank. c. A credit memorandum shows that the bank has collected a $2,200 note receivable and interest of $220 for the firm. d. A service charge of $50 appears on the bank statement. e. A debit memorandum shows an NSF check for $1,050. (The check was issued by R. Donnelley, a credit customer.) f. The firm's records indicate that Check 1316 of December 1 was issued for $1,800 to pay the month's rent. However, the canceled check and the listing on the bank statement show that the actual amount of the check was $1,600. g. The bank made an error by deducting a check for $1,120 issued by another business from the balance of the account of Designer's Warehouse. 39 Copyright © McGraw-Hill Education.All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Instructions: 1. Prepare a bank reconciliation statement for the firm as of December 31, 2019. 2. Record entries for any items on the bank reconciliation statement that must be journalized. Date the entries December 31, 2019. Use page 19 of a general journal.

Answer:

DESIGNER'S WAREHOUSE Bank Reconciliation Statement December 31, 2019 Balance on bank statement Additions: Deposit of December 30 in transit Check incorrectly charged to account

$ 19,500

$ 5,750 1,120

Deductions for outstanding checks: Check 1312 of November 29 Check 1375 of December 30 Total outstanding checks Adjusted bank balance

970 3,300 4,270 $ 22,100

Balance in books Additions: Note receivable and interest collected by bank Correction of error recording check 1316

$ 20,580

$2,420 200

Deductions: NSF check Bank service charge Adjusted book balance GENERAL JOURNAL DATE DESCRIPTION 2019 Dec. 31 Cash

6,870 26,370

2,620 23,200

1,050 50

P.R.

1,100 $ 22,100

DEBIT

PAGE 19 CREDIT

2,420

Notes Receivable Interest Income To record note collected by bank 31

Cash Rent Expense To correct error for check 341 Accounts Receivable/R. 4D0onnelley

2,200 220

200 200

1,050

Answer:

Accounts Receivable/R. Donnelley Cash To record NSF check

1,050 1,050

Diff: 2 Topic: Banking Procedures Learning Objective: 09-05 Reconcile the monthly bank statement. Bloom's: Create AACSB: Analytical Thinking AICPA: BB Critical Thinking

92) Match the accounting terms with the description by entering the proper letter in the space provided. A. Bank reconciliation statement B. Blank endorsement C. Bonding D. Canceled check E. Cash F. Cash register proof G. Cash Short or Over account H. Check I. Credit memorandum J. Debit memorandum K. Deposit in transit L. Deposit slip M. Dishonored check

O. Drawer P. Endorsement Q. Full endorsement R. Negotiable S. Outstanding checks T. Payee U. Petty cash analysis sheet V. Petty cash voucher W. Postdated check X. Promissory note Y. Restrictive endorsement Z. Service charge AA. Statement of account

N. Drawee

1. A check paid by the bank on which it was drawn ___ 2. The process by which employees are investigated by an insurance company that will insure the business against losses through employee theft or mishandling of funds ___ 3. A check dated some time in the future ___ 4. A form sent to a firm's customers showing transactions during the month and the balance owed _ 5. A form used to record transactions involving petty cash ___ 6. A written authorization that transfers ownership of a check ___ 7. A written promise to pay a specified amount of money on a specific date ___ 8. A verification that the amount of currency and coins in a cash register agrees with the amount shown on the cash register audit tape ___ 9. The person or firm issuing a check ___ 10. A form used to record the payments made from a petty cash fund ___ 11. An account used to record any discrepancies between the amount of currency and coins in the cash register and the amount shown on the audit tape ___ 12. The person or firm to whom a check is payable 41 Copyright © McGraw-Hill Education.All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

_ 13. A written order signed by an authorized person instructing a bank to pay a specific sum of money to a designated person or business ___ 14. The bank on which a check is written ___ 15. A form that explains any addition, other than a deposit, to a checking account ___ 16. A form that explains any deduction, other than a check, from a checking account 17. A signature transferring a check to a specific person, firm, or bank ___ 18. In accounting, currency, coins, checks, money orders, and funds on deposit in a bank ___ 19. A check returned to the depositor unpaid because of insufficient funds in the drawer's account; also called an NSF check ___ 20. A deposit that is recorded in the cash receipts journal but that reaches the bank too late to be shown on the monthly bank statement ___ 21. A form prepared to record the deposit of cash or checks to a bank account ___ 22. A statement that accounts for all differences between the balance on the bank statement and the book balance of cash ___ 23. A fee charged by a bank to cover the costs of maintaining accounts and providing services ___ 24. A signature of the payee written on the back of the check that transfers ownership of the check without specifying to whom or for what purpose ___ 25. A financial instrument whose ownership can be transferred to another person or business ___ 26. Checks that have been recorded in the cash payments journal but have not yet been paid by the bank 27. A signature that transfers a check to a specific party for a stated purpose

Answer: (1) D, (2) C, (3) W, (4) AA, (5) U, (6) P, (7) X, (8) F, (9) O, (10) V, (11) G, (12) T, (13) H, (14) N, (15) I, (16) J, (17) Q, (18) E, (19) M, (20) K, (21) L, (22) A, (23) Z, (24) B, (25) R, (26) S, (27) Y Diff: 2 Topic: Cash Receipts; Petty Cash and Internal Controls for Cash; Banking Procedures Learning Objective: 09-01 Account for cash short or over.; 09-02 Demonstrate a knowledge of procedures for a petty cash fund.; 0903 Demonstrate a knowledge of internal control routines for cash.; 09-04 Write a check, endorse checks, prepare a bank deposit slip, and maintain a checkbook balance.; 09-05 Reconcile the monthly bank statement.; 09-06 Record any adjusting entries required from the bank reconciliation.; 09-07 Understand how businesses use online banking to manage cash activities. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Critical Thinking

Chapter 10 Payroll Computations, Records, and Payment MULTIPLE CHOICE QUESTIONS 1) The Medicare tax is levied to provide medical care for the employee and the employee's spouse after they reach age 65. A) True B) False Answer: A Explanation: Diff: 2 Topic: Payroll Laws and Taxes Learning Objective: 10-01 Explain the major federal laws relating to employee earnings and withholding. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Legal; FN Reporting; FN Measurement

2) The maximum base for the social security tax is the same as that for the Medicare tax. A) True B) False Answer: B Explanation: Diff: 2 Topic: Payroll Laws and Taxes Learning Objective: 10-01 Explain the major federal laws relating to employee earnings and withholding. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Legal; FN Measurement

3) The overtime rate is usually one and one-half times the regular hourly rate. A) True B) False Answer: A Explanation: Diff: 2 Topic: Payroll Laws and Taxes Learning Objective: 10-01 Explain the major federal laws relating to employee earnings and withholding. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Legal; FN Measurement

4) Time sheets or time cards are used to keep a record of hours worked each day by each employee paid on an hourly basis. A) True B) False Answer: A Explanation: Diff: 2 Topic: Calculating Earnings and Taxes Learning Objective: 10-02 Compute gross earnings of employees. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Legal; FN Reporting

5) If an employee whose regular hourly rate is $9 and whose overtime rate is 1.5 times the regular rate works 42 hours in one week, the employee's gross pay is $567. A) True B) False Answer: B Explanation: Diff: 2 Topic: Calculating Earnings and Taxes Learning Objective: 10-02 Compute gross earnings of employees. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement; BB Critical Thinking

6) If an employee works for more than one employer during the year, the social security tax is deducted and matched by only one employer. A) True B) False Answer: B Explanation: Diff: 2 Topic: Calculating Earnings and Taxes Learning Objective: 10-03 Determine employee deductions for social security tax. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Legal; FN Reporting; FN Measurement

7) Employees submit Form W-4 to their employers to show the number of withholding allowances they claim for federal income tax withholding purposes. A) True B) False Answer: A Explanation: Diff: 2 Topic: Calculating Earnings and Taxes Learning Objective: 10-05 Determine employee deductions for income tax. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Legal; FN Reporting; FN Measurement

8) Publication 15, Circular E contains federal income tax withholding tables. A) True B) False Answer: A Explanation: Diff: 2 Topic: Calculating Earnings and Taxes Learning Objective: 10-05 Determine employee deductions for income tax. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Legal; FN Reporting; FN Measurement

9) The employee's marital status is one factor that determines the amount of federal income tax withheld by the employer. A) True B) False Answer: A Explanation: Diff: 2 Topic: Calculating Earnings and Taxes Learning Objective: 10-05 Determine employee deductions for income tax. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Legal; FN Reporting; FN Measurement

10) Withholding for federal income taxes places employees on a pay-as-you-go basis. A) True B) False Answer: A Explanation: Diff: 2 Topic: Calculating Earnings and Taxes Learning Objective: 10-05 Determine employee deductions for income tax. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Legal; FN Reporting; FN Measurement

11) When a firm records its payroll, the amount of federal income tax withheld from employees is entered as a liability. A) True B) False Answer: A Explanation: Diff: 1 Topic: Recording Payroll Information Learning Objective: 10-07 Journalize payroll transactions in the general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Legal; FN Reporting

12) The net amount due employees for their wages is recorded as a debit to Salaries and Wages Payable. A) True B) False Answer: B Explanation: Diff: 1 Topic: Recording Payroll Information Learning Objective: 10-07 Journalize payroll transactions in the general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Legal; FN Reporting

13) Which of the following statements is not correct? A) Medicare taxes are levied in an equal amount on both employers and employees. B) The amount of social security tax withheld depends on an employee's gross earnings, marital status, and number of withholding allowances. C) Once an employee's year-to-date wages reach a certain amount prescribed by law, social security tax is no longer withheld. D) Federal law requires that social security, Medicare, and federal income taxes be deducted from the gross pay of most employees. Answer: B Explanation: A) B) C) D) Diff: 2 Topic: Payroll Laws and Taxes Learning Objective: 10-01 Explain the major federal laws relating to employee earnings and withholding. Bloom's: Analyze AACSB: Analytical Thinking AICPA: BB Legal; FN Reporting; FN Measurement

14) Identify the statement below that is not true regarding social security tax. A) Social security is sometimes referred to as FICA. B) In any given year, there is no limit on the amount of wages subject to social security tax. C) Both the employee and the employer pay an equal amount of social security tax on the employee's wages. D) The social security tax provides benefits for retirement as well as worker disability. Answer: B Explanation: A) B) C) D) Diff: 2 Topic: Payroll Laws and Taxes Learning Objective: 10-01 Explain the major federal laws relating to employee earnings and withholding. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Legal; FN Reporting; FN Decision Making

15) Which of the following statements is correct? A) All employees must be paid no more than the minimum wage rate set by the Fair Labor Standards Act. B) Disability benefits for the worker and the worker's dependents are provided by the Federal Insurance Contributions Act. C) A company is required to withhold various employee taxes from amounts paid independent contractors. D) The accountant who performs the independent audit for a company is an employee of the company. Answer: B Explanation: A) B) C) D) Diff: 3 Topic: Payroll Laws and Taxes Learning Objective: 10-01 Explain the major federal laws relating to employee earnings and withholding. Bloom's: Analyze AACSB: Analytical Thinking AICPA: FN Reporting; FN Decision Making; BB Resource Management

16) Which of the following statements is not correct? A) The SUTA tax protects employees against losses from job-related injuries or illnesses. B) The FUTA tax provides benefits for employees who become unemployed. C) The federal unemployment tax rate can be reduced by the rate charged by state for the state unemployment tax. D) The earnings base for the federal and state unemployment taxes are the same, the first $7,000 of an employee's earnings for the year. Answer: A Explanation: A) B) C) D) Diff: 2 Topic: Payroll Laws and Taxes Learning Objective: 10-01 Explain the major federal laws relating to employee earnings and withholding. Bloom's: Analyze AACSB: Analytical Thinking AICPA: BB Legal; FN Reporting; FN Decision Making

17) The employer records the amount of federal income tax withheld from employees as A) Social Security Tax Expense. B) Social Security Tax Payable. C) Income Tax Expense. D) Employee Federal Income Tax Payable. Answer: D Explanation: A) B) C) D) Diff: 1 Topic: Recording Payroll Information Learning Objective: 10-07 Journalize payroll transactions in the general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Legal; FN Reporting; FN Measurement

18) Federal law requires employers to withhold which of the following taxes from the employee's pay? A) Federal and state income tax, social security tax, Medicare tax, and FUTA. B) federal income tax, social security tax, Medicare tax, and state and local taxes. C) federal income tax, social security tax, and Medicare tax. D) federal income tax, social security tax, Medicare tax, and FUTA. Answer: C Explanation: A) B) C) D) Diff: 1 Topic: Payroll Laws and Taxes Learning Objective: 10-01 Explain the major federal laws relating to employee earnings and withholding. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Legal; FN Reporting; FN Decision Making

19) Federal law requires employers to pay which of the following employment related taxes? A) Federal and state income tax, social security tax, Medicare tax, and FUTA. B) FICA tax, federal and state income tax and federal unemployment compensation tax C) only federal and state unemployment compensation tax D) FICA tax and federal unemployment compensation tax Answer: D Explanation: A) B) C) D) Diff: 1 Topic: Payroll Laws and Taxes Learning Objective: 10-01 Explain the major federal laws relating to employee earnings and withholding. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Legal; FN Reporting; FN Decision Making

20) An employee whose regular hourly rate is $10 and whose overtime rate is 1.5 times the regular rate worked 44 hours in one week. In the payroll register, the employer should record an overtime premium of A) $440. B) $20. C) $220. D) $5. Answer: B Explanation:

A) $10 × 0.5 = $5 × 4 = $20 B) $10 × 0.5 = $5 × 4 = $20 C) $10 × 0.5 = $5 × 4 = $20 D) $10 × 0.5 = $5 × 4 = $20

Diff: 2 Topic: Calculating Earnings and Taxes Learning Objective: 10-02 Compute gross earnings of employees. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement; BB Resource Management

21) An employee whose regular hourly rate is $10 and whose overtime rate is 1.5 times the regular rate worked 44 hours in one week. In the payroll register, the employer should record wages expense of A) $460. B) $340. C) $400. D) $60. Answer: A Explanation:

A) $10 × 40 = $400 $10 × 1.5 = $15 × 4 = $60 $400 + $60 = $460 B) $10 × 40 = $400 $10 × 1.5 = $15 × 4 = $60 $400 + $60 = $460 C) $10 × 40 = $400 $10 × 1.5 = $15 × 4 = $60 $400 + $60 = $460 D) $10 × 40 = $400 $10 × 1.5 = $15 × 4 = $60 $400 + $60 = $460

22) An employee whose regular hourly rate is $20 and whose overtime rate is 1.5 times the regular rate worked 44 hours in one week. In the payroll register, the employer should record an overtime premium of A) $120. B) $880. C) $440. D) $40. Answer: D Explanation:

A) $20 × 0.5 = $10 × 4 = $40 B) $20 × 0.5 = $10 × 4 = $40 C) $20 × 0.5 = $10 × 4 = $40 D) $20 × 0.5 = $10 × 4 = $40

23) An employee whose regular hourly rate is $12 and whose overtime rate is 1.5 times the regular rate worked 48 hours in one week. In the payroll register, the employer should record an overtime premium of A) $48. B) $624. C) $216. D) $96. Answer: A Explanation:

A) $12 × 0.5 = $6 × 8 = $48 B) $12 × 0.5 = $6 × 8 = $48 C) $12 × 0.5 = $6 × 8 = $48 D) $12 × 0.5 = $6 × 8 = $48

24) An employee whose regular hourly rate is $12 and whose overtime rate is 1.5 times the regular rate worked 48 hours in one week. The total overtime earned by the employee for the week is A) $96. B) $144. C) $480. D) $48. Answer: B Explanation:

A) $12 × 1.5 = $18 × 8 = $144 B) $12 × 1.5 = $18 × 8 = $144 C) $12 × 1.5 = $18 × 8 = $144 D) $12 × 1.5 = $18 × 8 = $144

Diff: 2 Topic: Calculating Earnings and Taxes Learning Objective: 10-02 Compute gross earnings of employees. Bloom's: Remember; Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement; FN Decision Making; BB Resource Management

25) Salespeople who are paid a percentage of net sales are paid on a(n) A) salary basis. B) hourly-rate basis. C) commission basis D) piece-rate basis. Answer: C Explanation: A) B) C) D) Diff: 1 Topic: Calculating Earnings and Taxes Learning Objective: 10-02 Compute gross earnings of employees. Bloom's: Remember AACSB: Analytical Thinking AICPA: FN Decision Making; BB Resource Management

26) An employee whose regular hourly rate is $9 and whose overtime rate is 1.5 times the regular rate worked 44 hours one week. The employee's gross pay was A) $396. B) $594. C) $378. D) $414. Answer: D Explanation: A) $9 × 40 hours = $360.00 $9 × 1.5 = $13.50 × 4 = $54 + $360.00 = $414.00 B) $9 × 40 hours = $360.00 $9 × 1.5 = $13.50 × 4 = $54 + $360.00 = $414.00 C) $9 × 40 hours = $360.00 $9 × 1.5 = $13.50 × 4 = $54 + $360.00 = $414.00 D) $9 × 40 hours = $360.00 $9 × 1.5 = $13.50 × 4 = $54 + $360.00 = $414.00 Diff: 1 Topic: Calculating Earnings and Taxes Learning Objective: 10-02 Compute gross earnings of employees. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement; BB Resource Management

27) An employee whose regular hourly rate is $20 and whose overtime rate is 1.5 times the regular rate worked 45 hours one week. The employee's gross pay was A) $950. B) $900. C) $800. D) $1,350. Answer: A Explanation:

A) $20 × 40 hours = $800.00 $20 × 1.5 = $30.00 × 5 = $150 + $800.00 = $950.00 B) $20 × 40 hours = $800.00 $20 × 1.5 = $30.00 × 5 = $150 + $800.00 = $950.00 C) $20 × 40 hours = $800.00 $20 × 1.5 = $30.00 × 5 = $150 + $800.00 = $950.00 D) $20 × 40 hours = $800.00 $20 × 1.5 = $30.00 × 5 = $150 + $800.00 = $950.00

Diff: 1 Topic: Calculating Earnings and Taxes Learning Objective: 10-02 Compute gross earnings of employees. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement; BB Resource Management

28) Which of the following is a factor in the determination of the amount of social security tax to withhold from an employee's pay? A) gross wages B) marital status C) withholding allowances claimed on Form W-4 D) hours worked during the pay period Answer: A Explanation: A) B) C) D) Diff: 2 Topic: Calculating Earnings and Taxes Learning Objective: 10-03 Determine employee deductions for social security tax. Bloom's: Analyze AACSB: Analytical Thinking AICPA: BB Legal; FN Reporting; FN Decision Making

29) Michael Miller is paid twice a month and had total gross earnings as of 10/15 of $116,800. His gross earnings for the period ending 10/31 were $6,000. If social security taxes are 6.2% on a maximum earnings of $122,700 per year and Medicare tax is 1.45% on all earnings, how much social security tax will be paid by Michael and how much will be paid by his employer for the period ending 10/31? A) Michael will pay $105.40 and his employer is not required to pay any social security tax. B) Michael will pay $365.80 and his employer will also pay $365.80. C) Michael will pay $372.00 and his employer will also pay $372.00. D) Michael will pay $372.00 and his employer will pay $105.40. Answer: B Explanation: A) $122,700 – $116,800 = $5,900 ($5,900 × 0.062 = $365.80) B) $122,700 – $116,800 = $5,900 ($5,900 × 0.062 = $365.80) C) $122,700 – $116,800 = $5,900 ($5,900 × 0.062 = $365.80) D) $122,700 – $116,800 = $5,900 ($5,900 × 0.062 = $365.80) Diff: 2 Topic: Payroll Laws and Taxes Learning Objective: 10-01 Explain the major federal laws relating to employee earnings and withholding. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Legal; FN Reporting; FN Measurement

30) Michael Miller is paid twice a month and had total gross earnings as of 10/15 of $116,800. His gross earnings for the period ending 10/31 were $6,000. If social security taxes are 6.2% on a maximum earnings of $122,700 per year and Medicare tax is 1.45% on all earnings, how much medicare tax will be paid by Michael and how much will be paid by his employer for the period ending 10/31? A) Michael will pay $24.65 and his employer will also pay $24.65. B) Michael will pay $87.00 and his employer is not required to pay any social security tax. C) Michael will pay $24.65 and his employer will pay $87.00. D) Michael will pay $87.00 and his employer will also pay $87.00. Answer: D Explanation: A) $6,000 × .0145 = $87.00 B) $6,000 × .0145 = $87.00 C) $6,000 × .0145 = $87.00 D) $6,000 × .0145 = $87.00 Diff: 2 Topic: Payroll Laws and Taxes Learning Objective: 10-01 Explain the major federal laws relating to employee earnings and withholding. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Legal; FN Reporting; FN Measurement

31) Assuming a Medicare tax rate of 1.45% and monthly gross wages of $2,500, the amount recorded in Medicare Tax Payable for one quarter for the employee's payroll deduction is A) a credit for $108.75. B) a credit for $36.25. C) a debit for $36.25. D) a debit for $108.75. Answer: A Explanation: A) $2,500 × 0.0145 = $36.25 × 3 months = $108.75 B) $2,500 × 0.0145 = $36.25 × 3 months = $108.75 C) $2,500 × 0.0145 = $36.25 × 3 months = $108.75 D) $2,500 × 0.0145 = $36.25 × 3 months = $108.75 Diff: 2 Topic: Recording Payroll Information Learning Objective: 10-07 Journalize payroll transactions in the general journal. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement; BB Critical Thinking

32) Assuming a Medicare tax rate of 1.45% and monthly gross wages of $5,000, the amount recorded in Medicare Tax Payable for one quarter for the employee's payroll deduction is A) a debit for $217.50. B) a debit for $72.50. C) a credit for $217.50. D) a credit for $72.50. Answer: C Explanation: A) $5,000 × 0.0145 = $72.50 × 3 months = $217.50 B) $5,000 × 0.0145 = $72.50 × 3 months = $217.50 C) $5,000 × 0.0145 = $72.50 × 3 months = $217.50 D) $5,000 × 0.0145 = $72.50 × 3 months = $217.50 Diff: 2 Topic: Recording Payroll Information Learning Objective: 10-07 Journalize payroll transactions in the general journal. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement; BB Critical Thinking

33) Publication 15, Circular E contains withholding information A) for federal and state income taxes. B) for social security and Medicare taxes only. C) for federal income taxes only. D) for social security, Medicare, and federal income tax taxes. Answer: C Explanation: A) B) C) D) Diff: 2 Topic: Calculating Earnings and Taxes Learning Objective: 10-05 Determine employee deductions for income tax. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Legal; FN Reporting; FN Decision Making

34) Lisa Ramos has a regular hourly rate of $12.75. In a week when she worked 40 hours and had deductions of $67.00 for federal income tax, $31.62 for social security tax, and $7.40 for Medicare tax, her net pay was A) $616.02 B) $403.98 C) $510.00 D) $106.02 Answer: B Explanation:

A) $12.75 × 40 hours = $510.00 – $67.00 – $31.62 – $7.40 = $403.98 B) $12.75 × 40 hours = $510.00 – $67.00 – $31.62 – $7.40 = $403.98 C) $12.75 × 40 hours = $510.00 – $67.00 – $31.62 – $7.40 = $403.98 D) $12.75 × 40 hours = $510.00 – $67.00 – $31.62 – $7.40 = $403.98

Diff: 1 Topic: Calculating Earnings and Taxes Learning Objective: 10-06 Enter gross earnings, deductions, and net pay in the payroll register. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Legal; FN Reporting; FN Measurement

35) Lacy Crawford has a regular hourly rate of $21.50. In a week when she worked 40 hours and had deductions of $110 for federal income tax, $53.32 for social security tax, and $12.47 for Medicare tax, her net pay was A) $684.21 B) $860.00 C) $794.21 D) $750.00 Answer: A Explanation:

A) $21.50 × 40 hours = $860.00 – $110.00 – $53.52 – $12.47 = $684.21 B) $21.50 × 40 hours = $860.00 – $110.00 – $53.52 – $12.47 = $684.21 C) $21.50 × 40 hours = $860.00 – $110.00 – $53.52 – $12.47 = $684.21 D) $21.50 × 40 hours = $860.00 – $110.00 – $53.52 – $12.47 = $684.21

36) Jason McCurdy has a regular hourly rate of $10.75. During a two week period, he worked 80 hours and had deductions of $110 for federal income tax, $53.32 for social security tax, and $12.47 for Medicare tax. His gross pay was A) $684. B) $750. C) $860. D) $794. Answer: C Explanation: A) $10.75 × 80 hours = $860.00 B) $10.75 × 80 hours = $860.00 C) $10.75 × 80 hours = $860.00 D) $10.75 × 80 hours = $860.00 Diff: 1 Topic: Calculating Earnings and Taxes Learning Objective: 10-06 Enter gross earnings, deductions, and net pay in the payroll register. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Legal; FN Reporting; FN Measurement

37) Lila Harrison's is the sole employee of ABC Grocers. Her gross pay for the week was $400. She had deductions of $50 for federal income tax, $24.80 for social security tax, and $5.80 for Medicare tax. The journal entry to record her gross pay would include: A) a credit to Salaries Payable for $400.00 B) a debit to Salaries Payable for $319.40 C) a debit to Salaries Expense for $319.40 D) a debit to Salaries Expense for $400.00 Answer: D Explanation: A) $400.00 is her gross pay and that is debited to salaries expense. B) $400.00 is her gross pay and that is debited to salaries expense. C) $400.00 is her gross pay and that is debited to salaries expense. D) $400.00 is her gross pay and that is debited to salaries expense. Diff: 1 Topic: Recording Payroll Information Learning Objective: 10-07 Journalize payroll transactions in the general journal. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement; BB Critical Thinking

38) Ramon Gonzalez's gross pay for the week was $700. He had deductions of $85 for federal income tax, $43.40 for social security tax, $10.15 for Medicare tax as well as $5 for union dues. The journal entry to record his federal income tax withheld would include: A) a debit to Salaries Expense for $556.45 B) a debit to Salaries Payable for $700 C) a credit to Employee Income Tax Payable for $85 D) a debit to Employee Income Tax Payable for $85 Answer: C Explanation: A) B) C) D) Diff: 1 Topic: Recording Payroll Information Learning Objective: 10-07 Journalize payroll transactions in the general journal. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement; BB Critical Thinking

39) The Social Security Tax Payable account will normally have a(n) A) debit or credit balance depending on the timing of payments. B) credit balance. C) debit balance. D) zero balance. Answer: B Explanation: A) B) C) D) Diff: 1 Topic: Recording Payroll Information Learning Objective: 10-07 Journalize payroll transactions in the general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Legal; FN Reporting

40) ABC Grocers uses a separate checking account to pay their employees. The gross pay for the period was $850. However, after deductions were taken out, the net pay for the period was $790. The journal entry to record the issuance of payroll checks to their employees would include: A) a credit to Salaries Payable for $850 B) a debit to Salaries Payable for $790 C) a debit to Salaries Payable for $850 D) a debit to Salaries Expense for $790 Answer: B Explanation: A) B) C) D) Diff: 2 Topic: Recording Payroll Information Learning Objective: 10-07 Journalize payroll transactions in the general journal. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement; BB Critical Thinking

41) Junkman Autos uses a separate checking account to pay their employees. The gross pay for the period was $1,000. However, after deductions were taken out, the net pay for the period was $820. The journal entry to record the issuance of payroll checks to their employees is: A) Salaries Expense $ 820 Salaries Payable $ 820

B) Salaries Payable Cash

$ 1,000

Salaries Expense Cash

Salaries Payable Cash

$ 1,000

C) 820 $

820

Answer: D Explanation:

A) B) C) D)

820

D) Diff: 2 Topic: Recording Payroll Information Learning Objective: 10-07 Journalize payroll transactions in the general journal. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement; BB Critical Thinking

42) Identify the list of accounts below that would normally all have a debit balance. A) Salaries Payable, Medicare Tax Payable, Office Salaries Expense. B) Salaries Expense, Salaries Payable, Cash. C) Cash, Salaries Expense, Insurance Expense. D) Employee Income Tax Payable, Social Security Tax Payable, Wages Expense. Answer: C Explanation: A) B) C) D) Diff: 1 Topic: Recording Payroll Information Learning Objective: 10-07 Journalize payroll transactions in the general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: FN Reporting; BB Critical Thinking

43) Identify the list of accounts below that would normally all have a credit balance. A) Employee Income Tax Payable, Social Security Tax Payable, Salaries Expense. B) Salaries Payable, Prepaid Insurance, Medicare Tax Payable. C) Wages Expense, Salaries Payable, Equipment. D) Salaries Payable, Employee Income Tax Payable, Owner's Capital. Answer: D Explanation: A) B) C) D) Diff: 1 Topic: Recording Payroll Information Learning Objective: 10-07 Journalize payroll transactions in the general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: FN Reporting; BB Critical Thinking

44) The column totals in a payroll register A) are used in the journal entry to record the payroll. B) are posted directly to the general ledger accounts. C) are used at the end of the year to record payroll taxes owed to the IRS. D) are unnecessary. Answer: A Explanation: A) B) C) D) Diff: 1 Topic: Recording Payroll Information Learning Objective: 10-07 Journalize payroll transactions in the general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement; BB Critical Thinking

45) The amount debited to Wages Expense when a payroll is recorded is the A) total gross earnings. B) regular gross earnings. C) earnings after taxes. D) net earnings. Answer: A Explanation: A) B) C) D) Diff: 2 Topic: Recording Payroll Information Learning Objective: 10-07 Journalize payroll transactions in the general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement; BB Industry

46) When checks are issued to employees after the entry to record the payroll has been made, the accountant would A) debit Salaries and Wages Payable and credit Cash. B) debit Salaries Expense, debit Wages Expense, and credit Cash. C) debit Salaries and Wages Payable, debit Social Security Tax Payable, debit Medicare Tax Payable, debit Employee Income Tax Payable, and credit Cash. D) debit Salaries and Wages Payable and credit Salaries Expense and Wages Expense. Answer: A Explanation: A) B) C) D) Diff: 2 Topic: Recording Payroll Information Learning Objective: 10-07 Journalize payroll transactions in the general journal. Bloom's: Understand AACSB: Analytical Thinking AICPA: FN Reporting; FN Decision Making; BB Industry

47) Each type of deduction made from the employees' earnings is recorded in a separate A) expense account. B) asset account. C) revenue account. D) liability account. Answer: D Explanation: A) B) C) D) Diff: 1 Topic: Recording Payroll Information Learning Objective: 10-07 Journalize payroll transactions in the general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: FN Reporting; BB Industry

48) It is best not to pay wages and salaries by A) a check from the regular cash account. C) cash. Answer: C Explanation: A) B) C) D)

B) the direct-deposit method. D) a check from the payroll cash account.

Diff: 1 Topic: Recording Payroll Information Learning Objective: 10-07 Journalize payroll transactions in the general journal. Bloom's: Remember AACSB: Analytical Thinking AICPA: FN Reporting; BB Industry

49) All details related to an employee's earnings, deductions, and net pay throughout the year would be found in A) the individual earnings record. B) the Wages Expense account in the general ledger. C) the payroll register. D) the general journal. Answer: A Explanation: A) B) C) D) Diff: 2 Topic: Recording Payroll Information Learning Objective: 10-08 Maintain an earnings record for each employee. Bloom's: Understand AACSB: Analytical Thinking AICPA: FN Reporting; BB Resource Management

50) Sabrina Duncan had gross earnings for the pay period ending 10/15/19 of $5,785. Her total gross earnings as of 9/30/19 were $116,400. If Social Security taxes are 6.2% on a maximum earnings of $122,700 per year, Sabrina's Social Security withheld from her 10/15/19 paycheck would be: A) $220.47 B) $216.07 C) $358.67 D) $390.60 Answer: C Explanation:

A) $5,785 ×.062 = $358.67 B) $5,785 ×.062 = $358.67 C) $5,785 ×.062 = $358.67 D) $5,785 ×.062 = $358.67

Diff: 2 Topic: Calculating Earnings and Taxes Learning Objective: 10-03 Determine employee deductions for social security tax. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement; BB Industry

51) Abe Carter had gross earnings of $6,000 for the pay period ending 11/30. His total gross earnings as of 11/15 were $116,000. If Social Security taxes are 6.2% on a maximum earnings of $122,700 per year and Medicare tax is 1.45% on all earnings, the journal entry to record his earnings for the period ending 11/30 would include: A) a credit to FICA Tax Payable for $87.00 B) a credit to Salaries Expense for $6,000 C) a credit to Medicare Tax Payable for $36.25 D) a credit to Medicare Tax Payable for $87.00 Answer: D Explanation: A) $6,000 × 0.0145 = $87 B) $6,000 × 0.0145 = $87 C) $6,000 × 0.0145 = $87 D) $6,000 × 0.0145 = $87 Diff: 2 Topic: Calculating Earnings and Taxes; Recording Payroll Information Learning Objective: 10-07 Journalize payroll transactions in the general journal.; 10-04 Determine employee deductions for Medicare tax. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement; BB Industry

52) For which of the following taxes is there no limit on the amount of annual earnings subject to the tax? A) Federal income tax B) Federal unemployment tax C) Social Security tax D) State unemployment tax Answer: A Explanation: A) B) C) D) Diff: 2 Topic: Payroll Laws and Taxes; Calculating Earnings and Taxes Learning Objective: 10-01 Explain the major federal laws relating to employee earnings and withholding.; 10-02 Compute gross earnings of employees.; 10-03 Determine employee deductions for social security tax.; 10-04 Determine employee deductions for Medicare tax. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement; BB Industry

53) Jill Monroe earns $25 per hour. She worked 48 hours this pay period and receives time-and-a-half for any hours worked over 40 hours per week. Jill's gross earnings are: A) $1,100 B) $1,920 C) $1,200 D) $1,300 Answer: D Explanation:

A) $25 × 40 hours = $1,000 $25 × 1.5 = $37.50 × 8 = $300 + $1,000 = $1,300 B) $25 × 40 hours = $1,000 $25 × 1.5 = $37.50 × 8 = $300 + $1,000 = $1,300 C) $25 × 40 hours = $1,000 $25 × 1.5 = $37.50 × 8 = $300 + $1,000 = $1,300 D) $25 × 40 hours = $1,000 $25 × 1.5 = $37.50 × 8 = $300 + $1,000 = $1,300

Diff: 1 Topic: Calculating Earnings and Taxes Learning Objective: 10-02 Compute gross earnings of employees. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement; BB Industry

54) Which of the following is NOT typically an employee payroll withholding? A) union dues B) federal income taxes C) medical insurance D) state unemployment taxes Answer: D Explanation: A) B) C) D) Diff: 1 Topic: Payroll Laws and Taxes; Calculating Earnings and Taxes Learning Objective: 10-01 Explain the major federal laws relating to employee earnings and withholding.; 10-02 Compute gross earnings of employees.; 10-03 Determine employee deductions for social security tax.; 10-04 Determine employee deductions for Medicare tax. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Decision Making; BB Industry

55) The employer records the amount of federal income tax withheld as: A) a liability. B) an expense. C) an asset. D) a payroll tax expense. Answer: A Explanation:

A) B) C) D)

Diff: 1 Topic: Recording Payroll Information Learning Objective: 10-07 Journalize payroll transactions in the general journal. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; BB Industry

56) Social Security taxes are paid by: A) the employer and federal government. C) only by the employer. Answer: D Explanation: A) B) C) D)

B) employees only. D) both the employee and employer.

Diff: 1 Topic: Calculating Earnings and Taxes Learning Objective: 10-03 Determine employee deductions for social security tax.; 10-04 Determine employee deductions for Medicare tax. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Decision Making; BB Industry

57) Rick O'Shea, the only employee of Hunter Furniture Company, makes $30,000 per year and is paid once a month. For the month of July, his federal income taxes withheld are $180, state income taxes withheld are $37, social security tax is 6.2%, Medicare tax is 1.45%, State Unemployment Tax is 4%, and Federal Unemployment tax is 0.6%. What is Rick's net pay for July? A) $2,500.00 B) $2,091.75 C) $2,308.75 D) $2,283.00 Answer: B Explanation:

A) $30,000/12 = $2,500 – $180 – $37 – $191.25 ($2,500 × 0.0765) = $2,091.75 B) $30,000/12 = $2,500 – $180 – $37 – $191.25 ($2,500 × 0.0765) = $2,091.75 C) $30,000/12 = $2,500 – $180 – $37 – $191.25 ($2,500 × 0.0765) = $2,091.75 D) $30,000/12 = $2,500 – $180 – $37 – $191.25 ($2,500 × 0.0765) = $2,091.75

Diff: 2 Topic: Calculating Earnings and Taxes Learning Objective: 10-06 Enter gross earnings, deductions, and net pay in the payroll register. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement; BB Industry

58) The total amount earned by the employee is called the A) payroll. B) gross pay. C) take home pay. Answer: B Explanation: A) B) C) D)

D) net pay.

Diff: 1 Topic: Calculating Earnings and Taxes Learning Objective: 10-06 Enter gross earnings, deductions, and net pay in the payroll register. Bloom's: Understand AACSB: Analytical Thinking AICPA: FN Reporting; FN Decision Making; BB Industry

59) Social Security Tax is 6.2%; Medicare Tax is 1.45% and federal and state unemployment compensation taxes total 5.4% (both added together); the federal income tax for the month is $250 and the state income taxes for the month is $40. If employee George Glass earned $2,500 for the current month and he has not reached any maximums for taxes, what are the total employee payroll taxes withheld for the current month? A) $290.00 B) $326.25 C) $481.25 D) $616.25 Answer: C Explanation:

A) $2,500 × 0.062 = $155; $2,500 × .0145 = $36.25 $250.00 + $40.00 + $155.00 + $36.25 + $135.00 = $481.25 B) $2,500 × 0.062 = $155; $2,500 × .0145 = $36.25 $250.00 + $40.00 + $155.00 + $36.25 + $135.00 = $481.25 C) $2,500 × 0.062 = $155; $2,500 × .0145 = $36.25 $250.00 + $40.00 + $155.00 + $36.25 + $135.00 = $481.25 D) $2,500 × 0.062 = $155; $2,500 × .0145 = $36.25 $250.00 + $40.00 + $155.00 + $36.25 + $135.00 = $481.25

Diff: 2 Topic: Calculating Earnings and Taxes; Recording Payroll Information Learning Objective: 10-07 Journalize payroll transactions in the general journal.; 10-04 Determine employee deductions for Medicare tax. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement; FN Decision Making; BB Industry

60) Social Security Tax is 6.2%; Medicare Tax is 1.45% and federal and state unemployment compensation taxes total 5.4% (both added together). The federal income tax for the month is $250 and the state income taxes for the month is $40. If employee George Glass earned $2,500 for the current month and he has not reached any maximums for taxes, what is George's total net pay for the month? A) $1,883.75 B) $2,018.75 C) $2,500.00 D) $2,173.75 Answer: B Explanation:

A) $2,500 × 0.062 = $155.00; $2,500 × .0145 = $36.25 $250.00 + $40.00 + $155.00 + $36.25 = $481.25 $2,500.00 - $481.25 = 2,018.75 B) $2,500 × 0.062 = $155.00; $2,500 × .0145 = $36.25 $250.00 + $40.00 + $155.00 + $36.25 = $481.25 $2,500.00 - $481.25 = 2,018.75 C) $2,500 × 0.062 = $155.00; $2,500 × .0145 = $36.25 $250.00 + $40.00 + $155.00 + $36.25 = $481.25 $2,500.00 - $481.25 = 2,018.75 D) $2,500 × 0.062 = $155.00; $2,500 × .0145 = $36.25 $250.00 + $40.00 + $155.00 + $36.25 = $481.25 $2,500.00 - $481.25 = 2,018.75

Diff: 3 Topic: Calculating Earnings and Taxes; Recording Payroll Information Learning Objective: 10-07 Journalize payroll transactions in the general journal.; 10-04 Determine employee deductions for Medicare tax. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement; FN Decision Making; BB Industry

SHORT ANSWER QUESTIONS 61) Employees of firms engaged in interstate commerce must receive an overtime rate of at least 1.5 times the regular hourly rate of pay for time worked in excess of ________ hours per week. Answer: 40 Explanation: Diff: 1 Topic: Payroll Laws and Taxes Learning Objective: 10-01 Explain the major federal laws relating to employee earnings and withholding. Bloom's: Remember AACSB: Analytic AICPA: BB Legal; FN Measurement; FN Reporting

62) FICA tax is commonly referred to as ________ tax. Answer: social security Explanation: Diff: 1 Topic: Payroll Laws and Taxes Learning Objective: 10-01 Explain the major federal laws relating to employee earnings and withholding. Bloom's: Remember AACSB: Analytic AICPA: BB Legal; FN Reporting

63) A person who is hired by a company and who is under the control and direction of the employer is called a(n) ________. Answer: employee Explanation: Diff: 1 Topic: Payroll Laws and Taxes Learning Objective: 10-01 Explain the major federal laws relating to employee earnings and withholding. Bloom's: Remember AACSB: Analytic AICPA: BB Resource Management; FN Decision Making

64) An ________ is paid by the company to carry out a specific task or job but is not under the direct supervision, control, and direction of the company. Answer: independent contractor Explanation: Diff: 1 Topic: Payroll Laws and Taxes Learning Objective: 10-01 Explain the major federal laws relating to employee earnings and withholding. Bloom's: Remember AACSB: Analytic AICPA: BB Resource Management; FN Decision Making

65) Employers are required to pay for ________ insurance that will reimburse employees for losses suffered from job-related injuries. Answer: workers' compensation Explanation: Diff: 1 Topic: Payroll Laws and Taxes Learning Objective: 10-01 Explain the major federal laws relating to employee earnings and withholding. Bloom's: Remember AACSB: Analytic AICPA: BB Legal; FN Decision Making

66) An employee whose regular hourly rate is $12 and whose overtime rate is 1.5 times the regular rate worked 45 hours in one week. The employer should record an overtime premium of ________ in the payroll register. Answer: $30 Explanation: $12 * .5 = $6 * 5 hours = $30 Diff: 1 Topic: Calculating Earnings and Taxes Learning Objective: 10-02 Compute gross earnings of employees. Bloom's: Apply AACSB: Analytic AICPA: BB Resource Management; FN Measurement

67) Because salaried employees who hold supervisory or managerial positions generally are not subject to wage and hour laws, they are known as ________ employees. Answer: exempt Explanation: Diff: 1 Topic: Calculating Earnings and Taxes Learning Objective: 10-05 Determine employee deductions for income tax. Bloom's: Remember AACSB: Analytic AICPA: BB Legal; FN Decision Making

68) A worker who is paid an agreed amount for each week or month or year, regardless of the actual hours worked, is said to be paid on a(n) basis. Answer: salary Explanation: Diff: 1 Topic: Calculating Earnings and Taxes Learning Objective: 10-05 Determine employee deductions for income tax. Bloom's: Remember AACSB: Analytic AICPA: BB Resource Management; FN Decision Making

69) After payroll computations are made, the hours worked, rates, earnings, and deductions are entered into a record called a(n) ________. Answer: payroll register Explanation: Diff: 1 Topic: Calculating Earnings and Taxes Learning Objective: 10-06 Enter gross earnings, deductions, and net pay in the payroll register. Bloom's: Remember AACSB: Analytic AICPA: BB Critical Thinking; FN Reporting

70) An employee's gross earnings minus the necessary payroll deductions equals the employee's ________. Answer: net pay Explanation: Diff: 1 Topic: Calculating Earnings and Taxes Learning Objective: 10-06 Enter gross earnings, deductions, and net pay in the payroll register. Bloom's: Understand AACSB: Analytic AICPA: BB Critical Thinking; FN Reporting

71) The employer records the amount of federal income taxes withheld from employees in the ________ account. Answer: Employee Income Tax Payable Explanation: Diff: 1 Topic: Recording Payroll Information Learning Objective: 10-07 Journalize payroll transactions in the general journal. Bloom's: Remember AACSB: Analytic AICPA: BB Legal; FN Reporting

72) The amount of employees' ________ is recorded in the Wages Expense account. Answer: gross pay Explanation: Diff: 1 Topic: Recording Payroll Information Learning Objective: 10-07 Journalize payroll transactions in the general journal. Bloom's: Remember AACSB: Analytic AICPA: BB Resource Management; FN Reporting

73) During one week, three employees of the Snowshoe Lodge worked the number of hours shown below. All these employees receive overtime pay at one and a half times their regular hourly rate for any hours worked beyond 40 in a week. Compute the regular earnings, overtime earnings, and gross pay for each employee. Employee No. 1 2 3

Regular Hours Hourly Rate Worked $13.00 47 9.50 46 9.00 44

Regular Earnings

Overtime Earnings

Gross Pay

Answer: Employee No. 1: Reg. Earn., $520.00; OT Earnings., $136.50; Gross, $656.50 Employee No. 2: Reg. Earn., $380.00; OT Earnings., $85.50; Gross, $465.50 Employee No. 3: Reg. Earn., $360.00; OT Earnings., $54.00; Gross, $414.00 Explanation: Employee No. 1: $13*40 hours = $520; $19.5($13*1.5)*7=$136.50; $520+$136.50=$656.50 Employee No. 2: $9.50*40 hours = $380; $14.25($9.50*1.5)*6=$85.50; $380+$85.50=$465.50 Employee No. 3: $9*40 hours = $360; $13.50($9*1.5)*4=$54; $360+$54=$414 Diff: 1 Topic: Calculating Earnings and Taxes Learning Objective: 10-02 Compute gross earnings of employees. Bloom's: Apply AACSB: Analytic AICPA: BB Resource Management; FN Reporting; FN Measurement

74) During one week, three employees of the Tea Leaf Cafe worked the number of hours shown below. All these employees receive overtime pay at one and a half times their regular hourly rate for any hours worked beyond 40 in a week. Compute the regular earnings, overtime earnings, and gross pay for each employee. Employee No. 1 2 3

Regular Hours Hourly Rate Worked $13.00 46 11.00 44 9.00 45

Regular Earnings

Overtime Earnings

Gross Pay

Answer: Employee No. 1: Reg. Earn., $520.00; OT Earnings., $117.00; Gross, $637.00 Employee No. 2: Reg. Earn., $440.00; OT Earnings., $66.00; Gross, $506.00 Employee No. 3: Reg. Earn., $360.00; OT Earnings., $67.50; Gross, $427.50 Explanation: Employee No. 1: $13*40 hours = $520; $19.50($13*1.5)*6=$117; $520+$117=$637 Employee No. 2: $11*40 hours = $440; $16.50($11*1.5)*4=$66; $440+$66=$506 Employee No. 3: $9*40 hours = $360; $13.50($9*1.5)*5=$67.50; $360+$67.50=$427.50 Diff: 1 Topic: Calculating Earnings and Taxes Learning Objective: 10-02 Compute gross earnings of employees. Bloom's: Apply AACSB: Analytic AICPA: BB Resource Management; FN Reporting; FN Measurement

75) During one week, three employees of the Pampered Pooch Pet Salon worked the number of hours shown below. All these employees receive overtime pay at one and a half times their regular hourly rate for any hours worked beyond 40 in a week. Compute the regular earnings, overtime earnings, and gross pay for each employee. Employee No. 1 2 3

Regular Hours Hourly Rate Worked $ 26.00 46 16.00 44 18.50 45

Regular Earnings

Overtime Earnings

Gross Pay

Answer: Employee No. 1: Reg. Earn., $1,040.00; OT Earnings., $234.00; Gross, $1,274.00 Employee No. 2: Reg. Earn., $640.00; OT Earnings., $96.00; Gross, $736.00 Employee No. 3: Reg. Earn., $740.00; OT Earnings., $138.75; Gross, $878.75 Explanation: Employee No. 1: $26*40 hours = $1,040; $39($26*1.5)*6=$234; $1,040+$234=$1,274 Employee No. 2: $16*40 hours = $640; $24($16*1.5)*4=$96; $640+$96=$736 Employee No. 3: $18.50*40 hours = $740; $27.75($18.50*1.5)*5=$138.75; $740+$138.75=$878.75 Diff: 2 Topic: Calculating Earnings and Taxes Learning Objective: 10-02 Compute gross earnings of employees. Bloom's: Apply AACSB: Analytic AICPA: BB Resource Management; FN Reporting; FN Measurement

76) During one week, three employees of the Siesta Inn worked the number of hours shown below. All these employees receive overtime pay at one and a half times their regular hourly rate for any hours worked beyond 40 in a week. Compute the regular earnings, overtime earnings, and gross pay for each employee. Employee No. 1 2 3

Regular Hours Hourly Rate Worked $14.00 46 12.00 44 10.00 45

Regular Earnings

Overtime Earnings

Gross Pay

Answer: Employee No. 1: Reg. Earn., $560.00; OT Earnings., $126.00; Gross, $686.00 Employee No. 2: Reg. Earn., $480.00; OT Earnings., $72.00; Gross, $552.00 Employee No. 3: Reg. Earn., $400.00; OT Earnings., $75.00; Gross, $475.00 Explanation: Employee No. 1: $14*40 hours = $560; $21($14*1.5)*6=$126; $560+$126=$686 Employee No. 2: $12*40 hours = $480; $18($12*1.5)*4=$72; $480+$72=$552 Employee No. 3: $10*40 hours = $400; $15($10*1.5)*5=$75; $400+$75=$475 Diff: 2 Topic: Calculating Earnings and Taxes Learning Objective: 10-02 Compute gross earnings of employees. Bloom's: Apply AACSB: Analytic AICPA: BB Resource Management; FN Reporting; FN Measurement

77) The monthly salaries for December and the year-to-date earnings as of November 30 for the three employees of the Lakeview Medical Center are listed below. Compute the amount of social security tax and Medicare tax to be withheld from each of the employee's gross pay for December. Assume a 6.2 percent social security tax rate on a maximum of $122,700 for the calendar year. Assume a 1.45 percent Medicare tax rate. Employee Number 1 2 3

December Y-T-D Earnings Salary through Nov. 30 $7,500 $69,500 9,000 118,800 8,500 112,400

Soc. Sec. Tax for Dec. _________ _________ _________

Medicare Tax for Dec. _________ _________ _________

Answer: Employee No. 1: Soc. Sec. Tax, $465.00; Medicare Tax, $108.75 Employee No. 2: Soc. Sec. Tax, 241.80; Medicare Tax, $130.50 Employee No. 3: Soc. Sec. Tax, $527.00; Medicare Tax, $123.25 Explanation: Employee No. 1: $7,500*.062=$465; $7,500*.0145=$108.75 Employee No. 2: $122,700-118,800= $3,900*.062 = 241.80; $9,000*.0145=$130.50 Employee No. 3: $8,500*.062=$527.00; $8,500*.0145=$123.25 Diff: 2 Topic: Calculating Earnings and Taxes Learning Objective: 10-03 Determine employee deductions for social security tax.; 10-04 Determine employee deductions for Medicare tax. Bloom's: Apply AACSB: Analytic AICPA: BB Resource Management; FN Reporting; FN Measurement

78) The monthly salaries for December and the year-to-date earnings as of November 30 for the three employees of the Design Warehouse are listed below. Compute the amount of social security tax and Medicare tax to be withheld from each of the employee's gross pay for December. Assume a 6.2 percent social security tax rate on a maximum of $122,700 for the calendar year. Assume a 1.45 percent Medicare tax rate. Employee Number 1 2 3

December Y-T-D Earnings Salary through Nov. 30 $9,400 $70,500 10,000 122,700 9,500 113,700

Soc. Sec. Tax for Dec. _________ _________ _________

Medicare Tax for Dec. _________ _________ _________

Answer: Employee No. 1: Soc. Sec. Tax, $582.80; Medicare Tax, $136.30 Employee No. 2: Soc. Sec. Tax, zero; Medicare Tax, $ 145.00 Employee No. 3: Soc. Sec. Tax, $558.00; Medicare Tax, $137.75 Explanation: Employee No. 1: $9,400*.062=$582.80; $9,400*.0145=$136.30 Employee No. 2: $0 (maximum reached); $10,000*.0145=$145 Employee No. 3: ($122,700-$113,700)=$9,000*.062=$558.00; $9,500*.0145=$137.75 Diff: 2 Topic: Calculating Earnings and Taxes Learning Objective: 10-03 Determine employee deductions for social security tax.; 10-04 Determine employee deductions for Medicare tax. Bloom's: Apply AACSB: Analytic AICPA: BB Resource Management; FN Reporting; FN Measurement

79) The monthly salaries for December and the year-to-date earnings as of November 30 for the three employees of the Barbara's Bookstore, Inc. are listed below. Compute the amount of social security tax and Medicare tax to be withheld from each of the employee's gross pay for December. Assume a 6.2 percent social security tax rate on a maximum of $122,700 for the calendar year. Assume a 1.45 percent Medicare tax rate. Employee Number. 1 2 3

December Y-T-D Earnings Salary through Nov. 30 $7,900 $116,900 8,000 93,900 9,900 122,700

Soc. Sec. Tax for Dec. _________ _________ _________

Medicare Tax for Dec. _________ _________ _________

Answer: Employee No. 1: Soc. Sec. Tax, $359.60; Medicare Tax, $114.55 Employee No. 2: Soc. Sec. Tax, $496.00; Medicare Tax, $116.00 Employee No. 3: Soc. Sec. Tax, zero; Medicare Tax, $143.55 Explanation: Employee No. 1: $($122,700-$116,900)=$5,800*.062=$99.20; $7,900*.0145=$114.55 Employee No. 2:$8,000*.062=$496; $8,000*.0145=$116 Employee No. 3: $0 (maximum reached); $9,900*.0145=$143.55 Diff: 2 Topic: Calculating Earnings and Taxes Learning Objective: 10-03 Determine employee deductions for social security tax.; 10-04 Determine employee deductions for Medicare tax. Bloom's: Apply AACSB: Analytic AICPA: BB Resource Management; FN Reporting; FN Measurement

80) The monthly salaries for December and the year-to-date earnings as of November 30 for the three employees of Heather's Hair Salon are listed below. Compute the amount of social security tax and Medicare tax to be withheld from each of the employee's gross pay for December. Assume a 6.2 percent social security tax rate and a base of $122,700 for the calendar year. Assume a 1.45 percent Medicare tax rate. Employee Number. 1 2 3

December Y-T-D Earnings Salary through Nov. 30 $9,000 $120,900 9,200 122,700 8,800 96,900

Soc. Sec. Tax for Medicare Tax Dec. for Dec. _________ _________ _________ _________ _________ _________

Answer: Employee No. 1: Soc. Sec. Tax, $111.60; Medicare Tax, $130.50 Employee No. 2: Soc. Sec. Tax, zero; Medicare Tax, $133.40 Employee No. 3: Soc. Sec. Tax, $545.60; Medicare Tax, $127.60 Explanation: Employee No. 1: $($122,700-$120,900)=$1,800*.062=$111.60; $9,000*.0145=$130.50 Employee No. 2: $0 (maximum reached); $9,200*.0145=$133.40 Employee No. 3: $8,800*.062=$545.60; $8,800*.0145=$127.60 Diff: 2 Topic: Calculating Earnings and Taxes Learning Objective: 10-03 Determine employee deductions for social security tax.; 10-04 Determine employee deductions for Medicare tax. Bloom's: Apply AACSB: Analytic AICPA: BB Resource Management; FN Reporting; FN Measurement

81) During the week ended May 15, 2019, Scott Fairchild worked 40 hours. His regular hourly rate is $14. Assume that all of his earnings are subject to social security tax at a rate of 6.2 percent and Medicare tax at a rate of 1.45 percent. He also has deductions of $31 for federal income tax and $21 for health insurance. A) What is his gross pay for the week? B) What is the total of his deductions for the week? C) What is his net pay for the week? Answer: A) $560.00 B) $94.84 ($34.72 + $8.12 + $31.00 + $21.00) C) $465.16 Explanation: A. $14*40 hours= $560 B. $34.72 ($560*.062) + $8.12 ($560*.0145) + $31 + $21 = $94.84 C. $560.00 - $94.84 = $465.16 Diff: 2 Topic: Calculating Earnings and Taxes Learning Objective: 10-02 Compute gross earnings of employees.; 10-03 Determine employee deductions for social security tax.; 10-04 Determine employee deductions for Medicare tax.; 10-06 Enter gross earnings, deductions, and net pay in the payroll register. Bloom's: Apply AACSB: Analytic AICPA: BB Resource Management; FN Reporting; FN Measurement

82) During the week ended January 11, 2019, Darlene Marcussen worked 40 hours. Her regular hourly rate is $18. Assume that all of her earnings are subject to social security tax at a rate of 6.2 percent and Medicare tax at a rate of 1.45 percent. She also has deductions of $40 for federal income tax and $21 for health insurance. A) What is her gross pay for the week? B) What is the total of his deductions for the week? C) What is her net pay for the week? Answer: A) $720.00 B) $116.08 ($44.64 + $10.44+ $40.00 + $21.00) C) $603.92 Explanation: A. $18*40 hours= $720 B. $44.64 ($720*.062) + $10.44 ($720*.0145) + $40 + $21 = $116.08 C. $720 - $116.08 = $603.92 Diff: 2 Topic: Calculating Earnings and Taxes Learning Objective: 10-02 Compute gross earnings of employees.; 10-03 Determine employee deductions for social security tax.; 10-04 Determine employee deductions for Medicare tax.; 10-06 Enter gross earnings, deductions, and net pay in the payroll register. Bloom's: Apply AACSB: Analytic AICPA: BB Resource Management; FN Reporting; FN Measurement

83) During the week ended February 8, 2019, Stuart Wayne worked 40 hours. His regular hourly rate is $12. Assume that all of his earnings are subject to social security tax at a rate of 6.2 percent and Medicare tax at a rate of 1.45 percent. He also has deductions of $31 for federal income tax and $21 for health insurance. A) What is his gross pay for the week? B) What is the total of his deductions for the week? C) What is his net pay for the week? Answer: A) $480.00 B) $88.72 ($29.76 + $6.96 + $31.00 + $21.00) C) $391.28 Explanation: A. $12 *40 hours= $480 B. $29.76 ($480*.062) + $6.96 ($480*.0145) + $31 + $21 = $88.72 C. $480.00 - $88.72 = $391.28 Diff: 2 Topic: Calculating Earnings and Taxes Learning Objective: 10-02 Compute gross earnings of employees.; 10-03 Determine employee deductions for social security tax.; 10-04 Determine employee deductions for Medicare tax.; 10-06 Enter gross earnings, deductions, and net pay in the payroll register. Bloom's: Apply AACSB: Analytic AICPA: BB Resource Management; FN Reporting; FN Measurement

84) During the week ended April 26, 2019, Andy Tyler worked 40 hours. His regular hourly rate is $15. Assume that all of his earnings are subject to social security tax at a rate of 6.2 percent and Medicare tax at a rate of 1.45 percent. He also has deductions of $31 for federal income tax and $21 for health insurance. A) What is his gross pay for the week? B) What is the total of his deductions for the week? C) What is his net pay for the week? Answer: A) $600.00 B) $97.90 ($37.20 + $8.70 + $31.00 + $21.00) C) $502.10 Explanation: A. $15*40 hours= $600 B. $37.20 ($600*.062) + $8.70 ($600*.0145) + $31 + $21 = $97.90 C. $600.00 - $97.90 = $502.10 Diff: 2 Topic: Recording Payroll Information Learning Objective: 10-07 Journalize payroll transactions in the general journal. Bloom's: Apply AACSB: Analytic AICPA: BB Resource Management; FN Reporting; FN Measurement

85) The Rollins Company has office employees and shipping employees. A summary of their earnings and deductions for the week ended June 14, 2019, is shown below. On page 6 of a general journal, record the June 14 payroll and the entry to summarize the effect of the checks written to pay the payroll. Earnings and Deductions Gross Earnings Social Security Tax Medicare Tax Income Tax Health Insurance Net Pay for Week

Office Employees $1,150.00 71.30 16.68 135.00 23.00 $ 904.02

Shipping Employees $980.00 60.76 14.21 94.00 23.00 $788.03

Answer: GENERAL JOURNAL DATE 2019 June 14

DESCRIPTION

P.R.

DEBIT

Office Salaries Expense Shipping Salaries Expense Social Security Tax Payable Medicare Tax Payable Employee Income Tax Payable Health Ins. Premiums Payable Salaries and Wages Payable Payroll for week ended June 14

1,150.00 980.00

Salaries and Wages Payable Cash Paid salaries and wages for the week ended June 14

1,692.05

PAGE 6 CREDIT

132.06 30.89 229.00 46.00 1,692.05

1,692.05

Explanation: Diff: 2 Topic: Recording Payroll Information Learning Objective: 10-07 Journalize payroll transactions in the general journal. Bloom's: Evaluate AACSB: Analytic AICPA: BB Resource Management; FN Reporting; FN Measurement

86) The Royal Company has office employees and sales employees. A summary of their earnings and deductions for the week ended April 26, 2019, is shown below. On page 18 of a general journal, record the April 26 payroll and the entry to summarize the effect of the checks written to pay the payroll. Earnings and Deductions Gross Earnings Social Security Tax Medicare Tax

Office Employees $2,600.00 161.20 42 37.70

Sales Employees $2,960.00 183.52 42.92

Medicare Tax Income Tax Health Insurance Net Pay for Week

37.70 305.00 94.00 $2,002.10

42.92 284.00 46.00 $2,403.56

DESCRIPTION

P.R.

Answer: GENERAL JOURNAL DATE 2019 April 26

DEBIT

Office Salaries Expense Sales Salaries Expense Social Security Tax Payable Medicare Tax Payable Employee Income Tax Payable Health Ins. Premiums Payable Salaries and Wages Payable Payroll for week ended April 26

2,600.00 2,960.00

Salaries and Wages Payable Cash Paid salaries and wages for the week ended April 26

4,405.66

PAGE 18 CREDIT

344.72 80.62 589.00 140.00 4,405.66

4,405.66

87) The Burns Company has two office employees and two shipping employees. A summary of their earnings and deductions for the week ended August 23, 2019, is shown below. On page 10 of a general journal, record the August 23 payroll and the entry to summarize the effect of the checks written to pay the payroll. Earnings and Deductions Gross Earnings Social Security Tax Medicare Tax Income Tax Health Insurance Net Pay for Week

Office Employees $3,450.00 213.90 50.04 405.00 69.00 $2,712.06

Shipping Employees $2,940.00 182.28 42.63 282.00 69.00 $2,364.09

Answer: GENERAL JOURNAL DATE 2019 August 23

DESCRIPTION

P.R.

DEBIT

3,450.00 2,940.00

Salaries and Wages Payable Cash Paid salaries and wages for the week ended August 23

5,076.15

PAGE 10 CREDIT

396.18 92.67 687.00 138.00 5,076.15

5,076.15

88) The Santa Fe Company has office employees and shipping employees. A summary of their earnings and deductions for the week ended July 12, 2019, is shown below. On page 16 of a general journal, record the July 12 payroll and the entry to summarize the effect of the checks written to pay the payroll. Earnings and Deductions Gross Earnings Social Security Tax Medicare Tax Income Tax Health Insurance Net Pay for Week

Office Employees Shipping Employees $4,600.00 $3,920.00 285.20 243.04 66.72 56.84 540.00 376.00 92.00 92.00 $3,616.08 $3,152.12

Answer: GENERAL JOURNAL DATE 2019 July 12

DESCRIPTION

P.R.

PAGE 16 DEBIT

4,600.00 3,920.00

Salaries and Wages Payable Cash Paid salaries and wages for the week ended July 12

6,768.20

CREDIT

528.24 123.56 916.00 184.00 6,768.20

6,768.20

89) Match the accounting terms with the description by entering the proper letter in the space provided. A. Commission basis B. Compensation record C. Employee D. Employee's withholding allowance certificate (Form W-4) E. Exempt employees F. Federal unemployment taxes G. Hourly rate basis H. Independent contractor I. Individual earnings record J. Medicare tax

K. Payroll register L. Piece-rate basis M. Salary basis N. Social Security Act O. Social Security (FICA) Tax P. State unemployment taxes Q. Tax-exempt wages R. Time and a half S. Wage-bracket table method T. Workers' compensation insurance

1. A tax imposed by the Federal Insurance Contributions Act and collected on employee earnings to provide retirement and disability benefits ________ 2. A method of paying employees according to a percentage of net sales ________ 3. A method of paying employees according to an agreed-upon amount for each week or month ________ 4. An employee record that contains information needed to compute earnings and complete tax reports 45 Copyright © McGraw-Hill Education.All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

5. A federal act providing certain benefits for employees and their families; officially the Federal Insurance Contributions Act ________ 6. Earnings in excess of the base amount set by the Social Security Act ________ 7. A method of paying employees according to a stated rate per hour ________ 8. Salaried employees who hold supervisory or managerial positions who are not subject to the maximum hour and overtime pay provisions of the Wage and Hour Law ________ 9. Another name for individual earnings record 10. Insurance that protects employees against losses from job-related injuries or illnesses, or compensates their families if death occurs in the course of the employment ________ 11. Rate of pay for an employee's work in excess of 40 hours a week ________ 12. A person who is hired by and works under the control and direction of the employer ________ 13. A tax levied on employees and employers to provide medical care for the employee and the employee's spouse after each has reached age 65 ________ 14. A record of payroll information for each employee for the pay period ________ 15. A form used to claim exemption (withholding) allowances ________ 16. One who is paid by a company to carry out a specific task or job but is not under the direct supervision or control of the company ________17. Taxes levied by a state government against employers to benefit unemployed workers ________ 18. A method of paying employees according to the number of units produced ________ 19. Taxes levied by the federal government against employers to benefit unemployed workers ________ 20. A simple method to determine the amount of federal income tax to be withheld using a table provided by the government

Answer: (1) O, (2) A, (3) M (4) I, (5) N, (6) Q, (7) G, (8) E, (9) B, (10) T, (11) R, (12) C, (13) J, (14) K, (15) D, (16) H, (17) P, (18) L, (19) F, (20) S Explanation: Diff: 2 Topic: Recording Payroll Information Learning Objective: 10-01 Explain the major federal laws relating to employee earnings and withholding.; 10-02 Compute gross earnings of employees.; 10-03 Determine employee deductions for social security tax.; 10-04 Determine employee deductions for Medicare tax.; 10-05 Determine employee deductions for income tax.; 10-06 Enter gross earnings, deductions, and net pay in the payroll register.; 10-07 Journalize payroll transactions in the general journal.; 10-08 Maintain an earnings record for each employee.; 10-09 Bloom's: Remember AACSB: Analytic AICPA: BB Critical Thinking; FN Reporting; FN Decision Making

Chapter 11 Payroll Taxes, Deposits, and Reports MULTIPLE CHOICE QUESTIONS 1) The frequency of deposits of federal income taxes withheld and social security and Medicare taxes is determined by the amount owed. A) True B) False Answer: A Explanation: Diff: 1 Topic: Social Security, Medicare, and Employee Income Tax Learning Objective: 11-01 Explain how and when payroll taxes are paid to the government. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

2) For the purpose of internal control, the same person who prepares payroll checks should also distribute them. A) True B) False Answer: B Explanation: Diff: 2 Topic: Unemployment Tax and Workers' Compensation Learning Objective: 11-08 Compute and record workers' compensation insurance premiums. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making

3) To achieve internal control over payroll operations, no changes in employee pay rates should be made without written authorization from management. A) True B) False Answer: A Explanation: Diff: 1 Topic: Unemployment Tax and Workers' Compensation Learning Objective: 11-08 Compute and record workers' compensation insurance premiums. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making

4) A business pays the social security tax at the same rate and on the same taxable wages as its employees. A) True B) False Answer: A Explanation: Diff: 1 Topic: Social Security, Medicare, and Employee Income Tax Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement; BB Legal

5) The entry to record the Social security and Medicare taxes paid by a business includes a debit to Payroll Taxes Expense. A) True B) False Answer: A Explanation: Diff: 2 Topic: Social Security, Medicare, and Employee Income Tax Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

6) The entry to record the employer's payroll taxes would include a debit to an expense account and a credit to one or more liability accounts. A) True B) False Answer: A Explanation: Diff: 1 Topic: Social Security, Medicare, and Employee Income Tax Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

7) At the end of each quarter, the individual earnings records are totaled. A) True B) False Answer: A Explanation: Diff: 1 Topic: Social Security, Medicare, and Employee Income Tax Learning Objective: 11-04 Prepare an Employer's Quarterly Federal Tax Return, Form 941. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

8) If an employee leaves the firm before the end of the year, the employee may ask for and receive a Form W-2 within 30 days after the request or after the final wage payment. A) True B) False Answer: A Explanation: Diff: 2 Topic: Social Security, Medicare, and Employee Income Tax Learning Objective: 11-05 Prepare Wage and Tax Statement (Form W-2) and Annual Transmittal of Wage and Tax Statements (Form W-3). Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement; BB Legal

9) The information for preparing Form W-2 is obtained from the employees' individual earnings records. A) True B) False Answer: A Explanation: Diff: 1 Topic: Social Security, Medicare, and Employee Income Tax Learning Objective: 11-05 Prepare Wage and Tax Statement (Form W-2) and Annual Transmittal of Wage and Tax Statements (Form W-3). Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; BB Legal

10) The FUTA tax, like the social security tax, is levied on both the employer and the employee and, therefore, is withheld from employee's pay. A) True B) False Answer: B Explanation: Diff: 1 Topic: Unemployment Tax and Workers' Compensation Learning Objective: 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement; BB Legal

11) The unemployment compensation tax program is often called the unemployment insurance program. A) True B) False Answer: A Explanation: Diff: 1 Topic: Unemployment Tax and Workers' Compensation Learning Objective: 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Decision Making

12) Form 940, which is used to report the employer's federal unemployment tax, must be filed quarterly. A) True B) False Answer: B Explanation: Diff: 2 Topic: Unemployment Tax and Workers' Compensation Learning Objective: 11-07 Prepare an Employer's Federal Unemployment Tax Return, Form 940. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement; BB Legal

13) Which of the following statements is NOT correct? A) Payroll tax deposits can be made electronically or by using a Federal Tax Deposit Coupon, Form 8109. B) The "lookback period," in regard to payroll taxes, is defined as the previous month. C) The accountant obtains information about wages subject to payroll taxes from the payroll register. D) Most commercial banks are authorized to accept the employee's tax deposits for federal income taxes withheld and the employer's and employees' shares of social security taxes. Answer: B Explanation: A) B) C) D) Diff: 2 Topic: Social Security, Medicare, and Employee Income Tax Learning Objective: 11-01 Explain how and when payroll taxes are paid to the government. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement; FN Decision Making

14) The payments of employees' federal income taxes withheld and social security and Medicare taxes are periodically A) deposited in a special-purpose bank account, controlled by the company, until year-end when the funds are sent to the U.S. Treasury Department. B) deposited in a government-authorized financial institution. C) sent directly to the Internal Revenue Service. D) sent to the local office of the Internal Revenue Service. Answer: B Explanation: A) B) C) D) Diff: 1 Topic: Social Security, Medicare, and Employee Income Tax Learning Objective: 11-01 Explain how and when payroll taxes are paid to the government. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; BB Legal

15) The frequency of deposits of federal income taxes withheld and social security and Medicare taxes is most dependent on A) the profit reported by the firm. B) the number of employees on the payroll. C) the number of payroll periods a firm has. D) the amount owed. Answer: D Explanation: A) B) C) D) Diff: 1 Topic: Social Security, Medicare, and Employee Income Tax Learning Objective: 11-01 Explain how and when payroll taxes are paid to the government. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement; BB Legal

16) Both the employer and the employee are responsible for paying A) Social Security, Medicare, and unemployment taxes. B) FUTA taxes. C) SUTA taxes. D) Social Security and Medicare taxes. Answer: D Explanation:

A) B) C) D)

Diff: 1 Topic: Social Security, Medicare, and Employee Income Tax Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement; BB Legal

17) Only the employer is responsible for paying A) FUTA taxes. B) federal income taxes. C) social security, Medicare, and FUTA taxes. D) social security and Medicare taxes. Answer: A Explanation: A) B) C) D) Diff: 1 Topic: Social Security, Medicare, and Employee Income Tax Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement; BB Legal

18) The entry to record a deposit of federal income taxes withheld and social security and Medicare taxes, would include a A) debit one or more liability accounts and credit an asset account. B) debit one or more expense accounts and credit one or more liability accounts. C) debit an expense account and credit one or more liability accounts. D) debit an asset account and credit an expense account. Answer: A Explanation: A) B) C) D) Diff: 2 Topic: Social Security, Medicare, and Employee Income Tax Learning Objective: 11-03 Record deposit of social security, Medicare, and employee income taxes. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

19) During the week ended June 15, Wiley Automotive's employees earned $2,000 of gross wages and had $300 of federal income tax withheld. All of their employees had already earned over $7,000 of gross wages for the year so none of their wages were subject to FUTA or SUTA tax. However, all of their wages were still subject to Social Security tax of 6.2% and Medicare tax of 1.45%. The journal entry to record Payroll Tax Expense for the pay period would be:

A) Payroll Taxes Expense Employee Income Tax Payable Social Security Tax Payable Medicare Tax Payable

453

Payroll Taxes Expense Social Security Tax Payable Medicare Tax Payable

153

Social Security Tax Payable Medicare Tax Payable Payroll Taxes Expense

124 29

Payroll Taxes Expense Social Security Tax Payable Medicare Tax Payable

414

300 124 29

B) 124 29

153

Answer: B Explanation:

124 290

A) (Social Security $2.000 × 0.062 = $124 + (Medicare $2,000 × 0.0145 = $29) $124 + $29 = $153 total B) (Social Security $2.000 × 0.062 = $124 + (Medicare $2,000 × 0.0145 = $29) $124 + $29 = $153 total C) (Social Security $2.000 × 0.062 = $124 + (Medicare $2,000 × 0.0145 = $29) $124 + $29 = $153 total D) (Social Security $2.000 × 0.062 = $124 + (Medicare $2,000 × 0.0145 = $29) $124 + $29 = $153 total

Diff: 1 Topic: Social Security, Medicare, and Employee Income Tax; Unemployment Tax and Workers' Compensation Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes.; 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

20) On Form 941, the Employer's Quarterly Federal Tax Return, a firm calculates its liability for the quarter for A) federal income taxes withheld, social security and Medicare taxes, and FUTA taxes. B) federal and state income taxes withheld. C) social security and Medicare taxes and FUTA taxes. D) federal income taxes withheld and social security and Medicare taxes. Answer: D Explanation: A) B) C) D) Diff: 2 Topic: Social Security, Medicare, and Employee Income Tax Learning Objective: 11-04 Prepare an Employer's Quarterly Federal Tax Return, Form 941. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; BB Legal

21) Form 941 is filed A) each payroll period. C) annually. Answer: B Explanation:

B) quarterly. D) monthly.

A) B) C) D)

Diff: 2 Topic: Social Security, Medicare, and Employee Income Tax Learning Objective: 11-04 Prepare an Employer's Quarterly Federal Tax Return, Form 941. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; BB Legal

22) Which of the following statements is correct? A) The employer sends one copy of the Form 941 for each employee to the Internal Revenue Service. B) Form 941 is often referred to as a withholding statement. C) An employee must attach one copy of Form W-4 to his or her personal federal income tax return. D) An employee must attach one copy of Form W-2 to his or her personal federal income tax return. Answer: D Explanation: A) B) C) D) Diff: 2 Topic: Social Security, Medicare, and Employee Income Tax Learning Objective: 11-05 Prepare Wage and Tax Statement (Form W-2) and Annual Transmittal of Wage and Tax Statements (Form W-3). Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; BB Legal

23) Which of the following forms is submitted with a copy of the Form W-2 for each employee to the Social Security Administration? A) Form W-3 B) Form 941 C) Form W-4 D) Form 940 Answer: A Explanation: A) B) C) D) Diff: 1 Topic: Social Security, Medicare, and Employee Income Tax Learning Objective: 11-05 Prepare Wage and Tax Statement (Form W-2) and Annual Transmittal of Wage and Tax Statements (Form W-3). Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; BB Legal

24) Each employee of a firm will receive several copies of Form W-2, the Wage and Tax Statement, from the A) employer once a quarter. B) federal government once a year. C) employer with each paycheck. D) employer once a year. Answer: D Explanation: A) B) C) D) Diff: 1 Topic: Social Security, Medicare, and Employee Income Tax Learning Objective: 11-05 Prepare Wage and Tax Statement (Form W-2) and Annual Transmittal of Wage and Tax Statements (Form W-3). Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; BB Legal

25) A copy of the Form W-2 for each employee is submitted to the Social Security Administration along with A) Form 8109. B) Form W-3. C) Form 940. D) Form 941. Answer: B Explanation: A) B) C) D) Diff: 2 Topic: Social Security, Medicare, and Employee Income Tax Learning Objective: 11-05 Prepare Wage and Tax Statement (Form W-2) and Annual Transmittal of Wage and Tax Statements (Form W-3). Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; BB Legal

26) Which of the following statements is not correct? A) A few states levy an unemployment tax on the employee that must be withheld from the employee's pay. B) The reduction of state unemployment taxes because of favorable experience ratings reduces the credit allowable against the federal unemployment tax. C) One of the purposes of the unemployment insurance program is to stabilize employment and reduce unemployment. D) The unemployment insurance program is a federal program. Answer: B Explanation: A) B) C) D) Diff: 2 Topic: Unemployment Tax and Workers' Compensation Learning Objective: 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement; FN Decision Making

27) Which of the following taxes is not withheld from an employee's pay? A) Social security tax B) Medicare tax C) Federal income tax D) FUTA tax Answer: D Explanation: A) B) C) D) Diff: 1 Topic: Unemployment Tax and Workers' Compensation Learning Objective: 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement; BB Legal

28) All of the following taxes are withheld from an employee's pay except A) Medicare tax. B) SUTA tax. C) Social security tax. D) Federal income tax. Answer: B Explanation: A) B) C) D) Diff: 1 Topic: Unemployment Tax and Workers' Compensation Learning Objective: 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement; BB Legal

29) To record the deposit of FUTA tax, the accountant would A) debit Payroll Taxes Expense and credit Federal Unemployment Tax Payable. B) debit Federal Unemployment Tax Payable and credit Cash. C) debit Social Security Taxes Payable and credit Cash. D) debit Payroll Taxes Expense and credit Cash. Answer: B Explanation: A) B) C) D) Diff: 1 Topic: Unemployment Tax and Workers' Compensation Learning Objective: 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

30) Jackson Autos has one employee. As of March 30, their employee had already earned $6,300. For the pay period ending April 15, their employee earned an additional $2,000 of gross wages. Only the first $7,000 of annual earnings are subject to FUTA of 0.6% and SUTA of 5.4%. The journal entry to record the employer's unemployment payroll taxes for the period ending April 15, would be: A) Payroll Taxes Expense 80.60 Federal Unemployment Tax Payable 10.40 State Unemployment Tax Payable 70.20

B) Payroll Taxes Expense Federal Unemployment Tax Payable State Unemployment Tax Payable

42.00

Payroll Taxes Expense Federal Unemployment Tax Payable State Unemployment Tax Payable

79.80

Federal Unemployment Tax Payable State Unemployment Tax Payable Payroll Taxes Expense

4.20 37.80

C) 42.00 37.80

Answer: C Explanation:

42.00

A) (FUTA $7,000 – $6,300 = $700 × 0.006 = $4.20) + (SUTA $700 × 0.054 = $37.80) $4.20 + 37.80 = $42.00 total B) (FUTA $7,000 – $6,300 = $700 × 0.006 = $4.20) + (SUTA $700 × 0.054 = $37.80) $4.20 + 37.80 = $42.00 total C) (FUTA $7,000 – $6,300 = $700 × 0.006 = $4.20) + (SUTA $700 × 0.054 = $37.80) $4.20 + 37.80 = $42.00 total D) (FUTA $7,000 – $6,300 = $700 × 0.006 = $4.20) + (SUTA $700 × 0.054 = $37.80) $4.20 + 37.80 = $42.00 total

Diff: 1 Topic: Unemployment Tax and Workers' Compensation Learning Objective: 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

31) To record the payment of SUTA tax, the accountant would A) debit Payroll Taxes Expense and credit State Unemployment Tax Payable. B) debit State Unemployment Tax Payable and credit Cash. C) debit Social Security Taxes Payable and credit Cash. D) debit Payroll Taxes Expense and credit Cash. Answer: B Explanation: A) B) C) D) Diff: 1 Topic: Unemployment Tax and Workers' Compensation Learning Objective: 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

32) Employers usually record unemployment taxes at the end of each A) year. B) month. C) quarter. Answer: D Explanation: A) B) C) D)

D) payroll.

Diff: 1 Topic: Unemployment Tax and Workers' Compensation Learning Objective: 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

33) Most states require that the employer file the state return for unemployment taxes A) each payroll period. B) monthly. C) annually. D) quarterly. Answer: D Explanation:

A) B) C) D)

Diff: 1 Topic: Unemployment Tax and Workers' Compensation Learning Objective: 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement; BB Legal

34) Tax returns for the federal unemployment tax are due A) weekly. B) monthly. C) quarterly. Answer: D Explanation: A) B) C) D)

D) annually.

Diff: 1 Topic: Unemployment Tax and Workers' Compensation Learning Objective: 11-07 Prepare an Employer's Federal Unemployment Tax Return, Form 940. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement; BB Legal

35) This preprinted government form is used to report federal unemployment taxes. A) Form 8109 B) Form W-2 C) Form 940 D) Form 941 Answer: C Explanation: A) B) C) D) Diff: 1 Topic: Unemployment Tax and Workers' Compensation Learning Objective: 11-07 Prepare an Employer's Federal Unemployment Tax Return, Form 940. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement; BB Legal

36) All of the following are internal control procedures that are recommended to protect payroll operations except A) make voluntary deductions from employee earnings based only on a signed authorization from the employee. B) keep payroll records in locked files. C) retain all Forms W-4. D) assign new employees to work in payroll operations. Answer: D Explanation: A) B) C) D) Diff: 1 Topic: Unemployment Tax and Workers' Compensation Learning Objective: 11-08 Compute and record workers' compensation insurance premiums. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement; BB Legal

37) Generally, the maximum earnings subject to state unemployment taxes is A) the same as the base for social security. B) smaller than the base for social security. C) larger than the base for social security. D) the amount of total earnings. Answer: B Explanation: A) B) C) D) Diff: 1 Topic: Unemployment Tax and Workers' Compensation Learning Objective: 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement; BB Legal

38) If at the end of the year the firm owes a balance for workers' compensation insurance, the adjusting entry includes a A) a debit to Payroll Taxes Expense and a credit to cash. B) debit to Workers' Compensation Insurance Payable a credit to Workers' Compensation Insurance Expense. C) a debit to Workers' Compensation Insurance Expense and a credit to Workers' Compensation Insurance Payable. D) a debit to Workers' Compensation Refund Receivable and a credit to Workers' Compensation Insurance Expense. Answer: C Explanation: A) B) C) D) Diff: 2 Topic: Unemployment Tax and Workers' Compensation Learning Objective: 11-08 Compute and record workers' compensation insurance premiums. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement; BB Legal

39) Mr. Zee worked 48 hours during the week ended January 18, 2019. He is paid $12 per hour, and is paid time-and-a-half for all hours over 40 in a week. He had $100 withheld from his pay for federal income taxes, and $20 withheld for health insurance. The combined social security and Medicare tax rate is 7.65%, and the federal and state unemployment tax rates are 0.6% and 3.8%, respectively. All earnings are taxable. What is the total employer payroll tax expense for Mr. Zee's current paycheck? A) $47.74 B) $75.19 C) $0 D) $27.45 Answer: B Explanation:

A) $12 × 40 hours = $480; ($12 × 1.5) × 8 = $144; $480 + $144 = $624 $47.74 ($624 × 0.0765) + $3.74 ($624 × 0.006) + $23.71 ($624 × 0.038) = 75.19 B) $12 × 40 hours = $480; ($12 × 1.5) × 8 = $144; $480 + $144 = $624 $47.74 ($624 × 0.0765) + $3.74 ($624 × 0.006) + $23.71 ($624 × 0.038) = 75.19 C) $12 × 40 hours = $480; ($12 × 1.5) × 8 = $144; $480 + $144 = $624 $47.74 ($624 × 0.0765) + $3.74 ($624 × 0.006) + $23.71 ($624 × 0.038) = 75.19 D) $12 × 40 hours = $480; ($12 × 1.5) × 8 = $144; $480 + $144 = $624 $47.74 ($624 × 0.0765) + $3.74 ($624 × 0.006) + $23.71 ($624 × 0.038) = 75.19

Diff: 2 Topic: Social Security, Medicare, and Employee Income Tax; Unemployment Tax and Workers' Compensation Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes.; 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement; BB Critical Thinking

40) Mr. Zee worked 48 hours during the week ended January 18, 2019. He is paid $12 per hour, and is paid time and a half for all hours over 40 in a week. He had $100 withheld from his pay for federal income taxes, and $20 withheld for health insurance. The combined social security and Medicare tax rate is 7.65%, and the federal and state unemployment tax rates are 0.6% and 3.8%, respectively. All earnings are taxable. What is the net pay for Mr. Zee's current pay check? A) $167.74 B) $428.81 C) $624.00 D) $456.26 Answer: D Explanation:

A) $12 × 40 hours = $480; ($12 × 1.5) × 8 = $144; $480 + $144 = $624 $47.74 ($624 × 0.0765) + $100.00 + $20.00 = $167.74 $624.00 - $167.74 = $456.26 B) $12 × 40 hours = $480; ($12 × 1.5) × 8 = $144; $480 + $144 = $624 $47.74 ($624 × 0.0765) + $100.00 + $20.00 = $167.74 $624.00 - $167.74 = $456.26 C) $12 × 40 hours = $480; ($12 × 1.5) × 8 = $144; $480 + $144 = $624 $47.74 ($624 × 0.0765) + $100.00 + $20.00 = $167.74 $624.00 - $167.74 = $456.26 D) $12 × 40 hours = $480; ($12 × 1.5) × 8 = $144; $480 + $144 = $624 $47.74 ($624 × 0.0765) + $100.00 + $20.00 = $167.74 $624.00 - $167.74 = $456.26

41) Alfred Spindle earned gross wages of $1,850 for the week ended June 21, 2019. His gross wages year to date, prior to his June 21 paycheck, were $42,620. He had $136 withheld from his pay for federal income taxes, and $86 for health insurance. Social Security tax is 6.2% and Medicare tax is 1.45%; the federal unemployment tax rate is 0.6% and the state unemployment tax rate is 4.2%, both on a maximum of $7,000 per each employee's annual earnings. What is the total employer payroll tax expense associated with Alfred's June 21, 2019, paycheck? A) $141.53 B) $114.70 C) $230.33 D) $26.83 Answer: A Explanation:

A) $114.70 ($1,850 × 0.062) + $26.83 ($1,850 × 0.0145). No federal or state unemployment tax is calculated because Alfred had already earned over the wage base maximum of $7,000. B) $114.70 ($1,850 × 0.062) + $26.83 ($1,850 × 0.0145). No federal or state unemployment tax is calculated because Alfred had already earned over the wage base maximum of $7,000. C) $114.70 ($1,850 × 0.062) + $26.83 ($1,850 × 0.0145). No federal or state unemployment tax is calculated because Alfred had already earned over the wage base maximum of $7,000. D) $114.70 ($1,850 × 0.062) + $26.83 ($1,850 × 0.0145). No federal or state unemployment tax is calculated because Alfred had already earned over the wage base maximum of $7,000.

Diff: 3 Topic: Social Security, Medicare, and Employee Income Tax; Unemployment Tax and Workers' Compensation Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes.; 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement; BB Critical Thinking

42) Alfred Spindle earned gross wages of $1,850 for the week ended June 21, 2019. His gross wages year to date, prior to his June 21 paycheck, were $42,620. He had $136 withheld from his pay for federal income taxes, and $86 for health insurance. Social Security and is 6.2% and Medicare tax is 1.45%; the federal unemployment tax rate is 0.6% and the state unemployment tax rate is 4.2%, both on a maximum of $7,000 per each employee's annual earnings. The journal entry to record the employer payroll tax expense associated with Alfred's June 21, 2019, paycheck would include A) A debit to Payroll Tax Expense B) A debit to FICA Tax Payable C) A debit to Unemployment Compensation Tax Payable D) A credit to Payroll Tax Expense Answer: A Explanation: A) B) C) D) Diff: 3 Topic: Social Security, Medicare, and Employee Income Tax; Unemployment Tax and Workers' Compensation Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes.; 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement; BB Critical Thinking

43) Alfred Spindle earned gross wages of $1,850 for the week ended January 18, 2019. His gross wages year to date, prior to his January 18 paycheck, were $3,700. He had $96 withheld from his pay for federal income taxes, and $56 for health insurance. Social Security tax is 6.2% and Medicare tax is 1.45%; the federal unemployment tax rate is 0.6% and the state unemployment tax rate is 4.2%, both on a maximum of $7,000 per each employee's annual earnings. What is the total employer payroll tax expense associated with Alfred's January 18, 2019, paycheck? A) $230.33 B) $114.70 C) $92.50 D) $26.83 Answer: A Explanation:

A) $114.70 ($1,850 × 0.062) + $26.83 ($1,850 × 0.0145) + $11.10 ($1,850 × 0.006) + $77.70 ($1,850 × 0.042) = $230.33. B) $114.70 ($1,850 × 0.062) + $26.83 ($1,850 × 0.0145) + $11.10 ($1,850 × 0.006) + $77.70 ($1,850 × 0.042) = $230.33. C) $114.70 ($1,850 × 0.062) + $26.83 ($1,850 × 0.0145) + $11.10 ($1,850 × 0.006) + $77.70 ($1,850 × 0.042) = $230.33. D) $114.70 ($1,850 × 0.062) + $26.83 ($1,850 × 0.0145) + $11.10 ($1,850 × 0.006) + $77.70 ($1,850 × 0.042) = $230.33.

44) ABC Consulting had two employees with the following earnings information:

Employee Poppy Smith Henry Murphy

Cumulative Earning as of 11/30/2019 $ 6,600 $ 119,700

Gross Earnings for Week Ending 12/15/2019 $ 600 $ 4,000

Use the table above to calculate the employer payroll income taxes associated with Poppy's December 15 paycheck given the following tax rates: Social Security tax of 6.2% is levied on the first $122,700 of annual wages and the Medicare tax rate is 1.45% on all earnings. State unemployment tax of 5.4% and federal unemployment tax of 0.6% are both levied on only the first $7,000 of each employee's annual earnings. A) $37.20 B) $45.90 C) $69.90 D) $81.90

Answer: C Explanation:

A) Social Security $600 × 6.2% = $37.20 + Medicare $600 × 0.0145 = $8.70 + SUTA ($7,000 - $6,600 = $400 × 0.054) = $21.60 + FUTA ($7,000 - $6,600 = $400 × 0.006) = $2.40 (Total = $37.20 + $8.70 + $21.60 + $2.40 = $69.90)

B) Social Security $600 × 6.2% = $37.20 + Medicare $600 × 0.0145 = $8.70 + SUTA ($7,000 - $6,600 = $400 × 0.054) = $21.60 + FUTA ($7,000 - $6,600 = $400 × 0.006) = $2.40 (Total = $37.20 + $8.70 + $21.60 + $2.40 = $69.90) C) Social Security $600 × 6.2% = $37.20 + Medicare $600 × 0.0145 = $8.70 + SUTA ($7,000 - $6,600 = $400 × 0.054) = $21.60 + FUTA ($7,000 - $6,600 = $400 × 0.006) = $2.40 (Total = $37.20 + $8.70 + $21.60 + $2.40 = $69.90) D) Social Security $600 × 6.2% = $37.20 + Medicare $600 × 0.0145 = $8.70 + SUTA ($7,000 - $6,600 = $400 × 0.054) = $21.60 + FUTA ($7,000 - $6,600 = $400 × 0.006) = $2.40 (Total = $37.20 + $8.70 + $21.60 + $2.40 = $69.90) Diff: 3 Topic: Social Security, Medicare, and Employee Income Tax; Unemployment Tax and Workers' Compensation Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes.; 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement; BB Critical Thinking

45) ABC Consulting had two employees with the following earnings information:

Employee Poppy Smith Henry Murphy

Cumulative Earning as of 11/30/2019 $ 6,600 $ 119,700

Gross Earnings for Week Ending 12/15/2019 $ 600 $ 4,000

Use the table above to calculate the employer payroll income taxes associated with Henry's December 15 paycheck given the following tax rates: Social Security tax of 6.2% is levied on the first $122,700 of annual wages and the Medicare tax rate is 1.45% on all earnings. State unemployment tax of 5.4% and federal unemployment tax of 0.6% are both levied on only the first $7,000 of each employee's annual earnings. A) $484.00 B) $244.00 C) $58.00 D) $111.60

Answer: B Explanation:

A) Social Security $122,700 - $119,700 = $3,000 × 6.2% = $186.00 + Medicare $4,000 × 0.0145 = $58 + SUTA $0 + FUTA $0; (Total = $186.00 + $58 = $244.00) No federal or state unemployment tax is calculated because Henry had already earned over the wage base maximum of $7,000. B) Social Security $122,700 - $119,700 = $3,000 × 6.2% = $186.00 + Medicare $4,000 × 0.0145 = $58 + SUTA $0 + FUTA $0; (Total = $186.00 + $58 = $244.00) No federal or state unemployment tax is calculated because Henry had already earned over the wage base maximum of $7,000. C) Social Security $122,700 - $119,700 = $3,000 × 6.2% = $186.00 + Medicare $4,000 × 0.0145 = $58 + SUTA $0 + FUTA $0; (Total = $186.00 + $58 = $244.00) No federal or state unemployment tax is calculated because Henry had already earned over the wage base maximum of $7,000. 23

D) Social Security $122,700 - $119,700 = $3,000 × 6.2% = $186.00 + Medicare $4,000 × 0.0145 = $58 + SUTA $0 + FUTA $0; (Total = $186.00 + $58 = $244.00) No federal or state unemployment tax is calculated because Henry had already earned over the wage base maximum of $7,000. Diff: 3 Topic: Social Security, Medicare, and Employee Income Tax; Unemployment Tax and Workers' Compensation Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes.; 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement; BB Critical Thinking

46) George's Gameroom had two employees with the following earnings information:

Employee Barbara Brown Hillary Adams

Cumulative Earnings as of 11/30/2019 $ 5,900 $ 118,300

Gross Earnings for Week Ending 12/15/2019 $ 1,800 $ 6,000

Use the table above to calculate how much of Barbara's December 15 paycheck is still subject to state unemployment tax given that the rate is 4% and federal unemployment tax is 0.6% and both taxes are levied on only the first $7,000 of each employee's annual earnings. A) $1,800 B) $5,900 C) $1,100 D) $700

Answer: C Explanation:

A) SUTA ($7,000 – $5,900 = $1,100) B) SUTA ($7,000 – $5,900 = $1,100) C) SUTA ($7,000 – $5,900 = $1,100) D) SUTA ($7,000 – $5,900 = $1,100)

47) George's Gameroom had two employees with the following earnings information:

Employee Barbara Brown Hillary Adams

Cumulative Earnings as of 11/30/2019 $ 5,900 $ 118,300

Gross Earnings for Week Ending 12/15/2019 $ 1,800 $ 6,000

Use the table above and calculate how much of Hillary's December 15 paycheck is still subject to Social Security tax given that the tax is levied on the first $122,700 of annual wages and the Medicare tax rate is 1.45% on all earnings. A) $4,400 B) $2,500 C) $2,800 D) $6,000

Answer: A Explanation:

A) Social Security $122,700 – $118,300 = $4,400 B) Social Security $122,700 – $118,300 = $4,400 C) Social Security $122,700 – $118,300 = $4,400 D) Social Security $122,700 – $118,300 = $4,400

Diff: 1 Topic: Social Security, Medicare, and Employee Income Tax Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement; BB Critical Thinking

48) Jerry Little's gross wages as of October 31 were $110,000. He earned gross wages of $4,000 for the pay period ended November 15, 2019. Deducted from his paycheck this period, were federal income taxes of $400, state income taxes of $150, social security of 6.2% on the first $122,700 and Medicare tax of 1.45%. State Unemployment Tax is 4%, and Federal Unemployment tax is 0.6% on the first $7,000 of annual earnings. Calculate the employer payroll income taxes associated with Jerry's November 15 paycheck. A) $58.00 B) $306.00 C) $248.00 D) $490.00 Answer: B Explanation:

A) Social Security $4,000 × 0.062 = $248.00 + Medicare $4,000 × 0.0145 = $58 + SUTA $0 + FUTA $0 = $306.00. No federal or state unemployment tax is calculated because Jerry had already earned over the wage base maximum of $7,000. B) Social Security $4,000 × 0.062 = $248.00 + Medicare $4,000 × 0.0145 = $58 + SUTA $0 + FUTA $0 = $306.00. No federal or state unemployment tax is calculated because Jerry had already earned over the wage base maximum of $7,000. C) Social Security $4,000 × 0.062 = $248.00 + Medicare $4,000 × 0.0145 = $58 + SUTA $0 + FUTA $0 = $306.00. No federal or state unemployment tax is calculated because Jerry had already earned over the wage base maximum of $7,000. D) Social Security $4,000 × 0.062 = $248.00 + Medicare $4,000 × 0.0145 = $58 + SUTA $0 + FUTA $0 = $306.00. No federal or state unemployment tax is calculated because Jerry had already earned over the wage base maximum of $7,000.

49) Rick O'Shea, the only employee of Hunter Furniture Company, makes $30,000 per year and is paid once a month. For the month of January, his federal income taxes withheld are $180, state income taxes withheld are $37, social security is 6.2% on a maximum wages of $122,700, Medicare tax is 1.45%, State Unemployment Tax is 4.2%, and Federal Unemployment tax is 0.6%, both on a maximum wages of $7,000 per employee. What is the employer's payroll tax expense associated with Rick's paycheck? A) $120.00 B) $311.25 C) $150.00 D) $191.25 Answer: B Explanation:

A) $30,000/12 = $2,500 $155.00 ($2,500 × 0.062) + 36.25 ($2,500 × 0.0145) + 105.00 ($2,500 × 0.042) + $15.00 ($2,500 × 0.006) = Total $155.00 + $36.25 + $105.00 + $15.00 = $311.25 B) $30,000/12 = $2,500 $155.00 ($2,500 × 0.062) + 36.25 ($2,500 × 0.0145) + 105.00 ($2,500 × 0.042) + $15.00 ($2,500 × 0.006) = Total $155.00 + $36.25 + $105.00 + $15.00 = $311.25 C) $30,000/12 = $2,500 $155.00 ($2,500 × 0.062) + 36.25 ($2,500 × 0.0145) + 105.00 ($2,500 × 0.042) + $15.00 ($2,500 × 0.006) = Total $155.00 + $36.25 + $105.00 + $15.00 = $311.25 D) $30,000/12 = $2,500 $155.00 ($2,500 × 0.062) + 36.25 ($2,500 × 0.0145) + 105.00 ($2,500 × 0.042) + $15.00 ($2,500 × 0.006) = Total $155.00 + $36.25 + $105.00 + $15.00 = $311.25

50) Samantha Rodriguez had gross earnings for the pay period ending 10/15/19 of $5,785. Her total gross earnings as of 9/30/19 were $116,700. Social Security taxes are 6.2% on a maximum earnings of $122,700 per year. The Social Security tax due by her employer from her 10/15/19 paychecks is: A) $61.07 B) $372.00 C) $358.67 D) $442.55 Answer: B Explanation:

A) ($122,700 – $116,700) × 0.062 = $372.00 B) ($122,700 – $116,700) × 0.062 = $372.00 C) ($122,700 – $116,700) × 0.062 = $372.00 D) ($122,700 – $116,700) × 0.062 = $372.00

51) Samantha Rodriguez had gross earnings for the pay period ending 10/15/19 of $5,785. Her total gross earnings as of 9/30/19 were $115,700. Social Security taxes are 6.2% on a maximum earnings of $122,700 per year and Medicare taxes are 1.45% of all earnings. The Medicare tax due by her employer from her 10/15/19 paychecks is: A) $83.88 B) $442.55 C) $297.60 D) $358.67 Answer: A Explanation:

A) $5,785 × 0.0145 = $83.88 B) $5,785 × 0.0145 = $83.88 C) $5,785 × 0.0145 = $83.88 D) $5,785 × 0.0145 = $83.88

52) Which of the following is not an employer payroll tax: A) FICA (Social Security and Medicare) B) federal unemployment tax C) state unemployment tax D) federal income tax Answer: D Explanation: A) B) C) D) Diff: 2 Topic: Social Security, Medicare, and Employee Income Tax; Unemployment Tax and Workers' Compensation Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes.; 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

53) Which of the following are employer payroll taxes: A) state unemployment tax and state income tax B) federal income tax withheld and social security tax C) FICA (Social Security and Medicare) and federal and state unemployment taxes D) federal and state unemployment tax and federal income tax withheld Answer: C Explanation:

A) B) C) D)

54) Roy DeSoto earns a regular hourly salary of $24.50. He is paid time-and-a-half for all hours in excess of 40 in the week. For the week ended March 8, 2019, he worked a total of 50 hours. His gross wages year to date, prior to his March 8, paycheck, are $11,980. Social Security Tax is 6.2% on a maximum of $122,700 of gross wages per year, Medicare Tax is 1.45%, federal unemployment tax is 0.6% and state unemployment tax is 4.2%, both on a maximum of $7,000 of gross wages per year. What is the employer's payroll tax expense for Roy for the week ended March 8, 2019? A) $154.96 B) $103.09 C) $170.47 D) $123.97 Answer: B

Explanation:

A) $980.00 (24.50 × 40 hours) + $367.50 (($24.50 × 1.5) × 10) = $1,347.50 $83.55 ($1,347.50 × 0.062) + $19.54 ($1,347.50 × 0.0145) = $103.09 No federal or state unemployment tax is calculated because Alfred had already earned over the wage base maximum of $7,000. B) $980.00 (24.50 × 40 hours) + $367.50 (($24.50 × 1.5) × 10) = $1,347.50 $83.55 ($1,347.50 × 0.062) + $19.54 ($1,347.50 × 0.0145) = $103.09 No federal or state unemployment tax is calculated because Alfred had already earned over the wage base maximum of $7,000. C) $980.00 (24.50 × 40 hours) + $367.50 (($24.50 × 1.5) × 10) = $1,347.50 $83.55 ($1,347.50 × 0.062) + $19.54 ($1,347.50 × 0.0145) = $103.09 No federal or state unemployment tax is calculated because Alfred had already earned over the wage base maximum of $7,000. D) $980.00 (24.50 × 40 hours) + $367.50 (($24.50 × 1.5) × 10) = $1,347.50 $83.55 ($1,347.50 × 0.062) + $19.54 ($1,347.50 × 0.0145) = $103.09 No federal or state unemployment tax is calculated because Alfred had already earned over the wage base maximum of $7,000.

55) Kristy Casey earns $39,000 per year and is paid once a month. For January, she had $188 withheld from her pay for federal income taxes, and $52 withheld for health insurance. Social Security tax is 6.2% on a maximum of $122,700 of gross wages per year, and Medicare tax is 1.45%; the federal unemployment tax rate is 0.6% and state unemployment tax rate is 4.2%. What is the total employer payroll tax expense for Kristy's January paycheck? A) $248.63 B) $404.63 C) $385.13 D) $162.50 Answer: B Explanation:

A) $39,000/12 = $3,250; $201.50 ($3,250 × 0.062) + $47.13 ($3,250 × 0.0145) + $19.50 ($3,250 × 0.006) + $136.50 ($3,250 × 0.042) = $404.63 B) $39,000/12 = $3,250; $201.50 ($3,250 × 0.062) + $47.13 ($3,250 × 0.0145) + $19.50 ($3,250 × 0.006) + $136.50 ($3,250 × 0.042) = $404.63 C) $39,000/12 = $3,250; $201.50 ($3,250 × 0.062) + $47.13 ($3,250 × 0.0145) + $19.50 ($3,250 × 0.006) + $136.50 ($3,250 × 0.042) = $404.63 D) $39,000/12 = $3,250; $201.50 ($3,250 × 0.062) + $47.13 ($3,250 × 0.0145) + $19.50 ($3,250 × 0.006) + $136.50 ($3,250 × 0.042) = $404.63

56) Mary Gonzalez had total cumulative gross earnings of $5,800 as of 1/31/19. Her gross earnings for the pay period ending 2/15/19 were $3,000. If federal unemployment taxes are 0.6% on a maximum earnings of $7,000 per year, how much federal unemployment tax will be paid by Mary and how much will be paid by her employer for her earnings of 2/15/19? A) Mary will pay $7.20 and her employer will also pay $7.20. B) Mary will pay $0 and her employer will pay $7.20. C) Mary will pay $0 and her employer will pay $10.80. D) Mary will pay $0 and her employer will pay $0. Answer: B Explanation:

A) $7,000 – $5,800 = $1,200 ($1,200 × 0.006 = $7.20) B) $7,000 – $5,800 = $1,200 ($1,200 × 0.006 = $7.20) C) $7,000 – $5,800 = $1,200 ($1,200 × 0.006 = $7.20) D) $7,000 – $5,800 = $1,200 ($1,200 × 0.006 = $7.20)

Diff: 2 Topic: Unemployment Tax and Workers' Compensation Learning Objective: 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement; BB Critical Thinking

57) Identify the list of accounts below that would normally all have a credit balance. A) Social Security Tax Payable, Medicare Tax Payable, Employee Income Tax Payable. B) Worker's Compensation Insurance Expense, Prepaid Insurance, Medicare Tax Payable. C) Worker's Compensation Insurance Payable, Salaries Payable, Salaries Expense. D) Payroll Taxes Expense, State Unemployment Tax Payable, Wages Payable. Answer: A Explanation: A) B) C) D) Diff: 1 Topic: Social Security, Medicare, and Employee Income Tax; Unemployment Tax and Workers' Compensation Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes.; 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

58) Identify the list of accounts below that would normally all have a debit balance. A) Social Security Tax Payable, Medicare Tax Payable, Employee Income Tax Payable. B) Worker's Compensation Insurance Expense, Prepaid Insurance, Medicare Tax Payable. C) Payroll Taxes Expense, Salaries Expense, Workers' Compensation Insurance Expense. D) Worker's Compensation Insurance Payable, Salaries Payable, Salaries Expense. Answer: C Explanation: A) B) C) D) Diff: 1 Topic: Social Security, Medicare, and Employee Income Tax; Unemployment Tax and Workers' Compensation Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes.; 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

59) Which of the following payroll taxes is not paid by the employee? A) FICA (Social Security and Medicare) B) federal unemployment tax C) federal income tax D) state income tax Answer: B Explanation: A) B) C) D) Diff: 2 Topic: Social Security, Medicare, and Employee Income Tax; Unemployment Tax and Workers' Compensation Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes.; 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement

60) For which of the following is there no limit to the amount of wages subject to the tax? A) Social Security tax B) State unemployment tax C) Medicare tax D) Federal unemployment tax Answer: C Explanation: A) B) C) D) Diff: 2 Topic: Social Security, Medicare, and Employee Income Tax; Unemployment Tax and Workers' Compensation Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes.; 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

61) Which of the following payroll taxes is not paid by the employee? A) state income tax B) federal unemployment tax C) federal income tax D) FICA (Social Security and Medicare) Answer: B Explanation: A) B) C) D) Diff: 2 Topic: Social Security, Medicare, and Employee Income Tax; Unemployment Tax and Workers' Compensation Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes.; 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

SHORT ANSWER QUESTIONS 62) A business pays ________ and Medicare taxes at the same rate and on the same taxable wages as its employees. Answer: Social Security Explanation: Diff: 1 Topic: Social Security and Medicare Taxes Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes. Bloom's: Remember AACSB: Analytic AICPA: BB Legal; BB Industry; FN Reporting; FN Measurement

63) The entry to record the deposit of federal income taxes withheld includes a ________ to the Employee Income Tax Payable account. Answer: debit Explanation: Diff: 1 Topic: Federal Income Taxes Learning Objective: 11-03 Record deposit of social security, Medicare, and employee income taxes. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

64) Form 941 is used to report federal income taxes withheld, social security taxes, and ________ taxes. Answer: Medicare Explanation: Diff: 1 Topic: Payroll Records and Forms Learning Objective: 11-04 Prepare an Employer's Quarterly Federal Tax Return, Form 941. Bloom's: Remember AACSB: Analytic AICPA: BB Legal; BB Industry; FN Reporting; FN Measurement

65) A firm must issue a Form ________ to each employee by January 31 of the year following the year during which the wages were earned. Answer: W-2 Explanation: Diff: 1 Topic: Tax Forms and Returns Learning Objective: 11-05 Prepare Wage and Tax Statement (Form W-2) and Annual Transmittal of Wage and Tax Statements (Form W-3). Bloom's: Remember AACSB: Analytic AICPA: BB Legal; BB Industry; FN Reporting; FN Measurement

66) Form ________ is often referred to as a withholding statement. Answer: W-2 Explanation: Diff: 1 Topic: Tax Forms and Returns Learning Objective: 11-05 Prepare Wage and Tax Statement (Form W-2) and Annual Transmittal of Wage and Tax Statements (Form W-3). Bloom's: Remember AACSB: Analytic AICPA: BB Legal; BB Industry; FN Reporting; FN Measurement

67) The entry to record a payroll tax that is incurred by the employer would include a debit to a(n) ________ account. Answer: expense Explanation: Diff: 1 Topic: Payroll Taxes Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes.; 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Bloom's: Understand AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

68) State Unemployment Tax Payable is ________ when the tax is paid to the state. Answer: debited Explanation: Diff: 1 Topic: Unemployment Taxes Learning Objective: 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Bloom's: Understand AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

69) Form 940 is used to report ________ taxes. Answer: FUTA or federal unemployment Explanation: Diff: 1 Topic: Tax Forms and Returns Learning Objective: 11-07 Prepare an Employer's Federal Unemployment Tax Return, Form 940. Bloom's: Remember AACSB: Analytic AICPA: BB Legal; BB Industry; FN Reporting; FN Measurement

70) Form 940 must be filed Answer: one Explanation:

time(s) a year.

Diff: 1 Topic: Tax Forms and Returns Learning Objective: 11-07 Prepare an Employer's Federal Unemployment Tax Return, Form 940. Bloom's: Remember AACSB: Analytic AICPA: BB Legal; BB Industry; FN Reporting; FN Measurement

71) The premium rate on ________ insurance is determined by the risk involved in the work performed. Answer: workers' compensation Explanation: Diff: 1 Topic: Workers' Compensation Learning Objective: 11-08 Compute and record workers' compensation insurance premiums. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting; FN Measurement

72) After the JPR Corporation paid its employees on May 15, 2019, and recorded the corporation's share of payroll taxes for the payroll paid that date, the firm's general ledger showed a balance of $1,730 in the Social Security Tax Payable account, a balance of $356 in the Medicare Tax Payable account, and a balance of $1,972 in the Employee Income Tax Payable account. On May 16, 2019, the business issued a check to deposit the taxes owed in the local bank. Record this transaction on page 7 of a general journal. Answer:

DATE 2019 May 16

GENERAL JOURNAL PAGE 7 DESCRIPTION P.R. Social Security Tax Payable Medicare Tax Payable Employee Income Tax Payable Cash Paid payroll taxes

DEBIT

CREDIT

1,730 356 1,972 4,058

Explanation: Diff: 2 Topic: Social Security and Medicare Taxes, Payroll Taxes, Federal Income Taxes Learning Objective: 11-03 Record deposit of social security, Medicare, and employee income taxes. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Measurement; FN: Reporting

73) After the ABC Corporation paid its employees on June 15, 2019, and recorded the corporation's share of payroll taxes for the payroll paid that date, the firm's general ledger showed a balance of $2,380 in the Social Security Tax Payable account, a balance of $685 in the Medicare Tax Payable account, and a balance of $3,050 in the Employee Income Tax Payable account. On June 16, 2019, the business issued a check to deposit the taxes owed in the local bank. Record this transaction on page 15 of a general journal. Answer:

DATE 2019 June 16

GENERAL JOURNAL PAGE 15 DESCRIPTION P.R. Social Security Tax Payable Medicare Tax Payable Employee Income Tax Payable Cash Paid payroll taxes

DEBIT

CREDIT

2,380 685 3,050 6,115

74) After the Mansley Company paid its employees on July 15, 2019, and recorded the corporation's share of payroll taxes for the payroll paid that date, the firm's general ledger showed a balance of $1,365 in the Social Security Tax Payable account, a balance of $321 in the Medicare Tax Payable account, and a balance of $1,962 in the Employee Income Tax Payable account. On July 16, 2019, the business issued a check to deposit the taxes owed in the local bank. Record this transaction on page 23 of a general journal. Answer:

DATE 2019 July 16

GENERAL JOURNAL PAGE 23 DESCRIPTION P.R. Social Security Tax Payable Medicare Tax Payable Employee Income Tax Payable Cash Paid payroll taxes

DEBIT

CREDIT

1,365 321 1,962 3,648

75) After the Marion Corporation paid its employees on November 15, 2019, and recorded the corporation's share of payroll taxes for the payroll paid that date, the firm's general ledger showed a balance of $1,925 in the Social Security Tax Payable account, a balance of $519 in the Medicare Tax Payable account, and a balance of $2,105 in the Employee Income Tax Payable account. On November 16, 2016, the business issued a check to deposit the taxes owed in the local bank. Record this transaction on page 5 of a general journal. Answer:

DATE 2019 Nov. 16

GENERAL JOURNAL PAGE 5 DESCRIPTION P.R. Social Security Tax Payable Medicare Tax Payable Employee Income Tax Payable Cash Paid payroll taxes

DEBIT

CREDIT

1,925 519 2,105 4,549

76) The payroll register of the Fox Manufacturing Company showed total employee earnings of $32,000 for the week ended April 19, 2019. Compute each of the employer's payroll taxes for the period. Use a rate of 6.2 percent for the employer's share of the social security tax, 1.45 percent for Medicare tax, 0.6 percent for FUTA tax, and 5.4 percent for SUTA tax. Assume all earnings are taxable. Answer: Social security tax, $1,984; Medicare tax, $464; FUTA tax, $192; SUTA, $1,728 Explanation: $32,000 * .062 = $1,984; $32,000 * .0145 = $464; $32,000 * .006 = $192; $32,000 *.054 = $1,728 Diff: 2 Topic: Social Security and Medicare Taxes, Unemployment Taxes Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes.; 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Measurement; FN: Reporting

77) The payroll register of the Hound Manufacturing Company showed total employee earnings of $36,000 for the week ended September 20, 2019. Compute each of the employer's payroll taxes for the period. Use a rate of 6.2 percent for the employer's share of the social security tax, 1.45 percent for Medicare tax, 0.6 percent for FUTA tax, and 5.4 percent for SUTA tax. Assume all earnings are taxable. Answer: Social security tax, $2,232; Medicare tax, $522; FUTA tax, $216; SUTA, $1,944 Explanation: $36,000 * .062 = $2,232; $36,000 * .0145 = $522; $36,000 * .006 = $216; $36,000 * .054 = $1,944 Diff: 2 Topic: Social Security and Medicare Taxes, Unemployment Taxes, Payroll Taxes Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes.; 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Measurement; FN: Reporting

78) The payroll register of the Retro Manufacturing Company showed total employee earnings of $37,000 for the week ended January 18, 2019. Compute the employer's payroll taxes for the period. Use a rate of 6.2 percent for the employer's share of the social security tax, 1.45 percent for Medicare tax, 0.6 percent for FUTA tax, and 5.4 percent for SUTA tax. Assume all earnings are taxable. Answer: Social security tax, $2,294.00; Medicare tax, $536.50; FUTA tax, $222.00; SUTA, $1,998.00 Explanation: $37,000 * .062 = $2,294.00; $37,000 * .0145 = $536.50; $37,000 * .006 = $222.00; $37,000 * .054 = $1,998.00 Diff: 2 Topic: Social Security and Medicare Taxes, Unemployment Taxes, Payroll Taxes Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes.; 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Measurement; FN: Reporting

79) The payroll register of Rapid Repairs showed total employee earnings of $1,870 for the week ended April 5, 2019. Compute the employer's payroll taxes for the period. The tax rates are: Social security tax, 6.2 percent; Medicare tax, 1.45 percent; FUTA tax, 0.6 percent; SUTA tax, 2.2 percent. All earnings are taxable. Record the employer's payroll taxes for the period on page 4 of a general journal. Answer:

DATE 2019 Apr. 5

GENERAL JOURNAL PAGE 4 DESCRIPTION P.R. Payroll Taxes Expense Social Security Tax Payable Medicare Tax Payable Federal Unemp. Tax Payable State Unemp. Tax Payable April 5 payroll

DEBIT

CREDIT

195.42 115.94 27.12 11.22 41.14

Explanation: $1,870 * .062 = $115.94; $1,870 * .0145 = $27.12; $1,870 * .006 = $11.22; $1,870 * .022 = $41.14 Diff: 2 Topic: Social Security and Medicare Taxes, Unemployment Taxes, Payroll Taxes Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes.; 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Measurement; FN: Reporting

80) The payroll register of Reynolds Company showed total employee earnings of $2,320 for the week ended May 10, 2019. Compute the employer's payroll taxes for the period. The tax rates are: Social security tax, 6.2 percent; Medicare tax, 1.45 percent; FUTA tax, 0.6 percent; SUTA tax, 2.2 percent. All earnings are taxable. Record the employer's payroll taxes for the period on page 4 of a general journal. Answer:

DATE 2019 May 10

GENERAL JOURNAL PAGE 4 DESCRIPTION P.R. DEBIT Payroll Taxes Expense Social Security Tax Payable Medicare Tax Payable Federal Unemp. Tax Payable State Unemp. Tax Payable May 10 payroll

CREDIT

242.44 143.84 33.64 13.92 51.04

Explanation: $2,320 * .062 = $143.84; $2,320 * .0145 = $33.64; $2,320 * .006 = $13.92; $2,320 * .022 = $51.04 Diff: 2 Topic: Social Security and Medicare Taxes, Unemployment Taxes Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes.; 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Measurement; FN: Reporting

81) The payroll register of Burdick Travel Agency showed total employee earnings of $5,280 for the week ended June 7, 2019. Compute the employer's payroll taxes for the period. The tax rates are: Social security tax, 6.2 percent; Medicare tax, 1.45 percent; FUTA tax, 0.6 percent; SUTA tax, 2.2 percent. All earnings are taxable. Record the employer's payroll taxes for the period on page 4 of a general journal. Answer:

DATE 2019 June 7

GENERAL JOURNAL PAGE 4 DESCRIPTION P.R. DEBIT Payroll Taxes Expense Social Security Tax Payable Medicare Tax Payable Federal Unemp. Tax Payable State Unemp. Tax Payable June 7 payroll

CREDIT

551.76 327.36 76.56 31.68 116.16

Explanation: $5,280 * .062 = $327.36; $5,280 * .0145 = $76.56; $5,280 * .006 = $31.68; $5,280 * .022 = $116.16 Diff: 2 Topic: Social Security and Medicare Taxes, Unemployment Taxes, Payroll Taxes Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes.; 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Measurement; FN: Reporting

82) The payroll register of Vtech Enterprises showed total employee earnings of $2,100 for the week ended August 2, 2019. Compute the employer's payroll taxes for the period. The tax rates are: Social security tax, 6.2 percent; Medicare tax, 1.45 percent; FUTA tax, 0.6 percent; SUTA tax, 2.2 percent. All earnings are taxable. Record the employer's payroll taxes for the period on page 4 of a general journal. Answer:

DATE 2019 Aug. 2

GENERAL JOURNAL PAGE 4 DESCRIPTION P.R. DEBIT Payroll Taxes Expense Social Security Tax Payable Medicare Tax Payable Federal Unemp. Tax Payable State Unemp. Tax Payable August 2 payroll

CREDIT

219.45 130.20 30.45 12.60 46.20

Explanation: $2,100 * .062 = $130.20; $2,100 * .0145 = $30.45; $2,100 * .006 = $12.60; $2,100 * .022 = $46.20 Diff: 2 Topic: Social Security and Medicare Taxes, Unemployment Taxes, Payroll Taxes Learning Objective: 11-02 Compute and record the employer's social security and Medicare taxes.; 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Measurement; FN: Reporting

83) Wharfside Manufacturing estimates that its office employees will earn $50,000 next year and its factory employees will earn $260,000. The firm pays the following rates for workers' compensation insurance: $0.42 per $100 of wages for the office employees and $4.60 per $100 of wages for the factory employees. Compute the estimated premiums for the office and factory employees. Answer: Office employees, $210.00; factory employees, $11,960.00 Explanation: $50,000/$100 = $500 * $0.42 = $210.00; $260,000/$100 = $2,600 * $4.60 = $11,960 Diff: 2 Topic: Workers' Compensation Learning Objective: 11-08 Compute and record workers' compensation insurance premiums. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Measurement; FN: Reporting

84) Beachside Manufacturing estimates that its office employees will earn $54,000 next year and its factory employees will earn $280,000. The firm pays the following rates for workers' compensation insurance: $0.40 per $100 of wages for the office employees and $4.10 per $100 of wages for the factory employees. Compute the estimated premiums for the office and factory employees. Answer: Office employees, $216; factory employees, $11,480 Explanation: $54,000/$100 = $540 * $0.40 = $216.00; $280,000/$100 = $2,800 * $4.10 = $11,480 Diff: 2 Topic: Workers' Compensation Learning Objective: 11-08 Compute and record workers' compensation insurance premiums. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Measurement; FN: Reporting

85) Orleans Manufacturing estimates that its office employees will earn $87,000 next year and its factory employees will earn $272,000. The firm pays the following rates for workers' compensation insurance: $0.55 per $100 of wages for the office employees and $4.75 per $100 of wages for the factory employees. Compute the estimated premiums for the office and factory employees. Answer: Office employees, $478.50; factory employees, $12,920 Explanation: $87,000/$100 = $870 * $0.55 = $478.50; $272,000/$100 = $2,720 * $4.75 = $12,920 Diff: 2 Topic: Workers' Compensation Learning Objective: 11-08 Compute and record workers' compensation insurance premiums. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Measurement; FN: Reporting

86) Compute and record workers' compensation insurance premiums for Fairlawn Manufacturing as follows: 1. The firm estimates that its office employees will earn $46,000 next year and its factory employees will earn $162,000. The firm pays the following rates for workers' compensation insurance: $0.40 per $100 of wages for the office employees and $3.50 per $100 of wages for the factory employees. Compute the estimated premiums for 2019. On page 9 of a general journal, record the payment of the estimated premium. Date the entry as January 12, 2019. 2. On January 3, 2020, an audit of the firm's payroll records for 2019 showed that the firm had actually paid wages of $48,000 to its office employees and $165,000 to its factory employees. Compute the actual premium for the year and the balance due the insurance company or the credit due the firm. In the general journal, record the entry to adjust the Workers' Compensation Insurance Expense as of the end of 2019. Date the entry as December 31, 2019.

Answer: GENERAL JOURNAL PAGE 9 DESCRIPTION P.R. DEBIT

DATE 2019 Jan. 12 Workers' Comp. Ins. Exp. Cash

CREDIT

5,854 5,854

Estimated workers' compensation for year Dec. 31 Workers' Comp. Ins. Exp. Workers' Comp. Ins. Pay. Adjust workers' compensation insurance expense

113 113

Explanation: 1. $46,000/$100 = $460 * $0.40 = $184; $162,000/$100 = $1,620 * $3.50 = $5,670; $184 + $5,670 = $5,854 2. $48,000/$100 = $480 * $0.40 = $192; $165,000/$100 = $1,650 * $3.50 = $5,775; $5,967 ($5,775 + $192) - $5,854 = $113 Diff: 2 Topic: Workers' Compensation, Payroll Taxes Learning Objective: 11-08 Compute and record workers' compensation insurance premiums. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Measurement; FN: Reporting

87) Compute and record workers' compensation insurance premiums for Evergreen Manufacturing as follows: 1. The firm estimates that its office employees will earn $49,000 next year and its factory employees will earn $150,000. The firm pays the following rates for workers' compensation insurance: $0.40 per $100 of wages for the office employees and $3.50 per $100 of wages for the factory employees. Compute the estimated premiums for 2019. On page 54 of a general journal, record the payment of the estimated premium. Date the entry January 12, 2019. 2. On January 4, 2020, an audit of the firm's payroll records for 2019 showed that the firm had actually paid wages of $53,000 to its office employees and $161,000 to its factory employees. Compute the actual premium for the year and the balance due the insurance company or the credit due the firm. In the general journal, record the entry to adjust the Workers' Compensation Insurance Expense as of the end of 2019. Date the entry December 31, 2019.

Answer: GENERAL JOURNAL PAGE 54 DESCRIPTION P.R. DEBIT

DATE 2019 Jan. 12 Workers' Comp. Ins. Exp. Cash

CREDIT

5,446 5,446

Estimated workers' compensation for year Dec. 31 Workers' Comp. Ins. Exp. Workers' Comp. Ins. Pay. Adjust workers' compensation insurance expense

401 401

Explanation: 1. $49,000/$100 = $490 * $0.40 = $196; $150,000/$100 = $1,500 * $3.50 = $5,250; $196 + $5,250 = $5,446 2. $53,000/$100 = $530 * $0.40 = $212; $161,000/$100 = $1,610 * $3.50 = $5,635; $5,847 ($5,635 + $212) - $5,446 = $401 Diff: 2 Topic: Workers' Compensation Learning Objective: 11-08 Compute and record workers' compensation insurance premiums. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Measurement; FN: Reporting

88) Compute and record workers' compensation insurance premiums for Beverly Manufacturing as follows: 1. The firm estimates that its office employees will earn $40,000 next year and its factory employees will earn $172,000. The firm pays the following rates for workers' compensation insurance: $0.40 per $100 of wages for the office employees and $3.50 per $100 of wages for the factory employees. Compute the estimated premiums for 2019. On page 9 of a general journal, record the payment of the estimated premium. Date the entry January 12, 2019. 2. On January 3, 2020, an audit of the firm's payroll records for 2019 showed that the firm had actually paid wages of $48,000 to its office employees and $165,000 to its factory employees. Compute the actual premium for the year and the balance due the insurance company or the credit due the firm. In the general journal, record the entry to adjust the Workers' Compensation Insurance Expense as of the end of 2019. Date the entry December 31, 2019.

Answer: GENERAL JOURNAL PAGE 9 DESCRIPTION P.R. DEBIT

DATE 2019 Jan. 12 Workers' Comp. Ins. Exp. Cash

CREDIT

6,180 6,180

Estimated workers' compensation for year Dec. 31 Workers' Comp. Ins. Rec. Workers' Comp. Ins. Exp. Adjust workers' compensation insurance expense

213 213

Explanation: 1. $40,000/$100 = $400 * $0.40 = $160; $172,000/$100 = $1,720 * $3.50 = $6,020; $160 + $6,020 = $6,180 2. $48,000/$100 = $480 * $0.40 = $192; $165,000/$100 = $1,650 * $3.50 = $5,775; $5,967 ($5,775 + $192) - $6,180 = ($213) Diff: 2 Topic: Workers' Compensation Learning Objective: 11-08 Compute and record workers' compensation insurance premiums. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Measurement; FN: Reporting

89) A firm prepares copies of the Wage and Tax Statement, Form W-2, for which of the following? Check all that apply. ________1. One copy for the employee's records. ________2. One copy for the employer's records. ________3. One copy for the supervisor's records. ________4. One copy for city or county income tax. ________5. One copy for the employee to attach to the state income tax return. ________6. One copy for the employee to attach to the federal income tax return. ________7. One copy for the employer to send to the Social Security Administration ________8. One copy for the employee to send to the Social Security Administration

Answer: 1, 2, 4, 5, 6, 7 Explanation: Diff: 2 Topic: Payroll Records and Forms, Tax Forms and Returns Learning Objective: 11-05 Prepare Wage and Tax Statement (Form W-2) and Annual Transmittal of Wage and Tax Statements (Form W-3). Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN: Reporting

90) Match the accounting terms with the description by entering the proper letter in the space provided. A. Employer's Annual Federal Unemployment Tax Return, Form 940 B. Employer's Quarterly Federal Tax Return, Form 941 C. Experience rating system D. Merit rating system E. Transmittal of Wage and Tax Statements, Form W-3 F. Unemployment insurance program G. Wage and Tax Statement, Form W-2 H. Withholding statement _ 1. Preprinted government form submitted with Forms W-2 to the Social Security Administration ________ 2. A system that rewards an employer for maintaining steady employment conditions by reducing the firm's state unemployment tax rate ________ 3. Preprinted government form that contains information about an employee's earnings and tax withholdings for the year ________ 4. A program that provides unemployment compensation through a tax levied on employers ________ 5. Preprinted government form used by the employer to report payroll tax information relating to social security, Medicare, and employee income tax withholding to the Internal Revenue Service ________ 6. Preprinted government form used by the employer to report unemployment taxes for 50 Copyright © McGraw-Hill Education.All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

the calendar year ________ 7. Another term for Wage and Tax Statement, Form W-2 ________ 8. Another term for Experience rating system

Answer: (1) E, (2) C, (3) G, (4) F, (5) B, (6) A, (7) H, (8) D Explanation: Diff: 2 Topic: Social Security and Medicare Taxes, Payroll Taxes, Payroll Records and Forms, Tax Forms and Returns, Unemployment Taxes Learning Objective: 11-01 Explain how and when payroll taxes are paid to the government.; 11-02 Compute and record the employer's social security and Medicare taxes.; 11-03 Record deposit of social security, Medicare, and employee income taxes.; 11-04 Prepare an Employer's Quarterly Federal Tax Return, Form 941.; 11-05 Prepare Wage and Tax Statement (Form W-2) and Annual Transmittal of Wage and Tax Statements (Form W-3).; 11-06 Compute and record liability for federal and state unemployment taxes and record payment of the taxes.; 11-07 Prepare an Employer's Federal Unemployment Tax Return, Form 940.; 11-08 Compute and record workers' compensation insurance premiums.; 11-09 Bloom's: Analyze AACSB: Analytic AICPA: BB Industry; FN Decision Making

Chapter 12 Accruals, Deferrals, and the Worksheet MULTIPLE CHOICE QUESTIONS 1) When the accrual basis of accounting is used, expenses are recognized only in the period during which they are paid. A) True B) False Answer: B Explanation: Diff: 1 Topic: Calculating and Recording Adjustments Learning Objective: 12-01 Determine the adjustment for merchandise inventory, and enter the adjustment on the worksheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

2) The balance of the Merchandise Inventory account that appears in the Trial Balance section of the worksheet represents the stock of goods on hand at the beginning of the current period. A) True B) False Answer: A Explanation: Diff: 2 Topic: Calculating and Recording Adjustments Learning Objective: 12-01 Determine the adjustment for merchandise inventory, and enter the adjustment on the worksheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

3) Under a periodic inventory system, the Merchandise Inventory account is debited when goods are purchased for resale and credited when goods are sold and delivered to customers. A) True B) False Answer: B Explanation: Diff: 2 Topic: Calculating and Recording Adjustments Learning Objective: 12-01 Determine the adjustment for merchandise inventory, and enter the adjustment on the worksheet. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

4) Under a periodic inventory system, Merchandise inventory is adjusted in two steps because both the beginning and ending inventory figures are needed to prepare the income statement. A) True B) False Answer: A Explanation: Diff: 1 Topic: Calculating and Recording Adjustments Learning Objective: 12-01 Determine the adjustment for merchandise inventory, and enter the adjustment on the worksheet. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

5) Under a periodic inventory system, to remove the beginning inventory from the books, the Income Summary account is credited for the amount of the beginning inventory. A) True B) False Answer: B Explanation: Diff: 2 Topic: Calculating and Recording Adjustments Learning Objective: 12-01 Determine the adjustment for merchandise inventory, and enter the adjustment on the worksheet. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

6) Under the accrual basis of accounting, the expense for uncollectible accounts is estimated and recorded before specific accounts are actually written off. A) True B) False Answer: A Explanation: Diff: 1 Topic: Calculating and Recording Adjustments Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items, and enter the adjustments on the worksheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement

7) The journal entry to record interest that has been earned but not yet received includes a debit to Interest Receivable and a credit to Interest Income. A) True B) False Answer: A Explanation: Diff: 1 Topic: Calculating and Recording Adjustments Learning Objective: 12-03 Compute adjustments for accrued and deferred income items, and enter the adjustments on the worksheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

8) Under the accrual basis of accounting, only income that has been earned is included in the revenue total on the income statement. A) True B) False Answer: A Explanation: Diff: 1 Topic: Calculating and Recording Adjustments Learning Objective: 12-01 Determine the adjustment for merchandise inventory, and enter the adjustment on the worksheet.; 12-03 Compute adjustments for accrued and deferred income items, and enter the adjustments on the worksheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement

9) The objective of matching revenues and expenses to specific fiscal periods is most nearly attained when revenues and expenses are recognized in the period during which cash related to the transactions is received or paid. A) True B) False Answer: B Explanation: Diff: 1 Topic: Calculating and Recording Adjustments Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items, and enter the adjustments on the worksheet.; 12-03 Compute adjustments for accrued and deferred income items, and enter the adjustments on the worksheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement

10) The balance of the Merchandise Inventory account shown in the Adjusted Trial balance section of the worksheet is extended to the Balance Sheet Debit column of the worksheet. A) True B) False Answer: A Explanation: Diff: 2 Topic: Completing the Worksheet Learning Objective: 12-04 Complete a 10-column worksheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

11) The debit and credit amounts for the Income Summary account are combined into one number in the Income Statement section of the worksheet. A) True B) False Answer: B Explanation: Diff: 2 Topic: Completing the Worksheet Learning Objective: 12-04 Complete a 10-column worksheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

12) If a company uses the periodic inventory system, purchases of merchandise are A) credited to Merchandise Inventory. B) credited to Sales. C) debited to Purchases. D) debited to Merchandise Inventory. Answer: C Explanation: A) B) C) D) Diff: 1 Topic: Calculating and Recording Adjustments Learning Objective: 12-01 Determine the adjustment for merchandise inventory, and enter the adjustment on the worksheet. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

13) On the financial statements prepared at the end of an accounting period, the merchandise inventory is shown as A) an addition to capital on the statement of owner's equity. B) a liability on the balance sheet. C) revenue on the income statement. D) an asset on the balance sheet. Answer: D Explanation: A) B) C) D) Diff: 2 Topic: Calculating and Recording Adjustments Learning Objective: 12-01 Determine the adjustment for merchandise inventory, and enter the adjustment on the worksheet. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

14) Identify the statement below that is true regarding the Allowance for Doubtful Accounts account. A) The account has a normal credit balance and is reported on the income statement. B) The account has a normal debit balance and is reported on the income statement. C) The account has a normal credit balance and is reported on the balance sheet. D) The account has a normal debit balance and is reported on the balance sheet. Answer: C Explanation: A) B) C) D) Diff: 2 Topic: Calculating and Recording Adjustments Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items, and enter the adjustments on the worksheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

15) Allowance for Doubtful Accounts is A) deducted from Sales in the Revenue section of the income statement. B) listed in the Operating Expenses section of the income statement. C) subtracted from Accounts Receivable in the Asset section of the balance sheet. D) added to Accounts Receivable in the Assets section of the balance sheet. Answer: C Explanation: A) B) C) D) Diff: 2 Topic: Calculating and Recording Adjustments Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items, and enter the adjustments on the worksheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

16) The adjusting entry for uncollectible accounts requires a A) a debit to Accounts Receivable and a credit to Uncollectible Accounts Expense. B) debit to Allowance for Doubtful Accounts and a credit to Uncollectible Accounts Expense. C) a debit to Uncollectible Accounts Expense and a credit to Accounts Receivable. D) a debit to Uncollectible Accounts Expense and a credit to Allowance for Doubtful Accounts. Answer: D Explanation: A) B) C) D) Diff: 2 Topic: Calculating and Recording Adjustments Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items, and enter the adjustments on the worksheet. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

17) During the year, Spirit Fun had net credit sales of $800,000. Past experience shows that 1.5 percent of the firm's net credit sales will be uncollectible. Determine the adjusting entry needed to recognize the estimated expense for these uncollectible accounts. A) debit Uncollectible Accounts Expense $12,000 and credit Accounts Receivable $12,000. B) debit Uncollectible Accounts Expense $12,000 and credit Allowance for Doubtful Accounts $12,000. C) debit Uncollectible Accounts Expense $120,000 and credit Allowance for Doubtful Accounts $120,000. D) debit Allowance for Doubtful Accounts $12,000 and credit Accounts Receivable $12,000. Answer: B Explanation: A) $800,000 × 0.015 = $12,000 B) $800,000 × 0.015 = $12,000 C) $800,000 × 0.015 = $12,000 D) $800,000 × 0.015 = $12,000 Diff: 2 Topic: Calculating and Recording Adjustments Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items, and enter the adjustments on the worksheet. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement; BB Critical Thinking

18) Which of the following statements is not correct? A) The cost less the salvage value equals the depreciable base of a long-term asset. B) Each adjustment for an accrued expense includes a credit to a liability account. C) If a firm records prepaid expense items in an expense account when they pay for them, their adjustment at the end of the period to record the unexpired portion would include a debit to an asset account and a credit to an expense account. D) Uncollectible Accounts Expense is a contra asset account. Answer: D Explanation:

A) B) C) D)

Diff: 2 Topic: Calculating and Recording Adjustments Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items, and enter the adjustments on the worksheet. Bloom's: Analyze AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making

19) The adjusting entry to record accrued interest on a note payable requires a A) debit to Interest Income and a credit to Notes Payable. B) debit to Interest Expense and a credit to Interest Payable. C) debit to Interest Payable and a credit to Interest Expense. D) debit to Interest Expense and a credit to Cash. Answer: B Explanation: A) B) C) D) Diff: 1 Topic: Calculating and Recording Adjustments Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items, and enter the adjustments on the worksheet. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

20) On June 1, 2019, Mighty Fast Flooring issued a 10-month, 9 percent note for $5,000. The note was recorded in the Notes Payable-Trade account. The adjusting entry on December 31 to record the interest accrued (owed) on the note is: A) a debit to Interest Expense for $450.00 and a credit to Interest Payable for $450.00. B) a debit to Interest Expense for $262.50 and a credit to Interest Payable for $262.50. C) a debit to Interest Income for $450.00 and a credit to Interest Receivable for $450.00. D) a debit to Interest Expense for $262.50 and a credit to Notes Payable-Trade for $262.50. Answer: B Explanation: A) $5,000 × 0.09 = $450; ($450 × 7/12 mo.) = $262.50 B) $5,000 × 0.09 = $450; ($450 × 7/12 mo.) = $262.50 C) $5,000 × 0.09 = $450; ($450 × 7/12 mo.) = $262.50 D) $5,000 × 0.09 = $450; ($450 × 7/12 mo.) = $262.50 Diff: 2 Topic: Calculating and Recording Adjustments Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items, and enter the adjustments on the worksheet. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement; BB Critical Thinking

21) Allowance for Doubtful Accounts is reported in the A) Liabilities section of the balance sheet. B) Assets section of the balance sheet. C) Operating Expenses section of the income statement. D) Cost of Goods Sold section of the income statement. Answer: B Explanation: A) B) C) D) Diff: 1 Topic: Calculating and Recording Adjustments Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items, and enter the adjustments on the worksheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

22) On August 1, 2019, a firm purchased a 1-year insurance policy for $3,600 and paid the full premium in advance. The insurance expense associated with this policy for the year ending December 31, 2019, is A) $1,800. B) $300. C) $3,600. D) $1,500. Answer: D Explanation:

A) $3,600/12 = $300 per month × 5 months = $1,500 B) $3,600/12 = $300 per month × 5 months = $1,500 C) $3,600/12 = $300 per month × 5 months = $1,500 D) $3,600/12 = $300 per month × 5 months = $1,500

Diff: 2 Topic: Calculating and Recording Adjustments Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items, and enter the adjustments on the worksheet. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement; BB Critical Thinking

23) On June 1, 2019, a firm purchased a 1-year insurance policy for $2,400 and paid the full premium in advance. The insurance expense associated with this policy for the year ending December 31, 2019, is A) $1,000. B) $200. C) $1,400. D) $2,400. Answer: C Explanation:

A) $2,400/12 = 200 per month × 7 months = $1,400 B) $2,400/12 = 200 per month × 7 months = $1,400 C) $2,400/12 = 200 per month × 7 months = $1,400 D) $2,400/12 = 200 per month × 7 months = $1,400

Diff: 2 Topic: Calculating and Recording Adjustments Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items, and enter the adjustments on the worksheet. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement; BB Critical Thinking

24) On Oct 1, 2019, a firm purchased a 1-year insurance policy for $2,400 and paid the full premium in advance. The adjustment needed on December 31, 2019, to report the amount of insurance that had expired, would be: A) a debit to Insurance Expense for $1,800 and a credit to Prepaid Insurance for $1,800. B) a debit to Insurance Expense for $2,400 and a credit to Cash for $2,400. C) a debit to Insurance Expense for $600 and a credit to Prepaid Insurance for $600. D) a debit to Prepaid Insurance for $600 and a credit to Insurance Expense for $600. Answer: C Explanation: A) $2,400/12 = 200 per month × 3 months = $600 B) $2,400/12 = 200 per month × 3 months = $600 C) $2,400/12 = 200 per month × 3 months = $600 D) $2,400/12 = 200 per month × 3 months = $600 Diff: 2 Topic: Calculating and Recording Adjustments Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items, and enter the adjustments on the worksheet. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement; BB Critical Thinking

25) On January 2, 2019, a firm purchased equipment for $10,000. Depreciation expense for the year ending December 31, 2019, given the straight-line method, a 5-year useful life, and a salvage value of $1,200, is A) $1,800. B) $2,000. C) $1,760. D) $1,400. Answer: C Explanation:

A) ($10,000 – $1,200)/5 years = $1,760 per year B) ($10,000 – $1,200)/5 years = $1,760 per year C) ($10,000 – $1,200)/5 years = $1,760 per year D) ($10,000 – $1,200)/5 years = $1,760 per year

Diff: 2 Topic: Calculating and Recording Adjustments Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items, and enter the adjustments on the worksheet. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement; BB Critical Thinking

26) On January 1, 2019, a firm purchased machinery for $19,000. Depreciation expense for the year ending December 31, 2019, given the straight-line method, a 8-year useful life, and a salvage value of $2,000, is A) $2,125. B) $2,000. C) $2,400. D) $2,375. Answer: A Explanation:

A) ($19,000 – $2,000)/8 years = $2,125 per year B) ($19,000 – $2,000)/8 years = $2,125 per year C) ($19,000 – $2,000)/8 years = $2,125 per year D) ($19,000 – $2,000)/8 years = $2,125 per year

Diff: 2 Topic: Calculating and Recording Adjustments Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items, and enter the adjustments on the worksheet. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement; BB Critical Thinking

27) Accrued expenses are A) used in one period but not paid for until a later period. B) paid for in one period but not fully used until a later period. C) paid for, recorded, and used in one period. D) budgeted but not paid for or used during the period. Answer: A Explanation: A) B) C) D) Diff: 1 Topic: Calculating and Recording Adjustments Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items, and enter the adjustments on the worksheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

28) An adjusting entry is usually not required for a revenue item when it is A) paid for by the customer and recorded in one period but not fully earned until a later period. B) earned, recorded and paid for by the customer in one period. C) budgeted, paid for, and partially earned in one period but not fully earned until a later period. D) earned in one period but not paid for by the customer or recorded until a later period. Answer: B Explanation: A) B) C) D) Diff: 1 Topic: Calculating and Recording Adjustments Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items, and enter the adjustments on the worksheet. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

29) Which of the following statements is correct? A) Income that has been earned but not yet received is called accrued income. B) Under the accrual basis of accounting, revenue is recognized and recorded in the period when it is earned regardless of when cash related to the transaction is received. C) Unearned Subscription Income is a liability account. D) All of these statements are correct. Answer: D Explanation: A) B) C) D) Diff: 2 Topic: Calculating and Recording Adjustments Learning Objective: 12-03 Compute adjustments for accrued and deferred income items, and enter the adjustments on the worksheet. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making

30) On November 1, 2019, a firm accepted a 5-month, 10 percent note for $1,200 from a customer with an overdue balance. The accrued interest recorded for this note for the year ended December 31, 2019, is A) $60. B) $120. C) $10. D) $20. Answer: D Explanation:

A) $1,200 × 0.10 = $120; ($120/12) × 2 = $20 B) $1,200 × 0.10 = $120; ($120/12) × 2 = $20 C) $1,200 × 0.10 = $120; ($120/12) × 2 = $20 D) $1,200 × 0.10 = $120; ($120/12) × 2 = $20

Diff: 2 Topic: Calculating and Recording Adjustments Learning Objective: 12-03 Compute adjustments for accrued and deferred income items, and enter the adjustments on the worksheet. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement; BB Critical Thinking

31) On December 1, 2019, a firm accepted a 6-month, 12 percent note for $10,000 from a customer. The adjusting entry on December 31 to record the interest earned on the note is: A) a debit to Interest Receivable for $100 and a credit to Interest Income for $100. B) a debit to Interest Receivable for $600 and a credit to Interest Income for $600. C) a debit to Interest Income for $100 and a credit to Interest Receivable for $100. D) a debit to Interest Receivable for $1,200 and a credit to Interest Income for $1,200. Answer: A Explanation: A) $10,000 × 0.12 = $1,200; ($1,200/12) × 1 = $100 B) $10,000 × 0.12 = $1,200; ($1,200/12) × 1 = $100 C) $10,000 × 0.12 = $1,200; ($1,200/12) × 1 = $100 D) $10,000 × 0.12 = $1,200; ($1,200/12) × 1 = $100 Diff: 2 Topic: Calculating and Recording Adjustments Learning Objective: 12-03 Compute adjustments for accrued and deferred income items, and enter the adjustments on the worksheet. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement; BB Critical Thinking

32) On April 1, 2019, a firm accepted a 6-month, 10 percent note for $1,800 from a customer with an overdue balance. The accrued interest recorded for this note for the year ended June 30, 2019, is A) $180. B) $90. C) $15. D) $45. Answer: D Explanation:

A) $1,800 × 0.1 = $180; ($180/12) × 3 = $45 B) $1,800 × 0.1 = $180; ($180/12) × 3 = $45 C) $1,800 × 0.1 = $180; ($180/12) × 3 = $45 D) $1,800 × 0.1 = $180; ($180/12) × 3 = $45

33) With the accrual basis of accounting, revenue from a credit sale is recognized A) each time a payment on an account balance is received. B) on the date the account is collected in full. C) either on the date of the sale or when the amount of the sale is collected. D) on the date of the sale. Answer: D Explanation: A) B) C) D) Diff: 1 Topic: Calculating and Recording Adjustments Learning Objective: 12-01 Determine the adjustment for merchandise inventory, and enter the adjustment on the worksheet. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Measurement; FN Decision Making

34) Accrued income is income that has been A) budgeted for the fiscal period. C) received but not earned. Answer: B Explanation: A) B) C) D)

B) earned but not received. D) earned and received.

Diff: 1 Topic: Calculating and Recording Adjustments Learning Objective: 12-03 Compute adjustments for accrued and deferred income items, and enter the adjustments on the worksheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: FN Reporting; BB Critical Thinking; FN Decision Making

35) Which of the following statements is correct? A) On the worksheet, the amount of the ending merchandise inventory is shown in the Income Statement Credit column in the account Income Summary and the Balance Sheet Debit column in the account Merchandise Inventory. B) On the worksheet, if debits exceed credits in the Adjusted Trial Balance section, the difference represents a net loss. C) On the worksheet, the totals of the Income Statement columns should equal the totals of the Balance Sheet columns. D) All of these statements are correct. Answer: A Explanation: A) B) C) D) Diff: 2 Topic: Completing the Worksheet Learning Objective: 12-04 Complete a 10-column worksheet. Bloom's: Analyze AACSB: Analytical Thinking AICPA: BB Industry; FN Decision Making

36) If an account has a debit balance of $2,000 in the Trial Balance section of a worksheet and there is a credit of $600 in the Adjustments section, the account balance in the Adjusted Trial Balance section of the worksheet is a A) $1,400 debit. B) $1,400 credit. C) $600 credit. D) $2,600 debit. Answer: A Explanation:

A) $2,000 dr. – $600 cr. = $1,400 dr. B) $2,000 dr. – $600 cr. = $1,400 dr. C) $2,000 dr. – $600 cr. = $1,400 dr. D) $2,000 dr. – $600 cr. = $1,400 dr.

Diff: 2 Topic: Completing the Worksheet Learning Objective: 12-04 Complete a 10-column worksheet. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement; BB Critical Thinking

37) If an account has a credit balance of $2,200 in the Trial Balance section of a worksheet and there is a credit of $400 in the Adjustments section, the account balance in the Adjusted Trial Balance section of the worksheet is A) $1,800 debit. B) $2,600 debit. C) $2,600 credit. D) $1,800 credit. Answer: C Explanation:

A) $2,200 cr. + $400 cr. = $2,600 cr. B) $2,200 cr. + $400 cr. = $2,600 cr. C) $2,200 cr. + $400 cr. = $2,600 cr. D) $2,200 cr. + $400 cr. = $2,600 cr.

Diff: 2 Topic: Completing the Worksheet Learning Objective: 12-04 Complete a 10-column worksheet. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement; BB Critical Thinking

38) If an account has a debit balance of $1,600 in the Trial Balance section of a worksheet and there is a debit of $300 in the Adjustments section, the account balance in the Adjusted Trial Balance section of the worksheet is a A) $1,900 debit. B) $1,300 credit. C) $1,900 credit. D) $1,300 debit. Answer: A Explanation:

A) $1,600 dr. + $300 dr. = $1,900 dr. B) $1,600 dr. + $300 dr. = $1,900 dr. C) $1,600 dr. + $300 dr. = $1,900 dr. D) $1,600 dr. + $300 dr. = $1,900 dr.

Diff: 2 Topic: Completing the Worksheet Learning Objective: 12-04 Complete a 10-column worksheet. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement; BB Critical Thinking

39) The net income for an accounting period appears on the worksheet in the A) Income Statement Credit column only. B) Income Statement Credit and the Balance Sheet Debit columns. C) Income Statement Debit and the Balance Sheet Credit columns. D) Income Statement Debit column only. Answer: C Explanation: A) B) C) D) Diff: 1 Topic: Completing the Worksheet Learning Objective: 12-04 Complete a 10-column worksheet. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

40) The net income for an accounting period can be determined using the worksheet by comparing the balances and determining the difference between the balances in the two A) Income Statement columns only. B) Balance Sheet and Income Statement Debit columns. C) Balance Sheet and Income Statement Credit columns. D) Income Statement or Balance Sheet columns. Answer: D Explanation: A) B) C) D) Diff: 2 Topic: Completing the Worksheet Learning Objective: 12-04 Complete a 10-column worksheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: FN Reporting; BB Critical Thinking

41) The ending merchandise inventory is recorded on the worksheet in the A) Income Statement Debit column only. B) Income Statement Credit and the Balance Sheet Debit columns. C) Balance Sheet Debit column only. D) Income Statement Credit column only. Answer: B Explanation: A) B) C) D) Diff: 2 Topic: Completing the Worksheet Learning Objective: 12-04 Complete a 10-column worksheet. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

42) On October 1, 2019, Paige Turner Publishing received $5,400 in cash for subscriptions covering one year, recording the entry as a debit to Cash and a credit to Unearned Subscriptions. The correct adjusting entry at December 31, 2019, is A) Debit Unearned Subscriptions $1,350; credit Subscriptions Income $1,350. B) Debit Unearned Subscriptions $450; credit Subscriptions Income $450. C) Debit Unearned Subscriptions $5,400; credit Subscriptions Income $5,400. D) Debit Subscriptions Income $1,350; credit Unearned Subscriptions $1,350. Answer: A Explanation: A) $5,400/12 = $450 per month × 3 months = $1,350 B) $5,400/12 = $450 per month × 3 months = $1,350 C) $5,400/12 = $450 per month × 3 months = $1,350 D) $5,400/12 = $450 per month × 3 months = $1,350 Diff: 2 Topic: Calculating and Recording Adjustments Learning Objective: 12-03 Compute adjustments for accrued and deferred income items, and enter the adjustments on the worksheet. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement; BB Critical Thinking

43) The Supplies account has a trial balance of $3,136. A year-end inventory shows $1,734 worth of supplies left at the end of the year. The correct adjusting entry is: A) debit Supplies $1,402; credit Supplies Expense $1,402 B) debit Supplies Expense $1,734; credit Prepaid Supplies $1,734 C) debit Supplies Expense $3,136; credit Supplies $3,136 D) debit Supplies Expense $1,402; credit Supplies $1,402 Answer: D Explanation: A) $3,136 – $1,734 = $1,402 B) $3,136 – $1,734 = $1,402 C) $3,136 – $1,734 = $1,402 D) $3,136 – $1,734 = $1,402 Diff: 1 Topic: Calculating and Recording Adjustments Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items, and enter the adjustments on the worksheet. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement; BB Critical Thinking

44) Hugh Morris Company pays weekly wages of $15,000 every Friday for a five day week ending on that day. If the last day of the year is on Tuesday, the adjusting entry to record the accrued wages is: A) debit Wages Expense $15,000; credit Cash $15,000 B) debit Wages Expense $9,000; credit Wages Payable $9,000 C) debit Wages Expense $6,000; credit Drawing $6,000 D) debit Wages Expense $6,000; credit Wages Payable $6,000 Answer: D Explanation: A) $15,000/5 = $3,000 per day × 2 days (Mon. and Tues.) = $6,000 B) $15,000/5 = $3,000 per day × 2 days (Mon. and Tues.) = $6,000 C) $15,000/5 = $3,000 per day × 2 days (Mon. and Tues.) = $6,000 D) $15,000/5 = $3,000 per day × 2 days (Mon. and Tues.) = $6,000 Diff: 2 Topic: Calculating and Recording Adjustments Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items, and enter the adjustments on the worksheet. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement; BB Critical Thinking

45) Robin Banks, Inc. owns an armored truck which was purchased for $80,000. The Accumulated Depreciation on the truck is $55,000. The book value of the armored truck is A) $135,000. B) $80,000. C) $55,000. D) $25,000. Answer: D Explanation: A) Book Value = Cost $80,000 – Accum. Depreciation $55,000 = $25,000 B) Book Value = Cost $80,000 – Accum. Depreciation $55,000 = $25,000 C) Book Value = Cost $80,000 – Accum. Depreciation $55,000 = $25,000 D) Book Value = Cost $80,000 – Accum. Depreciation $55,000 = $25,000 Diff: 1 Topic: Calculating and Recording Adjustments Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items, and enter the adjustments on the worksheet. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement; BB Critical Thinking

46) After both of the entries for the inventory adjustment have been posted, the debit in the Income Summary account represents: A) Beginning Inventory B) Cost of Goods Sold C) Ending Inventory D) Net Income Answer: A Explanation: A) B) C) D) Diff: 1 Topic: Calculating and Recording Adjustments Learning Objective: 12-01 Determine the adjustment for merchandise inventory, and enter the adjustment on the worksheet. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement; BB Critical Thinking

47) The trial balance of Premier Lighting Co. shows Merchandise Inventory of $35,000. The company uses the periodic inventory system. Based on a count taken on December 31, merchandise inventory at the end of the year actually totaled $28,000. The adjusting entry to remove the old merchandise inventory balance would be: A) a debit to Purchases of $35,000 and a credit to Merchandise Inventory for $35,000. B) a debit to Income Summary of $35,000 and a credit to Merchandise Inventory for $35,000. C) a debit to Income Summary of $28,000 and a credit to Merchandise Inventory for $28,000. D) a debit to Merchandise Inventory of $28,000 and a credit to Income Summary for $28,000. Answer: B Explanation: A) B) C) D) Diff: 2 Topic: Calculating and Recording Adjustments Learning Objective: 12-01 Determine the adjustment for merchandise inventory, and enter the adjustment on the worksheet. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement; BB Critical Thinking

48) The trial balance of Premier Lighting Co. shows Merchandise Inventory of $35,000. Based on a count taken on December 31, merchandise inventory at the end of the year actually totaled $28,000. The adjusting entry to record the new merchandise inventory balance assuming the company uses the periodic inventory system would be: A) a debit to Income Summary of 35,000 and a credit to Merchandise Inventory for $35,000. B) a debit to Merchandise Inventory of $28,000 and a credit to Income Summary for $28,000. C) a debit to Purchases of $35,000 and a credit to Merchandise Inventory for $35,000. D) a debit to Income Summary of $28,000 and a credit to Merchandise Inventory for $28,000. Answer: B Explanation: A) B) C) D) Diff: 2 Topic: Calculating and Recording Adjustments Learning Objective: 12-01 Determine the adjustment for merchandise inventory, and enter the adjustment on the worksheet. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement; BB Critical Thinking

49) The trial balance of Marley Motorcycles shows Merchandise Inventory of $80,000. Based on a count taken on December 31, merchandise inventory at the end of the year actually totaled $92,000. The company uses a periodic inventory system. The adjusting entry to record the new merchandise inventory balance would be: A) a debit to Merchandise Inventory of 80,000 and a credit to Income Summary for $80,000. B) a debit to Purchases of $92,000 and a credit to Income Summary for $92,000. C) a debit to Merchandise Inventory of $92,000 and a credit to Income Summary for $92,000. D) a debit to Merchandise Inventory of $12,000 and a credit to Purchases for $12,000. Answer: C Explanation: A) B) C) D) Diff: 2 Topic: Calculating and Recording Adjustments Learning Objective: 12-01 Determine the adjustment for merchandise inventory, and enter the adjustment on the worksheet. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement; BB Critical Thinking

50) Rose Bush Nursery purchased a delivery truck for $40,000. The truck is expected to have a useful life of 5 years and a residual value of $2,800. The company uses the straight-line method of depreciation. If the truck was purchased on June 1, 2019, what is the amount of depreciation expense for the truck for the year ended December 31, 2019? A) $2,800 B) $4,340 C) $7,440 D) $3,100 Answer: B Explanation:

A) ($40,000-$2,800)/60 months = $620 per month * 7 months = $4,340 B) ($40,000-$2,800)/60 months = $620 per month * 7 months = $4,340 C) ($40,000-$2,800)/60 months = $620 per month * 7 months = $4,340 D) ($40,000-$2,800)/60 months = $620 per month * 7 months = $4,340

Diff: 2 Topic: Calculating and Recording Adjustments Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items, and enter the adjustments on the worksheet. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement; BB Critical Thinking

51) Rose Bush Nursery purchased a delivery truck for $40,000. The truck is expected to have a useful life of 5 years and a residual value of $2,800. The company uses the straight-line method of depreciation. If the truck was purchased on June 1, 2019, what is the amount of depreciation expense for the truck for one full year? A) $3,100 B) $4,340 C) $2,800 D) $7,440 Answer: D Explanation:

A) ($40,000-$2,800)/5 years = $7,440 per year B) ($40,000-$2,800)/5 years = $7,440 per year C) ($40,000-$2,800)/5 years = $7,440 per year D) ($40,000-$2,800)/5 years = $7,440 per year

Diff: 2 Topic: Calculating and Recording Adjustments Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items, and enter the adjustments on the worksheet. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement; BB Critical Thinking

52) Stan Still Stationery Store's employees are paid every Friday for a five day work week and are paid a total of $1,625 per day. If December 31, 2019, is on a Tuesday, the amount of the adjusting entry for accrued wages is: A) $4,875 B) $3,250 C) $8,125 D) $1,625 Answer: B Explanation:

A) $1,625 × 2 days (Mon. & Tues.) = $3,250 B) $1,625 × 2 days (Mon. & Tues.) = $3,250 C) $1,625 × 2 days (Mon. & Tues.) = $3,250 D) $1,625 × 2 days (Mon. & Tues.) = $3,250

Diff: 1 Topic: Calculating and Recording Adjustments Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items, and enter the adjustments on the worksheet. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement; BB Critical Thinking

53) Millie's Bakery employees earn $4,500 a week for a five-day work week and are paid every Friday. If December 31 falls on a Wednesday, calculate the amount that is owed and select the adjusting entry needed to record the owed but unpaid salaries as of December 31. A) a debit to Salaries Payable for $900 and a credit to Salaries Expense for $900. B) a debit to Salaries Expense for $2,700 and a credit to Salaries Payable for $2,700. C) a debit to Income Summary for $2,700 and a credit to Salaries Payable for $2,700. D) a debit to Salaries Expense for $4,500 and a credit to Salaries Payable for $4,500. Answer: B Explanation: A) $4,500 / 5 day = $900 per day. ($900 × 3 days (Mon./Tues./Wed.) = $2,700) B) $4,500 / 5 day = $900 per day. ($900 × 3 days (Mon./Tues./Wed.) = $2,700) C) $4,500 / 5 day = $900 per day. ($900 × 3 days (Mon./Tues./Wed.) = $2,700) D) $4,500 / 5 day = $900 per day. ($900 × 3 days (Mon./Tues./Wed.) = $2,700) Diff: 1 Topic: Calculating and Recording Adjustments Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items, and enter the adjustments on the worksheet. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement; BB Critical Thinking

54) On September 1, 2019, a firm accepted a 6-month, 8% note for $12,000 from a customer with an overdue account balance. The accrued interest recorded for this note on December 31, 2019, is A) $960.00. B) No accrual is necessary. C) $320.00. D) $240.00. Answer: C Explanation:

A) $12,000 × 0.08 = $960; ($960/12) × 4 months = $320 B) $12,000 × 0.08 = $960; ($960/12) × 4 months = $320 C) $12,000 × 0.08 = $960; ($960/12) × 4 months = $320 D) $12,000 × 0.08 = $960; ($960/12) × 4 months = $320

55) Prepaid Advertising has a debit balance in the Trial Balance section of the worksheet of $1,500 and a credit entry of $500 in the adjustments section of the worksheet, the balance of Prepaid Advertising in the Adjusted Trial Balance section of the worksheet is a A) $1,000 credit. B) $500 debit. C) $1,500 debit. D) $1,000 debit. Answer: D Explanation:

A) $1,500 dr. – $500 cr. = $1,000 dr. B) $1,500 dr. – $500 cr. = $1,000 dr. C) $1,500 dr. – $500 cr. = $1,000 dr. D) $1,500 dr. – $500 cr. = $1,000 dr.

Diff: 1 Topic: Completing the Worksheet Learning Objective: 12-04 Complete a 10-column worksheet. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement; BB Critical Thinking

56) Unearned Revenue has a credit balance in the Trial Balance section of the worksheet of $8,300 and a debit of $600 in the adjustments section of the worksheet, the balance of Unearned Revenue in the Adjusted Trial Balance section of the worksheet is a A) $600 debit. B) $7,700 credit. C) $8,900 credit. D) $7,700 debit. Answer: B Explanation:

A) $8,300 cr - $600 dr = $7,700 cr B) $8,300 cr - $600 dr = $7,700 cr C) $8,300 cr - $600 dr = $7,700 cr D) $8,300 cr - $600 dr = $7,700 cr

Diff: 1 Topic: Completing the Worksheet Learning Objective: 12-04 Complete a 10-column worksheet. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement; BB Critical Thinking

57) Abe & Anna Split Ice Cream Parlor paid $3,000 cash for a 6-month advertising contract on September 30, 2019. The amount of advertising expense reported on the Income Statement for the year ending December 31, 2019, for this advertising contract is A) $3,000. B) $1,500. C) $500. D) $2,000. Answer: B Explanation:

A) $3,000 / 6 = $500 per month × 3 months = $1,500 B) $3,000 / 6 = $500 per month × 3 months = $1,500 C) $3,000 / 6 = $500 per month × 3 months = $1,500 D) $3,000 / 6 = $500 per month × 3 months = $1,500

58) Depreciation Expense has a debit balance in the Trial Balance section of the worksheet of $2,200 and a debit of $200 in the adjustments section of the worksheet, the balance of Depreciation Expense in the Adjusted Trial Balance section of the worksheet is a A) $200 debit. B) $2,400 credit. C) $2,000 debit. D) $2,400 debit. Answer: D Explanation:

A) $2,200 dr + $200 dr = $2,400 dr B) $2,200 dr + $200 dr = $2,400 dr C) $2,200 dr + $200 dr = $2,400 dr D) $2,200 dr + $200 dr = $2,400 dr

Diff: 1 Topic: Completing the Worksheet Learning Objective: 12-04 Complete a 10-column worksheet. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement; BB Critical Thinking

59) Accumulated Depreciation has a credit balance in the Trial Balance section of the worksheet of $15,600 and a credit of $3,900 in the adjustments section of the worksheet, the balance of Accumulated Depreciation in the Adjusted Trial Balance section of the worksheet is a A) $19,500 debit. B) $15,600 credit. C) $11,700 credit. D) $19,500 credit. Answer: D Explanation:

A) $15,600 cr + $3,900 cr = $19,500 cr B) $15,600 cr + $3,900 cr = $19,500 cr C) $15,600 cr + $3,900 cr = $19,500 cr D) $15,600 cr + $3,900 cr = $19,500 cr

Diff: 1 Topic: Completing the Worksheet Learning Objective: 12-04 Complete a 10-column worksheet. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement; BB Critical Thinking

60) After the two adjusting entries for merchandise inventory for Marley Motorcycles have been entered on the worksheet, the Income Summary account in the Adjusted Trial Balance section has a debit of $65,000 and a credit of $73,000. The amount of merchandise inventory at the end of the year is: A) $8,000. B) $73,000. C) $65,000. D) $138,000. Answer: B Explanation:

A) B) C) D)

Diff: 3 Topic: Calculating and Recording Adjustments Learning Objective: 12-01 Determine the adjustment for merchandise inventory, and enter the adjustment on the worksheet. Bloom's: Apply AACSB: Analytical Thinking AICPA: FN Reporting; FN Measurement; BB Critical Thinking

61) After the two adjusting entries for merchandise inventory for Marley Motorcycles have been entered on the worksheet, the Income Summary account in the Adjusted Trial Balance section has a debit of $65,000 and a credit of $73,000. The amount of merchandise inventory at the beginning of the year is: A) $8,000. B) $65,000. C) $73,000. D) $138,000. Answer: B Explanation:

A) B) C) D)

SHORT ANSWER QUESTIONS 62) The quantity of goods that a business has on hand for sale to customers is called ________. Answer: merchandise inventory Explanation: Diff: 1 Topic: Calculating and Recording Adjustments Learning Objective: 12-01 Determine the adjustment for merchandise inventory, and enter the adjustment on the worksheet. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting

63) Under a periodic inventory system, the adjustment for merchandise inventory is made in ________ steps. Answer: two Explanation: Diff: 1 Topic: Calculating and Recording Adjustments Learning Objective: 12-01 Determine the adjustment for merchandise inventory, and enter the adjustment on the worksheet. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting

64) Under a periodic inventory system, the beginning merchandise inventory is removed from the books with a credit to the Merchandise Inventory account and a debit to the ________ account. Answer: Income Summary Explanation: Diff: 1 Topic: Calculating and Recording Adjustments Learning Objective: 12-01 Determine the adjustment for merchandise inventory, and enter the adjustment on the worksheet. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting

65) Under the periodic inventory system, the journal entry to record the ending merchandise inventory in the books includes a ________ to the Merchandise Inventory account. Answer: debit Explanation: Diff: 1 Topic: Calculating and Recording Adjustments Learning Objective: 12-01 Determine the adjustment for merchandise inventory, and enter the adjustment on the worksheet. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting

66) Property, plant, and equipment are long-term assets that require end-of-period adjustments for ________. Answer: depreciation Explanation: Diff: 1 Topic: Calculating and Recording Adjustments Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items, and enter the adjustments on the worksheet. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting

67) To determine the amount of the annual depreciation, the depreciable base is divided by the number of years in the asset's . Answer: useful life Explanation: Diff: 1 Topic: Calculating and Recording Adjustments Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items, and enter the adjustments on the worksheet. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Measurement

68) When an adjusting entry is made for supplies used, the Supplies Expense account is increased and the ________ account is decreased. Answer: Supplies Explanation: Diff: 1 Topic: Calculating and Recording Adjustments Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items, and enter the adjustments on the worksheet. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting

69) Uncollectible Accounts Expense is a(n) ________ account. Answer: expense Explanation: Diff: 1 Topic: Calculating and Recording Adjustments Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items, and enter the adjustments on the worksheet. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting

70) The procedure that most nearly attains the objective of matching revenues and expenses to specific accounting periods is called the basis of accounting. Answer: accrual Explanation: Diff: 1 Topic: Calculating and Recording Adjustments Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items, and enter the adjustments on the worksheet.; 1203 Compute adjustments for accrued and deferred income items, and enter the adjustments on the worksheet. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Decision Making; FN Reporting

71) The adjusting entry to record accrued interest on a note receivable increases the Interest Receivable account and increases the ________ account. Answer: Interest Income Explanation: Diff: 1 Topic: Calculating and Recording Adjustments Learning Objective: 12-03 Compute adjustments for accrued and deferred income items, and enter the adjustments on the worksheet. Bloom's: Understand AACSB: Analytic AICPA: BB Industry; FN Reporting

72) If an account has a debit balance in the Trial Balance section and a debit entry in the Adjustments section, the two amounts should be ________ to compute the adjusted trial balance total. Answer: Added Explanation: Diff: 1 Topic: Completing the Worksheet Learning Objective: 12-04 Complete a 10-column worksheet. Bloom's: Understand AACSB: Analytic AICPA: BB Industry; FN Reporting

73) Net income is recorded on the net income line in the ________column of the Balance Sheet section of the worksheet. Answer: credit Explanation: Diff: 1 Topic: Completing the Worksheet Learning Objective: 12-04 Complete a 10-column worksheet. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Reporting

74) Determine the account and amount to be debited and the account and amount to be credited for the following adjustment. The company uses the periodic inventory system. The beginning inventory for a merchandising business was $73,000, and the ending inventory is $66,000. Answer: First entry: Debit Income Summary, $73,000; credit Merchandise Inventory, $73,000 Second entry: Debit Merchandise Inventory, $66,000; credit Income Summary, $66,000 Explanation: Diff: 2 Topic: Calculating and Recording Adjustments Learning Objective: 12-01 Determine the adjustment for merchandise inventory, and enter the adjustment on the worksheet. Bloom's: Apply AACSB: Analytic AICPA: BB Critical Thinking; FN Reporting; FN Measurement

75) Determine the account and amount to be debited and the account and amount to be credited for the following adjustment. The company uses the periodic inventory system. The beginning inventory for a merchandising business was $32,000, and the ending inventory is $45,000. Answer: First entry: Debit Income Summary, $32,000; credit Merchandise Inventory, $32,000 Second entry: Debit Merchandise Inventory, $45,000; credit Income Summary, $45,000 Explanation: Diff: 2 Topic: Calculating and Recording Adjustments Learning Objective: 12-01 Determine the adjustment for merchandise inventory, and enter the adjustment on the worksheet. Bloom's: Apply AACSB: Analytic AICPA: BB Critical Thinking; FN Reporting; FN Measurement

76) Determine the account and amount to be debited and the account and amount to be credited for the following adjustment. During the year, the firm had net credit sales of $560,000. Past experience shows that 1.4 percent of the firm's net credit sales result in uncollectible accounts. Answer: Debit Uncollectible Accounts Expense, $7,840; credit Allowance for Doubtful Accounts, $7,840 Explanation: $ 560,000 * .014 = $ 7,840 Diff: 2 Topic: Calculating and Recording Adjustments Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items, and enter the adjustments on the worksheet. Bloom's: Apply AACSB: Analytic AICPA: BB Critical Thinking; FN Reporting; FN Measurement

77) Determine the account and amount to be debited and the account and amount to be credited for the following adjustment. During the year, the firm had net credit sales of $890,000. Past experience shows that 0.5 percent of the firm's net credit sales result in uncollectible accounts. Answer: Debit Uncollectible Accounts Expense, $4,450; credit Allowance for Doubtful Accounts, $4,450 Explanation: $ 890,000 * .005 = $4,450 Diff: 2 Topic: Calculating and Recording Adjustments Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items, and enter the adjustments on the worksheet. Bloom's: Apply AACSB: Analytic AICPA: BB Critical Thinking; FN Reporting; FN Measurement

78) Determine the account and amount to be debited and the account and amount to be credited for the following adjustment. Equipment purchased for $65,000 on January 3, 2019, has an estimated life of 6 years and an estimated salvage value of $3,800. The firm uses the straight-line method of depreciation. Determine the adjustment for the month ended January 31, 2019. Answer: Debit Depreciation Expense--Equipment, $850; credit Accumulated Depreciation-Equipment, $850 Explanation: ($65,000 - $3,800)/72 months = $850 Diff: 2 Topic: Calculating and Recording Adjustments Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items, and enter the adjustments on the worksheet. Bloom's: Apply AACSB: Analytic AICPA: BB Critical Thinking; FN Reporting; FN Measurement

79) Determine the account and amount to be debited and the account and amount to be credited for the following adjustment. Equipment purchased for $104,000 on January 3, 2019, has an estimated life of 5 years and an estimated salvage value of $9,000. The firm uses the straight-line method of depreciation. Determine the adjustment for the month ended January 31, 2019. Answer: Debit Depreciation Expense--Equipment, $1,583.33; credit Accumulated Depreciation-Equipment, $1,583.33 Explanation: ($104,000 - $9,000) / 60 months = $1,583.33 Diff: 2 Topic: Calculating and Recording Adjustments Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items, and enter the adjustments on the worksheet. Bloom's: Apply AACSB: Analytic AICPA: BB Critical Thinking; FN Reporting; FN Measurement

80) Determine the account and amount to be debited and the account and amount to be credited for the following adjustment. On December 31, 2019, the firm owed wages totaling $4,300. Answer: Debit Wages Expense, $4,300; credit Wages Payable, $4,300 Explanation: Diff: 1 Topic: Calculating and Recording Adjustments Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items, and enter the adjustments on the worksheet. Bloom's: Apply AACSB: Analytic AICPA: BB Critical Thinking; FN Reporting; FN Measurement

81) Determine the account and amount to be debited and the account and amount to be credited for the following adjustment. On December 31, 2019, the firm owed wages for four days at $1,150 per day. Answer: Debit Wages Expense, $4,600; credit Wages Payable, $4,600 Explanation: $1,150 * 4 = $4,600 Diff: 1 Topic: Calculating and Recording Adjustments Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items, and enter the adjustments on the worksheet. Bloom's: Apply AACSB: Analytic AICPA: BB Critical Thinking; FN Reporting; FN Measurement

82) Determine the account and amount to be debited and the account and amount to be credited for the following adjustment. On December 31, 2019, the Notes Payable account had a balance of $6,000 for a 3-month, 9 percent note issued on November 1, 2019. Answer: Debit Interest Expense, $90; credit Interest Payable, $90 Explanation: $6,000 * .09 = $540; $540/12 * 2 = $90 Diff: 2 Topic: Calculating and Recording Adjustments Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items, and enter the adjustments on the worksheet. Bloom's: Apply AACSB: Analytic AICPA: BB Critical Thinking; FN Reporting; FN Measurement

83) Determine the account and amount to be debited and the account and amount to be credited for the following adjustment. On December 31, 2019, the Notes Payable account had a balance of $12,000, for a 5-month, 8 percent note issued on December 1, 2019. Answer: Debit Interest Expense, $80; credit Interest Payable, $80 Explanation: $12,000 * .08 = $960; $960/12 = $80 Diff: 2 Topic: Calculating and Recording Adjustments Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items, and enter the adjustments on the worksheet. Bloom's: Apply AACSB: Analytic AICPA: BB Critical Thinking; FN Reporting; FN Measurement

84) Determine the account and amount to be debited and the account and amount to be credited for the following adjustment. The Supplies account has a balance of $2,500. On December 31, 2019, an inventory of supplies showed that items costing $625 were on hand. Answer: Debit Supplies Expense, $1,875; credit Supplies, $1,875 Explanation: $2,500 - $625 = $1,875 Diff: 2 Topic: Calculating and Recording Adjustments Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items, and enter the adjustments on the worksheet. Bloom's: Apply AACSB: Analytic AICPA: BB Critical Thinking; FN Reporting; FN Measurement

85) Determine the account and amount to be debited and the account and amount to be credited for the following adjustment. The Supplies account has a balance of $1,400. On December 31, 2019, an inventory of supplies showed that items costing $500 were on hand. Answer: Debit Supplies Expense, $900; credit Supplies, $900 Explanation: $1,400 - $500 = $900 Diff: 2 Topic: Calculating and Recording Adjustments Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items, and enter the adjustments on the worksheet. Bloom's: Apply AACSB: Analytic AICPA: BB Critical Thinking; FN Reporting; FN Measurement

86) Determine the account and amount to be debited and the account and amount to be credited for the following adjustment on December 31, 2019. On August 1, 2019, the firm paid a premium of $5,640 in cash for a 1-year insurance policy. Answer: Debit Insurance Expense, $2,350; credit Prepaid Insurance, $2,350 Explanation: ($5,640/12) * 5 = $2,350 Diff: 2 Topic: Calculating and Recording Adjustments Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items, and enter the adjustments on the worksheet. Bloom's: Apply AACSB: Analytic AICPA: BB Critical Thinking; FN Reporting; FN Measurement

87) Determine the account and amount to be debited and the account and amount to be credited for the following adjustment on December 31, 2019. On October 1, 2019, the firm paid a premium of $5,600 in cash for a 1-year insurance policy. Answer: Debit Insurance Expense, $1,400; credit Prepaid Insurance, $1,400 Explanation: ($5,600 / 12) * 3 = $1,400 Diff: 2 Topic: Calculating and Recording Adjustments Learning Objective: 12-02 Compute adjustments for accrued and prepaid expense items, and enter the adjustments on the worksheet. Bloom's: Apply AACSB: Analytic AICPA: BB Critical Thinking; FN Reporting; FN Measurement

88) Determine the account and amount to be debited and the account and amount to be credited for the following adjustment. During December, the firm received $6,000 in fees in advance and properly recorded the amount as Unearned Fees. An analysis shows that $2,000 applies to services provided in December. Answer: Debit Unearned Fees, $2,000; credit Fees Earned, $2,000 Explanation: Diff: 2 Topic: Calculating and Recording Adjustments Learning Objective: 12-03 Compute adjustments for accrued and deferred income items, and enter the adjustments on the worksheet. Bloom's: Apply AACSB: Analytic AICPA: BB Critical Thinking; FN Reporting; FN Measurement

89) Determine the account and amount to be debited and the account and amount to be credited for the following adjustment. During December, the firm received $12,000 in fees in advance and properly recorded the amount as Unearned Fees. An analysis shows that $4,000 applies to services provided in December. Answer: Debit Unearned Fees, $4,000; credit Fees Earned, $4,000 Explanation: Diff: 2 Topic: Calculating and Recording Adjustments Learning Objective: 12-03 Compute adjustments for accrued and deferred income items, and enter the adjustments on the worksheet. Bloom's: Apply AACSB: Analytic AICPA: BB Critical Thinking; FN Reporting; FN Measurement

90) On July 31, 2019, after one month of operation, the general ledger of Dakota Consulting contained the following accounts and balances. The firm adjusts losses from uncollectible accounts only at the end of the fiscal year. Monthly adjustments are listed below. Prepare the Trial Balance, Adjustments, and Adjusted Trial Balance sections of a worksheet. ACCOUNT Cash Accounts Receivable

BALANCE $13,185 Dr. 9,500 Dr.

ACCOUNT Interest Payable Unearned Income

BALANCE – $600 Cr.

Accounts Receivable Allowance for Doubtful Accounts Supplies Prepaid Rent Prepaid Interest Office Equipment Accumulated Depreciation Office Equipment Notes Payable Accounts Payable

9,500 Dr. Unearned Income 125 Cr. Kay Dakota, Capital

$600 Cr. 22,800 Cr.

650 Dr. Kay Dakota, Drawing 3,000 Dr. Fees Income 240 Dr. Salaries Expense 14,500 Dr. Supplies Expense Rent Expense -- Depreciation Expense 14,000 Cr. Office Equipment 700 Cr. Interest Expense

2,600 Dr. 16,500 Cr. 11,050 Dr. -----

Adjustments: (a) On July 31, an inventory of the supplies showed that items costing $250 were on hand. (b) On July 1, the firm paid $3,000 in advance for 6 months rent. (c) On July 1, the firm paid $240 interest in advance on a 3-month note that it issued to the bank. (d) On July 2, the firm purchased office equipment for $14,500. The office equipment is expected to have a useful life of 5 years and a salvage value of $1,000. (e) On July 1, the firm issued a 3-month, 9 percent note for $4,000. (f) During July, the firm received $600 from customers in advance of providing services. An Analyze of the firm's records shows that the full amount applies to services provided in July. DAKOTA CONSULTING Worksheet Month Ended July 31, 2019

ACCOUNT NAME

TRIAL BALANCE DEBIT CREDIT

ADJUSTMENTS DEBIT CREDIT

10 11 12 13 14 15 16 17 18 19 20 21 22

DAKOTA CONSULTING Worksheet, continued (through Adjusted Trial Balance Column) Month Ended July 31, 2019 ADJ. TRIAL BAL. DEBIT CREDIT 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

20 21 22

Answer:

DAKOTA CONSULTING Worksheet Month Ended July 31, 2019

ACCOUNT NAME Cash Accounts Receivable Allowance for Doubtful Accounts 4 Supplies 5 Prepaid Rent 6 Prepaid Interest 7 Office Equipment 8 Accumulated Depreciation -Office Equipment 9 Notes Payable 10 Accounts Payable 11 Interest Payable 12 Unearned Income 13 Kay Dakota, Capital 14 Kay Dakota, Drawing 15 Fees Income 16 Salaries Expense 17 Supplies Expense 18 Rent Expense 19 Depreciation Expense Office Equipment 20 Interest Expense 21 22 Totals 1 2 3

TRIAL BALANCE DEBIT CREDIT 13,185 9,500 125

ADJUSTMENTS DEBIT CREDIT

650 3,000 240 14,500

(a) (b) (c)

400 500 80

(d)

225

(e)

(f)

600

14,000 700 600 22,800

(f)

600

2,600 16,500 11,050

54,725

(a) (b) (d)

400 500 225

80 30 1,835

1,835

DAKOTA CONSULTING Worksheet, continued (through Adjusted Trial Balance Column) Month Ended July 31, 2019

1 2 3 4

ADJ. TRIAL BAL. DEBIT CREDIT 13,185 9,500 125 250 40

Answer: 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

250 2,500 160 14,500 225 14,000 700 30 -22,800 2,600 17,100 11,050 400 500 225 80 30 54,980

54,980

Explanation: $650 - $250 = $400 A. $3,000 / 6 = $500 B. $240 / 3 = $80 C. ($14,500-$1,000) / 60 = $225 D. ($4,000* .09)/12 = $30 E. $600 earned Diff: 3 Topic: Calculating and Recording Adjustments Learning Objective: 12-01 Determine the adjustment for merchandise inventory, and enter the adjustment on the worksheet.; 12-02 Compute adjustments for accrued and prepaid expense items, and enter the adjustments on the worksheet.; 12-03 Compute adjustments for accrued and deferred income items, and enter the adjustments on the worksheet.;12-04 Complete a 10-column worksheet. Bloom's: Create AACSB: Analytic AICPA: BB Critical Thinking; FN Reporting; FN Measurement

91) Design Home Furnishings is a retail store. On December 31, 2019, the firm's general ledger contained the following accounts and balances. Adjustments are shown below. Prepare the Trial Balance section, record the adjustments in the Adjustments section, and complete the worksheet for the year ended December 31, 2019. Round to the nearest whole dollar. ACCOUNT

BALANCE $8,000 Dr. 7,000 Dr.

Cash Accounts Receivable 41

Accounts Receivable Allowance for Doubtful Accounts Merchandise Inventory Supplies Prepaid Advertising Store Equipment Accumulated Depreciation - Store Equipment Accounts Payable Social Security Tax Payable Medicare Tax Payable Salaries Payable Rich Gaza, Capital Rich Gaza, Drawing Income Summary Sales Sales Returns and Allowances. Purchases Purchases Returns and Allowances Rent Expense Telephone Expense Salaries Expense Payroll Taxes Expense Supplies Expense Advertising Expense Depreciation Expense - Store Equipment Uncollectible Accounts Expense

7,000 Dr. 70 Cr. 40,000 Dr. 1,350 Dr. 1,800 Dr. 8,000 Dr. 1,400 Cr. 2,900 Cr. 620 Cr. 120 Cr. -36,500 Cr. 26,000 Dr. -278,500 Cr. 6,800 Dr. 136,000 Dr. 1,600 Cr. 36,000 Dr. 960 Dr. 45,000 Dr. 3,600 Dr. -1,200 Dr. ---

Adjustments: (a, b) Merchandise inventory on December 31, 2019, is $44,000. (c) During 2019, the firm had credit sales of $140,000. The firm estimates that 0.6 percent of these sales will result in uncollectible accounts. (d) On December 31, 2019, an inventory of supplies showed that items costing $400 were on hand. (e) On November 1, 2019, the firm signed a 6-month advertising contract for $1,800 and paid the full amount in advance. (f) On January 3, 2018, the firm purchased store equipment for $8,000. At that time, the equipment was estimated to have a useful life of five years and a salvage value of $1,000. (No depreciation has been recorded for the year.) (g) On December 31, 2019, the firm owed salaries of $3,000 to part-time employees. These salaries will not be paid until 2020. (h) On December 31, 2019, the firm owed the employer's social security 42 Copyright © McGraw-Hill Education.All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

(h)

On December 31, 2019, the firm owed the employer's social security (assume 6.2%) and Medicare (assume 1.45%) taxes on the entire $3,000 accrued salaries. DESIGN HOME FURNISHINGS Worksheet Year Ended December 31, 2019

ACCOUNT NAME

TRIAL BALANCE DEBIT CREDIT

ADJUSTMENTS DEBIT CREDIT

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29

DESIGN HOME FURNISHINGS Worksheet Year Ended December 31, 2019 ADJUSTED TRIAL BALANCE. DEBIT CREDIT

INCOME STATEMENT DEBIT CREDIT

BALANCE SHEET DEBIT CREDIT

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29

Answer:

DESIGN HOME FURNISHINGS Worksheet Year Ended December 31, 2019

1 2 3 4 5 6 7 8

9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29

ACCOUNT NAME Cash Accounts Receivable Allowance for Doubtful Accounts Merchandise Inventory Supplies Prepaid Advertising Store Equipment Accumulated Depreciation — Store Equipment Accounts Payable Social Security Tax Pay. Medicare Tax Payable Salaries Payable Rich Gaza, Capital Rich Gaza, Drawing Income Summary Sales Sales Returns and Allowances Purchases Purchase Returns and Allowances Rent Expense Telephone Expense Salaries Expense Payroll Taxes Expense Supplies Expense Advertising Expense Depreciation Expense Store Equipment Uncollectible Accounts Expense Totals Net Income

TRIAL BALANCE DEBIT CREDIT 8,000 7,000 70 40,000 1,350 1,800 8,000

ADJUSTMENTS DEBIT CREDIT

(b)

44,000

1,400

2,900 620 120

(c)

840

(a) (d) (e)

40,000 950 600

(f)

1,400

(h) (h) (g)

186 44 3,000

(b)

44,000

36,500 26,000 (a)

40,000

(g) (h) (d) (e) (f)

3,000 230 950 600 1,400

(c)

840

278,500 6,800 136,000 1,600 36,000 960 45,000 3,600 1,200

321,710

91,020

DESIGN HOME FURNISHINGS Worksheet Year Ended December 31, 2019 ADJUSTED TRIAL

INCOME STATEMENT 45

BALANCE

Answer:

ADJUSTED TRIAL BALANCE. DEBIT CREDIT 1 8,000 2 7,000 3 910 4 44,000 5 400 6 1,200 7 8,000 8 2,800 9 2,900 10 806 11 164 12 3,000 13 36,500 14 26,000 15 40,000 44,000 16 278,500 17 6,800 18 136,000 19 1,600 20 36,000 21 960 22 48,000 23 3,830 24 950 25 1,800 26 1,400 27 840 28 371,180 371,180 29

INCOME STATEMENT DEBIT

CREDIT

BALANCE SHEET DEBIT 8,000 7,000

CREDIT

910 44,000 400 1,200 8,000 2,800 2,900 806 164 3,000 36,500 26,000 40,000

44,000 278,500

6,800 136,000 1,600 36,000 960 48,000 3,830 950 1,800 1,400 840 276,580 47,520 324,100

324,100

94,600

324,100

94,600

47,080 47,520 94,600

Explanation: $40,000 cr (old inventory) A. $44,000 dr (new inventory) B. $140,000 * .006 = $840 C. $1,350 - $400 = $950 D. ($1,800/6)*2 = $600 E. ($8,000-$1,000)/5 = $1,400 F. $3,000 G. $186 ($3,000*.062); $44 ($3,000*.0145)

Din ffs :w 3 er: A Topic: Calculating and Recording Adjustments Learning Objective: 12-01 Determine the adjustment for merchandise inventory, and enter the adjustment on the worksheet.; 12-02 Compute adjustments for accrued and prepaid expense items, and enter the adjustments on the worksheet.; 12-03 Compute adjustments for accrued and deferred income items, and enter the adjustments on the worksheet.;12-04 Complete a 10-column worksheet. Bloom's: Create AACSB: Analytic AICPA: BB Critical Thinking; FN Reporting; FN Measurement

92) Complete the table below in accordance with the rules that must be followed to combine amounts in the Adjusted Trial Balance Section of the worksheet. Enter the new balance and whether it is entered as a debit or a credit. Trial Balance Section

Adjustments Section

Salaries Expense–Sales, Debit, $4,500 Supplies, Debit, $800

Salaries Expense–Sales, Debit, $250 Supplies, Credit, $735

Allowance for Doubtful Accounts, Credit $3,000 Miscellaneous Income, Credit $1,100

Allowance for Doubtful Accounts, Credit $830 Miscellaneous Income, Credit $280

Answer: Trial Balance Section Salaries Expense–Sales, Debit, $4,500 Supplies, Debit, $800 Allowance for Doubtful Accounts, Credit $3,000 Miscellaneous Income, Credit $1,100

New Balance-Adjusted Trial Balance Section

Adjustments Section Salaries Expense–Sales, Debit, $250 Supplies, Credit, $735 Allowance for Doubtful Accounts, Credit $830 Miscellaneous Income, Credit $280

New Balance-Adjusted Trial Balance Section Salaries Expense–Sales, Debit, $4,750 Supplies, Debit, $65 Allowance for Doubtful Accounts, Credit, $3,830 Miscellaneous Income, Credit, $1,380

Explanation: $4,500 + $250 = $4,750; $800 - $735 = $65; $3,000 + $830 = $3,830; $1,100 + 280 = $1,380 Diff: 2 Topic: Completing the Worksheet Learning Objective: 12-04 Complete a 10-column worksheet. Bloom's: Create AACSB: Analytic AICPA: BB Critical Thinking; FN Reporting; FN Measurement

93) Match the accounting terms with the description by entering the proper letter in the space provided. A. Accrual basis B. Accrued expenses C. Accrued income D. Deferred expenses E. Deferred income F. Inventory sheet G. Net income or Net loss H. Prepaid expenses I. Property, plant, and equipment J. Unearned income K. Updated account balances 1. Long-term assets that are used in the operation of a business and that are subject to depreciation (except for land, which is not depreciated) ________ 2. A form used to list the volume and type of goods a firm has in stock ________ 3. Another term for unearned income ________ 4. Expenses that are paid for and recorded before they are used, such as rent or insurance ________ 5. The amounts entered in the Adjusted Trial Balance section of the worksheet ________ 6. Expense items that relate to the current period but have not yet been paid and do not yet appear in the accounting records ________ 7. Another term for prepaid expenses ________ 8. A system of accounting by which all revenues and expenses are matched and reported on financial statements for the applicable period, regardless of when the cash related to the transaction is received or paid ________ 9. Income that has been earned but not yet received and recorded ________ 10. The difference between the debit and credit columns of the Income Statement and the debit and credit columns of the Balance Sheet on the worksheet. ________ 11. Income received before it is earned

Answer: (1) I, (2) F, (3) E, (4) H, (5) K, (6) B, (7) D, (8) A, (9) C, (10) G, (11) J Explanation: Diff: 2 Topic: Calculating and Recording Adjustments Learning Objective: 12-01 Determine the adjustment for merchandise inventory, and enter the adjustment on the worksheet.; 12-02 Compute adjustments for accrued and prepaid expense items, and enter the adjustments on the worksheet.; 12-03 Compute adjustments for accrued and deferred income items, and enter the adjustments on the worksheet.;12-04 Complete a 10-column worksheet. Bloom's: Remember AACSB: Analytic AICPA: BB Critical Thinking; FN Reporting

Chapter 13 Financial Statements and Closing Procedures MULTIPLE CHOICE QUESTIONS 1) The total of the operating expenses for the period is added to the gross profit on sales to determine the net income or net loss from operations. A) True B) False Answer: B Explanation: Diff: 1 Topic: Preparing the Financial Statements Learning Objective: 13-01 Prepare a classified income statement from the worksheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

2) The balance of the Sales Returns and Allowances account is reported as a selling expense in Operating Expenses section of a multiple-step income statement. A) True B) False Answer: B Explanation: Diff: 2 Topic: Preparing the Financial Statements Learning Objective: 13-01 Prepare a classified income statement from the worksheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

3) Interest on notes payable would be listed in the Other Expenses section of a classified income statement. A) True B) False Answer: A Explanation: Diff: 2 Topic: Preparing the Financial Statements Learning Objective: 13-01 Prepare a classified income statement from the worksheet. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

4) The statement of owner's equity is prepared before the balance sheet so that the ending owner's capital balance is available for the balance sheet. A) True B) False Answer: A Explanation: Diff: 1 Topic: Preparing the Financial Statements Learning Objective: 13-02 Prepare a statement of owner's equity from the worksheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

5) Current assets provide the funds needed to pay bills and meet expenses. A) True B) False Answer: A Explanation: Diff: 1 Topic: Preparing the Financial Statements Learning Objective: 13-03 Prepare a classified balance sheet from the worksheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

6) Current assets are usually listed on a balance sheet in order of liquidity. A) True B) False Answer: A Explanation: Diff: 2 Topic: Preparing the Financial Statements Learning Objective: 13-03 Prepare a classified balance sheet from the worksheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

7) After all adjusting entries are posted, the balances of the general ledger accounts should match the amounts shown in the Adjusted Trial Balance section of the worksheet. A) True B) False Answer: A Explanation: Diff: 2 Topic: Completing the Accounting Cycle Learning Objective: 13-04 Journalize and post the adjusting entries. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

8) If the Income Summary account has a credit balance after revenues, and expenses are closed, the firm had a net income for the fiscal period. A) True B) False Answer: A Explanation: Diff: 1 Topic: Completing the Accounting Cycle Learning Objective: 13-05 Journalize and post the closing entries. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

9) When a firm experiences a net loss, the owner's capital is decreased. A) True B) False Answer: A Explanation: Diff: 1 Topic: Completing the Accounting Cycle Learning Objective: 13-05 Journalize and post the closing entries. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

10) At the end of the period, the balance of the Accounts Receivable account is closed to the Income Summary account. A) True B) False Answer: B Explanation: Diff: 2 Topic: Completing the Accounting Cycle Learning Objective: 13-05 Journalize and post the closing entries. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

11) The adjusting entry to record depreciation should be reversed at the start of a new fiscal period to make subsequent financial record keeping easier. A) True B) False Answer: B Explanation: Diff: 2 Topic: Completing the Accounting Cycle Learning Objective: 13-07 Journalize and post reversing entries. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

12) Gross profit on sales is calculated as A) net sales minus operating expenses. C) net sales minus cost of goods sold . Answer: C Explanation: A) B) C) D)

B) sales minus sales returns and allowances. D) net sales plus cost of goods sold.

Diff: 2 Topic: Preparing the Financial Statements Learning Objective: 13-01 Prepare a classified income statement from the worksheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

13) An income statement that has one total for all revenues and one total for all expenses is known as a A) categorized income statement. B) multiple-step income statement. C) classified income statement. D) single-step income statement. Answer: D Explanation: A) B) C) D) Diff: 1 Topic: Preparing the Financial Statements Learning Objective: 13-01 Prepare a classified income statement from the worksheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

14) Which of the following statements is correct? A) The term single-step income statement is sometimes used to describe a classified income statement. B) Salaries of office employees would be grouped with the selling expenses in the Operating Expenses section of the income statement. C) If a business is to earn a net income, the gross profit on sales must be greater than operating expenses. D) Sales less Operating Expenses equals Gross Profit. Answer: C Explanation: A) B) C) D) Diff: 2 Topic: Preparing the Financial Statements Learning Objective: 13-01 Prepare a classified income statement from the worksheet. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement; FN Decision Making

15) The beginning capital balance shown on a statement of owner's equity is $64,000. Net income for the period is $23,000 and the owner withdrew $30,000 cash from the business and made no additional investments during the period. The owner's capital balance at the end of the period is A) $64,000. B) $117,000. C) $71,000. D) $57,000. Answer: D Explanation:

A) $64,000 + $23,000 – $30,000 = $57,000 B) $64,000 + $23,000 – $30,000 = $57,000 C) $64,000 + $23,000 – $30,000 = $57,000 D) $64,000 + $23,000 – $30,000 = $57,000

Diff: 1 Topic: Preparing the Financial Statements Learning Objective: 13-02 Prepare a statement of owner's equity from the worksheet. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement; BB Critical Thinking

16) The beginning capital balance shown on a statement of owner's equity is $36,000. Net income for the period is $16,000. The owner withdrew $20,000 cash from the business and made no additional investments during the period. The owner's capital balance at the end of the period is A) $40,000. B) $72,000. C) $32,000. D) $36,000. Answer: C Explanation:

A) $36,000 + $16,000 – $20,000 = $32,000 B) $36,000 + $16,000 – $20,000 = $32,000 C) $36,000 + $16,000 – $20,000 = $32,000 D) $36,000 + $16,000 – $20,000 = $32,000

17) The beginning capital balance shown on a statement of owner's equity is $80,000. Net income for the period is $35,000. The owner withdrew $18,000 cash from the business and made no additional investments during the period. The owner's capital balance at the end of the period is A) $63,000. B) $133,000. C) $97,000. D) $80,000. Answer: C Explanation:

A) $80,000 + $35,000 – $18,000 = $97,000 B) $80,000 + $35,000 – $18,000 = $97,000 C) $80,000 + $35,000 – $18,000 = $97,000 D) $80,000 + $35,000 – $18,000 = $97,000

18) The beginning capital balance shown on a statement of owner's equity is $80,000. Net income for the period is $37,000. The owner made no additional investments during the period. The owner's capital balance at the end of the period is $96,000. The amount the owner withdrew for personal use during the period is A) $37,000. B) $16,000. C) $80,000. D) $21,000. Answer: D Explanation:

A) $80,000 + $37,000 – $96,000 = $21,000 B) $80,000 + $37,000 – $96,000 = $21,000 C) $80,000 + $37,000 – $96,000 = $21,000 D) $80,000 + $37,000 – $96,000 = $21,000

19) The balance of the owner's drawing account is reported A) in the Operating Expenses section of the income statement. B) in the Current Assets section of the balance sheet. C) in the Other Expenses section of the income statement. D) on the statement of owner's equity. Answer: D Explanation: A) B) C) D) Diff: 2 Topic: Preparing the Financial Statements Learning Objective: 13-02 Prepare a statement of owner's equity from the worksheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

20) Which of the following is not a current asset? A) Prepaid Insurance C) Accounts Receivable Answer: D Explanation: A) B) C) D)

B) Merchandise Inventory D) Equipment

Diff: 1 Topic: Preparing the Financial Statements Learning Objective: 13-03 Prepare a classified balance sheet from the worksheet. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement; FN Decision Making

21) Prepaid expenses appear in the A) Operating Expenses section of the income statement. B) Current Liabilities section of the balance sheet. C) Other Expenses section of the income statement. D) Current Assets section of the balance sheet. Answer: D Explanation: A) B) C) D) Diff: 1 Topic: Preparing the Financial Statements Learning Objective: 13-03 Prepare a classified balance sheet from the worksheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

22) Which of the following statements is not correct? A) A current ratio of 3.5 to 1 means that a firm has $3.50 in current liabilities for every $1 of current assets. B) The gross profit percentage is calculated by dividing the gross profit for the year by the net sales for the year. C) Working capital is the difference between total current assets and total current liabilities. D) The average inventory is calculated by adding the beginning inventory to the ending inventory and dividing the sum by 2. Answer: A Explanation:

A) B) C) D)

Diff: 2 Topic: Completing the Accounting Cycle Learning Objective: 13-06 Prepare a postclosing trial balance. Bloom's: Analyze AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement; FN Decision Making; BB Critical Thinking

23) On May 1, Brown's Antiques paid $18,000 for 12 months of advance rent on its store and immediately debited the asset account Prepaid Rent for the full amount. Select the adjusting entry made on December 31, to record the amount of rent that had expired. A) Prepaid Rent 12,000 Rent Expense 12,000

B) Rent Expense Prepaid Rent

12,000

Rent Expense Prepaid Rent

10,500

Prepaid Rent Rent Expense

18,000

12,000

C) 10,500

Answer: B Explanation:

18,000

A) $18,000/12 months = $1,500; ($1,500 × 8 months = $12,000) B) $18,000/12 months = $1,500; ($1,500 × 8 months = $12,000) C) $18,000/12 months = $1,500; ($1,500 × 8 months = $12,000) D) $18,000/12 months = $1,500; ($1,500 × 8 months = $12,000)

Diff: 2 Topic: Completing the Accounting Cycle Learning Objective: 13-04 Journalize and post the adjusting entries. Bloom's: Analyze AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement; BB Critical Thinking

24) A total of $8,000 in supplies was purchased during the year. By the end of the year, the company had used up $5,300 of the supplies. The adjusting entry needed at the end of the year is: A) Supplies Expense 5,300 Supplies 5,300

B) Supplies Expense Supplies

2,700

Supplies Expense Supplies

8,000

2,700

C) 8,000

D) Supplies Supplies Expense

Answer: A Explanation:

5,300 5,300

A) Since the problem stated that $5,300 had been used up that is the amount that needs to be credited from the supplies account and recognized as an expense. B) Since the problem stated that $5,300 had been used up that is the amount that needs to be credited from the supplies account and recognized as an expense. C) Since the problem stated that $5,300 had been used up that is the amount that needs to be credited from the supplies account and recognized as an expense. D) Since the problem stated that $5,300 had been used up that is the amount that needs to be credited from the supplies account and recognized as an expense.

Diff: 2 Topic: Completing the Accounting Cycle Learning Objective: 13-04 Journalize and post the adjusting entries. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement; BB Critical Thinking

25) Use the following account balances from the adjusted trial balance columns of RB Auto's worksheet to answer below question. Account

Debit Balance 20,500 1,000

Cash Merchandise Inventory Accounts Payable R. Holloway, Drawing R. Holloway, Capital Sales Purchases Purchase Returns and Allowances Rent Expense Salaries Expense

Credit Balance

2,800 500 13,000 15,000 2,000 200 3,000 4,000

Select the closing entry that RB Auto would make at the end of the accounting period to close their revenue accounts and income statement accounts with credit balances. A) debit Income Summary for $15,000 and credit Sales for $15,000. B) debit Sales for $15,000; debit R Holloway, Capital for $13,000 and credit Income Summary for $28,000. C) debit Sales $15,000; debit Purchase Returns and Allowances $200 and credit Income Summary for $15,200. 11 Copyright © McGraw-Hill Education.All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

D) debit Sales and credit Income Summary for $15,000. Answer: C Explanation:

A) B) C) D)

Diff: 2 Topic: Completing the Accounting Cycle Learning Objective: 13-05 Journalize and post the closing entries. Bloom's: Analyze AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement; BB Critical Thinking

26) Use the following account balances from the adjusted trial balance columns of RB Auto's worksheet to answer below question. Account

Debit Balance 20,500 1,000

Cash Merchandise Inventory Accounts Payable R. Holloway, Drawing R. Holloway, Capital Sales Purchases Purchase Returns and Allowances Rent Expense Salaries Expense

Credit Balance

2,800 500 13,000 15,000 2,000 200 3,000 4,000

Select the correct closing entry that RB Auto would make to close their expense account(s) at the end of the accounting period. A) debit R. Holloway, Capital $9,000 and credit Salary Expense $4,000; credit Rent Expense $3,000; credit Purchases $2,000 B) debit Income Summary $9,000 and credit Salary Expense $4,000; credit Rent Expense $3,000; credit Purchases $2,000 C) debit Salary Expense $4,000; debit Rent Expense $3,000; debit Purchases $2,000 and credit Income Summary $9,000 D) debit Income Summary $9,000 and credit R. Holloway, Capital for $9,000

Answer: B Explanation:

A) B) C) D) 12

27) Use the following account balances from the adjusted trial balance columns of RB Auto's worksheet to answer below question. Account Cash Merchandise Inventory Accounts Payable R. Holloway, Drawing R. Holloway, Capital Sales Purchases Purchase Returns and Allowances Rent Expense Salaries Expense

Debit Balance 20,500 1,000

Credit Balance

2,800 500 13,000 15,000 2,000 200 3,000 4,000

Select the correct closing entry that RB Auto would make to close the owner's withdrawal account at the end of the accounting period. A) debit R. Holloway, Capital $500 and credit R. Holloway, Drawing for $500. B) debit R. Holloway, Drawing $500 credit R. Holloway, Capital for $500. C) debit Income Summary $500 and credit R. Holloway, Drawing for $500. D) debit R. Holloway, Drawing $500 and credit Income Summary for $500.

Answer: A Explanation:

A) B) C) D)

28) Use the following account balances from the adjusted trial balance columns of Goody Chocolate's worksheet to answer below question. Account Cash Merchandise Inventory Accounts Payable A. Goody, Drawing A. Goody, Capital Sales Sales Discounts Purchases Salaries Expense Income Summary

Debit Balance 10,000 4,000

Credit Balance

2,200 1,000 6,000 24,000 200 12,000 7,500 1,500

4,000

Using the adjusted trial balance above, select the correct closing entry that Goody Chocolate would make to close their revenue accounts (and other temporary income statement accounts with credit balances) at the end of the accounting period. A) A. Goody, Capital 28,000 Income Summary 4,000 Sales 24,000

B) Sales A. Goody, Capital

24,000

Sales Income Summary

24,000

Income Summary Sales Sales Discounts

24,200

24,000

C) 24,000

Answer: C Explanation:

A) B)

24,000 200

B) C) D) Diff: 2 Topic: Completing the Accounting Cycle Learning Objective: 13-05 Journalize and post the closing entries. Bloom's: Analyze AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement; BB Critical Thinking

29) Use the following account balances from the adjusted trial balance columns of Goody Chocolate's worksheet to answer below question. Account Cash Merchandise Inventory Accounts Payable A. Goody, Drawing A. Goody, Capital Sales Sales Discounts Purchases Salaries Expense Income Summary

Debit Balance 10,000 4,000

Credit Balance

2,200 1,000 6,000 24,000 200 12,000 7,500 1,500

4,000

Using the adjusted trial balance above, select the correct closing entry that Goody Chocolate would make to close the expense accounts (and cost of goods sold accounts with debit balances) at the end of the accounting period. A) Income Summary 19,700 Expense Accounts 19,700

B) Income Summary Sales Discounts Purchases Salaries Expense

19,700 200 12,000 7,500

C) Purchases Salaries Expense Income Summary

12,000 7,500

Income Summary A. Goody, Capital

2,500

19,500

Answer: B Explanation:

2,500

A) B) C) D)

30) The accountant of Randy's Flooring has closed all of the temporary income statement accounts. The accountant is now ready to close the Income Summary account. The owner of the company is R. Car. Using the Income Summary T-account below, determine the correct closing entry the accountant needs to make in order to close the account. Income Summary 12/31 beg inv. 12/31 exp.

2,000 12/31 ending inv. 42,000 12/31 rev.

5,000 85,000

A) R. Car, Capital Income Summary

90,000

Income Summary R. Car, Capital

43,000

90,000

B) 43,000

C) R. Car, Capital Income Summary

46,000

Income Summary R. Car, Capital

46,000

Answer: D Explanation:

46,000

A) Credit balance of $90,000 - debit balance of $44,000 = $46,000 credit balance. To close the account, a debit of $46,000 is needed to close Income Summary. B) Credit balance of $90,000 - debit balance of $44,000 = $46,000 credit balance. To close the account, a debit of $46,000 is needed to close Income Summary. C) Credit balance of $90,000 - debit balance of $44,000 = $46,000 credit balance. To close the account, a debit of $46,000 is needed to close Income Summary. D) Credit balance of $90,000 - debit balance of $44,000 = $46,000 credit balance. To close the account, a debit of $46,000 is needed to close Income Summary.

31) Which of the following accounts is not closed at the end of the accounting period? A) Merchandise Inventory B) Purchases C) Rent Expense D) Sales Answer: A Explanation: A) B) C) D) Diff: 1 Topic: Completing the Accounting Cycle Learning Objective: 13-05 Journalize and post the closing entries. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

32) Which of the following accounts is not closed at the end of the accounting period? A) Interest Expense B) Accumulated Depreciation C) Depreciation Expense D) Sales Answer: B Explanation: A) B) C) D) Diff: 1 Topic: Completing the Accounting Cycle Learning Objective: 13-05 Journalize and post the closing entries. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

33) Which of the following accounts is not closed at the end of the accounting period? A) Sales B) Depreciation Expense C) Accounts Receivable D) Purchases Answer: C Explanation: A) B) C) D) Diff: 1 Topic: Completing the Accounting Cycle Learning Objective: 13-05 Journalize and post the closing entries. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

34) Which of the following accounts is not closed at the end of the accounting period? A) Purchase Discounts B) Capital C) Depreciation Expense D) Sales Answer: B Explanation: A) B) C) D) Diff: 1 Topic: Completing the Accounting Cycle Learning Objective: 13-05 Journalize and post the closing entries. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

35) Which of the following accounts would be closed at the end of the accounting period? A) Capital B) Accumulated Depreciation C) Prepaid Rent D) Depreciation Expense Answer: D Explanation: A) B) C) D) Diff: 1 Topic: Completing the Accounting Cycle Learning Objective: 13-05 Journalize and post the closing entries. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

36) Which of the following accounts would be closed at the end of the accounting period? A) Merchandise Inventory B) Purchases C) Prepaid Rent D) Accumulated Depreciation Answer: B Explanation: A) B) C) D) Diff: 1 Topic: Completing the Accounting Cycle Learning Objective: 13-05 Journalize and post the closing entries. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

37) Which of the following groups of accounts will have zero balances after the closing process is completed? A) Depreciation Expense and Accumulated Depreciation—Equipment B) Allowance for Doubtful Accounts and Uncollectible Accounts Expense C) Purchases and Purchases Returns and Allowances D) Merchandise Inventory and Sales Answer: C Explanation: A) B) C) D) Diff: 1 Topic: Completing the Accounting Cycle Learning Objective: 13-05 Journalize and post the closing entries. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

38) The Income Summary account, for Wise Tools appears below. Based on the data contained in the account, determine which of the statements below is correct. Income Summary 12/31 beg inv. 12/31 expenses

4,000 12/31 ending inv. 51,000 12/31 revenues

9,000 45,000

A) Wise Tools will report net income of $1,000 for the period ending 12/31 B) Wise Tools will report net income of $6,000 for the period ending 12/31 C) Wise Tools will report a $1,000 net loss for the period ending 12/31 D) Wise Tools will report a $6,000 net loss for the period ending 12/31 Answer: C Explanation: A) $9,000 cr.+ $45,000 cr. - $4,000 dr. - $51,000 dr. = $1,000 dr (net loss) B) $9,000 cr.+ $45,000 cr. - $4,000 dr. - $51,000 dr. = $1,000 dr (net loss) C) $9,000 cr.+ $45,000 cr. - $4,000 dr. - $51,000 dr. = $1,000 dr (net loss) D) $9,000 cr.+ $45,000 cr. - $4,000 dr. - $51,000 dr. = $1,000 dr (net loss) Diff: 2 Topic: Completing the Accounting Cycle Learning Objective: 13-05 Journalize and post the closing entries. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement; BB Critical Thinking

39) The Income Summary account, for Edgar's Cigars appears below. Based on the data contained in the account, determine which of the statements below is correct. Income Summary 12/31 beg inv. 12/31 expenses

7,000 12/31 ending inv. 25,000 12/31 revenues

3,000 36,000

A) Edgar's Cigars will report an $11,000 net loss for the period ending 12/31 B) Edgar's Cigars will report net income of $7,000 for the period ending 12/31 C) Edgar's Cigars will report a $7,000 net loss for the period ending 12/31 D) Edgar's Cigars will report net income of $11,000 for the period ending 12/31 Answer: B Explanation:

A) $3,000 cr.+ $36,000 cr. - $7,000 dr. - $25,000 dr. = $7,000 dr (net income) B) $3,000 cr.+ $36,000 cr. - $7,000 dr. - $25,000 dr. = $7,000 dr (net income) C) $3,000 cr.+ $36,000 cr. - $7,000 dr. - $25,000 dr. = $7,000 dr (net income) D) $3,000 cr.+ $36,000 cr. - $7,000 dr. - $25,000 dr. = $7,000 dr (net income)

Diff: 2 Topic: Completing the Accounting Cycle Learning Objective: 13-05 Journalize and post the closing entries. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement; BB Critical Thinking

40) Which of the following accounts will appear on the post-closing trial balance? A) Sales B) Payroll Taxes Expense C) Miscellaneous Income D) Medicare Tax Payable Answer: D Explanation: A) B) C) D) Diff: 1 Topic: Completing the Accounting Cycle Learning Objective: 13-06 Prepare a postclosing trial balance. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

41) Which of the following accounts will appear on the post-closing trial balance? A) Payroll Tax Expense B) Sales C) Capital D) Depreciation Expense Answer: C Explanation: A) B) C) D) Diff: 1 Topic: Completing the Accounting Cycle Learning Objective: 13-06 Prepare a postclosing trial balance. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement; BB Critical Thinking

42) Which of the following accounts will NOT appear on the post-closing trial balance? A) Wages Expense B) Equipment C) Wages Payable D) Prepaid Advertising Answer: A Explanation: A) B) C) D) Diff: 1 Topic: Completing the Accounting Cycle Learning Objective: 13-06 Prepare a postclosing trial balance. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement; BB Critical Thinking

43) Inventory turnover is calculated by A) dividing average inventory by cost of goods sold. B) dividing cost of goods sold by average inventory. C) dividing average inventory by the ending inventory. D) adding beginning inventory to ending inventory and dividing by 2. Answer: B Explanation: A) B) C) D) Diff: 1 Topic: Completing the Accounting Cycle Learning Objective: 13-06 Prepare a postclosing trial balance. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

44) The current ratio is calculated by A) dividing total assets by total liabilities. B) subtracting current liabilities from current assets. C) adding current assets to current liabilities. D) dividing current assets by current liabilities. Answer: D Explanation: A) B) C) D) Diff: 1 Topic: Completing the Accounting Cycle Learning Objective: 13-06 Prepare a postclosing trial balance. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

45) Which of the following statements is not correct? A) In the closing process, the balance of the Purchases account is transferred to the Merchandise Inventory account. B) Closing the Revenue accounts is the first step in the closing process. C) In the closing process, the balance of the owner's drawing account is transferred to the debit side of the owner's capital account. D) The worksheet is the source of data for the general journal entries required to close the temporary accounts. Answer: A Explanation: A) B) C) D) Diff: 2 Topic: Completing the Accounting Cycle Learning Objective: 13-05 Journalize and post the closing entries. Bloom's: Analyze AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement; FN Decision Making

46) A reversing entry should not be made for an adjusting entry to record A) an accrued income item that will involve future cash receipts. B) depreciation. C) the accrued salaries. D) an accrued expense item that will involve future cash payments. Answer: B Explanation: A) B) C) D) Diff: 2 Topic: Completing the Accounting Cycle Learning Objective: 13-07 Journalize and post reversing entries. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

47) The entry to reverse the adjustment for accrued interest income consists of a debit to A) Interest Income and a credit to Income Summary. B) Interest Income and a credit to Interest Receivable. C) Interest Receivable and a credit to Interest Income. D) Interest Income and a credit to Interest Expense. Answer: B Explanation: A) B) C) D) Diff: 2 Topic: Completing the Accounting Cycle Learning Objective: 13-07 Journalize and post reversing entries. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

48) In the general journal, reversing entries are dated as of A) any time before the end of the fiscal period. B) the first day of the new fiscal period. C) any day during the month of the new fiscal period. D) the last day of the old fiscal period. Answer: B Explanation: A) B) C) D) Diff: 1 Topic: Completing the Accounting Cycle Learning Objective: 13-07 Journalize and post reversing entries. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

49) The entry to reverse the adjusting entry for accrued payroll taxes expense includes A) a debit to Employee Income Tax Payable. B) a credit to Social Security Tax Payable and a credit to Medicare Tax Payable. C) a debit to Social Security Tax Payable and a debit to Medicare Tax Payable. D) a debit to Payroll Taxes Expense. Answer: C Explanation: A) B) C) D) Diff: 2 Topic: Completing the Accounting Cycle Learning Objective: 13-07 Journalize and post reversing entries. Bloom's: Understand AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

50) A company reported gross profit of $72,000, total operating expenses of $41,000 and interest income of $3,600. What is the income from operations? A) $31,000 B) $27,400 C) $41,000 D) $34,600 Answer: A Explanation: A) $72,000 – $41,000 = $31,000 B) $72,000 – $41,000 = $31,000 C) $72,000 – $41,000 = $31,000 D) $72,000 – $41,000 = $31,000 Diff: 2 Topic: Preparing the Financial Statements Learning Objective: 13-01 Prepare a classified income statement from the worksheet. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement; BB Critical Thinking

51) For the current fiscal year, Purchases were $187,000, Purchase Returns and Allowances were $4,200 and Freight In was $10,500. If the beginning merchandise inventory was $98,000 and the ending merchandise inventory was $103,000, the Cost of Goods Sold is: A) $ 167,300 B) $196,700 C) $193,300 D) $188,300 Answer: D Explanation:

A) $98,000 + ($187,000 + $10,500 - $4,200) – $103,000 = $188,300 B) $98,000 + ($187,000 + $10,500 - $4,200) – $103,000 = $188,300 C) $98,000 + ($187,000 + $10,500 - $4,200) – $103,000 = $188,300 D) $98,000 + ($187,000 + $10,500 - $4,200) – $103,000 = $188,300

Diff: 2 Topic: Preparing the Financial Statements Learning Objective: 13-01 Prepare a classified income statement from the worksheet. Bloom's: Apply AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement; BB Critical Thinking

52) For the current fiscal year, Purchases were $187,000, Purchase Returns and Allowances were $4,200 and Freight In was $10,500. If the beginning merchandise inventory was $98,000 and the ending merchandise inventory was $103,000, the Net Delivered Cost of Purchases is: A) $172,300 B) $193,300 C) $187,000 D) $201,700 Answer: B Explanation:

A) $187,000 + $10,500 - $4,200 = $193,300 B) $187,000 + $10,500 - $4,200 = $193,300 C) $187,000 + $10,500 - $4,200 = $193,300 D) $187,000 + $10,500 - $4,200 = $193,300

53) Which of the following is not a selling expense: A) Delivery Expense C) Sales Salaries Expense Answer: B Explanation: A) B) C) D)

B) Rent Expense on the office D) Advertising Expense

Diff: 1 Topic: Preparing the Financial Statements Learning Objective: 13-01 Prepare a classified income statement from the worksheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

54) Which of the following would not be classified as a Current Asset: A) Cash B) Accounts Receivable C) Equipment D) Supplies Answer: C Explanation:

A) B) C) D)

Diff: 1 Topic: Preparing the Financial Statements Learning Objective: 13-03 Prepare a classified balance sheet from the worksheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

55) Interest Expense is classified as a(n): A) Administrative Expense C) Selling Expense Answer: B Explanation: A) B) C) D)

B) Other Expense D) Other Income

56) Which of the following is not a section on a Classified Balance Sheet: A) Plant and Equipment B) Current Assets C) Long-Term Liabilities D) Selling Expenses Answer: D Explanation: A) B) C) D) Diff: 1 Topic: Preparing the Financial Statements Learning Objective: 13-03 Prepare a classified balance sheet from the worksheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

57) Which of the following should be classified as a General and Administrative Expense on a Multi-Step Income Statement: A) Delivery Expense B) Sales Salaries Expense C) Advertising Expense D) Insurance Expense Answer: D Explanation: A) B) C) D) Diff: 1 Topic: Preparing the Financial Statements Learning Objective: 13-01 Prepare a classified income statement from the worksheet. Bloom's: Remember AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting; FN Measurement

58) Cost of Goods Sold is classified as a(n): A) Expense account C) Revenue account Answer: A Explanation: A) B) C) D)

B) Asset account D) Owner's Equity account

59) At the end of the year Stan Still Stationery Store had the following balances: Sales $485,000; Sales Discounts $2,540; Sales Returns and Allowances $14,280; Sales Salaries Expense $54,000. The Net Sales for the year are: A) $414,180 B) $468,180 C) $501,820 D) $447,820 Answer: B Explanation:

A) $485,000 – $2,540 – $14,280 = $468,180 B) $485,000 – $2,540 – $14,280 = $468,180 C) $485,000 – $2,540 – $14,280 = $468,180 D) $485,000 – $2,540 – $14,280 = $468,180

60) For the current fiscal year, Purchases were $245,000, Purchase Returns and Allowances were $8,600, Purchase Discounts were $2,200 and Freight In was $32,000. If the beginning merchandise inventory was $60,000 and the ending merchandise inventory was $75,000, the Cost of Goods Sold is: A) $251,200 B) $272,800 C) $266,200 D) $281,200 Answer: A Explanation:

A) $60,000 + ($245,000 + $32,000 – $8,600 – $2,200) – $75,000 = $251,200 B) $60,000 + ($245,000 + $32,000 – $8,600 – $2,200) – $75,000 = $251,200 C) $60,000 + ($245,000 + $32,000 – $8,600 – $2,200) – $75,000 = $251,200 D) $60,000 + ($245,000 + $32,000 – $8,600 – $2,200) – $75,000 = $251,200

61) For the current fiscal year, Purchases were $680,000, Purchase Returns and Allowances were $21,640, Purchase Discounts were $5,800 and Freight In was $41,500. If the beginning merchandise inventory was $240,000 and the ending merchandise inventory was $215,000, the Cost of Goods Sold is: A) $501,060 B) $719,060 C) $636,060 D) $476,060 Answer: B Explanation:

A) $240,000 + ($680,000 + $41,500 – $21,640 – $5,800) – $215,000 = $719,060 B) $240,000 + ($680,000 + $41,500 – $21,640 – $5,800) – $215,000 = $719,060 C) $240,000 + ($680,000 + $41,500 – $21,640 – $5,800) – $215,000 = $719,060 D) $240,000 + ($680,000 + $41,500 – $21,640 – $5,800) – $215,000 = $719,060

SHORT ANSWER QUESTIONS 62) The difference between net sales and the cost of goods sold is called the ________ on sales. Answer: gross profit Explanation: Diff: 1 Topic: Preparing the Financial Statements Learning Objective: 13-01 Prepare a classified income statement from the worksheet.; 13-08 Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Measurement; FN Reporting

63) Cash, items that will normally be converted to cash, and items that will be used up within one year are called ________ assets. Answer: current Explanation: Diff: 1 Topic: Preparing the Financial Statements Learning Objective: 13-03 Prepare a classified balance sheet from the worksheet. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Measurement; FN Reporting

64) On a classified balance sheet, Accounts Payable would appear in the

section.

Answer: current liabilities Explanation: Diff: 1 Topic: Preparing the Financial Statements Learning Objective: 13-03 Prepare a classified balance sheet from the worksheet. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Measurement; FN Reporting

65) On the balance sheet, the cost of a fixed asset less its accumulated depreciation to date is the asset's ________. Answer: book value Explanation: Diff: 1 Topic: Preparing the Financial Statements Learning Objective: 13-03 Prepare a classified balance sheet from the worksheet. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Measurement; FN Reporting

66) All accounts appearing in the Summary account. Answer: Income Statement Explanation:

section of the worksheet are closed to the Income

Diff: 1 Topic: Completing the Accounting Cycle Learning Objective: 13-05 Journalize and post the closing entries. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Measurement; FN Reporting

67) After the Answer: closing Explanation:

entries are posted, the Sales account will have a zero balance.

Diff: 1 Topic: Completing the Accounting Cycle Learning Objective: 13-05 Journalize and post the closing entries. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Measurement; FN Reporting

68) A gross profit percentage of 45 percent means that for every $1 of net sales, gross profit amounts to $________. Answer: $0.45 Explanation: $1.00 * 45% = $0.45 Diff: 1 Topic: Completing the Accounting Cycle Learning Objective: 13-06 Prepare a postclosing trial balance. Bloom's: Apply AACSB: Analytic AICPA: BB Critical Thinking; BB Industry; FN Measurement; FN Reporting

69) Each reversing entry is the exact opposite of the related

entry.

Answer: adjusting Explanation: Diff: 1 Topic: Completing the Accounting Cycle Learning Objective: 13-07 Journalize and post reversing entries. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; FN Measurement; FN Reporting

70) The adjusting entry was then reversed. To record the first payroll of 2020, which totaled $1,500, Salaries Expense should be debited for $________. Answer: $1,500 Explanation: Diff: 2 Topic: Completing the Accounting Cycle Learning Objective: 13-07 Journalize and post reversing entries. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Measurement; FN Reporting

71) A classified income statement showed net sales of $630,000, cost of goods sold of $342,000, and total operating expenses of $192,000 for the fiscal year ended June 30, 2019. 1. What was the gross profit on sales? 2. What was the net income from operations? Answer: 1. $288,000; 2. $96,000 Explanation: 1. $630,000 - $342,000 = $288,000 2. $288,000 - $192,000 = $96,000 Diff: 2 Topic: Preparing the Financial Statements Learning Objective: 13-01 Prepare a classified income statement from the worksheet. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; BB Critical Thinking; FN Reporting; FN Measurement; FN Decision Making

72) A classified income statement showed net sales of $1,160,000, cost of goods sold of $545,000, and total operating expenses of $416,000 for the fiscal year ended December 31, 2019. 1. What was the gross profit on sales? 2. What was the net income from operations? Answer: 1. $615,000; 2. $199,000 Explanation: 1. $1,160,000 - $545,000 = $615,000 2. $615,000 - $416,000 = $199,000 Diff: 2 Topic: Preparing the Financial Statements Learning Objective: 13-01 Prepare a classified income statement from the worksheet. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; BB Critical Thinking; FN Reporting; FN Measurement

73) A firm had merchandise inventory of $30,000 on January 1, 2019. During the year the firm had purchases of $54,000, freight in of $1,200, purchases returns and allowances of $2,700, and purchases discounts of $900. The firm had merchandise inventory of $27,000 on December 31, 2019. 1. What net delivered cost of purchases was reported for the year ended December 31, 2019, on the classified income statement? 2. What was the cost of goods sold? Answer: 1. $51,600; 2. $54,600 Explanation: 1. $54,000 + $1,200 - $2,700 - $900 = $51,600 2. $30,000 + $51,600 - $27,000 = $54,600 Diff: 2 Topic: Preparing the Financial Statements Learning Objective: 13-01 Prepare a classified income statement from the worksheet. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; BB Critical Thinking; FN Reporting; FN Measurement

74) A firm had merchandise inventory of $76,000 on January 1, 2019. During the year the firm had purchases of $102,000, freight in of $1,200, purchases returns and allowances of $4,600, and purchases discounts of $2,000. The firm had merchandise inventory of $62,000 on December 31, 2019. 1. What net delivered cost of purchases was reported for the year ended December 31, 2019, on the classified income statement? 2. What was the cost of goods sold? Answer: 1. $96,600; 2. $110,600 Explanation: 1. $102,000 + $1,200 - $4,600-$2,000 = $96,600 2. $76,000 + $96,600 - $62,000 = $110,600 Diff: 2 Topic: Preparing the Financial Statements Learning Objective: 13-01 Prepare a classified income statement from the worksheet. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; BB Critical Thinking; FN Reporting; FN Measurement

75) The adjusted trial balance data given below is from the Morgan Company's worksheet for the year ended December 31, 2019. Prepare a classified income statement for the year ended December 31, 2019. The expense accounts numbered 611-615 represent selling expenses, and those numbered 621-631 represent general and administrative expenses.

ACCT. NO. 399 401 451 491 501 502 503 504 611 613 615 621 623 625 627 629 631 691

ACCOUNT NAME Income Summary Sales Sales Returns and Allowances Interest Income Purchases Freight In Purchases Returns and Allowances Purchases Discounts Sales Salaries Expense Advertising Expense Travel Expense Office Salaries Expense Office Supplies Expense Utilities Expense Payroll Taxes Expense Uncollectible Accounts Expense Depreciation Expense - Office Equipment Interest Expense 35

ADJUSTED TRIAL BALANCE DEBIT CREDIT 62,000 57,000 250,000 4,500 750 125,000 3,000 1,600 1,900 59,000 2,100 11,500 18,300 750 4,500 1,500 1,350 550 1,600

691

Answer:

Interest Expense

1,600 MORGAN COMPANY Income Statement Year Ended December 31, 2019

Operating Revenue Sales Less Sales Ret. & Allow. Net Sales Cost of Goods Sold Merchandise Inventory, Jan.1, 2019 Purchases Freight In Delivered Cost of Purchases Less Purchase Returns & Allowances Purchases Discounts Net Delivered Cost of Purchases Total Merchandise Avail. for Sale Less Merchandise Inventory, Dec. 31, 2019 Cost of Goods Sold Gross Profit on Sales Operating Expenses Selling Expenses Sales Salaries Expense Advertising Expense Travel Expense Total Selling Expenses General and Admin. Expenses Office Salaries Expense Office Supplies Expense Utilities Expense Payroll Taxes Expense Uncollectible Accounts Exp. Depr. Expense--Office Equip. Total Gen. and Admin. Exp. Total Operating Expenses Net Income from Operations Other Income Interest Income Other Expenses

250,000 (4,500) 245,500

$62,000 $125,000 3,000 128,000 $1,600 1,900

3,500 124,500 186,500 57,000 129,500 116,000

59,000 2,100 11,500 72,600 18,300 750 4,500 1,500 1,350 550 26,950 99,550 16,450 750 36

Answer: Other Expenses Interest Expense Net Non-operating Expenses Net Income for Year

1,600 (850) $15,600

Explanation: Diff: 3 Topic: Preparing the Financial Statements Learning Objective: 13-01 Prepare a classified income statement from the worksheet. Bloom's: Create AACSB: Analytic AICPA: BB Industry; BB Critical Thinking; FN Reporting; FN Measurement; FN Decision Making

76) The adjusted trial balance data given below is from the Hampton Company's worksheet for the year ended December 31, 2019. The firm had net income of $47,000 for the year. Prepare a statement of owner's equity for the year. No additional investments were made during the period. ADJUSTED TRIAL BALANCE ACCOUNT NAME DEBIT Lloyd Hampton, Capital (Jan. 1) Lloyd Hampton, Drawing 31,500

CREDIT 76,000

Answer: HAMPTON COMPANY Statement of Owner's Equity Year Ended December 31, 2019 Lloyd Hampton, Capital, January 1, 2019 Net Income for Year $47,000 Less Withdrawals for the Year 31,500 Increase in Capital Lloyd Hampton, Capital, December 31, 2019

$76,000

15,500 $91,500

Explanation: Diff: 2 Topic: Preparing the Financial Statements Learning Objective: 13-02 Prepare a statement of owner's equity from the worksheet. Bloom's: Create AACSB: Analytic AICPA: BB Industry; BB Critical Thinking; FN Reporting; FN Measurement; FN Decision Making

77) The adjusted trial balance data given below is from the Bennett Company's worksheet for the year ended December 31, 2019. The firm had net income of $26,000 for the year. Prepare a statement of owner's equity for the year. No additional investments were made during the period. ADJUSTED TRIAL BALANCE ACCOUNT NAME DEBIT Ben Bennett, Capital Ben Bennett, Drawing 37,000

CREDIT 142,000

Answer: BENNETT COMPANY Statement of Owner's Equity Year Ended December 31, 2019 Ben Bennett, Capital, January 1, 2019 Net Income for Year Less Withdrawals for the Year Decrease in Capital Ben Bennett, Capital, December 31, 2019

$142,000 $26,000 37,000 11,000 $ 131,000

78) The adjusted trial balance data given below is from the Saugatuck Craft's worksheet for the year ended December 31, 2019. The firm had a net loss of $30,000 for the year. Prepare a statement of owner's equity for the year. No additional investments were made during the period. ADJUSTED TRIAL BALANCE ACCOUNT NAME DEBIT Sally Saugatuck, Capital Sally Saugatuck, Drawing 3,000

CREDIT 52,000

Answer: SAUGATUCK CRAFT COMPANY Statement of Owner's Equity Year Ended December 31, 2019 Sally Saugatuck, Capital, January 1, 2019 Net Loss for Year $30,000 Less Withdrawals for the Year 3,000 Decrease in Capital Sally Saugatuck, Capital, December 31, 2019

$52,000

33,000 $19,000

Explanation: Diff: 3 Topic: Preparing the Financial Statements Learning Objective: 13-02 Prepare a statement of owner's equity from the worksheet. Bloom's: Create AACSB: Analytic AICPA: BB Industry; BB Critical Thinking; FN Reporting; FN Measurement; FN Decision Making

79) The owner of a firm had capital of $78,000 on January 1, 2019, and made withdrawals of $29,000 during 2019. The business earned a net income of $42,000 for the year. 1. What amount of capital was shown as of December 31, 2019, on the statement of owner's equity? 2. How much was the increase or decrease in capital for the year? Answer: 1. $91,000; 2. $13,000 increase Explanation: 1. $78,000 + $42,000 - $29,000 = $91,000 2. $42,000 - $29,000 = $13,000 Diff: 2 Topic: Preparing the Financial Statements Learning Objective: 13-02 Prepare a statement of owner's equity from the worksheet. Bloom's: Create AACSB: Analytic AICPA: BB Industry; BB Critical Thinking; FN Reporting; FN Measurement

80) The owner of a firm had capital of $170,000 on January 1, 2019, and made withdrawals of $96,000 during 2019. The business earned a net income of $90,000 for the year. 1. What amount of capital was shown as of December 31, 2019, on the statement of owner's equity? 2. How much was the increase or decrease in capital for the year? Answer: 1. $164,000; 2. $6,000 decrease Explanation: 1. $170,000+$90,000-$96,000=$164,000 2. $90,000-$96,000 = ($6,000) Diff: 2 Topic: Preparing the Financial Statements Learning Objective: 13-02 Prepare a statement of owner's equity from the worksheet. Bloom's: Create AACSB: Analytic AICPA: BB Industry; BB Critical Thinking; FN Reporting; FN Measurement

81) The adjusted trial balance data given below is from Cameron White Company's worksheet for the year ended December 31, 2019. The balance of the Notes Payable account consists of notes that are due within a year. The mortgage extends for more than a year. Prepare a classified balance sheet as of December 31, 2019. The ending capital for the period from the statement of owner's equity is $56,150. ADJUSTED TRIAL BALANCE ACCOUNT NAME DEBIT Cash $ 7,700 Petty Cash Fund 100 Notes Receivable 2,000 Accounts Receivable 13,500 Allowance for Doubtful Accounts Merchandise Inventory 51,000 Office Supplies 450 Prepaid Insurance 1,900 Land 8,000 Building 28,000 Accumulated Depreciation - Building Store Equipment 6,500 Accumulated Depreciation - Store Equipment Office Equipment 4,500 Accumulated Depreciation - Office Equipment Notes Payable--Short-Term Accounts Payable Interest Payable Mortgage Payable

CREDIT

$ 1,100

7,000 2,500 1,500 12,500 16,500 400 26,000

Answer:

CAMERON WHITE COMPANY Balance Sheet December 31, 2019 Assets Current Assets Cash Petty Cash Fund Notes Receivable Accounts Receivable Less Allow. for Doubtful Accounts Merchandise Inventory Prepaid Expenses Office Supplies Prepaid Insurance Total Current Assets Plant and Equipment Land Building $28,000 Less Accumulated Depr. - Building 7,000 Store Equipment 6,500 Less Accumulated Depr. — Store 2,500 Equip,. Office Equipment 4,500 Less Accumulated Depr. - Office Equip. 1,500 Total Plant and Equipment Total Assets Liabilities and Owner's Equity Current Liabilities Notes Payable Accounts Payable Interest Payable Total Current Liabilities Long-Term Liabilities Mortgage Payable Total Liabilities Owner's Equity Cameron White, Capital Total Liabilities and Owner's Equity

$7,700 100 2,000 $13,500 1,100

450 1,900

12,400 51,000

2,350 75,550

8,000 21,000 4,000

3,000 36,000 $111,550

12,500 16,500 400 29,400 26,000 55,400 56,150 $111,550

Diff: 3 Topic: Preparing the Financial Statements Learning Objective: 13-03 Prepare a classified balance sheet from the worksheet. Bloom's: Create AACSB: Analytic AICPA: BB Industry; BB Critical Thinking; FN Reporting; FN Measurement; FN Decision Making

82) Brianna Graham is the owner of a dress shop. The firm had a net loss of $9,000 for the year. What accounts are debited and credited to transfer the net loss to the owner's capital account during the closing process? Answer: Debit Brianna Graham, Capital; credit Income Summary Explanation: Diff: 2 Topic: Completing the Accounting Cycle Learning Objective: 13-05 Journalize and post the closing entries. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Reporting

83) Teresa Davis is the owner of a convenience shop. The firm had a net income of $4,500 for the year. What accounts are debited and credited to transfer the net income to the owner's capital account during the closing process? Answer: Debit Income Summary; credit Teresa Davis, Capital Explanation: Diff: 2 Topic: Completing the Accounting Cycle Learning Objective: 13-05 Journalize and post the closing entries. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Reporting

84) Allyse Petry is the owner of a boutique. During the year she made withdrawals of cash totaling $25,000. What accounts are debited and credited to close the owner's drawing account? Answer: Debit Allyse Petry, Capital; credit Allyse Petry, Drawing Explanation: Diff: 1 Topic: Completing the Accounting Cycle Learning Objective: 13-05 Journalize and post the closing entries. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Reporting

85) Jeannine Coulson is the owner of a book store. During the year she made withdrawals of cash totaling $9,000. What accounts are debited and credited to close the owner's drawing account? Answer: Debit Jeannine Coulson, Capital; credit Jeannine Coulson, Drawing Explanation: Diff: 1 Topic: Completing the Accounting Cycle Learning Objective: 13-05 Journalize and post the closing entries. Bloom's: Apply AACSB: Analytic AICPA: BB Industry; FN Reporting

86) On December 31, 2019, the Income Statement section of the worksheet is shown below. The balance of Ally Logan's drawing account is $16,000. Record the necessary closing entries on page 9 of a general journal. INCOME STATEMENT COLUMNS ACCOUNT NAME DEBIT CREDIT Income Summary 47,000 53,000 Sales 170,000 Sales Returns and Allowances 4,500 Interest Income 600 Purchases 71,000 Freight In 2,300 Purchases Returns and Allowances 1,300 Purchases Discounts 1,900 Sales Salaries Expense 37,000 Office Salaries Expense 18,500 Office Supplies Expense 700 Utilities Expense 3,500 Payroll Taxes Expense 1,100 Uncollectible Accounts Expense 1,200 Depr. Expense - Office Equipment 600 Totals 187,400 226,800 Net Income 39,400 226,800 226,800

Answer:

DATE

GENERAL JOURNAL PAGE 9 DESCRIPTION P.R. Closing Entries

DEBIT CREDIT

2019 Dec. 31 Sales Interest Income Purchases Ret. and Allow. Purchases Discounts Income Summary

170,000 600 1,300 1,900

Income Summary Sales Returns and Allowances Purchases Freight In Sales Salaries Expense Office Salaries Expense Office Supplies Expense Utilities Expense Payroll Taxes Expense Uncollectible Accounts Exp. Depr. Exp.--Office Equip.

140,400

Income Summary Ally Logan, Capital

39,400

Ally Logan, Capital Ally Logan, Drawing

16,000

173,800

4,500 71,000 2,300 37,000 18,500 700 3,500 1,100 1,200 600

39,400

16,000

Explanation: Diff: 3 Topic: Completing the Accounting Cycle Learning Objective: 13-05 Journalize and post the closing entries. Bloom's: Create AACSB: Analytic AICPA: BB Industry; BB Critical Thinking; FN Reporting; FN Measurement

87) The data below concerns adjustments to be made at the Conner Company. Record the adjusting entries on page 12 of a general journal as of December 31, 2019. On the same page of the general journal, record the reversing entries as of January 1, 2020. Include descriptions. Adjustment data: (a) On October 1, 2019, the firm paid rent of $6,000 in advance for a 6-month period. (b) A total of $5,000 should be recorded as depreciation of equipment for 2019. (c) On December 31, 2019, the firm owed salaries of $4,000 that will not be paid until January 2020. (d) On December 31, 2019, the firm owed the employer's social security (6.2%) and Medicare (1.45%) taxes on all of the accrued salaries.

Answer:

DATE

GENERAL JOURNAL PAGE 12 DESCRIPTION P.R.

DEBIT CREDIT

Adjusting Entries 2019 Dec. 31

(Adjustment a) Rent Expense Prepaid Rent To record expired rent

3,000 3,000

(Adjustment b) Depreciation Exp.--Equip. Accum. Depr.--Equip. To record depreciation (Adjustment c) Salaries Expense Salaries Payable To record accrued salaries (Adjustment d) Payroll Taxes Expense Social Security Tax Payable Medicare Tax Payable To record accrued payroll taxes

5,000 5,000

4,000 4,000

306 248 58

Reversing Entries 2020 Jan. 1

Salaries Payable

4,000 45

Answer: Jan. 1

Salaries Payable Salaries Expense To reverse adjustment c

4,000

Social Security Tax Payable Medicare Tax Payable Payroll Taxes Expense To reverse adjustment d

248 58

4,000

306

Explanation: A. ($6,000/6) * 3=$3,000; B. $5,000; C. $4,000; D. $4,000 * .062=$248; $4,000 * .0145=$58 Diff: 3 Topic: Completing the Accounting Cycle Learning Objective: 13-04 Journalize and post the adjusting entries.; 13-07 Journalize and post reversing entries. Bloom's: Create AACSB: Analytic AICPA: BB Industry; BB Critical Thinking; FN Reporting; FN Measurement; FN Decision Making

88) The data below concerns adjustments to be made at the Tyson Company. Record the adjusting entries on page 12 of a general journal as of December 31, 2019. On the same page of the general journal, record the reversing entries as of January 1, 2020. Include descriptions. Adjustment data: (a) On October 1, 2019, the firm paid rent of $20,000 in advance for a 6-month period. (b) A total of $13,000 should be recorded as depreciation of equipment for 2019. (c) On December 31, 2019, the firm owed salaries of $12,000 that will not be paid until January 2020. (d) On December 31, 2019, the firm owed the employer's social security (6.2%) and Medicare (1.45%) taxes on all of the accrued salaries.

Answer: DATE

GENERAL JOURNAL PAGE 12 DESCRIPTION P.R.

DEBIT CREDIT

Adjusting Entries 2019 Dec. 31

(Adjustment a) Rent Expense Prepaid Rent To record expired rent

10,000 10,000

(Adjustment b) Depreciation Exp.--Equip. Accum. Depr.--Equip. To record depreciation

13,000 13,000

Answer:

To record depreciation

(Adjustment c) Salaries Expense Salaries Payable To record accrued salaries (Adjustment d) Payroll Taxes Expense Social Security Tax Payable Medicare Tax Payable To record accrued payroll taxes

12,000 12,000

918 744 174

Reversing Entries 2020 Jan. 1

Salaries Payable Salaries Expense To reverse adjustment c

12,000

Social Security Tax Payable Medicare Tax Payable Payroll Taxes Expense To reverse adjustment d

744 174

12,000

918

Explanation: Diff: 3 Topic: Completing the Accounting Cycle Learning Objective: 13-04 Journalize and post the adjusting entries.; 13-07 Journalize and post reversing entries. Bloom's: Create AACSB: Analytic AICPA: BB Industry; BB Critical Thinking; FN Reporting; FN Measurement; FN Decision Making

89) Match the accounting terms with the description by entering the proper letter in the space provided. A. Classified financial statement B. Current assets C. Current liabilities D. Current ratio E. Gross profit F. Gross profit percentage G. Inventory turnover 47 Copyright © McGraw-Hill Education.All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

H. Liquidity I. Long-term liabilities J. Multiple-step income statement K. Plant and equipment L. Reversing entries M. Single-step income statement ________ 1. A type of income statement where only one computation is needed to determine the net income (total revenue — total expenses = net income) ________ 2. The difference between net sales and the cost of goods sold ________ 3. A format by which revenues and expenses on the income statement, and assets and liabilities on the balance sheet, are divided into groups of similar accounts and a subtotal is given for each group ________ 4. A type of income statement on which several subtotals are computed before the net income is calculated ________ 5. The amount of gross profit from each dollar of sales ________ 6. The number of times inventory is purchased and sold during the accounting period ________ 7. The ease with which an item can be converted into cash __ _8. Property that will be used in the business for longer than one year 9. Journal entries made to reverse the effect of certain adjusting entries involving accrued income or accrued expenses to avoid problems in recording future payments or receipts of cash in a new accounting period 10. A relationship between current assets and current liabilities that provides a measure of a firm's ability to pay its current debts ________ 11. Assets consisting of cash, items that normally will be converted into cash within one year, or items that will be used up within one year ________ 12. Debts of a business that are due more than one year in the future 13. Debts that must be paid within one year

Answer: (1) M, (2) E, (3) A, (4) J, (5) F, (6) G, (7) H, (8) K (9) L, (10) D, (11) B, (12) I, (13) C Explanation: Diff: 2 Topic: Preparing the Financial Statements, Account Classifications Learning Objective: 13-01 Prepare a classified income statement from the worksheet.; 13-02 Prepare a statement of owner's equity from the worksheet.; 13-03 Prepare a classified balance sheet from the worksheet.; 13-04 Journalize and post the adjusting entries.; 13-05 Journalize and post the closing entries.; 13-06 Prepare a postclosing trial balance.; 13-07 Journalize and post reversing entries.; 13-08 Bloom's: Remember AACSB: Analytic AICPA: BB Industry; BB Critical Thinking; FN Reporting; FN Decision Making

90) A. Check all of the following accounts that would be classified as a current asset. Store Equipment Cash Land Petty Cash Interest Receivable Accounts Receivable Building Merchandise Inventory Office Equipment Notes Receivable B. Check all of the following accounts that would be classified as a current liability. 30-year Mortgage Accounts Payable State Unemployment Tax Federal Unemployment Tax Salaries Payable 10-year Notes Payable Sales Tax Payable Salaries Payable Social Security Tax Payable Interest Payable

Answer: A. Store Equipment Cash Land Petty Cash Interest Receivable Accounts Receivable Building Merchandise Inventory Office Equipment Notes Receivable

X X X X X X

B. 30-year Mortgage

Answer: 30-year Mortgage Accounts Payable State Unemployment Tax Federal Unemployment Tax Salaries Payable 10-year Notes Payable Sales Tax Payable Salaries Payable Social Security Tax Payable Interest Payable

X X X X X X X X

Explanation: Diff: 2 Topic: Preparing the Financial Statements Learning Objective: 13-03 Prepare a classified balance sheet from the worksheet. Bloom's: Analyze AACSB: Analytic AICPA: BB Industry; BB Critical Thinking; FN Reporting; FN Decision Making

91) Write the word "YES" in the empty column if an account would be closed at the end of the accounting period. a. b. c. d. e. f. g. h. i. j. k. l. m. n. o. p. q. r. s. t. u.

Accounts Payable Accumulated Depreciation B. White, Capital B. White, Drawing Building Cash Depreciation Expense Federal Unemployment Tax Payable Income Summary Interest Income Interest Payable Interest Receivable Interest Revenue Land Merchandise Inventory Notes Payable Notes Receivable Office Equipment Prepaid Rent Purchase Returns and Allowances 50 Purchases

u. v. w. x. y. z.

Purchases Salaries Expense Salaries Payable Sales Sales Discounts Social Security Tax Payable

Answer: a. b. c. d. e. f. g. h. i. j. k. l. m. n. o. p. q. r. s. t. u. v. w. x. y. z.

YES

YES YES YES

YES

YES YES YES YES YES

Explanation:

Diff: 1 Topic: Completing the Accounting Cycle Learning Objective: 13-05 Journalize and post the closing entries. Bloom's: Remember AACSB: Analytic AICPA: BB Industry; BB Critical Thinking; FN Reporting; FN Decision Making