TEST BANK for Fundamental Accounting Principles Vol. 1 17th Edition. Canadian Edition. by Kermit D. by welldoneassistant

APPENDIX 2: ALGO MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 1) Maxie's Game World sold games to a customer on credit for $2,700, terms 2/10, n/30 and the cost of the games was $1,800. When recording the sales transaction in its sales journal, Maxie’s would enter: A) $1,800 in the Accounts Receivable Dr./Sales Cr. column and $2,700 in the Cost of Goods Sold Dr./Inventory Cr. column. B) $2,700 in the Accounts Receivable Dr./Sales Cr. column and $1,800 in the Accounts Payable Dr./Purchases Cr. column. C) $2,700 in the Accounts Receivable Dr./Sales Cr. column and $2,700 in the Cash Cr. column. D) $2,700 in the Accounts Receivable Dr./Sales Cr. column and $1,800 in the Cost of Goods Sold Dr./Inventory Cr. column. E) $1,800 in the Accounts Receivable Dr./Sales Cr. column and $2,700 in the Other Accounts Dr. column.

2) Maxie's Game World sold games to a customer on credit for $4,300, terms 1/10, n/30 and the cost of the games was $3,400. When recording the collection from the customer made within the discount period, in its cash receipts journal, Maxie’s would enter: A) $4,300 in the Cash Dr. column and $4,300 in the Accounts Receivable Cr. column. B) $4,257 in the Cash Dr. column and $4,257 in the Accounts Receivable Cr. column. C) $4,257 in the Cash Dr. column, $43 in the Sales Discount Dr. column and $4,300 in the Accounts Receivable Cr. column. D) $4,300 in the Accounts Receivable Dr./Sales Cr. column and $4,300 in the Cash Cr. column. E) $4,300 in the Cash Dr. column. $3,400 in the Sales Cr. column, and $3,400 in the Cost of Goods Sold Dr./Inventory Cr. column.

3) Wildlife Wholesale Supply sold birdseed to a retailer for $1,760, receiving cash at the time of sale. The cost of the birdseed was $1,270. When recording the collection from the customer, in its cash receipts journal, Wildlife would enter:

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A) $1,760 in the Cash Dr. column and $1,760 in the Accounts Receivable Cr. column. B) $1,270 in the Cash Dr. column and $1,270 in the Accounts Receivable Cr. column. C) $1,760 in the Cash Dr. column; $1,760 in the Sales Cr. column; and $1,270 in the Other Accounts Cr. column. D) $1,760 in the Accounts Receivable Dr. column, $1,760 in the Cash Cr. column; and $1,270 in the Cost of Goods Sold Dr./Inventory Cr. column. E) $1,760 in the Cash Dr. column; $1,760 in the Sales Cr. column; and $1,270 in the Cost of Goods Sold Dr./Inventory Cr. column.

4) Farthington Soccer Supplies purchases merchandise from a supplier on credit, terms 2/10, n/30 for $15,700.When recording the purchase transaction in its purchases journal, Farthington would enter: A) $15,700 in the Inventory Dr. column and $15,700 in the Accounts Payable Cr. column. B) $15,700 in the Accounts Receivable Dr. column and $15,700 in the Accounts Payable Cr. column. C) $15,700 in the Inventory Dr. column, $15,386 in the Accounts Payable Cr. column, and $314 in the Discounts Lost Cr. column. D) $15,700 in the Cost of Goods Sold Dr. column and $15,700 in the Accounts Payable Cr. column. E) $15,700 in the Other Accounts Dr. column and $15,700 in the Inventory Cr. column.

5) Farthington Soccer Supplies purchases merchandise from a supplier on credit, terms 1/10, n/30 for $15,800. When recording the payment of the invoice within the discount period in its cash payments journal, Farthington would enter: A) $15,800 in the Cash Cr. column and $15,800 in the Inventory Dr. column. B) $15,800 in the Cash Cr. column and $15,800 in the Accounts Payable Dr. column. C) $15,800 in the Inventory Cr. column; $15,642 in the Accounts Payable Dr. column; and $158 in the Inventory Cr. column. D) $15,642 in the Accounts Payable Dr. column and $15,642 in the Cash Cr. column. E) $15,800 in the Accounts Payable Dr. column; $15,642 in the Cash Cr. column; and $158 in the Inventory Cr. column.

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6) Wexim Toys sold merchandise to a customer on credit, terms 1/10, n/30 for $11,500. Three days later, the customer returned $2,200 of the merchandise. When recording the return transaction, Wexim Toys would record: A) $2,200 in the Accounts Payable Cr. column and $2,200 in the Inventory Dr. column of the purchases journal. B) Debit Sales Returns and Allowances $2,200 and credit Accounts Receivable $2,200 in the general journal. C) $2,200 in the Cash Dr. column and $2,200 in the Inventory Cr. column in the cash receipts journal. D) Debit Cash $2,200 and credit Inventory $2,200 in the general journal. E) $2,200 in the Accounts Payable Dr. column and $2,200 in the Cash Cr. column of the cash payments journal.

7) At the end of the year, the total accounts receivable ledger for a company equals $74,000 and the total accounts payable ledger equals $34,500. If there are no errors for this company, one would expect that: A) The Accounts Payable account will equal the total of all balances owed from its customer accounts. B) The total credit sales for the period equal $39,500. C) The Accounts Receivable account will equal the total of all balances owed to its supplier accounts. D) The Accounts Receivable account will equal the total of all balances owed from its customer accounts. E) The cash received by the company during the period equals $39,500.

8) Rosenow Equipment sold merchandise to a customer on credit for $15,000, terms 2/10, n/30. The cost of the merchandise to Rosenow was $8,500. If the customer pays25 days after the sale occurred, what amount would be entered into the Accounts Receivable Cr. column in its cash receipts journal?

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A) $6,500. B) $8,330. C) $8,500. D) $14,700. E) $15,000.

9) Gupta Accessories sold merchandise to a customer on credit for $5,000, terms 2/10, n/30. The cost of the merchandise to Gupta was originally $2,800. If the customer pays8 days after the sale occurred, what amount would be entered into the Sales Discount Dr. column in its cash receipts journal? A) $44. B) $56. C) $100. D) $2,200. E) $5,000.

10) Rosenow Equipment sold merchandise to a customer on credit for $29,000, terms 2/10, n/30. The cost of the merchandise to Rosenow was $15,500. If the customer pays7 days after the sale occurred, what amount would be entered into the Accounts Receivable Cr. column in its cash receipts journal? A) $13,500. B) $15,190. C) $15,500. D) $28,420. E) $29,000.

11) Harry’s Home & Garden originally purchased merchandise from a supplier at a cost of $2,700. Harry’s sold that same merchandise to a customer on credit for $5,200, terms 1/10, n/30. If the customer makes payment to Harry’s9 days after the sale occurred, what amount would be entered into the Cash Dr. column in Harry’s cash receipts journal?

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A) $52. B) $2,673. C) $2,700. D) $5,148. E) $5,200.

12) Harry’s Home & Garden originally purchased merchandise from a supplier at a cost of $3,300. Harry’s sold that same merchandise to a customer on credit on March 1 for $6,400, terms 1/10, n/30. If the customer makes payment to Harry’s on March 18th, what amount would be entered into the Cash Dr. column in Harry’s cash receipts journal? A) $64. B) $3,267. C) $3,300. D) $6,336. E) $6,400.

13) Harry’s Home & Garden originally purchased merchandise from a supplier at a cost of $3,200. Harry’s sold that same merchandise to a customer for $6,200 cash. What amount would be entered into the Cost of Good Sold Dr. / Inventory Cr. column in Harry’s cash receipts journal for the sale? A) $64. B) $3,136. C) $3,200. D) $6,076. E) $6,200.

14) Dave’s Digital sold merchandise to a customer on credit for $1,500, terms 2/10, n/30. Dave’s had originally purchased the merchandise from a supplier at a cost of $700. When recording the sales transaction in its sales journal, Dave’s would enter what amount into its Accounts Receivable Dr. / Sales Cr. column?

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A) $686. B) $700. C) $800. D) $1,470. E) $1,500.

15) Dave’s Digital sold merchandise to a customer on credit for $1,500, terms 2/10, n/30. Dave’s had originally purchased the merchandise from a supplier at a cost of $700. When recording the sales transaction in its sales journal, Dave’s would enter what amount into its Cost of Goods Sold Dr. / Inventory Cr. column? A) $686. B) $700. C) $800. D) $1,470. E) $1,500.

16) Arctic Adventures purchases merchandise from a supplier on credit, terms 1/10, n/30 for an amount of $6,150. Artic hopes to eventually sell the merchandise to a customer at a price of $11,300. When recording the purchase transaction in its purchases journal, what amount would Arctic enter into its Inventory Dr. column? A) $0. B) $5,150. C) $6,150. D) $11,187. E) $11,300.

17) Retail World purchases inventory of $490 and office supplies of $190 from a supplier on credit, terms 1/10, n/30. When recording the purchase transaction in its purchases journal, what amount would the company enter into its Accounts Payable Cr. column?

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A) $0. B) $200. C) $188. D) $500. E) $680.

18) Retail World purchases inventory of $450 and office supplies of $150 from a supplier on credit, terms 2/10, n/30. When recording the purchase transaction in its purchases journal, what amount would the company enter into its Inventory Dr. column? A) $0. B) $438. C) $450. D) $588. E) $600.

19) McNeil Music purchases merchandise from a supplier on credit, terms 2/10, n/30 for $18,640. When recording the payment of the invoice within the discount period in its cash payments journal, how much would McNeil enter into the Cash Cr. column? A) $0. B) $17,894. C) $18,267. D) $18,610. E) $18,640.

20) McNeil Music purchases merchandise from a supplier on credit, terms 1/10, n/30 for $18,700. When recording the payment of the invoice within the discount period in its cash payments journal, how much would McNeil enter into the Accounts Payable Dr. column?

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A) $0. B) $18,326. C) $18,513. D) $18,670. E) $18,700.

21) Joy’s Fabrics purchases merchandise from a supplier on December 1st on credit, terms 2/10, n/30 for $2,100. Joy’s hopes to eventually sell that merchandise to a customer at a sales price of $3,800. When recording the payment of the invoice on December 9th in its cash payments journal, how much would Joy’s enter in the Accounts Payable Dr. column? A) $1,700. B) $2,058. C) $2,100. D) $3,724. E) $3,800.

22) Joy’s Fabrics purchases merchandise from a supplier on December 1st on credit, terms 2/10, n/30 for $1,600. Joy’s hopes to eventually sell that merchandise to a customer at a sales price of $2,800. When recording the payment of the invoice on December 10th in its cash payments journal, how much would Joy’s enter in the Cash Cr. column? A) $1,200. B) $1,568. C) $1,600. D) $2,744. E) $2,800.

23) Crystal Cutlery purchases merchandise from a supplier on March 1st on credit, terms 1/10, n/30 for $1,100. Their plan is to eventually sell that merchandise to a customer at a sales price of $2,100. When recording the payment of the invoice on March 21st in its cash payments journal, how much would Crystal enter in the Cash Cr. column?

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A) $1,000. B) $1,089. C) $1,100. D) $2,079. E) $2,100.

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Answer Key Test name: Appendix II_Algo 1) D 2) C 3) E 4) A 5) E 6) B 7) D 8) E 9) C 10) E 11) D 12) E 13) C 14) E 15) B 16) C 17) E 18) C 19) C 20) E 21) C 22) B 23) C

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APPENDIX 2 TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Accounting information systems collect and process data about transactions and events, organize them in useful forms, and communicate results to decision makers. ⊚ ⊚

true false

2) The relevance principle prescribes that an accounting information system report all information gathered, even if it is not useful for decision making ⊚ ⊚

true false

3) Control, competency, compatibility, flexibility and cost-benefit are the five basic principles of accounting information systems. ⊚ ⊚

true false

4) Internal controls include policies to protect company assets and ensure compliance with laws and regulations. ⊚ ⊚

true false

5) The flexibility principle prescribes that an accounting information system be able to adapt to changes in the company, business environment, and needs of decision makers. ⊚ ⊚

true false

6) The compatibility principle prescribes that an accounting information system report useful, understandable, and timely information for decision making.

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⊚ ⊚

true false

7) The cost-benefit principle prescribes that the benefits from an activity in an accounting information system should outweigh the costs of that activity. ⊚ ⊚

true false

8) A management information system (MIS) is designed to collect and process data within an organization for the purpose of providing users with information. ⊚ ⊚

true false

9) Source documents are a group of components that collect and process raw financial data into timely, accurate, relevant, and cost-effective information to meet the purposes of internal and external users. ⊚ ⊚

10)

true false

Computer hardware is the programs that direct the operations of computer hardware. ⊚ ⊚

true false

11) The accounting components used for operating and financial controls are developed based on the journal and general ledger systems of a company. ⊚ ⊚

12)

true false

Enterprise-application software is used primarily for journal entries.

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⊚ ⊚

13) type.

A special journal is any journal used for recording and posting transactions of a similar ⊚ ⊚

14)

true false

A sales journal is used for recording cash sales. ⊚ ⊚

true false

15) Input devices convert data on source documents to a form usable by the accounting system. ⊚ ⊚

16)

true false

Data analytics is the process of analyzing data to identify meaningful relations and trends ⊚ ⊚

true false

17) The purchases journal is used to record all credit purchases, including those for inventory. ⊚ ⊚

true false

18) Most transactions for merchandising businesses fall into four groups: sales on credit, purchases on credit, cash receipts, and cash disbursements. ⊚ ⊚

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true false

19) The general journal is used for transactions not covered by special journals and for adjusting, closing, and correcting entries ⊚ ⊚

20)

true false

Purchases using cash are recorded in the cash payments journal ⊚ ⊚

true false

21) The sales journal is called a columnar journal, which is any journal with more than one column. ⊚ ⊚

true false

22) An information processor includes journals, ledgers, working papers, and posting procedures. ⊚ ⊚

23)

A subsidiary ledger is a listing of individual accounts with a common characteristic. ⊚ ⊚

24)

true false

Two common subsidiary ledgers are cash receipts and cash disbursements. ⊚ ⊚

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true false

25) The Accounts Payable ledger is used for storing transaction data regarding individual customers. ⊚ ⊚

true false

26) The controlling account Accounts Payable in the general ledger has a separate subsidiary account for each supplier in the accounts payable ledger ⊚ ⊚

27)

true false

Equipment can include detailed information in a subsidiary ledger. ⊚ ⊚

true false

28) Subsidiary ledgers are not needed for a merchandiser because inventory analysis is the main focus of decision makers ⊚ ⊚

true false

29) A schedule of accounts receivable is a listing of all creditor accounts and account balances. ⊚ ⊚

true false

30) If the total balance of the Accounts Receivable Ledger equals the total of the controlling Accounts Receivable account, then the individual accounts are presumed to be correct. ⊚ ⊚

31)

true false

A Sales Journal is used to record sales of merchandise on credit.

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⊚ ⊚

32)

true false

A columnar journal is a journal with only one column. ⊚ ⊚

true false

33) Individual transactions in the Sales Journal are regularly posted to customer accounts in the Accounts Payable ledger. ⊚ ⊚

true false

34) Each transaction recorded in the Sales Journal includes a debit to Accounts Receivable and a credit to Sales Revenue. ⊚ ⊚

true false

35) The general rule for posting is that the controlling account is debited periodically for an amount equal to the sum of the debits to the subsidiary ledger, and is credited periodically for an amount equal to the sum of the credits to the subsidiary ledger. ⊚ ⊚

36)

true false

Items posted from the General Journal carry the initial P. ⊚ ⊚

true false

37) Posting debits from the Sales journal to Accounts Receivable twice—once to the general ledger account Accounts Receivable and once to the customer's subsidiary account—violates the accounting equation of debits equal credits.

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⊚ ⊚

38)

true false

Cash receipts journal is used to record cash sales ⊚ ⊚

true false

39) Account balances in the General Ledger and the subsidiary ledgers are tested for accuracy after posting is complete. ⊚ ⊚

true false

40) To check for accuracy after posting: first a trial balance is completed, then the subsidiary ledgers are tested by preparing a schedule of the controlling account. ⊚ ⊚

41)

true false

The general journal records credit sales of non-inventory assets. ⊚ ⊚

true false

42) A cash receipts journal is used to record all receipts of cash, except for cash sales which are recorded in the sales journal. ⊚ ⊚

true false

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 43) Accounting information systems

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A) Collect and process data from events and transactions B) Organize data in useful forms C) Communicate information to decision makers D) Both collect and process data from events and transactions and organize data in useful forms E) All of these

44)

Accounting information system components include A) People B) Input data C) Software D) Hardware E) All of these

45)

The basic components of an accounting system include A) Source documents B) Input devices C) Information processors D) Information storage E) All of these

46)

An MIS is designed to A) Ensure reliable financial reports B) Safeguard company assets C) Ensure full disclosure D) Both ensure reliable financial reports and safeguard company assets E) Collect and process data

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47)

The sale of inventory may A) decrease inventory B) impact the Sales Journal C) create accounts receivable D) initiate billing E) All of these

48)

An example of a specialty component of an AIS is A) Subsidiary ledger B) Sales Journal C) Property, plant and equipment D) Cheque Register E) Voucher

49)

The three primary components of accounting information systems are A) Relevance, compatibility, and flexibility B) Compatibility, flexibility, and cost-benefit C) Compatibility, flexibility, and safety D) Compatibility, timeliness, and cost-benefit E) Accounts payable, accounts receivable, and payroll

50)

Source documents

A) Are input devices B) Provide basic information processed by an accounting system C) Can be electronic files D) Both provide basic information processed by an accounting system and can be electronic files E) All of these

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51) An accounting information system uses __________ to provide internal and external users with ________. A) data; information B) data; transactions C) data; costs D) information; benefits E) costs; benefits

52)

Special journals include A) Sales journal B) Cash receipts journal C) Purchases journal D) Cash disbursements journal E) All of these

53)

Source documents: A) Are input devices. B) Provide the information processed by an accounting system. C) Summarize information for use in analysis and reporting. D) Keeps data accessible to information processors. E) Make accounting information available to users.

54)

The Sales Journal is used for

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A) Recording credit purchases B) Recording credit sales C) Recording cash sales D) Recording cash purchases E) Recording both credit sales and cash sales

55)

The Purchases Journal is used for A) Recording credit purchases B) Recording credit sales C) Recording cash sales D) Recording cash purchases E) Recording both credit purchases and credit sales

56)

The General Journal is used for A) Recording adjusting entries B) Posting transactions to special journals C) Accumulating debits and credits D) Collecting detailed listings of amounts E) Recording both adjusting entries and posting transactions to special journals

57) A book of original entry that is designed and used for recording only a specified type of transaction is called a A) Schedule B) Columnar ledger C) Special journal D) General journal E) Subsidiary ledger

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58) Most of the transactions of a merchandising company fall into four groups, including all of the following except A) Sales on credit B) Sales returns and allowances C) Purchases on credit D) Cash receipts E) Cash disbursements

59) A company uses a Sales Journal, a Purchases Journal, a Cash Receipts Journal, a Cash Disbursements Journal, and a General Journal. A sales return for credit on account would be recorded in the A) Sales Journal B) General Journal C) Cash Receipts Journal D) Accounts Receivable Ledger E) Cash Disbursements Journal

60)

Which of the following isnot a component of an accounting information system? A) Source documents. B) Warehouses C) Information processors D) Information storage E) Output devices.

61)

Which of the following statements regarding accounting information systems is false?

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A) Accounting information systems collect and process data from transactions and events, organize them into reports, and communicate results to decision makers. B) Accounting information systems help users make more informed decisions. C) Accounting information systems cannot improve on a company's competitive edge. D) Accounting information systems have five principles related to control, relevance, compatibility, flexibility, and cost-benefit. E) Accounting information systems have five components: source documents, input devices, information processors, information storage, and output devices.

62)

A subsidiary ledger A) Includes transactions not covered by special journals B) Is a listing of all of the accounts of a business C) Is a listing of individual accounts with a common characteristic D) Is a listing of all accounts with balances E) Is a listing of all special journals

63) A subsidiary ledger that contains a separate account for each party, that grants credit on account to the business is called a(n) A) Controlling account B) Accounts Receivable Ledger C) Accounts Payable Ledger D) Merchandise Inventory Ledger E) Accounts Payable

64)

An Accounts Receivable ledger is

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A) A subsidiary ledger that contains an account for each credit customer B) A list of the balances of all the accounts in the Accounts Receivable ledger that is added to show the total amount of accounts receivable outstanding C) A book of original entry that is designed and used for recording only a specified type of transaction D) The ledger that contains the financial statement accounts of a business E) A subsidiary ledger that contains a separate account for each party that grants credit on account to the entity

65)

The use of an Accounts Payable controlling account A) Reduces the number of accounts in the subsidiary ledger B) Reduces the total number of accounts maintained C) Reduces the number of entries in the general journal D) Reduces the number of accounts in the general ledger E) Increases the number of columns in the journals

66)

The Accounts Receivable ledger is A) Used for recording credit sales B) Used for storing transaction data for individual customers C) Used for storing transaction data for individual creditors D) Used for recording cash receipts from customers E) Also the controlling account

67)

The five principles of accounting information systems are: A) Control, accountability, relevance, compatibility, and flexibility. B) Historical cost, relevance, compatibility, flexibility, and cost-benefit C) Control, relevance, compatibility, flexibility, and safety. D) Historical cost, relevance, compatibility, timeliness, and cost-benefit. E) Control, relevance, compatibility, flexibility, and cost-benefit.

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68)

The Accounts Payable account in the General Ledger is A) The account that controls the subsidiary accounts payable ledger B) The account that controls the purchases journal C) The subsidiary account to the purchases journal D) Part of a special journal E) Part of a subsidiary ledger

69) is

When a Sales Journal's sales amount column is totalled at the end of the month, the total

A) Debited to Sales and credited to Accounts Receivable B) Debited to Accounts Receivable and credited to Cash C) Debited to Cash and credited to Accounts Receivable D) Debited to Accounts Receivable and credited to Sales E) Debited to Cash and credited to Sales

70) Which of the following accounting principles prescribes that an accounting information system report useful, understandable, and timely information for decision making? A) Control principle. B) Compatibility principle C) Relevance principle. D) Flexibility principle. E) Cost-Benefit principle.

71)

The general rule for posting to a subsidiary ledger and its controlling account is

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A) The controlling account is debited periodically for an amount or amounts equal to the sum of the debits to the subsidiary ledger B) The controlling account is credited periodically for an amount or amounts equal to the sum of the credits to the subsidiary ledger C) A trial balance ledger D) The controlling account is both debited and credited periodically for an amount or amounts equal to the sum of the debits or credits to the subsidiary ledger E) All of the choices are correct

72) A list of the balances of all the accounts in the Accounts Receivable Ledger that is added to show the total of accounts receivable outstanding is called a A) Schedule of accounts payable B) Controlling account C) Schedule of accounts receivable D) Subsidiary ledger E) Special journal

73)

An Accounts Payable subledger is

A) A subsidiary ledger that contains an account for each supplier that grants credit to the company B) A list of the balances of all the accounts in the Accounts Receivable ledger that is added to show the total amount of accounts receivable outstanding C) A book of original entry that is designed and used for recording only a specified type of transaction D) The ledger that contains the financial statement accounts of a business E) A subsidiary ledger that contains a separate account for each customer that grants credit to the company

74)

After posting is completed, there may be an error if

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A) The sum of the customer account balances does not equal the total in the sales journal B) The sum of the accounts receivable ledger does not equal the balance in the sales account C) The sum of the customer account balances does not equal the accounts receivable controlling account balance D) The balance in the sales journal does not equal the accounts receivable controlling account balance E) The sum of the accounts receivable ledger does not equal the balance in the sales journal

75) A bookkeeper using a Purchases Journal recorded new store supplies purchased on account. The subledger that would be impacted as a result of this transaction is the A) Accounts payable subledger B) Accounts receivable subledger C) Merchandise inventory subledger D) Sales subledger E) Cash receipts journal

76)

The flexibility principle of accounting information systems prescribes that the:

A) Benefits from an activity in the system outweigh the costs of the activity. B) System report useful, understandable, and timely information for effective decision making. C) System helps managers in controlling and monitoring business activities. D) System is able to adapt to changes in the company, business environment, and needs of decision makers. E) System conform to a company's activities, personnel, and structure.

77)

Which of the following statements regarding accounting information systems is false?

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A) Accounting information systems collect and process data from transactions and events. B) Accounting information systems help users make more informed decisions. C) Accounting information systems should not have internal control policies D) Accounting information systems should report useful, understandable, and timely information for decision making. E) Accounting information systems should conform with a company's activities, personnel, and structure.

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 78) List the five subsystems within a management information system (MIS).

79)

Explain the goals and uses of special journals.

80)

What are the primary components within an accounting information system?

81) Wilchand Unlimited has the following transactions. Match each transaction with the appropriate journal. (a) Sales Journal (b) Purchases Journal (c) Cash Receipts Journal (d) Cash Disbursements Journal (e) General Journal Version 1

(1) Sold $5,000 worth of inventory on account. (2) A customer returned a $250 item purchased on account. (3) Paid $45,000 in wages and salaries. (4) Purchased equipment on account for $24,700. (5) Purchased merchandise on account, $2,700. (6) Paid a utility bill for $3,400. (7) Purchased $1,590 of supplies on account. (8) Recorded an adjustment to unearned revenue, $4,000. (9) Accrued wages, $2,900. (10) Recorded cash sales of $14,700.

82) Outdoors Unlimited has the following transactions. For each transaction, indicate the appropriate journal. (a) Sales Journal (b) Purchases Journal (c) Cash Receipts Journal (d) Cash Disbursements Journal (e) General Journal (1) Purchased $15,000 worth of inventory on account. (2) Sold $2,300 worth of inventory on account. (3) Purchased $5,000 of inventory with cash. (4) Sold $3,200 worth of inventory on account. (5) Paid $500 for telus bill. (6) Owner invested $3,000 into the company.

83)

Explain what is meant by footing and cross footing.

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84)

Explain the goals and uses of special journals.

85) Identify the accounting information system principle that applies to each of the situations below by entering the appropriate number next to the statement. 1. International Company's accounting information system can be improved markedly for a cost of about $10,000,000 and the company intends to complete the upgrade because the benefits outweigh this cost. 2. International Company has world-wide operations that must handle thousands of different products, so the accounting information system is fairly complex to conform to its activities, personnel, and structure. 3. International Company has designed its accounting information system so that key managers can obtain the information they need in a timely manner to make decisions relating to new products, sales, and controlling costs. 4. International Company's accounting information system has policies to ensure assets are safeguarded and relevant laws and regulations are complied with. 5. International Company has designed its accounting information system to be adaptable to changes in the business environment and the needs of decision makers.

86)

Explain the use of controlling accounts and subsidiary ledgers.

87)

Describe the posting process for special journals.

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88) Why do we use invoice date rather than the purchase date when recording transactions in the purchase journal.

89)

Define controlling accounts. In what ledger do they appear?

90) Sky Waller Company uses a Sales Journal, a Purchases Journal, a Cash Receipts Journal, a Cash Disbursements Journal, a General Journal and a perpetual inventory system. The following transactions were completed by Princess Company during the month of July 3-Jul

Sold merchandise for $10,500 (cost 8,200) to the Whistler Corp. on credit, Invoice No. 125.

6-Jul

Sold a truck for $23,000 cash. The truck was originally purchased for $52,600.

11-Jul

Purchased supplies for $920 cash.

15-Jul

Issued a credit memo for $2,550 to Whistler Corp. for returned merchandise. Cost of the merchandise was $1,100

21-Jul

Returned $1,330 of merchandise purchased from Fernie Corp. for credit.

24-Jul

Paid monthly salaries of $25,400.

31-Jul

Recorded depreciation on buildings of $4,000.

Required: (a) Record the appropriate transactions in the General Journal. (b) For the transactions not recorded in the General Journal, indicate the correct special journal that would be used.

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91) Elk Lake Adventure Co. uses special journals to record its transactions and a perpetual inventory system. Shown below are the purchasing and cash disbursement transactions for May May-01

Purchased merchandise for cash from Glenora Co. $2,000. Cheque No. 133.

May-02

Purchased building from Crestwood Co. on credit, $105,000, terms net 60. Invoice dates May 1.

May-06

Paid River City, Inc., $4,900, which is net of a 2% discount, Cheque No. 134.

May-09

Purchased merchandise from Laurier Inc. on credit, t erms 1/15, n/30, $30,500. Invoice dated May 8.

May-10

Paid Crestwood Co. for May 2 purchase, Cheque No. 135.

May-18

Purchased supplies on credit $600, terms net 30 from Valley

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View, Inc. Invoice dated May 17. 31-Jul

Recorded depreciation on buildings of $4,000.

Elk Lake Adventure Co. Purchases Journal

Page I

Date

Account Credited

Elk Lake Adventure Co. Cash Disbursement Journal

Page I

Date

Ch No.

Date of Terms PR Accounts Merchandise Supplies Other Invoice Payable Inventory Debt Accounts Credit Debit Debit

Payee Account PR Cash Merchandise Supplies Other Accounts Debited Credit Inventory Debt Accounts Payable Debit Debit Debit

Record the above transactions in the following journals.

92)

(1) What is the name of the journal illustrated below

Date Account Explanation PR Cash Sales Accounts Sales Other Cost of Goods Credited Dr. Discount Receivable Cr. Accounts Sold/Dr Dr. Cr. Cr. Merchandise Inventory/Cr. 2020 Mar. 12 L.T. Notes Payable

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Note to bank 452 13,000

13,000

14 Invoice, Mar. ⩗ 16,660 William 4 Nielson

340

17,000

16 Invoice, Mar. ⩗ 10,890 Daninee 6 Rinner

110

11,000

31 Sales 31 Totals

Cash sales

41,000 ______

______

41,000

______

22,000

81,550

450

28,000

41,000

13,000

22,000

(101)

(415)

(106)

(413)

(X)

(502/119)

(2) Write an explanation for each entry.

93) May

The following transactions were completed by Augsburg Company during the month of

May 2

Purchased merchandise for $5,400 on credit from the East Corp., terms n/30.

May 5

Sold merchandise for $1,200 cash to Far Corp. Cost of merchandise was $200.

May 10

Sold merchandise on credit for $2,500 to New Corp., Invoice No. 591, terms 2/10, n/30.

May 13

Purchased merchandise for $3,400 on credit from West Corp., terms 1/10, n/30.

May 19

Paid balance owed to East Corp. for May 2 sale.

May 20

Collected amount due from New Corp. for May 10 sale.

May 24

Purchased supplies on credit for $450 from Bonny Corp., terms n/30.

May 28

Purchased merchandise for $3,900 from North Corp. on credit, terms 2/10, n/60.

May 30

Received $130 from the bank for interest earned.

Prepare a Cash Receipts Journal for Augsburg and record the appropriate transactions, assuming a perpetual inventory system is used.

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94) Trekking Company uses a perpetual inventory system and special journals. The following transactions were incurred during August Aug

Purchased merchandise from Able Co. for $2,000, terms 2/10, n/30.

Sold merchandise on credit to Coe Co. for $4,000, terms 2/10, n/30,

Invoice No. 245. Cost of merchandise was $1,200. 5

Sold merchandise on credit to Delta Corp. for $3,000, terms, 2/10, n/30,

Invoice No. 246. Cost of merchandise was $900. 7

Paid salaries accrued on July 31, $2,100 to manager Ms. Krenz, Cheque No. 756

Returned merchandise costing $200 to Able Co. from August 1 purchase.

Paid Able Co. for the August 1 purchase, Cheque No. 758.

Accepted merchandise returned by Coe Co. from August 4 sale.

Issued credit memorandum for $500. 13

Received payment from Coe Co. for August 4 sale, less the return.

Received payment in full from Delta Corp. for the August 5 sale.

Recorded cash sales for the month, $9,000. Cost of merchandise was $4,000.

Paid monthly telephone bill $250, Cheque No. 762.

Record the above transactions in the appropriate journals (sales journal or cash receipts journal) that follow. Ignore any transactions that should not be posted to the journals provided.

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95) Enter the number of the following terms on the line next to the appropriate definition of each. 1. The component of an accounting system that makes accounting information available to users. 2. The means of collecting and processing data from transactions and events, organizing them into reports, and communicating results to decision makers. 3. A record of the separate accounts of each supplier that supports its general ledger controlling account. 4. The component of an accounting system that keeps data accessible to information processors. 5. The special journal used to record all receipts of cash. 6. The special journal that is used to record all cash payments. The component of an accounting system that takes information from source documents and transfers it to information processing. 8. An information system principle that prescribes that an accounting system have methods and procedures allowing managers to control and monitor business activities. 9. The special journal used to record all credit purchases. An information system principle that prescribes that an accounting information system report useful, understandable, and timely information for decision making.

96)

Explain how the balances in the subsidiary accounts are tested for accuracy.

97) Alex Reagent, owner of Delectable Candy Company, understands that accounting systems are important for success. Explain how Alex can use the accounting system to assess business operations.

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98) Match the following accounting system components a-e with their related items 1-10 by placing the correct letter next to each item. a. Source documents b. Input devices c. Information processor d. Information storage e. Output devices ____ 1. Computer keyboard ____ 2. Computer hard drive ____ 3. Journal entries ____ 4. Journals ____ 5. Printer ____ 6. Invoice from suppliers ____ 7. Smartphones ____ 8. Computer monitor ____ 9. Software ____ 10. Billings to customers

99) Outdoors Unlimited uses special journals to record its daily transactions. Shown below is a Cash Receipts Journal and selected ledger accounts. Post the Cash Receipts Journal to the appropriate accounts. Cash Receipts Journal

Page 11

Date

Account Credited

July 4

Able Co.

Inv. 303

3,200

Sales

Cash Sales

700

Bell Co.

Inv. 304

950

Notes Pay.

Bank loan

5,400

Notes Rec.

Delta Co.

2,200

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Explanation PR Cash Debit

Sales Accts Sales Other Disc. Rec. Credit Accts. Debit Credit Credit 34

3,234 700 950

Int. Earned

110 12,560

110 34

4,184

700

7,710

General Ledger Cash

Notes Payable

Accounts Receivable

Sales

Notes Receivable

Sales Discounts

Accounts Payable

Interest Earned

Accounts Receivable Ledger Able Co.

Bell Co.

Bal. 4,750

Bal. 1,950

100) Heidi Company uses a Sales Journal, a Purchases Journal, a Cash Receipts Journal, a Cash Disbursements Journal, and a General Journal. The following are the totals from the special journals for the month ended July 31 Journal

Total

Sales

$62,600

Purchases:

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Total Purchases column

$28,100

Total office Supplies column

1,700

Total Account Payable column

$29,800

Cash Receipts: Total Accounts Receivable column

$44,000

Total Sales column

12,000

Total Sales Discounts column

450

Total Cash column

$55,550

Cash Disbursements: Total Accounts Payable column

$22,700

Total Purchase Discounts column

370

Total Cash column

$22,330

Required: Post the appropriate amounts to the Accounts Receivable and Accounts Payable controlling Taccounts.

101) Your neighbour runs a retail business and needs some advice. Her business is improving and she has several more financial transactions happening in the company. She discussed this situation with her accountant and he advised her to adopt special journals to make transaction recording more efficient. She is concerned that this creates a new learning curve for her bookkeeper who is already very busy. Your neighbour knows you are studying accounting and asks you what you know about the benefits of using special journals. How would you respond?

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102) A company entered into the following transactions. For each transaction, indicate the appropriate journal in which it should be recorded. a. Sales Journal b. Purchases Journal c. Cash Receipts Journal d. Cash Payments Journal e. General Journal ____ 1. Purchased merchandise on credit. ____ 2. Sold merchandise on credit. ____ 3. Purchased merchandise for cash. ____ 4. Sold merchandise for cash. ____ 5. Paid cash to settle the utility bill. ____ 6. Owner invested more cash in the business. ____ 7. Recorded depreciation for the period. ____ 8. Borrowed cash from the bank. ____ 9. Bought office supplies on credit. ____ 10. Received cash from a customer to settle an account receivable.

SECTION BREAK. Answer all the part questions. 103) Dina Company uses a Sales Journal, a Purchases Journal, a Cash Receipts Journal, a Cash Disbursements Journal, and a General Journal, and a perpetual inventory system. The following transactions occurred during the month of December Dec 4

Sold merchandise on credit for $3,300 to the A & B Co., Invoice No. 313. The cost of the merchandise was $1,000.

Dec 8

Purchased merchandise on credit for $1,800 from the Dexter Corp, terms 2/10, n/30.

Dec 10

Sold merchandise for $500 cash to RAC Corp, Invoice No. 314.

Dec 13

Collected $3,300 from the A & B Co. for merchandise sold on December 4.

Dec 17

Paid amount owed to Dexter Corp. from December 8 purchase, Cheque No. 1011.

Dec 24

Sold merchandise on credit for $4,500 to Dunn Corp, Invoice No. 315. The cost of the inventory was $1,500.

Dec 27

Paid $400 cash for monthly rent to Dayton Properties, Cheque No. 1012.

Dec

Purchased equipment for $3,055 from Fort Corp, Cheque No. 1013.

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103.1) Prepare a Sales Journal for Dina Company and journalize the appropriate transactions.

103.2) Prepare a Cash Disbursements Journal for Dina Company and journalize the appropriate transactions.

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Answer Key Test name: Appendix II 1) TRUE 2) FALSE 3) FALSE 4) TRUE 5) TRUE 6) FALSE 7) TRUE 8) TRUE 9) FALSE 10) FALSE 11) TRUE 12) FALSE 13) TRUE 14) FALSE 15) TRUE 16) TRUE 17) TRUE 18) TRUE 19) TRUE 20) TRUE 21) TRUE 22) TRUE 23) TRUE 24) FALSE 25) FALSE 26) TRUE Version 1

27) TRUE 28) FALSE 29) FALSE 30) TRUE 31) TRUE 32) FALSE 33) FALSE 34) TRUE 35) TRUE 36) FALSE 37) FALSE 38) TRUE 39) TRUE 40) FALSE 41) FALSE 42) FALSE 43) E 44) E 45) E 46) E 47) E 48) C 49) E 50) D 51) A 52) E 53) B 54) B 55) A 56) A Version 1

57) C 58) B 59) B 60) B 61) C 62) C 63) C 64) A 65) C 66) B 67) E 68) A 69) D 70) C 71) D 72) C 73) A 74) C 75) A 76) D 77) C 78) 1. Sales and marketing 2. Production 3. Finance 4. Human resources 5. Accounting 79) Special journals are used for recording and posting transactions of similar type, with each meant to cover one kind of transaction. Four of the most common special journals are the sales journal, cash receipts journal, purchases journal, and cash disbursements journal. 80) 1. Accounts payable 2. Accounts receivable 3. Payroll 4. Other, specialty components as required (e.g. Property, plant and equipment) Version 1

81) (1) a (2) e (3) d (4) b (5) b (6) d (7) b (8) e (9) e (10) c 82) (1) b (2) a (3) d (4) a (5) d (6) c 83) Footing is adding a column of numbers. Cross footing is adding debit and credit column totals and comparing the sums for equality. 84) Special journals are used for recording and posting similar types of transactions. The most common special journals are cash receipts, cash disbursements, purchases, and sales. Special journals provide a structure for more efficient data entry and posting. In addition, the separation of transactions, and usually, duties, adds an effective internal control procedure to the accounting system. 85) 1. International Company's accounting information system can be improved markedly for a cost of about $10,000,000 and the company intends to complete the upgrade because the benefits outweigh this cost. Cost-benefit 2. International Company has world-wide operations that must handle thousands of different products, so the accounting information system is fairly complex to conform to its activities, personnel, and structure. Compatibility 3. International Company has designed its accounting information system so that key managers can obtain the information they need in a timely manner to make decisions relating to new products, sales, and controlling costs. Relevance 4. International Company's accounting information system has policies to ensure assets are safeguarded and relevant laws and regulations are complied with. Control 5. International Company has designed its accounting information system to be adaptable to changes in the business environment and the needs of decision makers. Flexibility Version 1

86) The controlling accounts are part of the general ledger. Details on individual accounts such as accounts receivable are kept in a specific subsidiary ledger. The balance in the controlling account must match the sum of the balances in the matching subsidiary ledger accounts. 87) Posting to special journals is a three-step process: (1) individual amounts in the Other Accounts column are posted to their general ledger accounts on a regular (daily) basis, (2) individual amounts in a column that are posted in total to a controlling account at the end of a period are posted regularly (daily) to the appropriate account in the subsidiary ledger, and (3) total amounts for all columns except the Other Accounts column are posted at the end of a period to the appropriate account for each column. 88) The terms of payment extend from the invoice date not the date of purchase, This allows us to calculate when our purchase discount terms end. 89) A controlling account is a single ledger account that equals the sum of the subsidiary ledger accounts to which it is related. Controlling accounts appear in the general ledger 90) (a) General Journal Jul-15 Sales Returns and Allowances

2,550

Accounts Receivable, Whistler Corp. Merchandise Inventory

2,550 1,100

Cost of Goods Sold Jul-21 Accounts Payable-Fernie Corp.

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1,100 1,330

Merchandise Inventory

1,330

Jul-31 Depreciation Expense, Building

4,000

Accumulated Depreciation, Building

4,000

(b) Jul-03 Sales Journal Jul-06 Cash Receipts Journal Jul-11 Cash Disbursements Journal Jul-24 Cash Disbursements Journal

91) Elk Lake Adventure Co. Purchases Journal

Page I

Date

Account Credited

2-May

Building Crestwood Co.

May-01

n 60

105,000

Laurier Inc.

May-08 1/15, n30

Valley May-17 View Inc.

Date of Invoice

Terms PR Accounts Merchandise Supplies Other Payable Inventory Debit Accounts Credit Debit Debit

n30

105,000 30,500 600

30,500 600

Elk Lake Page I Adventure Co. Cash Disbursement Journal Date

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Ch No.

Payee

Account PR Cash Merchandise Supplies Other Accounts Debited Credit Inventory Debt Accounts Payable Debit Debit Debit

May-01

133

Glenora Inventory Co.

2,000

134

River City River City Co. Co.

4,900

100

135

Crestwood Crestwood Co. Co.

105,000

5,000 105,000

92) (1) This is a cash receipts journal. (2) Explanation for each entry (a) March 12:

Recorded receipt of proceeds on a note payable.

(b) March 14:

Recorded receipt of a payment from William Nielson on a credit sale with a 2% discount. Payment was received within the discount period.

Recorded receipt of a payment from Daninee Rinner on a credit sale with a 1% discount. Payment was received within the discount period.

(d) March 31:

Recorded receipt of proceeds from cash sales.

93) Cash Receipts Journal Date

Account Credited

Explanation

PR Cash Debit

5/5

Sales

Cash sales

1,200

New Corp.

Inv. 591

Interest Revenue

Interest earned

Sales Disc. Debit

Accts. Rec. Credit

Sales Credit

Other Accts. Credit

1,200

COGS Dr.Inv. Cr. 200

2,450 50 2,500 30

130

94) Sales Journal Date

Account Debited

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Page 10 Invoice Number

Accts. Rec. COGS Dr. Dr. Sales Cr. Inv. Cr.

Cash Receipts Journal Date

Account Credited

Explanation

Sales Journal

Page 18 PR

Cash Debit Sales Disc. Accts. Sales Other COGS Debit Rec. Credit Accts. Dr. Inv. Credit Credit Cr.

Page 10

Date

Account Debited

Invoice Number

Aug 4

Coe Co.

245

4,000

1,200

Delta Corp.

246

3,000

900

Cash Receipts Journal

Page 18

Date

Account Credited

Explanation

8/13

Coe Co.

Inv. 245

3,430

Delta Corp.

Inv. 246

3,000

Sales

Cash Sales

9,000

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Accts. Rec. COGS Dr. Dr. Sales Cr. Inv. Cr.

Cash Debit Sales Disc. Accts. Sales Other COGS Debit Rec. Credit Accts. Dr. Inv. Credit Credit Cr. 3,500

9,000

4,000

95) 1. The component of an accounting system that makes accounting information available to users. Output devices 2. The means of collecting and processing data from transactions and events, organizing them into reports, and communicating results to decision makers. Accounting information system 3. A record of the separate accounts of each supplier that supports its general ledger controlling account. Accounts payable ledger 4. The component of an accounting system that keeps data accessible to information processors. Information storage 5. The special journal used to record all receipts of cash. Cash receipts journal 6. The special journal that is used to record all cash payments. Cash payments journal 7. The component of an accounting system that takes information from source documents and transfers it to information processing. Input devices 8. An information system principle that prescribes that an accounting system have methods and procedures allowing managers to control and monitor business activities. Control principle 9. The special journal used to record all credit purchases. Purchases journal 10. An information system principle that prescribes that an accounting information system report useful, understandable, and timely information for decision making. Relevance principle 96) The two-step procedure begins after the posting process is complete. First, a trial balance of the general ledger is prepared to confirm the equality of debits and credits. Second, schedules are prepared for each subsidiary ledger in order to verify that the controlling account balances equal the balances in the matching subsidiary ledgers.

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97) The accounting system can be used to measure, track, and report on operations. It collects and processes data from transactions and events and organizes them in useful reports to be used in decision making. Knowledge gained through the system can give Alex a competitive edge and enable him to make more informed decisions and to better balance the risks and returns of different strategies. 98) 1. B; 2. D; 3. B; 4. C; 5. E; 6. A; 7. E; 8. E; 9. C; 10. A 99) General Ledger Cash

Notes Payable

7/31 12,560

7/10 5,400

Accounts Receivable

Sales 7/31 4,184

Notes Receivable

7/31 700

Sales Discounts 7/20 2,200

Accounts Payable

7/31 34

Interest Earned 7/20 110

Accounts Receivable Ledger Able Co.

Bell Co.

Bal. 4,750

7/4 3,234

Bal. 1,950

7/9 950

100) Accounts Receivable July 31

62,600

July 31

44,000

July 31

29,800

Accounts Payable July 31

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22,700

101) Respond to your neighbour with the following benefits of using special journals: Special journals record like transactions all together (eg. sales transactions are together yet separate from credit purchase transactions); this creates efficiency since there is less repetitive recording that is otherwise needed if you used only the general journal. This keeps the general journal for recording adjusting, correcting and closing entries Posting is simplified since you only post the column totals as opposed to each transaction More than one employee can record transactions at the same time (eg: someone can be responsible for sales journal and someone else responsible for purchases journal) 102) 1. B; 2. A; 3. D; 4. C; 5. D; 6. C; 7. E; 8. C; 9. B; 10. C 103) Section Break 103.1) Date

Account Debited

Invoice Number

Accounts Receivable Dr. Sales Cr.

Cost of Goods Sold Dr. Merchandise Inventory Cr.

Dec-04

A&B Co.

313

3,300

1,000

Dec-24 Dunn Corp.

315

4,500

1,500

103.2) Date

Cheque No.

Payee

Dec-17

1011

Dexter Dexter Corp. X Corp. Accounts Payable

1,764

Dec-27

1012

Dayton Prop.

Rent Expense

400

Dec-31

1013

Fort Corp.

Equipment

3,055

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Account Debited PR Cash Cr.

Merchandise Inventory Cr.

Other Accounts Account Payable Dr. Dr.

1,800

APPENDIX 1 TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) According to law, a T-4 form showing wages earned and taxes withheld must be given to each employee within two months after the calendar year-end. ⊚ ⊚

true false

2) The Employment Insurance fund from which benefits are paid is jointly financed by employees and their employers. ⊚ ⊚

true false

3) Withholding for the Canada Pension Plan is deducted from wages earned, but it stops each year once the employee has earned the maximum pensionable earnings for that year. ⊚ ⊚

true false

4) An employer incurs a Canada Pension Plan expense equal to the sum of the CPP withheld from the wages of all its employees. ⊚ ⊚

Canada Pension Plan deductions are social security taxes. ⊚ ⊚

true false

Canada Pension Plan is levied equally on the employee and the employer. ⊚ ⊚

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true false

Employment Insurance is levied equally on the employee and the employer. ⊚ ⊚

true false

8) Employment Insurance is withheld from wages earned, and continues for the calendar year as long as the employee is earning wages. ⊚ ⊚

true false

9) The same form is used to report both the employer share of payroll taxes and employee income taxes withheld. ⊚ ⊚

true false

10) Since payroll taxes are levied on wages actually paid, there is no legal liability for payroll taxes associated with the accrual of wages. ⊚ ⊚

true false

11) Employee income taxes are paid solely by employers based on a percentage of total wages earned by the employee. ⊚ ⊚

true false

12) Employers and employees both must pay Employment Insurance based on a percentage of the employees' total wages, up to a yearly maximum. ⊚ ⊚

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true false

13)

Payroll taxes levied on employers include Canada Pension and Employment Insurance. ⊚ ⊚

true false

14) The amount of income taxes to be withheld from an employee's wages is determined by their wages and the amount of personal tax credits. ⊚ ⊚

true false

15) The same form is used to report both Canada Pension and employee income taxes withheld. ⊚ ⊚

true false

16) Since federal income taxes withheld from an employee's wages are expenses of the employee, not the employer, they should not be treated as liabilities of the employer. ⊚ ⊚

17)

true false

Overtime premium pay is not subject to income tax deductions. ⊚ ⊚

true false

18) In accounting for payrolls, the Payroll Register is a book of original entry which is used for journalizing payroll information. ⊚ ⊚

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true false

19) The Employee's Individual Earnings Record serves as a subsidiary ledger to the Payroll Register account in the General Ledger. ⊚ ⊚

true false

20) The amount of federal income tax to be withheld from each employee's wages is determined solely by the amount of wages earned. ⊚ ⊚

true false

21) After posting the entries to record salary expenses and payroll expenses, Alpha Company's Employment Insurance Payable account has a $9,000 credit balance. This means that the payroll tax expense of Alpha Company included a $9,000 expense resulting from Employment Insurance. ⊚ ⊚

true false

22) On the Payroll Register, the amount of gross pay plus overtime premium pay is the employee's regular pay. ⊚ ⊚

23)

true false

The Payroll Register provides the information needed to pay employees. ⊚ ⊚

true false

24) A Payroll Register is a record for a pay period that shows the pay period dates and the hours worked, gross pay, deductions, and net pay of each employee. ⊚ ⊚

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true false

25) The payroll tax liabilities arising from a given pay period are likely to be larger than the payroll tax expenses. ⊚ ⊚

true false

26) The payroll tax liabilities arising from a given pay period are likely to be smaller than the payroll tax expenses. ⊚ ⊚

true false

27) Each time a payroll is recorded, a General Journal entry should also be made to record the employer's CPP and EI amounts payable. ⊚ ⊚

true false

28) The liability for both the employees' and employer's portions of CPP (or QPP) is normally recorded in the same liability account, the CPP (or QPP) Payable account. ⊚ ⊚

true false

29) Since Red River Company experienced very few on the job accidents, the company has received a very favourable rating. As a result, it should expect to pay substantially smaller amounts of employment insurance premiums than normal. ⊚ ⊚

30)

true false

Accrued wages are subject to payroll taxes before they are paid. ⊚ ⊚

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true false

31)

The entry to record payroll includes a debit to salaries payable. ⊚ ⊚

true false

32) Employee (fringe) benefit costs represent expenses to the employer in addition to the direct costs of salaries and wages. ⊚ ⊚

33)

true false

Most employers promise and grant their employees an annual paid vacation. ⊚ ⊚

true false

34) To account for vacation pay, employers should record the vacation pay expense in the accounting period when it is paid. ⊚ ⊚

35)

true false

In some jurisdictions, paid annual vacation pay is mandatory and required by law. ⊚ ⊚

true false

36) To account for vacation pay, an employer should wait until an employee has completed one full year of service. ⊚ ⊚

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true false

37) Payroll taxes and employee fringe benefits sometimes amount to more than 25 percent of the wages earned by employees. ⊚ ⊚

true false

38) To account for vacation pay, an employer should estimate the amount to be paid and record it as an expense of the weeks during which the employees are working and earning the vacation time. ⊚ ⊚

39)

true false

Payroll taxes are levied on wages actually paid, not on accrued wages. ⊚ ⊚

true false

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 40) A payroll deduction required by the federal government and used to pay the cost of the employment insurance programs is called A) Periodic employment tax B) Employment insurance C) Provincial employment tax D) Joint employment tax E) Contribution employment tax

41) The statute that requires an employer to complete a record of employment due to termination, illness, injury or pregnancy is called the

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A) Income Tax Act B) Employment Insurance Act C) Canada Pension Plan Act D) R&R Act E) Workers' Compensation Act

42) The amount an employee earns before any deductions such as EI, CPP, and income tax withholdings is the A) Deductible pay B) Taxable income C) Net pay D) Gross pay E) Take home pay

43)

Net pay is A) The amount of an employee's pay due for income taxes B) Gross pay minus source deductions C) The amount of an employee's pay before any deductions D) Gross pay plus employer's taxes E) None of the choices are correct.

44) a(n)

A tax levied on the amount of a payroll or on the amount of an employee's gross pay is

A) Federal program B) Excess profits tax C) Employer tax D) Payroll tax E) Employee tax

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45) A tax levied by a province, the proceeds of which are used to pay benefits to workers who have been injured on the job, is called A) Management tax B) Benefits tax C) Workers' Compensation D) Owner's equity tax E) Provincial employment tax

46)

An amount of an employee's annual earnings not subject to income tax is the A) Employment insurance allowance B) Canada Pension Plan allowance C) Workers' allowance D) Basic personal amount E) Workers' compensation allowance

47) A company has 10 employees who earned a total of $30,000 in January ($3,000 each). CPP taxes are 5.45% paid by employees and 5.45% paid by the employer. Income tax withholdings amount to $4,500. The employee EI rate is 1.58% of the total, and the employer EI contribution is 1.4 times the employee portion. The gross pay of the 10 employees during January is A) $33,209 B) $33,113 C) $30,000 D) $29,190 E) $28,230

48) Stellar Company employees had the following earnings records at the close of the April 30 payroll period: Salary

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S. Khali

1,000.00

J. Frank

2,000.00

S. Stewart

3,000.00

L. Gros

4,000.00

T. Talbet

5,000.00

Total

15,000.00

Stellar Company's payroll benefits expense for each employee includes: 5.45% CPP and 1.58% EI on the amount earned. What is the total payroll benefits expense for the April 30 pay period? A) $1054.5 B) $817.5 C) $331.8 D) $1149.3 E) $919.25

49) Valentina company has 9 employees who earned a total of $27,000 in June ($3,000 each). CPP deductions are 5.45% paid by the employees and 5.45% paid by the employer. Income tax withholdings amount to $4,500. The employee EI rate is 1.58%. The take-home pay of the 9 employees for June is A) $27,000.00 B) $20,431.26 C) $23,459.76 D) $25,101.9 E) $20,601.9

50) A company's sales personnel earned salaries of $15,000 during the pay period December 5-10, all of which were subject to 1.58% EI withholdings. All employees had reached the annual maximum earnings for the Canada Pension Plan. In addition, the company has agreed with its employees to withhold the following amounts: $900 for hospital insurance, $2,600 for federal and provincial income taxes, and $180 for union dues. Calculate the general journal entry credit amount on December 10 to "Salaries Payable."

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A) $15,000.00 B) $11,083.00 C) $10,751.20 D) $10,846 E) Some other amount

51) A record of an employee's hours worked, gross pay, deductions, net pay, and certain personal information about the employee is an employee's A) Time card B) Federal tax record C) Canada Revenue Agency record D) Individual earnings record E) T-4 earnings record

52)

Most employers engaged in employing workers must pay A) Workers' Compensation B) Employment Insurance C) Canada Pension Plan D) Vacation pay E) All of the choices are correct

53) Tru Company's 8 sales employees earned salaries of $30,000 during the week of May 16, all of which were subject to 5.45% CPP and 2 weeks' annual vacation. In addition, Tru Company has agreed with its employees to withhold the following amounts: $474 for EI, $5,200 for federal and provincial income taxes, and $500 for union dues. Which of the following entries should be prepared to record the payroll? If necessary, round all amounts to the nearest dollar. A) Sales Salaries Expense

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30,000

Salaries Payable

30,000

B) Sales Salaries Expense

22,191

Salaries Payable

22,191

C) Sales Salaries Expense

24,800

Payroll Taxes Expense

5,200

CPP Payable

1,635

Employees’ Income Taxes Payable

5,200

EI Payable

474

Union Dues Payable

500

Salaries Payable

22,191

D) Sales Salaries Expense

30,000

CPP Payable

1,635

Employees’ Income Taxes Payable

5,200

EI Payable

474

Union Dues Payable

500

Salaries Payable

22,191

E) Sales Salaries Expense

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80,000

CPP Payable

1,635

Employees’ Income Taxes Payable

5,200

EI Payable

474

Union Dues Payable

500

Salaries Payable

12,191

Accrued Vacation Pay

60,000

54) Grater Co. sales employees earned salaries of $30,000 during the week of July 1-6, all of which were subject to 5.45% CPP, and 3 weeks' annual vacation. The salaries are also subject to federal and provincial income tax withholdings of $4,500. Grater Company's employees also pay EI at the rate of 1.58%, and Grater Company's share is 1.4 times the employees' contributions. Which one of the following entries should be prepared to record Grater Company's payroll benefits expense? A) Sales Salaries Expense

30,000.00

CPP Payable

1,635

Employees’ Income Taxes Payable

4,500

Accrued Payroll Payable

23,865

B) Benefits Expense

1,635

Payroll Taxes Payable

1,635

C) Benefits Expense CPP and EI Payable

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2,298.6 2,298.6

D) CPP Expense

1,635

EI Expense

663.6

CPP Payable

1,635

EI Payable

663.6

E) Benefits Payable

55)

6,798.6

CPP Payable

1,170

EI Payable

1,128.6

Employees’ Income Taxes Payable

4,500

Employers never make deductions from employees' wages for A) Canada Pension Plan B) Federal income taxes C) Union dues D) Employment Insurance E) Workers' Compensation

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 56) A company's 18 sales personnel earned salaries of $22,000 during the period March 5-10, all of which were subject to 4.95% CPP and 1.66% EI. All personnel are entitled to 2 weeks' paid annual vacation. In addition, the company has agreed with its employees to withhold the following amounts: $900 for hospital insurance, $4,400 for federal and provincial income taxes, and $180 for union dues. Prepare the March 10 general journal entry to record the payroll.

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57) Small Company's 16 sales personnel earned total salaries of $18,000 during the period April 5-10, all of which were subject to 4.95% CPP, 1.66% EI. The employees were also entitled to 6% annual vacation pay. Prepare the general journal entries on April 10 to accrue the payroll benefits arising from this payroll. Round all calculations to the nearest dollar.

58) Spieth Company employees had the following earnings records at the close of the November 30 payroll period Earnings Through Last Pay Period

Earnings for Nov 30 Pay Period (one week of service)

R. Scott

54,900

800.00

J. Quageber

24,000

700.00

F. Flint

19,200

600.00

O. Okonkwo

4,800

200.00

L. Linea

10,800

410.00

Assume Spieth Company's payroll taxes expense for each employee include: 4.95% CPP on the annual pensionable earnings 50,100 ($55,900 maximum with the first $3,500 exempt), and 1.4 times the employees EI rate of 1.66% paid to a maximum of $51,700 annually. As well, $300 in federal and provincial income taxes in total will be deducted from the employees' gross pay for the week. Based on the summary of the CPP and EI deductions below, prepare the journal entries to record:(a) The payroll accrual.(b) The employer payroll tax expense (Salary x 0.0495)

(Salary x 0.0166)

Salary

CPP

EI Deduction

R. Scott

800.00

Exempt

J. Quageber

700.00

34.65

11.62

F. Flint

600.00

29.70

9.96

O. Okonkwo

200.00

9.90

3.32

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L. Linea

410.00

20.30

6.81

Total

2,710.00

94.55

31.71

Note that R.Scott would have already paid the maximum CPP and EI for the year

59)

Williams Inc. has collected payroll data for the most recent weekly pay period

Employee

Reg. Hours

Overtime Hours

Pay Rate

Plan Contribution

Tax Cumulative Earning to Withheld End of Prior Period

R. Doll

22.40

50.00

186.25

9,500.00

F. Fillip

Salary

2,200.00

125.00

400.00

39,000.00

J. Sweeny

13.00

23.00

90.00

17,250.00

K. Frank

16.00

50.00

180.00

53,000.00

S. Wong

11.00

31.00

130.00

14,120.00

Assume CPP is 4.95% on the annual pensionable earnings of $50,100 ($55,900 maximum with the first $3,500 exempt), matched by the employer, and EI is 1.66% to a maximum of $51,700 annually, with the employer paying 1.4 times the employees' contributions. Williams' pension plan allows the employee to make designated contributions which are matched by the company. F.Fillip is an administrative employee, and the other employees are shop workers. Employees are paid time and a half for any overtime work. Based on the CPP and EI deduction calculations provided below, prepare the journal entries to record:(a) The payroll accrual.(b) The employer payroll tax expense.(c) The employees' fringe benefits (Salary x 0.0495)

(Salary x 0.0166)

Salary

CPP

EI Deduction

R. Doll

918.40

45.46

15.25

F. Filip

2,200.00

108.90

36.52

J. Sweeny

617.50

30.57

10.25

K. Frank

624.00

Exempt

S. Wong

533.50

26.41

8.86

Total

4,893.40

211.34

70.88

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*Note that K.Frank would have already paid the maximum CPP and EI for the year.

60) Welch Company has 7 sales employees, each of whom earns $2,500 per month and is paid the last working day of the month. Assume CPP is 4.95% and EI is 1.66% of the monthly salary for each employee. Withholdings for the employees also include federal and provincial income tax of $2,800 (total for all seven and medical insurance premiums of $210 for each employee. 1) Prepare the general journal entry to accrue the payroll for March. 2) Prepare the general journal entry to record Welch Company's payroll tax expense for March.

61) The payroll records of Jasper Co. provide the following data for the weekly pay period ended March 7 Employee

Gross Pay

Gross Pay To Date

Income Taxes

Medical Insurance Deduction

Union Dues

United Way

$500

$6,000

$100

$30

$15

$10

600

6,500

120

700

5,500

202

Assume CPP is 4.95% and EI is 1.66%. 1) Prepare the general journal entry to accrue the payroll on March 7. 2) Prepare the general journal entry to record the payroll tax expense for March 7.

62)

Haines Company prepared the following payroll summary for the current month Administrative salaries

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$10,000 17

Sales salaries

15,000

Shop wages

21,000

Employee deductions: Federal and provincial income taxes withheld

11,500

Hospital insurance premiums

1,430

Union dues

1,190

Assume CPP is 4.95% and EI is 1.66%, and that none of the current month's salaries and wages exceed the CPP or EI limits. Haines makes a pension contribution equal to 9% of each employee's gross earnings. A vacation pay accrual is also made at 3.6% of the gross earnings. Haines has 10 employees. Prepare the journal entries to record: (A) The month's payroll accrual. (B) The month's employer payroll tax expense. (C) The employer's pension contribution and vacation pay accrual.

63) Jack Slack is CEO of Slack Industries. The bank declined to give Slack Industries the needed funds to finance the business expansion plans. Jack is now looking for ways to secure cash hoping he can get sufficient cash to finance the expansion. Jack approaches you as the company's accountant. He knows that you are due to make government remittances for source deductions the company withheld from employees for CPP, EI, and personal income taxes. Jack asks you to delay the remittance until he feels more confident about getting other financing. Jack believes it is fine to delay payments because Slack will definitely remit the withholdings before the T4s are produced at year end. Required: a) Describe the duty that Slack Industries has to remit employee deductions withheld at source? b) Is withholding the remittances ethical? Why?

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Answer Key Test name: Appendix I 1) TRUE 2) TRUE 3) TRUE 4) TRUE 5) FALSE 6) TRUE 7) FALSE 8) FALSE 9) TRUE 10) TRUE 11) FALSE 12) TRUE 13) TRUE 14) TRUE 15) TRUE 16) FALSE 17) FALSE 18) FALSE 19) FALSE 20) FALSE 21) FALSE 22) FALSE 23) TRUE 24) TRUE 25) TRUE 26) FALSE Version 1

27) TRUE 28) TRUE 29) FALSE 30) FALSE 31) FALSE 32) TRUE 33) TRUE 34) FALSE 35) TRUE 36) FALSE 37) TRUE 38) TRUE 39) TRUE 40) B 41) B 42) D 43) B 44) D 45) C 46) D 47) C 48) D 49) E

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Total Taxes: Income Tax (given in question) $4,500 total for all 9 employees CPP = 163.5 (based on the CPP monthly tax tables) x 9 employees = 1,471.5 Employee portion of EI =$3,000X 1.58% = 47.4 x 9 employees = 426.6 = 4,500 + 1,471.5 + 426.6 = 6,398.1 Total employee taxes: = 27,000 - 6,398.1 = $20,601.9 of total employee after tax earnings using the monthly CPP taxation tables 50) B 51) D 52) E 53) D 54) D 55) E 56) 10-Mar

Sales Salaries Expense

22,000.00

CPP Payable

1,089.00

Employee Income Taxes Payable

4,400.00

Employee Hospital Insurance Payable

900

Employee Union Dues Payable

180

EI Payable

365.2

Salaries Payable

15,065.80

CPP = 22,000 x 0.495 EI = 22,000 x.0166

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57) April 10 Benefits Expense

1,309

CPP Payable (18,000 × 4.95%)

891

EI Payable (18,000 × 1.66% × 1.4)

418

April 10 Benefits Expense

1,080

Estimated Vacation Payable

1,080

58) (a) Sales Salaries Expense

2,710.00

CPP Payable

94.55

EI Payable

31.71

Income Tax Payable

300.00

Salaries Payable

2,283.74

(b) Benefits Expense

138.94

CPP Payable

94.55

EI Payable (31.71× 1.4)

44.39

59) (a) Shop Salaries Expense

2,693.40

Administrative Salaries Expense

2,200.00

CPP Payable

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211.34

EI Payable

70.88

Income Tax Payable

986.25

Employees Pension Fund Payable

279.00

Payroll Payable

3,345.93

(b) Benefits Expense

310.57

CPP Payable

211.34

EI Payable (70.88× 1.4)

99.23

279.00

Employee’s Pension Fund Payable

279.00

60) Mar-31 Sales Salaries Expense(7 × $2,500)

17,500.00

CPP Payable

866.25

EI Payable

290.50

Income Tax Payable

2,800.00

Employees Medical insurance premiums payable

1,470.00

Payroll Payable

12,073.25

CPP = (17,500 × 4.95%) EI = (17,500 × 1.66%) Medical = 7 × $210 Mar-31 Benefits Expense CPP Payable

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1,272.95 866.25

EI Payable (17,500 × 1.66% × 1.4)

406.70

61) Mar-07 Salaries Expense

1,800.00

CPP Payable

89.10

EI Payable

29.88

Income Tax Payable

422.00

Medical Insurance Payable

110.00

Union Dues Payable

30.00

United Way Payable

60.00

Payroll payable

$1,059.02

CPP = (1,800 × 4.95%) EI = (1,800 × 1.66%) Mar-07 Benefits Expense

130.93

CPP Payable

89.10

EI Payable(1,800 × 1.66% × 1.4)

41.83

62) (A)

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Administrative Salaries Expense

10,000.00

Sales Salaries Expense

15,000.00

Shop Wages Expense

21,000.00

CPP Payable

2,277.00

EI Payable

763.60

Income Tax Payable

11,500.00

Hospital Insurance Premiums Payable

1,430.00

Union Dues Payable

1,190.00

Accrued Payroll Payable

28,839.40

CPP = (46,000 × 4.95%) EI = (46,000 × 1.66%) (B)

(C)

Benefits Expense

3,346.04

CPP Payable

2,277.00

EI Payable(46,000 × 1.66% × 1.4)

1,069.04

Benefits Expense

5,796.00

Employee’s Pension Fund Payable

4,140.00

Estimated Vacation Payable Liability

1,656.00

63) a) Slack has a duty to remit employee withholdings on a predetermine schedule set by Canada Revenue Agency (CRA). Employers have until the end of February after the end of the previous tax year to send T4s to their local federal tax office. That is the only time at which the CRA knows what has been withheld for each employee for remittance. Failure to remit withholdings on a regular basis can mean interest penalties for Slack. b) Withholding remittances is payroll fraud on several levels. If entries are not made to record withholdings, the financial statement liabilities can be understated and will overstate the current ratio. Further, employees would be unaware that withholdings are not being remitted on their behalf when there is an expectation the company is executing their duties in compliance with CRA rules.

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CHAPTER 1: ALGO MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 1) If a company is considering the purchase of a parcel of land that was originally acquired by the seller for $98,000, is currently offered for sale at $176,000, is considered by the purchaser as easily being worth $166,000, and is finally purchased for $163,000, the land should be recorded in the purchaser’s books at: A) $108,000. B) $163,000. C) $164,500. D) $166,000. E) $176,000.

2) If a company uses $1,410 of its cash to purchase supplies, the effect on the accounting equation would be: A) Assets increase $1,410 and liabilities decrease $1,410. B) One asset increases $1,410 and another asset decreases $1,410, causing no effect. C) Assets decrease $1,410 and equity decreases $1,410. D) Assets decrease $1,410 and equity increases $1,410. E) Assets increase $1,410 and liabilities increase $1,410.

3) If a company receives $10,200 from the owner to establish a proprietorship, the effect on the accounting equation would be: A) Assets decrease $10,200 and equity decreases $10,200. B) Assets increase $10,200 and liabilities decrease $10,200. C) Assets increase $10,200 and liabilities increase $10,200. D) Liabilities increase $10,200 and equity decreases $10,200. E) Assets increase $10,200 and equity increases $10,200.

4) If a company purchases equipment costing $5,700 on credit, the effect on the accounting equation would be:

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A) Assets increase $5,700 and liabilities decrease $5,700. B) Equity decreases $5,700 and liabilities increase $5,700. C) One asset increases $5,700 and another asset decreases $5,700. D) Assets increase $5,700 and liabilities increase $5,700. E) Equity increases $5,700 and liabilities decrease $5,700.

If equity is $349,000 and liabilities are $187,000, then assets equal: A) $162,000. B) $187,000. C) $349,000. D) $536,000. E) $885,000.

If assets are $388,000 and liabilities are $185,000, then equity equals: A) $203,000. B) $185,000. C) $388,000. D) $573,000. E) $961,000.

If assets are $103,000 and liabilities are $34,500, then equity equals: A) $34,500. B) $68,500. C) 103,000. D) $137,500. E) $240,500.

8) The assets of a company total $716,000; the liabilities, $208,000. What is the amount of equity?

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A) $924,000. B) $716,000. C) $508,000. D) $208,000. E) It is impossible to determine unless the amount of the owners' investment is known.

9) On May 31 of the current year, the assets and liabilities of Riser, Inc. are as follows: Cash $13,800; Accounts Receivable, $6,900; Supplies, $650; Equipment, $11,450; Accounts Payable, $8,800. What is the amount of equity as of May 31 of the current year? A) $41,600. B) $12,350. C) $13,800. D) $24,000. E) $32,800.

10) On August 31 of the current year, the assets and liabilities of Gladstone, Inc. are as follows: Cash $28,800; Supplies, $820; Equipment, $9,200; Accounts Payable, $8,000. What is the amount of equity as of August 31 of the current year? A) $30,000. B) $30,820. C) $29,180. D) $10,780. E) $12,420.

11) Saddleback Company paid off $31,000 of its accounts payable in cash. What would be the effects of this transaction on the accounting equation? A) Assets increase $31,000; equity increases $31,000. B) Assets decrease $31,000; liabilities decrease $31,000. C) Assets decrease $31,000; liabilities increase $31,000. D) Liabilities decrease $31,000; equity increases $31,000. E) Assets decrease $31,000; equity decreases $31,000.

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12) If Houston Company billed a client for $18,000 of consulting work completed, the accounts receivable asset increases by $18,000 and: A) Accounts payable decreases $18,000. B) Accounts payable increases $18,000. C) Cash increases $18,000. D) Revenue increases $18,000. E) Revenue decreases $18,000.

13) Alpha Company has assets of $608,000, liabilities of $254,000, and equity of $354,000. It buys office equipment on credit for $79,000. What would be the effects of this transaction on the accounting equation? A) Assets increase by $79,000 and expenses increase by $79,000. B) Assets increase by $79,000 and expenses decrease by $79,000. C) Liabilities increase by $79,000 and expenses decrease by $79,000. D) Assets decrease by $79,000 and expenses decrease by $79,000. E) Assets increase by $79,000 and liabilities increase by $79,000.

14) If the liabilities of a business increased $89,000 during a period of time and the owner's equity in the business decreased $37,000 during the same period, the assets of the business must have: A) Decreased $126,000. B) Decreased $52,000. C) Increased $37,000. D) Increased $52,000. E) Increased $126,000.

15) If the assets of a business increased $97,000 during a period of time and its liabilities increased $71,000 during the same period, equity in the business must have:

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A) Increased $26,000. B) Decreased $26,000. C) Increased $97,000. D) Decreased $168,000. E) Increased $168,000.

16) If the liabilities of a company increased $100,000 during a period of time and equity in the company decreased $32,000 during the same period, what was the effect on the assets? A) Assets would have increased $68,000. B) Assets would have decreased $68,000. C) Assets would have increased $132,000. D) Assets would have decreased $132,000. E) None of the above.

17)

If assets are $373,000 and equity is $124,000, then liabilities are: A) $124,000. B) $249,000. C) $373,000. D) $497,000. E) $622,000.

18)

Use the following information as of December 31 to determine equity.

Cash Buildings Equipment Liabilities

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$ 73,000 191,000 222,000 157,000

A) $73,000. B) $157,000. C) $329,000. D) $486,000. E) $643,000.

19) Use the following information for Meeker Corporation to determine the amount of equity to report. Cash Buildings Land Liabilities

$ 81,000 131,000 220,600 137,000

A) $569,600. B) $307,600. C) $432,600. D) $33,600. E) $295,600.

20) Determine the net income of a company for which the following information is available for the month of July. Employee salaries expense Interest expense Rent expense Consulting revenue

$ 194,000 24,000 34,000 456,000

A) $204,000. B) $252,000. C) $272,000. D) $456,000. E) $708,000.

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21) Determine the net income of a company for which the following information is available for the month of September. Service revenue Rent expense Utilities expense Salaries expense

$ 330,000 63,000 4,700 96,000

A) $292,300. B) $493,700. C) $171,000. D) $166,300. E) $267,000.

22) Zapper has beginning equity of $295,000, net income of $70,000, withdrawals of $59,000 and investments by owners of $25,000. Its ending equity is: A) $261,000. B) $259,000. C) $306,000. D) $331,000. E) $217,500.

23) Cragmont has beginning equity of $285,000, net income of $71,000, withdrawals of $33,000 and no additional investments by owners during the period. Its ending equity is: A) $389,000. B) $247,000. C) $181,000. D) $323,000. E) $285,000.

24) A company's balance sheet shows: cash $48,000, accounts receivable $29,000, office equipment $63,000, and accounts payable $30,000. What is the amount of owner's equity?

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A) $30,000. B) $42,000. C) $110,000. D) $140,000. E) $170,000.

25) A company reported total equity of $181,000 at the beginning of the year. The company reported $246,000 in revenues and $183,000 in expenses for the year. Liabilities at the end of the year totaled $110,000. What are the total assets of the company at the end of the year? A) $63,000. B) $110,000. C) $134,000. D) $246,000. E) $354,000.

26) Charlie's Chocolates' owner made investments of $74,000 and withdrawals of $32,000. The company has revenues of $107,000 and expenses of $76,000. Calculate its net income. A) $42,000. B) $107,000. C) $76,000. D) $31,000. E) $73,000.

27) Savvy Sightseeing had beginning equity of $87,000; revenues of $135,000, expenses of $80,000, and withdrawals by owners of $10,500. Calculate the ending equity. A) $131,500. B) $55,000. C) $142,000. D) $21,500. E) $32,000.

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28) Doc’s Ribhouse had beginning equity of $80,500; net income of $44,500, and withdrawals by the owner of $21,500. The owner made no investments during the year. Calculate the ending equity. A) $(14,500). B) $57,500. C) $14,500. D) $146,500. E) $103,500.

29) A company's balance sheet shows: cash $26,000, accounts receivable $32,000, equipment $54,000, and equity $74,000. What is the amount of liabilities? A) $112,000. B) $86,000. C) $38,000. D) $70,000. E) $186,000.

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Answer Key Test name: Chap 01_17ce_Test Bank_Algo 1) B 2) B 3) E 4) D 5) D Assets = Liabilities + Owner's Equity Assets = $187,000 + $349,000 = $536,000. 6) A Assets = Liabilities + Owner’s Equity Equity = $388,000 − $185,000 = $203,000. 7) B Assets = Liabilities + Owner's Equity $103,000 = $34,500 + Owner's Equity; Owner's Equity = $68,500 8) C Assets = Liabilities + Owner's Equity $716,000 = $208,000 + Owner's Equity (or Claims of the Owners); Owner's Equity = $508,000 9) D Assets = Liabilities + Equity Cash + Accounts Receivable + Supplies + Equipment = Accounts Payable + Equity $13,800 + $6,900 + $650 + $11,450 = $8,800 + Equity $32,800 = $8,800 + Equity; Equity = $24,000 10) B

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Assets − Liabilities = Equity Cash + Supplies + Equipment − Accounts Payable = Equity $28,800 + $820 + $9,200 − $8,000 = $30,820 11) B Assets = Liabilities + Owner's Equity Assets would decrease by $31,000 in Cash due to the payment of the accounts payable. Liabilities would also decrease by $31,000 in Accounts Payable due to the payment of an obligation. There is no effect on Owner's Equity. 12) D 13) E Assets = Liabilities + Owner's Equity $608,000 = $254,000 + $354,000 Assets increase by $79,000 (Equipment) due to the purchase. Liabilities also increase by $79,000 (Accounts Payable) due to the purchase on credit. 14) D Assets = Liabilities + Owner's Equity Change in Assets = Change in Liabilities + Change in Owner's Equity Change in Assets = +$89,000 – $37,000 Change in Assets = Increase of $52,000 15) A Assets = Liabilities + Owner's Equity Change in Assets = Change in Liabilities + Change in Owner's Equity Increase of $97,000 = Increase of $71,000 + Change in Owner's Equity Change in Owner's Equity = Increase of $26,000 16) A

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Assets = Liabilities + Owner's Equity Change in Assets = Change in Liabilities + Change in Owner's Equity Change in Assets = +$100,000 – $32,000 Change in Assets = +$68,000 17) B Assets = Liabilities + Owner's Equity $373,000 = Liabilities + $124,000 Liabilities = $249,000 18) C Assets = Liabilities + Owner's Equity Cash + Equipment + Buildings = Liabilities + Owner's Equity $73,000 + $222,000 + $191,000 = $157,000 + Owner's Equity $486,000 = $157,000 + Owner's Equity; Owner's Equity = $329,000 19) E Assets – Liabilities = Owner’s Equity Cash + Buildings + Land – Liabilities = Owner’s Equity $81,000 + $131,000 + $220,600 – $137,000 = $295,600 20) A Net Income = Revenues − Expenses Net Income = Consulting Revenue − Employee Salaries Expense − Interest Expense − Rent Expense Net Income = $456,000 − $194,000 − $24,000 − $34,000; Net Income = $204,000 21) D Revenues − Expenses = Net Income Service Revenue − Rent Expense − Utilities Expense − Salaries Expense $330,000 − $63,000 − $4,700 − $96,000 = $166,300 22) D

Version 1

Ending Equity = Beginning Equity + Investments by Owners + Net Income − Withdrawals Ending Equity = $295,000 + $25,000 + $70,000 − $59,000; Ending Equity = $331,000 23) D Beginning Equity + Investments by Owners + Net Income − Withdrawals = Ending Equity $285,000 + $0 + $71,000 − $33,000 = $323,000 24) C Assets = Liabilities + Owner's Equity Cash + Accounts Receivable + Office Equipment = Accounts Payable + Owner's Equity $48,000 + $29,000 + $63,000 = $30,000 + Owner's Equity $140,000 = $30,000 + Owner's Equity; Owner's Equity = $110,000 25) E Assets = Liabilities + Owner's Equity Assets = $110,000 + (Beginning Equity + Revenues - Expenses) Assets = $110,000 + ($181,000 + $246,000 - $183,000) Assets = $110,000 + $244,000; Assets = $354,000 26) D Net Income = Revenues - Expenses Net Income = $107,000 - $76,000; Net Income = $31,000 27) A Ending Equity = Beginning Equity + Revenues - Expenses Withdrawals by Owners Ending Equity = $87,000 + $135,000 - $80,000 - $10,500 Ending Equity = $131,500 28) E Ending Equity = Beginning Equity + Net Income − Withdrawals Ending Equity = $80,500 + $44,500 − $21,500 = $103,500 Version 1

29) C Assets − Equity = Liabilities Cash + Accounts Receivable + Equipment − Equity = Liabilities $26,000 + $32,000 + $54,000 − $74,000 = $38,000

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CHAPTER 1 TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Accounting is an information system that identifies, measures, records and communicates relevant information that objectively and correctly represents an organization's economic activities. ⊚ ⊚

true false

2) Accounting information helps people make better decisions about the performance of a business. ⊚ ⊚

true false

3) The main objective of accounting is to help people to invest in new products and businesses. ⊚ ⊚

Recordkeeping" is another term for "accounting". ⊚ ⊚

true false

A sole proprietorship is a business owned by one or more persons. ⊚ ⊚

true false

6) A partnership requires no special legal requirements to start, other than to register the business name and obtain a business license. ⊚ ⊚

Version 1

true false

Ownership of a corporation is divided into units called shares. ⊚ ⊚

In the partnership form of business, the owners of a business are called shareholders. ⊚ ⊚

true false

Unlimited liability is an advantage for both a proprietorship and a partnership. ⊚ ⊚

10)

true false

Although a proprietorship is not a separate legal entity, a partnership is. ⊚ ⊚

true false

11) A corporation is responsible for its actions and any debts incurred. It can enter into its own contracts, and it can buy, own, and sell property. ⊚ ⊚

12)

Non-business organizations often operate educational and religious services for profit. ⊚ ⊚

13)

true false

Sole proprietorships and partnerships are not subject to income tax in Canada. ⊚ ⊚

Version 1

true false 2

14) External users include lenders such as banks, and other creditors such as suppliers and bondholders. ⊚ ⊚

15)

true false

Internal users include creditors, shareholders, internal auditors, and managers. ⊚ ⊚

true false

16) Managerial accounting provides special-purpose reports customized to meet the information needs of internal users. ⊚ ⊚

true false

17) Internal operating functions include research and development, distribution, and human resources. ⊚ ⊚

18)

true false

Internal controls include procedures to protect assets and prevent fraud. ⊚ ⊚

true false

19) Career opportunities in accounting include auditing, forensic accounting, and tax planning. ⊚ ⊚

Version 1

true false

20) Budgeting is the process of developing formal plans for an organization's future activities. ⊚ ⊚

true false

21) At the request of the Board of Directors, internal auditors perform the audit function to protect shareholder interests. ⊚ ⊚

22)

The purpose of an audit is to add credibility to the financial statements. ⊚ ⊚

23)

true false

Private accountants work for several employers. ⊚ ⊚

true false

24) In Canada, Chartered Professional Accountants of Canada is the national organization that has been established to train and monitor its highly qualified professionals. ⊚ ⊚

true false

25) External auditors perform an audit at the request of the board of directors to protect investor interests. ⊚ ⊚

true false

26) The preferred ethical path is to take a course of action that avoids casting doubt on one's decisions.

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⊚ ⊚

27)

Ethics and laws often differ. ⊚ ⊚

28)

true false

Ethics and social responsibility are incidental to the primary functions of accounting. ⊚ ⊚

true false

29) Ethical practices are not necessary to build trust and long-term relationships with customers. ⊚ ⊚

30)

true false

Social responsibility is a concern for the impact of our actions on society as a whole. ⊚ ⊚

true false

31) The underlying concepts that make up acceptable accounting practices are referred to as generally accepted accounting principles (GAAP). ⊚ ⊚

32)

true false

Verifiability ensures that information is complete, neutral, and free from error. ⊚ ⊚

Version 1

true false

33) The Accounting Standards Board (AcSB), is the body that developed the International Financial Reporting Standards. ⊚ ⊚

true false

34) The Accounting Standards Board (AcSB), is the body that developed accounting standards for private enterprises (ASPE). ⊚ ⊚

true false

35) International Accounting Standards have been created to improve comparability of accounting information across countries. ⊚ ⊚

true false

36) Private enterprises are all required to report using International Financial Reporting Standards (IFRS). ⊚ ⊚

true false

37) The primary purpose of Generally Accepted Accounting Principles is to ensure the usefulness of financial information. ⊚ ⊚

true false

38) The Historical cost principle states that if no cash is involved in a transaction the cashequivalent value must be used. ⊚ ⊚

Version 1

true false

39) The currency principle means that transactions are expressed using units of money as the common denominator. ⊚ ⊚

true false

40) The assumption that a business will continue to operate until it can sell its assets to pay its creditors underlies the going concern principle. ⊚ ⊚

true false

41) According to the historical cost principle, it is acceptable for managers to use their own estimate of an asset's value when recording the purchase. ⊚ ⊚

true false

42) The reporting entity principle requires that an owner keep accounting records separate from personal records or records of any other businesses owned. ⊚ ⊚

true false

43) As a rule, revenues should not be recognized in the accounting records until received in cash. ⊚ ⊚

true false

44) The primary qualitative characteristics of financial information are relevance and faithful representation. ⊚ ⊚

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true false

45) A company that is currently in the process of liquidating is considered to be a going concern. ⊚ ⊚

true false

46) The conceptual framework summarizes the qualitative characteristics and supportive building blocks that are required to prepare financial information. ⊚ ⊚

true false

47) Financial statements are an organization's primary means of financial communication and are the end result of a process, or a cycle, which begins with a business transaction like a sale. ⊚ ⊚

48)

true false

A balance sheet covers a period of time such as a month or year. ⊚ ⊚

true false

49) The legitimate claims of a business's creditors take precedence over the claims of the business owner or owners. ⊚ ⊚

true false

50) The income statement is a financial statement that shows revenues earned and expenses incurred by a business over a specified period of time. ⊚ ⊚

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true false

51) Profit is the excess of expenses over revenues, whereas net loss is the excess of revenues over expenses. ⊚ ⊚

52)

true false

The natural business year for businesses is always the same as the calendar year. ⊚ ⊚

true false

53) The balance sheet shows whether or not the firm achieved its primary objective of earning a profit. ⊚ ⊚

54)

true false

Expenses are costs incurred or the using up of assets from generating revenue. ⊚ ⊚

true false

55) Liabilities are defined as "the residual interest in the assets of an entity that remains after deducting its equity". ⊚ ⊚

56)

true false

A characteristic of assets is their ability to provide current benefits to the business. ⊚ ⊚

true false

57) The statement of cash flows measures the net effect of revenues and expenses for a specified period.

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⊚ ⊚

true false

58) A liability expressed by a written promise to make a future payment is usually called an account payable. ⊚ ⊚

true false

59) The balance sheet is also called the statement of financial position because it shows the financial position of the business on a particular date. ⊚ ⊚

true false

60) Revenues are the value of assets received or receivable as a result of selling goods or services to customers. ⊚ ⊚

true false

61) The balance sheet can be used in order to assess the creditworthiness of potential customers. ⊚ ⊚

62)

Withdrawals represent distributions from a corporation to its owners. ⊚ ⊚

63)

true false

Dividends represent distributions of profits to the partners of a business. ⊚ ⊚

Version 1

true false

64)

Equity is increased by owner investments, profit, and withdrawals. ⊚ ⊚

true false

65) Although, in a sole proprietorship, owner investments are not recorded as revenue, any withdrawals are recorded as expenses. ⊚ ⊚

true false

66) An owner's cash investment in a business creates an asset (cash), a liability (note payable), and equity (owner investments). ⊚ ⊚

67)

true false

The first section of the income statement reports cash from operating activities. ⊚ ⊚

true false

68) Individuals and organizations who own the right to receive payments from a business are called its debtors. ⊚ ⊚

true false

69) A loss arises when there is a distribution of cash or other assets from a proprietorship to its owner. ⊚ ⊚

Version 1

true false

70)

A characteristic of liabilities is their capacity to reduce future assets. ⊚ ⊚

true false

71) Profit on the income statement results in an increase in equity on the balance sheet due to profitable operating activities over a period of time. ⊚ ⊚

72)

true false

The equity in a partnership belongs to one owner. ⊚ ⊚

true false

73) Chuck Taylor invested $8,000 in cash in FastForward. This amount would be reported in the statement of cash flows under financing. ⊚ ⊚

true false

74) Chuck Taylor withdrew $6,000 in cash for his personal use from his business. This amount should be included as an expense on the income statement. ⊚ ⊚

true false

75) Equity is increased when cash is received from customers in payment of a previously recorded accounts receivable. ⊚ ⊚

true false

76) Transactions that impact only assets do not require the accounting equation to stay in balance.

Version 1

⊚ ⊚

77)

true false

The financing side of the accounting equation describes where the assets came from. ⊚ ⊚

true false

78) The accounting equation describes the relationship between a company's assets, liabilities, and equity. ⊚ ⊚

79)

The accounting equation can be restated as assets - equity = liabilities. ⊚ ⊚

80)

true false

Business transactions are exchanges of economic consideration between two parties. ⊚ ⊚

82)

true false

Liabilities represent non-owner financing. ⊚ ⊚

81)

true false

Business events do not affect the accounting equation. ⊚ ⊚

Version 1

true false

83) The purchase of supplies for cash impacts both the investing and financing sides of the accounting equation. ⊚ ⊚

true false

84) Items such as sales slips, invoices, cheques, purchase orders, and employee earnings records are also called source documents. ⊚ ⊚

85)

true false

Payment of accounts payable decreases both liabilities and assets. ⊚ ⊚

true false

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 86) Joe Bob has prepared the following analysis of September transactions for his business, Joe Bob's Spareribs. Unfortunately, he has lost some information. Calculate the missing information. Date

Cash

A/R

Inventory

A/P

Notes Pay

Equity

Sep 2

4,000

2,100

1,000

500

4,000

Sep 6

-1,000

-0-

4,000

-0-

Sep 10

500

300

-300

-0-

A) Sept 2

Sept 6

Sept 10

2,600

3,000

2,000

Sept 2

Sept 6

Sept 10

1,000

4,000

200

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Sept 2

Sept 6

Sept 10

300

2,000

600

Sept 2

Sept 6

Sept 10

1,500

1,000

400

Sept 2

Sept 6

Sept 10

2,600

3,000

500

87) At the end of its first year of operations, Lockerbie and Role Company have total assets of $3,000,000 and total liabilities of $1,200,000. The owner originally invested $200,000 in the business, but has not made any further investments or taken any withdrawals. What is the first year's profit for Lockerbie and Role Company? A) $1,600,000 B) $1,800,000 C) $1,000,000 D) $3,000,000 E) $3,200,000

88)

If assets are $144,000 and liabilities are $37,000, then equity equals A) $37,000 B) $74,000 C) $107,000 D) $144,000 E) $181,000

89) are

The assets of a business total $20,000; the liabilities, $8,000. The claims of the owners

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A) $0 B) $8,000 C) $12,000 D) $20,000 E) $28,000

90) The FastForward Company balance sheet shows cash $5,000, accounts receivable $7,000, office equipment $3,000, and accounts payable $4,000. What is the amount of equity? A) $1,00 B) $11,000. C) $12,000 D) $15,000 E) $19,000

91)

If assets are $175,000 and equity is $47,000, then liabilities equal A) $47,000 B) $128,000 C) $175,000 D) $204,000 E) $222,000

92) The following information is available for Isla Company for the month of May. How much is the profit for the month?

Version 1

Employee salaries

$15,000

Interest paid on bank loan

2,500

Rent paid to landlord

12,500

Service Revenue

50,000

A) $0 B) $10,000 C) $20,000 D) $30,000 E) $35,000

93) Reese's Company reported equity of $22,000 on its December 31, 2019, balance sheet. The following information is available for the year ended December 31, 2020 Revenues

$73,000

Expenses

59,000

Liabilities

11,000

What are the total assets of Reese's Company on December 31, 2020? A) $14,000 B) $25,000 C) $35,000 D) $47,000 E) $57,000

94) A parcel of land is offered for sale at $45,000 and is assessed for tax purposes at $20,000. The purchaser assesses the land to be worth $36,000, and purchased it for $34,000. The land should be recorded in the purchaser's books at A) $20,000 B) $34,000 C) $36,000 D) $45,000 E) $54,000

95)

If equity is $30,000 and liabilities are $73,000, then assets equal

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A) $30,000 B) $40,000 C) $60,000 D) $73,000 E) $103,000

96) From the following information taken from the records of Peach Company on December 31 of this year, calculate equity. Liabilities

$1,000

Cash

3,000

Accounts Receivable

2,000

Buildings

3,500

Equity

A) $1,500 B) $2,500 C) $7,500 D) $3,500 E) $6,000

97)

Willie's Attic has the following account balances for the dates given Cash, Sept 1

$40,000

Cash, Sept 30

60,000

Accounts receivable, Sept 1

10,000

Accounts receivable, Sept 30

14,000

Capital, Sept 1

Capital, Sept 30

Supplies, Sept 1

30,000

Supplies, Sept 30

24,000

Accounts payable, Sept 1

6,000

Accounts payable, Sept 30

Profit for September

20,000

What is the amount of equity on September 1 and September 30? Version 1

A) $86,000; $4,000 B) $86,000; $106,000 C) $74,000; $106,000 D) $74,000; $94,000 E) None of the choices are correct.

98) An exchange between two parties of economic consideration such as goods, services, money, or rights to collect money is called A) the accounting equation. B) bookkeeping. C) a business transaction. D) an audit. E) a gift.

99) Under which situation can a company recognize revenue under the Generally Accepted Accounting Principles? A) A customer signs a contract to purchase goods to be delivered in two weeks. B) A company completes production of a customer order to be delivered in two weeks. C) A company ships the goods for which it received a deposit two weeks ago. D) A company receives a cash deposit from a customer to deliver goods in two weeks. E) A company purchased raw materials to complete production of a customer order.

100)

Which of the following is true as it relates to the conceptual framework?

A) Timeliness ensures that information is complete, neutral, and free from error B) Information that has faithful representation is complete, neutral, and free from error C) Verifiability ensures that information is available to decision makers in time to influence their decisions D) None of the choices are correct. E) All of the choices are correct.

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101)

Which of the following business transactions would increase the equity of ABC Limited? A) ABC received a $1,200 cash payment on account from a customer. B) ABC Limited's owner withdrew $900 cash to cover personal living expenses. C) ABC purchased a new machine for $45,000 on account. D) ABC billed a customer $14,800 for consulting services provided during the month. E) ABC purchased a building for $100,000 on account.

102)

Something of value, such as products, services, and money, is called a(n) A) business transaction B) business event C) accounting equation D) economic consideration E) source document

103) How would the accounting equation of Lenore Turner's consulting business be affected by the billing of a client for $2,000 for consulting work completed? A) Accounts receivable, $2,000 increase, liabilities, $2,000 decrease. B) Accounts receivable, $2,000 increase, liabilities, $2,000 increase. C) Accounts receivable, $2,000 increase, cash, $2,000 increase. D) Accounts receivable, $2,000 increase, equity, $2,000 increase. E) Accounts receivable, $2,000 increase, cash, $2,000 decrease.

104)

Which of the following items does not appear on the balance sheet?

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A) Cash B) Notes payable C) Accounts receivable D) Withdrawals E) Accounts payable

105)

Social responsibility A) is a code that helps accountants when dealing with confidential information B) is a concern for the impact of our actions on society as a whole C) allows Canada Revenue Agency to regulate businesses D) requires that all businesses conduct social audits E) requires analysts to report information favourable to their companies

106)

Ethical behaviour requires A) accountants to keep business information confidential B) auditors to invest in businesses they audit C) analysts to report information favourable to their companies D) purchasing agents to favour certain suppliers E) the government to regulate businesses

107)

Generally accepted accounting principles are

A) not used in the real world B) are required to make financial statement information relevant and faithfully represented C) are only used for internal reporting D) are only used by auditors E) are only used for reporting to Canada Revenue Agency

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108)

The accounting equation can be stated as A) Assets = Non-owner Equity + equity B) Liabilities = Assets + Equity C) Assets = Liabilities - Equity D) Equity = Assets + Liabilities E) All of the choices are correct.

109) Today, Cedar Park Company paid $600 of its accounts payable in cash. What is the effect on the accounting equation? A) Assets, $600 increase; liabilities, no effect; equity, $600 increase. B) Assets, $600 decrease; liabilities, $600 decrease; equity, no effect. C) Assets, $600 decrease; liabilities, $400 increase; equity, $200 decrease. D) Assets, no effect; liabilities, $600 decrease; equity, $400 increase. E) There is no effect.

110)

The area of accounting aimed at serving the decision-making needs of internal users is A) financial accounting B) managerial accounting C) auditing D) internal control E) marketing

111) The financial statement that describes where a company's cash came from and where it went during the period is the

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A) statement of financial position B) statement of cash flows C) balance sheet D) income statement E) statement of changes in equity

112) The financial statement that shows the beginning balance of equity, the changes in equity that resulted from new investments by the owner, Profit (or net loss), withdrawals, and the ending balance of equity is the A) statement of financial position B) statement of cash flows C) balance sheet D) income statement E) statement of changes in equity

113)

Which of the following is an example of a source document? A) Invoice B) Cheque C) Bank statement D) Employee earnings records E) All of the choices are correct.

114) To include the personal assets and transactions of a business's owner in the records and reports of the business would be in conflict with the A) currency B) historical cost principle C) reporting entity principle D) going concern principle E) revenue recognition principle

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115)

In the accounting equation, the financing side would include which of the following? A) Liabilities only B) Liabilities and equity C) Equity only D) Assets, liabilities, and equity E) Assets and liabilities

116)

Revenues are A) profits B) the amount a business earns after subtracting all expenses from sales C) business events D) net assets E) the value of assets exchanged for goods or services provided to the customer

117)

Exchanges between the entity and some other person or organization are A) internal transactions B) external transactions C) business papers D) source documents E) investments

118) A business activity that does not involve an exchange of economic consideration between two parties is called a(n)

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A) withdrawal B) account receivable C) business transaction D) business event E) equity transaction

119)

Which of the following statements is correct regarding sales invoices? A) A sales invoice is a type of source document. B) Sellers use them for recording purchases. C) Buyers use them for recording sales. D) None of the choices are correct. E) All of the choices are correct.

120)

A business

A) is one or more individuals selling products or services for profit B) can only have one legal form of organization C) can have adequate financial records without a formal accounting system D) has to issue shares before it opens E) is one or more individuals selling products or services for profit and has to issue shares before it open

121)

Source documents A) do not provide objective evidence about transaction B) are a source of accounting information C) can only be in electronic form D) are only used for audit purposes E) are acceptable as a substitute for financial statements

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122) In Canada, the national organization that has been established to train and monitor its highly qualified professionals to navigate through today's complex and dynamic business climate while demonstrating a commitment to its core values is called A) general accountant. B) management accountant. C) certified management accountants. D) chartered professional accountants. E) all of the choices are correct.

123)

Which of the following is correct as it relates to business activities?

A) Business events involve an exchange of economic consideration between two parties that causes a change in assets, liabilities, or equity B) Business events do not involve an exchange of economic consideration and as such are not captured in the accounting records C) Business transactions do not involve an exchange of economic consideration and as such are not captured in the accounting records D) Business transactions involve an exchange of economic consideration between two parties but causes no change in assets, liabilities or equity E) All of the choices are correct

124)

Accounting is an information and measurement system that A) identifies and records business events B) only records economic activities C) primarily develops formal plans for future activities D) identifies and records economic activities E) All of the choices are correct.

125) An individual or organization entitled to receive payments from a business is known to the business as a

Version 1

A) debtor B) shareholder C) controller D) creditor E) bookkeeper

126) as a

An individual or organization that owes an amount to a business is known to the business

A) debtor B) shareholder C) controller D) creditor E) bookkeeper

127)

Career opportunities in accounting include A) budgeting B) auditing C) cost accounting D) management consulting E) All of the choices are correct.

128) Which of the following accounting principles would require that all goods and services purchased is recorded at cost? A) Going concern principle B) Currency principle C) Historical cost principle D) Reporting entity principle E) Revenue recognition principle

Version 1

129) Users of accounting information include internal and external users. Which of the following is correct? A) bank lender and a controller are external users B) A marketing manager and a shareholder are internal users C) A Chief Executive Officer (CEO) and a shareholder are external users D) A shareholder and a budget officer are internal users E) Government and a consumer group are external users

130) A primary operating objective of a business is to increase the equity of its owner or owners by A) acquiring assets B) incurring liabilities C) earning a profit D) incurring expenses E) increasing retained earnings

131) The difference between a company's assets and its liabilities, or the residual interest in the assets of an entity that remains after deducting its liabilities, is called A) profit B) shares C) equity D) revenue E) net loss

132)

Profit is another name for

Version 1

A) the income statement B) income C) equity D) a business transaction E) assets

133)

A payment from a proprietorship or partnership to its owner or owners is called a(n) A) dividend B) withdrawal C) expense D) equity E) cheque

134)

Information that is representationally faithful is A) complete B) neutral C) free from Error D) All of the choices are correct. E) None of these answers is correct.

135) The accounting principle that requires that transactions are to be expressed using units of money in the currency of the country in which the company primarily operates as the common denominator is the A) reporting entity principle B) currency C) going concern principle D) historical cost principle E) revenue recognition principle

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136) The accounting principle that states that revenue is recorded at the time that it is earned regardless of whether cash or another asset has been exchanged is the A) currency principle B) reporting entity principle C) going concern principle D) revenue recognition principle E) historical cost principle

137) The accounting principle that requires financial statements to be prepared on the assumption that the business will continue operating instead of being closed or sold, unless evidence shows that it will not continue, is the A) historical cost principle B) reporting entity principle C) going concern principle. D) currency principle E) revenue recognition principle

138) The measurement method that requires all transactions to be recorded based on actual amount of cash received or paid, or cash-equivalent amount given in exchange, is the A) current cost method B) historical cost principle C) fair value method D) value in use method E) fulfilment method

139)

A corporation

Version 1

A) is a legal entity separate and distinct from its owners B) is regulated by Canada revenue agency C) has shareholders who have unlimited liability for the acts of the corporation D) can only have two owners E) is not a legal entity

140)

A partnership A) is also called a sole proprietorship B) has unlimited liability. C) has to have a written agreement in order to be legal D) is a legal organization separate from its owners E) is a non-business organization

141)

Ethics A) are beliefs that separate right from wrong B) and law often coincide C) help to prevent conflicts of interest D) are very important considerations for accountants E) All of the choices are correct.

142) If the liabilities of a business increased $8,000 during a period of time and equity in the business decreased $4,000 during the same period, the assets of the business must have A) Decreased $12,000 B) Decreased $4,000 C) Increased $12,000 D) Increased $4,000 E) Increased $6,000

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143) If the assets of a business increased $9,000 during a period of time and its liabilities increased $5,000 during the same period, equity in the business must have A) Increased $14,000 B) Decreased $14,000 C) Increased $4,000 D) Decreased $4,00 E) Decreased $6,000.

144) The organization established to try to achieve global agreement on the use of a common set of accounting principles is called A) Accounting Standards Board B) Abbreviated as IFRS C) International Accounting Standards Board D) Generally accepted accounting principles E) All of the choices are correct.

145)

An audit

A) is required for every business B) is an independent review of an organization's accounting systems and records C) is performed to add credibility to the financial statements D) is only performed for companies with computerized accounting system E) is an independent review of an organization's accounting systems and records and is performed to add credibility to the financial statements

146)

Accounting information is considered to be relevant when it

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A) can be depended on to represent the economic conditions and events that it is intended to represent B) is capable of making a difference in a decision C) is understandable by reasonably informed users of accounting information D) is verifiable and neutral E) is free from bias

147) Celery Company has assets of $150,000, liabilities of $90,000, and equity of $60,000. It buys supplies for cash $5,000. What effect would this transaction have on the accounting equation? A) Assets, $5,000 increase, equity, $5,000 increase. B) Assets, $5,000 increase, equity, $5,000 decrease. C) Liabilities, $5,000 increase, equity, $5,000 decrease. D) Assets, $5,000 decrease, equity, $5,000 decrease. E) Assets, no effect; liabilities, no effect

148) Properties or economic resources owned by a business, also described as probable future economic benefits, are called A) assets B) revenues C) liabilities D) equity E) expenses

149) The value of assets exchanged for goods or services provided to customers as part of the main operations of a business are called

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A) assets B) revenues C) liabilities D) equity E) expenses

150)

Assets created by selling products or services on credit are A) accounts payable B) accounts receivable. C) liabilities D) expenses E) equity

151)

The internal functions of a business include A) research and development B) purchasing C) marketing D) servicing E) All of the choices are correct.

152)

The reporting entity principle A) requires that sole proprietors have unlimited liability B) requires that partnership income be taxed at the partnership level C) means that business records should be kept separate from the owner's personal records D) requires that partnerships have written agreements E) requires that corporations have shareholders

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153) The question of when revenue should be recognized on the income statement (according to GAAP) is answered by the A) revenue recognition principle B) going concern principle C) currency principle D) reporting entity principle E) historical cost principle

154)

Equity is also known a A) profit B) expenses C) net assets D) revenue E) net loss

155)

The excess of expenses over revenues for a period depict A) net assets B) equity C) loss D) profit E) a liability

156)

Revenue is recognized in most businesses

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A) when the customer's order is received B) only if the transaction creates an account receivable C) only if paid in cash D) upon completion of the sale or when services have been performed and the business obtains the right to collect the sales price E) when cash from a sale is received

157)

Businesses can take the following form(s) A) sole proprietorship B) not-for-profit C) partnership D) sole proprietorship and partnership E) All of the choices are correct.

158)

The recording of financial transactions either manually or electronically is called A) accounting B) bookkeeping C) preparing financial statements D) auditing E) systems design

159)

Internal controls are procedures set up to A) protect assets B) ensure accounting reports are free from error, neutral and complete C) promote efficiency D) ensure company policies are followed E) All of the choices are correct.

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160) If a business is not being sold or closed, the amounts reported in the accounts for assets used in operations are based on costs. This practice is justified by the A) historical cost principle B) going concern principle C) revenue recognition principle D) reporting entity principle E) currency principle

161) The rule that (1) requires revenue to be recognized at the time it is earned, (2) allows the inflow of assets associated with revenue to be in a form other than cash, and (3) measures revenue as the amount of cash plus the cash equivalent value of any noncash assets received from customers in exchange for goods or services is called the A) going concern principle B) historical cost principle C) revenue recognition principle D) currency principle E) reporting entity principle

162) An obligation of a business that represents the claims of others against the assets of the business is called a(n) A) asset B) expense C) revenue D) equity E) liability

163) Costs incurred or the using up of assets as a result of the main operations of a business are called

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A) liabilities B) equity C) revenues D) expenses E) net losses

164)

Payments of cash by a corporation to its shareholders are called A) dividends B) cheques C) shareholder's equity D) withdrawals E) expenses

165) An exchange of economic consideration between two parties that causes a change in assets, liabilities or equity is called A) business transaction B) liabilities C) source documents D) external transactions E) prepaid expenses

166) Which of the financial statement provides the profit or loss the business earned, and also lists the types and amounts of the revenues and expenses? A) Balance sheet B) Statement of changes in equity C) Statement of cash flow D) Income statement. E) Statement of financial position

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167) A financial statement providing information that helps users understand a company's financial status at a specific date, is called a(n) A) balance sheet B) income statement C) statement of cash flows D) statement of changes in equity E) bank statement

168)

Cash investments by owners are listed on which of the following statement(s)? A) Balance sheet B) Income statement C) Statement of changes in equity D) Statement of cash flows E) Both a statement of changes in equity and statement of cash flows

169)

Profit appears on which of the following statement(s)? A) Balance sheet B) Income statement C) Statement of changes in equity D) Statement of cash flows E) Both an income statement and statement of changes in equity

170)

Salaries paid with cash appear on which of the following statement(s)?

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A) Balance sheet B) Income statement C) Statement of changes in equity D) Statement of cash flow E) Both an income statement and statement of cash flows

171) Fees earned by a business in exchange for services provided by the business appear on which of the following statements? A) Balance sheet B) Income statement C) Statement of changes in equity D) Statement of cash flows E) Statement of financial position

172)

The balance sheet equation is A) revenues minus expenses equals profit B) debits equal credits C) the bookkeeping phase of accounting D) another name for the accounting equation E) assets minus liabilities

173) According to generally accepted accounting principles, a company's balance sheet should show the company's assets at

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A) the cash equivalent value of what was given up or the asset received, whichever is more clearly evident B) the market value of the asset received in all cases C) the cash outlay only, even if part of the consideration given was something other than cash D) the best estimate of a certified internal auditor E) current replacement cost

174)

Profit is A) assets minus liabilities B) the excess of revenues over expenses C) the excess of expenses over revenues D) a revenue E) the same as equity

175)

If financial information is relevant, this means that

A) decision makers can depend on it B) it can affect the types of decisions made by users C) the information is prepared using the same accounting procedures from one accounting period to the next D) users are able to compare different companies, if all the companies use similar accounting practices E) the financial statements have not been prepared according to GAAP

176)

Financial information that is verifiable means that

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A) information is clear and concise B) knowledgeable users agree that the financial information is faithfully represented C) the information is useful to users with reasonable knowledge of accounting as well as business and economic activities D) users are able to compare different companies, if all the companies use similar accounting practices E) the financial statements have not been prepared according to GAAP

177)

A statement of financial position is another name for A) the income statement B) the balance sheet C) the statement of cash flows D) the statement of changes in equity E) the accounting equation

178)

A statement of profit and loss is another name for A) the income statement B) the balance sheet C) the statement of cash flows D) the statement of changes in equity E) the accounting equation

179)

A balance sheet lists A) the types and amounts of the revenues and expenses of a business B) only the information about what happened to equity during a specific time period C) the types and amounts of assets, liabilities, and equity of a business at a specific date D) the inflows and outflows of cash during a specific time period E) the assets and liabilities of a business but not the equity

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180)

Which of the following statements is true about assets? A) They are the properties or economic resources that always have a matching liability. B) They are available to provide only immediate benefits to the business. C) They cannot include intangible rights. D) Ownership is shared between creditors and owners. E) All of the choices are correct.

181)

The primary objective of GAAP is to provide accounting information that is A) usefulness for decision making B) free from bias C) timeliness D) comparability E) neutral

182) The adoption of international accounting standards is an application of which of the following quality enhancing characteristics of financial information A) verifiability B) understandability C) timeliness D) comparability E) completeness

183)

The primary objective of financial accounting is

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A) to help organizations keep track of financing activities B) to provide external reports to help users analyze an organization's activities C) to help an organization define its ideas, goals, and action D) to help an organization to keep track of its buying and selling of resources E) to prepare budgets

184) Blue Company received $2,000 cash for work completed. The effects on the accounting equation are A) total assets decrease, and equity increases B) both total assets and total liabilities decrease C) total assets, total liabilities, and equity are unchanged D) both total assets and equity are unchanged E) total assets increase and equity increases

185)

Which of the following is not reported on the income statement? A) revenues earned by a business B) expenses incurred by a business C) withdrawals D) profit E) All of the choices are correct.

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 186) Describe the purpose and importance of accounting.

187)

Identify the three forms of business organizations.

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188) Identify three advantages to setting up a corporation as an owner's legal business structure.

189) Identify the form of business organization(s) to which the following characteristics apply. (a) Is a separate reporting entity. (b) Can be owned by one person. (c) Owner or owners are personally liable for debts of the business. (d) Is a taxable entity. (e) Is created by a charter from a provincial or the federal government. (f) Keeps the accounting of its transactions separate from the owner's(s') personal transactions. (g) May have a contract specifying the division of profits among the owners. (h) Owner or owners are not personally liable for debts of the business. Use the following format to indicate whether or not a characteristic applies to each type of business organization. Proprietorship

Partnership

Corporation

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

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190) The following is a list of users of accounting information. Match the appropriate user groups to the following information needs. NOTE: Some needs may apply to more than one user group. (a) Employees, (b) Lenders, (c) External auditors, (d) Managers, (e) Suppliers, (f) Regulators, (g) Shareholders _______(1) The level of sales necessary to break even. _______(2) Verification that external reports are accurate. _______(3) Computation of taxes. _______(4) The ability of a company to repay its loans. _______(5) The amount of current income. _______(6) Fairness of wages. _______(7) Promptness of customer payment of bills. _______(8) Profit outlook.

191)

Describe the main user groups, their members, and their uses of accounting information.

192)

Explain why ethics and social responsibility are an integral part of accounting.

193)

Identify several opportunities in accounting and its related fields.

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194) Explain the difference between the functions of an internal auditor and an external auditor.

195) Select the appropriate financial statement for each of the following accounts. (a) Income statement, (b) Statement of changes in equity, (c) Balance sheet, (d) Statement of cash flows ____ (1) Cash ____ (2) Withdrawals ____ (3) Notes payable ____ (4) Service revenue ____ (5) John Jay, capital ____ (6) Accounts receivable ____ (7) Prepaid Rent ____ (8) Supplies Expense

196) Select the appropriate financial statement for each of the following items. (a) Income statement, (b) Statement of changes in equity, (c) Balance sheet, (d) Statement of cash flows _____ (1) Supplies _____ (2) Profit _____ (3) Ahmad Khan, Capital _____ (4) Advertising Expense _____ (5) Cash paid to employees _____ (6) Withdrawals _____ (7) Fees earned _____ (8) Cash paid for supplies

197) List the three main differences between the sole proprietorship and the corporate form of business. Version 1

198)

What is the statement of financial position? What is its purpose?

199)

What distinguishes liabilities from equity?

200)

List the three types of activities reported on the statement of cash flows.

201)

Describe the revenue recognition principle.

202)

Describe three measurement methods based on current values.

203)

Why should assets be recorded at historical cost?

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204)

How does the going concern principle affect reporting asset values of a business?

205) A parcel of land is offered for sale at $135,000, is assessed for tax purposes at $60,000, is recognized by its purchasers as easily being worth $108,000, and is purchased for $106,000. At what amount should the land be recorded in the purchaser's books if the company employs the measurement method of historical cost?

206) Before purchasing a parcel of land, Ming's Boutique had the land appraised at $90,000. The management of Ming's Boutique purchased the land for $85,000. At what amount should the land be recorded on Ming's Boutique's books? What accounting principle supports your answer?

207) You are reviewing the accounting records of April's Attic, owned by April Lapierre. You have uncovered the following situations. Compose a memo to Ms. Lapierre. Cite the appropriate accounting principle and suggest an action for each separate item. 1) April wrote a cheque for $350 to Wee Care Day Care Centre. The amount paid for day care for Justin Lapierre, April's son. 2) April plans a Going Out of Business Sale for May, since she will be closing her business for a monthlong vacation in June. She plans to reopen July 1 and will continue operating April's Attic indefinitely. 3) April received a shipment of pine furniture from Maine, U.S.A. The invoice was stated in U.S. dollars. 4) Martinique Gresham paid $1,000 for a dining table. The amount was recorded as revenue. The table will be delivered to Ms. Gresham in six weeks.

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208)

Explain the accounting equation, also called the balance sheet equation.

209) Lionel's Laundry has assets of $90,000 and liabilities of $20,000. Calculate the amount of equity.

210) Caps Lock has liabilities of $100,000 and $150,000 in equity. What is the value of its assets?

211) Sheila's Attic has $660,000 in assets and equity of $250,000. What is the amount of its liabilities?

212) If the liabilities of a business increased $65,000 during a period of time and equity in the business decreased $21,000 during the same period, would the assets of the business have increased or decreased? By what amount?

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213)

214)

Select from the following list items that are likely to serve as source documents. (a) Credit card

(e) Balance sheet

(b) Credit card receipt

(f) Bank statement

(g) Journal entry

(d) Invoice

(h) Electric power bill

Explain the difference between a business transaction and a business event.

215) At the beginning of this year, Tong Company had $160,000 in liabilities and $200,000 in assets. During this year, assets increased by $160,000 and at year-end they equaled $360,000. Liabilities decreased $20,000 during this year. Calculate the beginning and ending values of equity.

216) If the liabilities of a business increased $60,000 during a period of time and equity in the business decreased $18,000 during the same period, would the assets of the business have increased or decreased? By what amount?

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217) On May 1, Fiona Nash formed a computer consulting business. In order to start the business, she invested $10,000 in equipment. Enter the appropriate amounts into the accounting equation format.

218) Blu Lightning Co. spent $6,000 in cash for a computer. Enter the appropriate amounts into the accounting equation format.

219) Blu Lightning Co. bought supplies and testing equipment for $3,000 on credit. Enter the appropriate amounts into the accounting equation format

220) Blu Lightning Co. performed testing services for the Cheetah Co. Blu Lightning Co. billed Cheetah Co. $5,000. Enter the appropriate amounts into the accounting equation format.

221) Blu Lightning Co. paid its employees $2,000 in cash for two weeks' wages. Enter the appropriate amounts into the accounting equation format.

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222) Blu Lightning Co. received $5,000 for a previously recorded account receivable from the Cheetah Co. Enter the appropriate amounts into the accounting equation format.

223) If, on January 1, Terry Chervinski Company paid $2,000 of its accounts payable in cash, what would be the effect of this transaction on assets, on liabilities, and on equity?

224) Dallas Parsons, CPA, began an accounting practice and completed these transactions during September 2022: Sept 1

Invested $15,000 of his personal savings into a bank account opened in the name of the accounting practice.

Sept 2 Purchased office equipment for $12,500, paying $800 cash and agreeing to pay the balance in one year. Sept 3

Rented office space and paid cash for two months in advance, $11,200.

Sept 4

Completed accounting work for a client and immediately collected $1,500 in cash for the work done.

Sept 8

Purchased office supplies for cash, $150.

Sept 15

Completed accounting services for a client on credit, $2,300.

Sept 20

Received $2,300 from the above client for the work completed on September 15.

Sept 30

Paid utilities expense for month of $1,300.

Sept 30

Paid the office secretary's salary, $400.

Sept 30

Paid $100 for repairs to the photocopier.

Show the effects of the above transactions on the balance sheet items of Dallas Parsons, CA. Use the following format for your answers. Increase = I Decrease = D No effect = N

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225) For each of the following transactions, identify the effect on the accounting equation. Use "+" to indicate an increase and "-" to indicate a decrease. Use "A", "L", and "E" to indicate assets, liabilities, and equity, respectively. (a)

R.H. Long invested $100,000 in a sole proprietorship.

(b)

$10,000 of services were rendered to customers on account.

_______

(c)

Equipment was purchased for $50,000 on account.

_______

(d) A building was purchased for $100,000. $50,000 was paid in cash and the remainder was on account.

_______

(e)

The rental premium for a 12-month policy was paid in cash in advance.

_______

(f)

Paid the office secretary's salary.

_______

(g)

The amount owed on the building was paid.

_______

226) Bandu Company's accounts with the increases or decreases that occurred during this year are as follows: Increase Cash

$6,000

Accounts receivable Supplies

$(2,000) 15,000

Accounts payable Notes payable

Decrease

(8,000) 13,000

Except for Profit, an investment of $4,000, and a withdrawal of $12,000, no other items affected the capital account during the year. Using the balance sheet equation, calculate Profit for this year.

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227) Blu Disc paid its property owner $3,000 in cash for three months' rent in advance. Enter the appropriate amounts into the accounting equation format.

228)

Describe source documents and their purpose.

229) The bookkeeper of the Tide Company prepared a balance sheet immediately after each transaction was recorded. During September 2022, the first month of operation, the following balance sheets were prepared: Tide Company Balance Sheet September 1, 2022 Assets Cash

$50,000 Equity P. Bryant, capital ______

Total Assets

$50,000

50,000 ______

Total Liabilities and Equity

$50,000

Tide Company Balance Sheet September 5, 2022 Assets

Liabilities

Cash

$40,000

Land

5,000

Notes payable

25,000

Building

10,000

Total Liabilities

25,000

Trucks

10,000

Equity P. Bryant, capital

______

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40,000 ______

Total Assets

$65,000

Total Liabilities and Equity

$65,000

Tide Company Balance Sheet September 9, 2022 Assets

Liabilities

Cash

$40,000

Accounts Payable

$3,000

Office Supplies

3,000

Notes payable

25,000

Land

5,000

Total Liabilities

28,000

Building

10,000

Trucks

10,000

Equity P. Bryant, capital

______ Total Assets

$68,000

40,000 ______

Total Liabilities and Equity

$68,000

Tide Company Balance Sheet September 11, 2022 Assets

Liabilities

Cash

$36,000

Accounts Payable

$3,000

Office Supplies

3,000

Notes payable

15,000

Land

5,000

Total Liabilities

18,000

Building

10,000

Trucks

10,000

Equity

Office Furniture

4,000

P. Bryant, capital

______ Total Assets

$68,000

50,000 ______

Total Liabilities and Equity

$68,000

Tide Company Balance Sheet September 15, 2022 Assets

Liabilities

Cash

$26,000

Accounts Payable

$3,000

Office Supplies

3,000

Notes payable

5,000

Land

5,000

Total Liabilities

8,000

Building

10,000

Trucks

10,000

Equity

Office Furniture

4,000

P. Bryant, capital

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50,000

_______ Total Assets

$58,000

______ Total Liabilities and Equity

$58,000

Required: Describe the nature of each of the five transactions that took place during the month of September.

230) Prepare a balance sheet in good form for the Logitech Trucking Company from the following alphabetical list of the accounts on September 30, 2022: Logitech Trucking Company Accounts receivable

5,000

Accounts payable

8,000

Building

10,000

Cash

3,000

Notes payable

20,000

Office equipment

3,000

P. Dersch, capital

Trucks

45,000

231) Prepare a balance sheet in good form on December 31, 2022, for Draydon Insurance Co. from the following items:

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Prepaid insurance

$2,000

Commissions earned

37,500

Accounts payable

1,800

Accounts receivable

100

John Ace, capital

21,200

Office equipment

5,000

Advertising expense

1,100 57

Cash

3,100

Land

15,000

Note payable

22,000

Office supplies

300

Salaries expense

6,500

Salaries payable

600

Building

50,000

232) On January 1, 2022, the records of Anna Turcza's law practice showed equity at $37,200. Profit for 2020 was $18,200, and Anna withdrew $3,000 in cash during the year. Prepare the statement of changes in equity for 2022.

233)

Describe the relationship between sales (or revenues), expenses, and profit.

234) On September 15, Sally purchased a train ticket from A2Z Railway Inc. for a trip to Montreal in January of the following year. A2Z Railway Inc. records the amount of the train ticket as revenue in September. Which accounting principle has been violated? Explain.

235) Explain the key differences between a partnership and a limited liability partnership (LLP)

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SECTION BREAK. Answer all the part questions. 236) On November 1, 2022, Jill Luckovich began Jill Luckovich Interior Design Co. with an initial investment of $6,725, and on November 30 her records showed the following (alphabetically arranged) account balances: Accounts payable

$500

Office furniture

$5,025

Accounts receivable

1,250

Jill Luckovich, Withdrawals

100

Cash

2,300

Rent expense

2,200

Fees earned

4,400

Salaries expense

1,000

Notes payable

500

Telephone expense

250

Jill Luckovich, Capital

6,725

236.1) From the information given in reference, prepare an income statement for November.

236.2) From the information given in reference, prepare a statement of changes in equity for November.

236.3)

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From the information given in reference, prepare a November 30 balance sheet.

237) The records of Cohen's Toy Repair Co. on December 31, 2022, showed the following account balances: Accounts payable

$10,000

Office furniture

$11,000

Accounts receivable

2,250

Cohen, Withdrawals

1,000

Cash

7,000

Advertising expense

5,000

Revenues

32,000

Wages expense

10,200

Notes payable

700

Maintenance expense

11,250

Cohen, Capital

5,000

237.1)

From the information given in reference, prepare an income statement for 2022.

237.2) From the information given in reference, prepare a statement of changes in equity for 2022.

237.3)

From the information given in reference, prepare the year-end balance sheet.

238) Charlie Inuvic started a real estate business on January 1, 2022. Data for Inuvic Realty, a sole proprietorship, on December 31, 2020, the company's year-end, is below: Accounts payable

$5,000

Office furniture

$6,000

Accounts receivable

1,250

Inuvic, withdrawals

500

Cash

5,000

Advertising expense

7,000

Realty revenue

35,000

Wages expense

11,200

Notes payable

300

Maintenance expense

12,350

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Inuvic, Capital

3,000

238.1)

Prepare an income statement for the year ended December 31, 2022

238.2) 2022

Calculate the balance of the account "Charlie Inuvic, Capital", on December 31,

239) You are the accountant for Klemmer Corporation. At the company's year end, December 31, 2022, you discover there is an amount of $30,000 that has been earned by Klemmer but not yet billed to its customers by the year end. Laura Klemmer, the owner, tells you not to bill the customers as it is company policy not to bill customers until February 2022, well after the Christmas holidays. Klemmer has sales staff that are paid a bonus at year end on sales revenue billed.

239.1) What account(s) is (are) affected by not recording the transaction? Identify the account(s) as an asset, liability, revenue, or expense.

239.2) What accounting principle has been violated by not billing customers for the year ended December 31, 2022? Explain.

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239.3)

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Are there any ethical issues involved in not billing the customers? Explain.

Answer Key Test name: Chap 01_17ce_Test Bank 1) TRUE 2) TRUE 3) FALSE 4) FALSE 5) FALSE 6) TRUE 7) TRUE 8) FALSE 9) FALSE 10) FALSE 11) TRUE 12) FALSE 13) TRUE 14) TRUE 15) FALSE 16) TRUE 17) TRUE 18) FALSE 19) TRUE 20) TRUE 21) FALSE 22) TRUE 23) FALSE 24) TRUE 25) TRUE 26) TRUE Version 1

27) FALSE 28) FALSE 29) FALSE 30) TRUE 31) TRUE 32) FALSE 33) FALSE 34) TRUE 35) TRUE 36) FALSE 37) TRUE 38) TRUE 39) TRUE 40) FALSE 41) FALSE 42) TRUE 43) FALSE 44) TRUE 45) FALSE 46) TRUE 47) TRUE 48) FALSE 49) TRUE 50) TRUE 51) FALSE 52) FALSE 53) FALSE 54) TRUE 55) FALSE 56) FALSE Version 1

57) FALSE 58) FALSE 59) TRUE 60) TRUE 61) TRUE 62) FALSE 63) FALSE 64) FALSE 65) FALSE 66) FALSE 67) FALSE 68) FALSE 69) FALSE 70) TRUE 71) TRUE 72) FALSE 73) TRUE 74) FALSE 75) FALSE 76) FALSE 77) TRUE 78) TRUE 79) TRUE 80) TRUE 81) TRUE 82) TRUE 83) FALSE 84) TRUE 85) TRUE 86) E Version 1

87) A 88) C 89) C 90) B 91) B 92) C 93) D 94) B 95) E 96) C 97) D 98) C 99) C 100) B 101) D 102) D 103) D 104) D 105) B 106) A 107) B 108) A 109) B 110) B 111) B 112) E 113) E 114) C 115) B 116) E Version 1

117) B 118) D 119) A 120) A 121) B 122) D 123) B 124) D 125) D 126) A 127) E 128) C 129) E 130) C 131) C 132) B 133) B 134) D 135) B 136) D 137) C 138) B 139) A 140) B 141) E 142) D 143) C 144) C 145) E 146) B Version 1

147) E 148) A 149) B 150) B 151) E 152) C 153) A 154) C 155) C 156) D 157) D 158) B 159) E 160) B 161) C 162) E 163) D 164) A 165) A 166) D 167) A 168) E 169) E 170) E 171) B 172) D 173) A 174) B 175) B 176) B Version 1

177) B 178) A 179) C 180) D 181) A 182) D 183) B 184) E 185) C 186) Accounting is an information system. It provides organizations with the tools to identify, record, and communicate relevant information that faithfully represents of an organization's economic activities. Accounting helps organizations to better assess opportunities, products, investments, and social and community responsibilities. 187) The three forms of business organizations are sole proprietorships, partnerships, and corporations. 188) Separate legal status means that the shareholders are not personally liable for corporate acts and debts. It can enter into its own contracts, and it can buy, own, and sell property. Shareholders are legally distinct from the business and their loss is limited to whatever resources they have invested. Can raise resources from shareholders who are not active in managing the business 189) Proprietorship

Partnership

Corporation

Yes

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Yes

190) (1) d; (2) b, c, e, f, g; (3) d or f; (4) b; (5) b, d, f, g; (6) a; (7) b, d; (8) g 191) There are two types of users of accounting information. Internal users are individuals directly involved in managing and operating an organization. Internal user groups include research and development, purchasing, human resources, production, distribution, marketing, and servicing. They require information to improve the efficiency and effectiveness of an organization in delivering products and services. External users include shareholders, lenders, directors, customers, suppliers, regulators, lawyers, brokers, and the press. The information required depends on the kind of decision being made. 192) The purpose of accounting is to provide useful information for decision makers. For information to be useful, it must be complete, neutral, and free from bias. This requires ethical and socially responsible behaviour by accountants and managers in all phases of gathering, analyzing, and reporting financial information. 193) The traditional areas of accounting include financial accounting, managerial accounting, auditing, and taxation. Other opportunities include management advising, investigations, and planning. Work in related fields includes consulting, underwriting, appraisals and trading. 194) An internal auditor is employed within the organization for the purpose of evaluating the efficiency and effectiveness of organizational procedures. n external auditor performs an audit of the company's records at the request of the Board of Directors to protect shareholder interests. Version 1

195) (1) c, d; (2) b; (3) c; (4) a; (5) b, c; (6) c; (7) c; (8) a 196) (1) c; (2) a, b, d; (3) b, c; (4) a; (5) d; (6) b, d; (7) a; (8) d 197) Type of Business Organization Difference

Sole Proprietorship

Corporation

Equity section on the balance sheet is called:

Equity

Shareholders' equity

Distribution to owners are called:

Withdrawals

Dividends

When managers are also owners, their salaries are:

Not an expense

An expense

198) The statement of financial position, or balance sheet, is a listing of the types and amounts of assets, liabilities, and equity of a business at a specified point in time. The statement's purpose is to provide information that helps users understand the financial status of the business. 199) Liabilities are the debts of an entity. They represent claims or rights of creditors to be paid. Creditors can force an entity to liquidate its assets in order to satisfy their claims. Any "residual interest in the assets of an entity after deducting its liabilities" is equity (net assets). 200) The three types of activities reported on the statement of cash flows include (1) operating, (2) financing, and (3) investing. 201) Revenue should be recorded at the time that it is earned (generally triggered when the service is performed, or the product has been delivered), regardless of whether cash or another asset has been exchanged.

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202) Current cost. Current cost indicates the amount of cash required to acquire that asset or received to take on an equivalent liability today. Fair value. The asset or liability is reported at the amount of cash that would be received by selling the asset or paying off the liability in the normal course of business. Value in use (assets)/fulfillment value (liabilities). Assets are reported at the present value of future expected cash flows, after discounting to reflect the time value of money in terms of expected interest/inflation. 203) Historical cost is the most commonly adopted method to record accounting transactions. It requires that all transactions be recorded based on the actual cash amount received or paid. In the absence of cash, the cash equivalent amount of the exchange is recorded. 204) The going-concern principle means that financial statements reflect an assumption that the business will continue in operation instead of being closed or sold. Assets are therefore reported at historical cost rather than at liquidation value. 205) $106,000. The historical cost principle requires the acquisition of an asset to be recorded in the accounting records at cost. 206) $85,000. The historical cost principle requires the acquisition of an asset to be recorded in the accounting records at cost. 207) 1) Reporting entity principle. April should refund the $350 to the business, or the business should record this as a withdrawal. In the future, she should use a personal cheque to pay for day care. 2) Going-concern principle. April's Furniture Emporium is not going out of business. The business is just closing for vacation. She should hold an inventory reduction sale or other appropriate sale. 3)

Currency principle. The invoice should be recorded in Canadian dollars.

Revenue recognition principle. Since the table has not been delivered, revenue should not be recognized. The $1,000 should be placed in an account such as Deposits Received from Customers. (Unearned Revenue)

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208) The accounting equation is stated as assets = liabilities + equity. Assets are economic resources controlled by a business. Creditors' claims are called liabilities. The owner's claim to assets is called equity. The accounting equation shows that the ownership of business assets can be shared between creditors and owners. 209) $70,000 210) $250,000 211) $410,000 212) Assets would have increased $44,000. Assets = Liabilities + Equity + $44,000 = + $65,000 + (-$21,000) 213) (a) No, (b) Yes, (c) Yes, (d) Yes, (e) No, (f) Yes, (g) No, (h) Yes 214) A business transaction is an exchange of economic consideration between two parties that causes a change in assets, liabilities, or equity. A business event is an activity that does not involve an exchange of economic consideration between two parties, and therefore does not affect the accounting equation. 215) Beginning equity = $40,000 Ending equity = $220,000 Assets = Liabilities + Equity Beginning

$200,000

=$160,000

+$40,000

Change

+160,000

=(20,000)

+180,000

Ending

$360,000

=$140,000

+$220,000

216) Assets would have increased $40,000. Assets = Liabilities + Equity + $42,000 = $60,000 + (-$18,000) 217) Assets = Liabilities + Equity $10,000 = 0 + $10,000

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218) Assets = Liabilities + Equity 6,000 = 0 + 0-6,000 219) Assets = Liabilities + Equity + $3,000 = + $3,000 + 0 220) Assets = Liabilities + Equity + $5,000 = 0 + + $5,000 221) Assets = Liabilities + Equity - $2,000 = 0 + - $2,000 222) Assets = Liabilities + Equity + $5,000 = 0 + 0 - $5,000 = 0 + 0 223) Assets would decrease $2,000, liabilities would decrease $2,000, and equity would not change. Assets = Liabilities + Equity - $2,000 = $2,000 + $0 224) Date

Assets

Liabilities

Equity

September 1

September 2

I,D

September 3

I,D

September 4

September 8

I,D

September 15

September 20

I,D

September 30

225) (a) +A +E (b) +A +E (c) +A, +L (d) +A, -A, +L (e) +A -A (f) -A -E (g) -A -L

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226) In order to maintain the balance sheet equation, Assets = Liabilities + Equity, Profit must be $22,000. Assets = Liabilities + Equity + 19,000 + 5,000 + 14,000 Change in assets: 6,000 - 2,000 + 15,000 = 19,000 Change in liabilities: 13,000 - 8,000 = 5,000 Change in equity: 4,000 - 12,000 + X = 14,000 X = 22,000 227) Assets = Liabilities + Equity Cash + Prepaid Rent = Liabilities + Equity - $3,000 + $3,000 = 0 + 0 228) Source documents are the business papers that identify and describe transactions and events. They are used to prevent errors, to verify transactions, and to serve as the basis for internal control. Source documents support the qualitative characteristic of verifiability and provide objective evidence of transactions. Examples of source documents include cheques, invoices, sales receipts, credit card statements, and bank statements. 229) Sept

1 5 9 11 15

Sept 1

Owner invested $50,000 cash in the company.

Land, building, and trucks were purchased for $10,000 cash plus a $25,000 note payable

Office supplies were purchased for $3,000 on account.

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Office furniture was purchased for $4,000 cash.

$10,000 of the note payable was paid.

230) Logitech Trucking Company Balance Sheet September 30, 2022 Assets

Liabilities

Cash

$3,000

Accounts payable

$8,000

Accounts receivable

5,000

Notes payable

20,000

Office equipment

3,000

Total Liabilities

28,000

Building

10,000

Equity

Trucks

45,000

P. Dersch, capital

______ Total Assets

$66,000

38,000 _______

Total Liabilities and Equity

$66,000

231) Draydon Insurance Co. Balance Sheet December 31, 2022 Assets

Liabilities

Cash

$3,100

Accounts payable

$1,800

Accounts receivable

100

Salaries payable

600

Office supplies

300

Note payable

22,000

Prepaid insurance

2,000

Office equipment

5,000

Total Liabilities

24,400

Land

15,000

Equity

Building

50,000

John Ace, capital

51,100

Total Liabilities and Equity

$75,500

______ Total Assets

$75,000

232)

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Anna Turcza, Law Statement of Changes in Equity for the Year Ended December 31, 2022 Anna Turcza, capital, Jan 1

$37,200

Add: Profit

18,200

Total

$55,400

Less: Withdrawals by owner

3,000

Anna Turcza, capital, Dec 31

$52,400

233) Sales, or revenues, are the amounts earned from selling products and services. Expenses are the costs incurred to generate sales or revenues. Sales (revenues) less expenses equals profits (profit). 234) The revenue recognition principle has been violated. Generally accepted accounting principles require that revenue be recorded at the time that it is earned by satisfying the performance obligation of the contract (service is performed when Sally takes the train ride in January), regardless of when the ticket purchase took place. 235) In a partnership, partners are usually subject to unlimited liability, meaning they are personally responsible for the debts of the business. In a limited liability partnership (LLP) liability is limited to the individual partner that is sued; the remaining partner's assets are not at risk. A limited partner's liability is capped at the amount of capital they contribute. 236) Section Break 236.1) Jill Luckovich Interior Design Co. Income Statement For the Month Ended November 30, 2022 Revenue: Fees earned

$4,400

Operating Expenses:

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Rent expense

$2,200

Salaries expense

1,000

Telephone expense

250

Profit

$3,450 $950

236.2) Jill Luckovich Interior Design Co. Statement of Changes in Equity For the Month Ended November 30, 2022 Jill Luckovich, Capital, Nov 1

$6,725

Add: Profit

950

Total

$7,675

Less: Withdrawals by owner

100

Jill Luckovich, Capital, Nov 30

$7,575

236.3) Jill Luckovich Interior Design Co. Balance Sheet November 30, 2022 Assets

Liabilities

Cash

$2,300

Accounts payable

$500

Accounts receivable

1,250

Notes payable

500

Office furniture

$5,025

Total Liabilities

1,000

Equity Jill Luckovich, Capital

7,575

_________ Total Assets

$8,575

Total Liabilities and $8,575 Equity

237) Section Break 237.1) Cohen’s Toy Repair Co. Income Statement For the Year Ended December 31, 2022

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Revenue: Revenues

$32,000

Operating Expenses: Advertising expense

$5,000

Wage expense

10,200

Maintenance expense

11,250

Profit

$26,450 $5,550

237.2) Cohen’s Toy Repair Co. Statement of Changes in Equity For the Year Ended December 31, 2022 Cohen, Capital, Dec 1

$5,000

Add: Profit

5,550

Total

$10,550

Less: Withdrawals by owner

1,000

Cohen, Capital, Dec 31

$9,550

237.3) Cohen’s Toy Repair Co. Balance Sheet December 31, 2022 Assets

Liabilities

Cash

$7,000

Accounts payable

$10,000

Accounts receivable

2,250

Notes payable

700

Office furniture

$11,000

Total Liabilities

10,700

Equity Cohen, Capital

9,550

Total Liabilities and Equity

$20,250

________ Total Assets

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$20,250

238) Section Break 238.1) Inuvic RealtyIncome Statement for the Year Ended December 31, 2022 Revenue: Realty Revenue

$35,000

Operating Expenses: Advertising expense $7,000 Wages expense

11,200

Maintenance expense

12,350

Profit

$30,550 $4,450

238.2) Inuvic Realty Statement of Changes in Equity for the Year Ended December 31, 2022 Inuvic, Capital, Dec 1

$3,000

Add: Profit

4,450

Total

$7,450

Less: Withdrawals by owner

500

Inuvic, Capital, Dec 31

$6,950

239) Section Break 239.1) Accounts receivable - Asset; Sales Revenue - Revenue 239.2) Revenue recognition principle was violated. Revenue was earned but not yet recognized as sales revenue in the accounting records.

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239.3) Financial information not presented on the financial statements is misleading in that it does not accurately state the company's financial position at year end. Specifically, sales revenue on the income statement is understated which also understates the bonus payment due to sales staff. Accountants need to include revenue earned by a company whether cash is collected or not.

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CHAPTER 2: ALGO MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 1) Edison Consulting received a $440 utilities bill and immediately paid it. Edison's general journal entry to record this transaction will include a: A) Debit to Utilities Expense for $440. B) Credit to Accounts Payable for $440. C) Debit to Cash for $440. D) Credit to Utilities Expense for $440. E) Debit to Accounts Payable for $440.

2) GreenLawn Company provides landscaping services to clients. On May 1, a customer paid GreenLawn $76,000 for 6-months services in advance. GreenLawn’s general journal entry to record this transaction will include a: A) Debit to Unearned Revenue for $76,000. B) Credit to Accounts Receivable for $76,000. C) Credit to Cash for $76,000. D) Credit to Unearned Revenue for $76,000. E) Debit to Accounts Receivable for $76,000.

3) Victor Cruz contributed $73,000 in cash and land worth $136,000 to open a new business, VC Consulting. Which of the following general journal entries will VC Consulting make to record this transaction? A) Debit Accounts Payable $209,000; Credit Cruz, Capital, $209,000. B) Credit Cash and Land, $209,000; Credit Cruz, Capital, $209,000. C) Debit Cash $73,000; Debit Land $136,000; Credit Cruz, Capital, $209,000. D) Debit Cruz, Capital, $209,000; Credit Cash $73,000; Credit Land, $136,000. E) Debit Cruz, Capital, $209,000; Credit Assets, $209,000.

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4) Green Cleaning purchased $560 of office supplies on credit. The company’s policy is to initially record prepaid and unearned items in balance sheet accounts. Which of the following general journal entries will Green Cleaning make to record this transaction? A) Debit Office supplies expense, $560; credit Cash, $560. B) Debit Cash, $560; credit Office supplies, $560. C) Debit Office supplies, $560; credit Cash, $560. D) Debit Office supplies, $560; credit Accounts payable, $560. E) Debit Accounts payable, $560; credit Office supplies, $560.

5) Alicia Tax Services paid $610 to settle an account payable. Which of the following general journal entries will Alicia Tax Services make to record this transaction? A) Debit Office supplies expense, $610; credit Cash, $610. B) Debit Cash, $610; credit Office supplies, $610. C) Debit Office supplies, $610; credit Cash, $610. D) Debit Office supplies, $610; credit Accounts payable, $610. E) Debit Accounts payable, $610; credit Cash, $610.

6) A law firm billed a client $3,200 for work performed in the current month. Which of the following general journal entries will the firm make to record this transaction? A) Debit Accounts Receivable, $3,200; credit Unearned Revenue, $3,200. B) Debit Cash, $3,200; credit Unearned Revenue, $3,200. C) Debit Legal Revenue, $3,200; credit Accounts Receivable, $3,200. D) Debit Accounts Receivable, $3,200; credit Legal Revenue, $3,200. E) Debit Cash, $3,200; credit Accounts Receivable, $3,200.

7) A law firm collected $2,300 on account for work performed and billed in the previous month. Which of the following general journal entries will the firm make to record this collection of cash?

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A) Debit Accounts Receivable, $2,300; credit Unearned Revenue, $2,300. B) Debit Cash, $2,300; credit Unearned Revenue, $2,300. C) Debit Legal Revenue, $2,300; credit Accounts Receivable, $2,300. D) Debit Accounts Receivable, $2,300; credit Legal Revenue, $2,300. E) Debit Cash, $2,300; credit Accounts Receivable, $2,300.

8) A law firm collected $2,900 in advance for work to be performed in three months. Which of the following general journal entries will the firm make to record this transaction? A) Debit Accounts Receivable, $2,900; credit Unearned Revenue, $2,900. B) Debit Cash, $2,900; credit Unearned Revenue, $2,900. C) Debit Legal Revenue, $2,900; credit Accounts Receivable, $2,900. D) Debit Accounts Receivable, $2,900; credit Legal Revenue, $2,900. E) Debit Cash, $2,900; credit Accounts Receivable, $2,900.

9) Specter Consulting purchased $7,300 of supplies and paid cash immediately. Which of the following general journal entries will Specter Consulting make to record this transaction? A) Account Title Accounts Payable

Debit

Credit

7,300

Supplies

7,300

B) Account Title Cash

Debit

Credit

7,300

Supplies

7,300

C) Account Title

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Debit

Credit

Supplies

7,300

Cash

7,300

D) Account Title Supplies

Debit

Credit

7,300

Accounts Payable

7,300

E) Account Title Supplies Expense

Debit

Credit

7,300

Accounts Payable

7,300

10) Jose Consulting paid $680 cash for utilities for the current month. Determine the general journal entry that Jose Consulting will make to record this transaction. A) Account Title Utilities Expense

Debit

Credit

680

Cash

680

B) Account Title Cash

Debit

Credit

680

Utilities Expense

680

C) Account Title

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Debit

Credit

Cash

680

Accounts Payable

680

D) Account Title

Debit

Utilities Expense

Credit

680

Accounts Payable

680

E) Account Title Prepaid Utilities

Debit

Credit 680

Accounts Payable

680

11) Ted Catering received $860 cash in advance from a customer for catering services to be provided in three months. Determine the general journal entry that Ted Catering will make to record the cash receipt. A) Account Title Unearned Revenue

Debit

Credit

860

Catering Revenue

860

B) Account Title Cash Accounts Receivable

Debit

Credit

860 860

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Account Title Cash

Debit

Credit

860

Unearned Revenue

860

D) Account Title Cash

Debit

Credit

860

Catering Revenue

860

E) Account Title Accounts Receivable

Debit

Credit

860

Catering Revenue

860

12) Adriana Graphic Design receives $2,200 from a client billed in a previous month for services provided. Which of the following general journal entries will Adriana Graphic Design make to record this transaction? A) Account Title Cash

Debit

Credit

2,200

Accounts Receivable

2,200

B) Account Title Cash Unearned Revenue

Debit

Credit

2,200 2,200

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Account Title Accounts Receivable

Debit

Credit

2,200

Unearned Revenue

2,200

D) Account Title Accounts Payable

Debit

Credit

2,200

Design Revenue

2,200

E) Account Title Accounts Receivable

Debit

Credit

2,200

Cash

2,200

13) Russell Company collected cash of $480 immediately after providing consulting services to a client. Which of the following general journal entries will Russell Company make to record this transaction? A) Account Title Accounts Receivable

Debit

Credit

480

Cash

480

B) Account Title Cash Consulting Revenue

Debit

Credit

480 480

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Account Title

Debit

Cash

Credit

480

Accounts Receivable

480

D) Account Title Unearned Revenue

Debit

Credit

480

Cash

480

E) No journal entry is required. 14) Silvia's Studio provided $310 of dance instruction and rented out its dance studio to the same client for another $180. The client paid cash immediately. Identify the general journal entry below that Silvia’s Studio will make to record the transaction. A) Account Title

Debit

Credit

Rental Revenue

180

Instruction Revenue

310

Cash

490

B) Account Title

Debit

Accounts Payable

Credit

490

Rental Revenue

180

Instruction Revenue

310

C) Account Title

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Debit

Credit

Cash

490

Rental Revenue

180

Instruction Revenue

310

D) Account Title

Debit

Rental Revenue

Credit

180

Instruction Revenue

310

Accounts Receivable

490

E) Account Title

Debit

Unearned Revenue

Credit

490

Rental Revenue

180

Instruction Revenue

310

15) Geoff Parker, the owner of Parker Tax Services, started the business by investing $12,000 cash and a building worth $22,000. Identify the general journal entry below that Parker Tax Services will make to record the transaction. A) Account Title Cash

Debit

Credit

12,000

G. Parker, Capital

12,000

B) Account Title G. Parker, Capital

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Debit

Credit

34,000

Cash

12,000

Building

22,000

C) Account Title

Debit

Cash

12,000

Building

22,000

G. Parker, Capital

Credit

34,000

D) Account Title Notes Payable

Debit

Credit

34,000

G. Parker, Capital

34,000

E) Account Title G. Parker, Withdrawals

Debit

Credit

34,000

G. Parker, Capital

34,000

16) Matthew Martin, the owner of Innovation Consulting, started the business by investing $52,000 cash. Identify the general journal entry below that Innovation Consulting will make to record the transaction. A) Account Title Cash M. Martin, Capital

Debit

Credit

52,000 52,000

B) Version 1

Account Title M. Martin, Capital

Debit

Credit

52,000

Cash

52,000

C) Account Title Accounts Receivable

Debit

Credit

52,000

Cash

52,000

D) Account Title Investments

Debit

Credit

52,000

M. Martin, Capital

52,000

E) Account Title Cash

Debit

Credit

52,000

Note Payable

52,000

17) On May 31, the Cash account of Teasel had a normal balance of $5,900. During May, the account was debited for a total of $13,100 and credited for a total of $12,400. What was the balance in the Cash account at the beginning of May? A) A $0 balance. B) A $6,600 debit balance. C) A $6,600 credit balance. D) A $5,200 debit balance. E) A $5,200 credit balance.

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18) On April 30, Gomez Services had an Accounts Receivable balance of $22,400. During the month of May, total credits to Accounts Receivable were $56,800 from customer payments. The May 31 Accounts Receivable balance was $17,000. What was the amount of credit sales during May? A) $5,400. B) $51,400. C) $56,800. D) $62,200. E) $35,200.

19) During the month of February, Rubio Services had cash receipts of $7,700 and cash payments of $9,000. The February 28 cash balance was $2,200. What was the February 1 beginning cash balance? A) $900. B) $1,300. C) $3,500. D) $0. E) $5,300.

20) The following transactions occurred during July: 1.Received $980 cash for services provided to a customer during July. 2.Received $3,600 cash investment from Bob Johnson, the owner of the business. 3.Received $830 from a customer in partial payment of his account receivable which arose from sales in June. 4.Provided services to a customer on credit, $455. 5.Borrowed $6,800 from the bank by signing a promissory note. 6.Received $1,330 cash from a customer for services to be performed next year. What was the amount of revenue for July? A) $980. B) $1,435. C) $2,765. D) $3,595. E) $13,540.

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21) Marco Nelson opened a frame shop and completed these transactions: 1.Marco started the shop by investing $41,100 cash and equipment valued at $19,100. 2.Purchased $180 of office supplies on credit. 3.Paid $2,300 cash for the receptionist's salary. 4.Sold a custom frame service and collected $5,600 cash on the sale. 5.Completed framing services and billed the client $310. What was the balance of the cash account after these transactions were posted? A) $11,020. B) $11,330. C) $44,400. D) $44,530. E) $44,710.

22) At the beginning of January of the current year, Sorrel Company’s ledger reflected a normal balance of $68,000 for accounts receivable. During January, the company collected $18,000 from customers on account and provided additional services to customers on account totaling $14,100. Additionally, during January one customer paid Mikey $6,600 for services to be provided in the future. At the end of January, the balance in the accounts receivable account should be: A) $70,700. B) $64,100. C) $3,900. D) $71,900. E) $65,300.

23) During the month of March, Harley's Computer Services made purchases on account totaling $45,700. Also, during the month of March, Harley was paid $11,300 by a customer for services to be provided in the future and paid $38,000 of cash on its accounts payable balance. If the balance in the accounts payable account at the beginning of March was $78,400, what is the balance in accounts payable at the end of March?

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A) $86,100. B) $97,400. C) $7,700. D) $74,800. E) $6,000.

24) On January 1 of the current year, Jimmy's Sandwich Company reported owner's capital totaling $131,500. During the current year, total revenues were $113,000 while total expenses were $102,500. Also, during the current year Jimmy withdrew $37,000 from the company. No other changes in equity occurred during the year. The change in owner's capital during the year was: A) A decrease of $26,500. B) An increase of $26,500. C) An increase of $47,500. D) A decrease of $47,500. E) An increase of $81,500

25) Andrea Apple opened Apple Photography on January 1 of the current year. During January, the following transactions occurred and were recorded in the company's books: 1.Andrea invested $13,700 cash in the business. 2.Andrea contributed $22,000 of photography equipment to the business. 3.The company paid $2,300 cash for an insurance policy covering the next 24 months. 4.The company received $5,900 cash for services provided during January. 5.The company purchased $6,400 of office equipment on credit. 6.The company provided $2,950 of services to customers on account. 7.The company paid cash of $1,700 for monthly rent. 8.The company paid $3,300 on the office equipment purchased in transaction #5 above. 9.Paid $295 cash for January utilities. Based on this information, the balance in the cash account at the end of January would be:

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A) $44,050. B) $12,005. C) $19,300. D) $15,650. E) $14,955.

26) Andrea Apple opened Apple Photography on January 1 of the current year. During January, the following transactions occurred and were recorded in the company's books: 1.Andrea invested $14,600 cash in the business. 2.Andrea contributed $31,000 of photography equipment to the business. 3.The company paid $3,200 cash for office furniture. 4.The company received $6,800 cash for services provided during January. 5.The company purchased $7,300 of office equipment on credit. 6.The company provided $3,850 of services to customers on account. 7.The company paid cash of $2,600 for monthly rent. 8.The company paid $4,200 on the office equipment purchased in transaction #5 above. 9.Paid $385 cash for January utilities. Based on this information, the amount reported as Owner Capital on the balance sheet at monthend would be: A) $46,800. B) $52,400. C) $44,350. D) $53,265. E) $41,765.

27) A bookkeeper has debited an asset account for $4,100 and credited a liability account for $2,300. Which of the following would be an incorrect way to complete the recording of this transaction?

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A) Credit another asset account for $1,800. B) Credit another liability account for $1,800. C) Credit a revenue account for $1,800. D) Credit the owner's capital account for $1,800. E) Debit another asset account for $1,800.

28) At year-end, a trial balance showed total credits exceeding total debits by $6,050. This difference could have been caused by: A) An error in the general journal where a $6,050 increase in Accounts Receivable was recorded as an increase in Cash. B) A net income of $6,050. C) The balance of $60,500 in Accounts Payable being mistakenly entered in the trial balance as $6,050. D) The balance of $6,820 in the Office Equipment account being mistakenly entered on the trial balance as a debit of $770. E) An error in the general journal where a $6,050 increase in Accounts Payable was mistakenly recorded as a decrease in Accounts Payable.

29)

Identify the item below that would cause the trial balance to not balance?

A) A $1,100 collection of an account receivable was erroneously posted as a debit to Accounts Receivable and a credit to Cash. B) The purchase of office supplies on account for $3,275 was erroneously recorded in the journal as $2,375 debit to Office Supplies and $2,375 credit to Accounts Payable. C) A $100 cash receipt for the performance of a service was not recorded at all. D) The purchase of office equipment for $1,450 was posted as a debit to Office Supplies and a credit to Cash for $1,450. E) The cash payment of a $850 account payable was posted as a debit to Accounts Payable and a debit to Cash for $850.

30) The credit purchase of a new oven for $5,500 was posted to Kitchen Equipment as a $5,500 debit and to Accounts Payable as a $5,500 debit. What effect would this error have on the trial balance?

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A) The total of the Debit column of the trial balance will exceed the total of the Credit column by $5,500. B) The total of the Credit column of the trial balance will exceed the total of the Debit column by $5,500. C) The total of the Debit column of the trial balance will exceed the total of the Credit column by $11,000. D) The total of the Credit column of the trial balance will exceed the total of the Debit column by $11,000. E) The total of the Debit column of the trial balance will equal the total of the Credit column.

31)

Identify which error will cause the trial balance to be out of balance.

A) A $430 cash salary payment posted as a $430 debit to Cash and a $430 credit to Salaries Expense. B) A $330 cash receipt from a customer in payment of her account posted as a $330 debit to Cash and a $33 credit to Accounts Receivable. C) A $190 cash receipt from a customer in payment of her account posted as a $190 debit to Cash and a $190 credit to Cash. D) A $119 cash purchase of office supplies posted as a $119 debit to Office Equipment and a $119 credit to Cash. E) An $1,950 prepayment from a customer for services to be rendered in the future was posted as an $1,950 debit to Unearned Revenue and an $1,950 credit to Cash.

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Answer Key Test name: Chap 02_17ce_Test Bank_Algo 1) A 2) D 3) C 4) D 5) E 6) D 7) E 8) B 9) C 10) A 11) C 12) A 13) B 14) C 15) C 16) A 17) D Beginning Cash Balance + Debits − Credits = Ending Cash Balance Beginning Cash Balance + $13,100 − $12,400 = $5,900 Beginning Cash Balance + $700 = $5,900; Beginning Balance = $5,200 debit balance Cash Debit

Credit 5,200 13,100 12,400

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5,900

18) B Beginning Accounts Receivable Balance + Credit Sales (Debits) − Customer Payments (Credits) = Ending Accounts Receivable Balance $22,400 + Credit Sales (Debits) − $56,800 = $17,000 Credit Sales (Debits) − $34,400 = $17,000 Credit Sales (Debits) = $51,400 Accounts Receivable Debit Credit 22,400 51,400 56,800 17,000

19) C Beginning Cash Balance + Cash Receipts − Cash Payments = Ending Cash Balance Beginning Cash Balance + $7,700 − $9,000 = $2,200 Beginning Cash Balance − $1,300 = $2,200 Beginning Cash Balance = $3,500 Cash Debit

Credit 3,500 7,700 9,000 2,200

20) B Revenues = $980 (from #1) + $455 (from #4) = $1,435 21) C

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Ending Cash Balance = $41,100 (#1) − $2,300 (#3) + $5,600 (#4) = $44,400 22) B Beginning Accounts Receivable Balance + Services on Account − Collections from Customers = Ending Accounts Receivable Balance $68,000 + $14,100 − $18,000 = Ending Accounts Receivable Balance Ending Accounts Receivable = $64,100 Accounts Receivable Debit Credit 68,000 14,100 18,000 64,100

23) A Beginning Accounts Payable Balance + Purchases on Account − Payments on Accounts = Ending Accounts Payable Balance $78,400 + $45,700 − $38,000 = Ending Accounts Payable Balance Ending Accounts Payable = $86,100 Accounts Payable Debit Credit 78,400 38,000

45,700 86,100

24) A

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Beginning Owner's Capital + Revenues − Expenses − Withdrawals = Ending Owner's Capital $131,500 + $113,000 − $102,500 − $37,000 = Ending Owner's Capital Ending Owner's Capital = $105,000 Change in Equity = Beginning Owner's Capital − Ending Owner's Capital Change in Equity = $131,500 − $105,000 = $26,500 Decrease 25) B Ending Cash Balance = $13,700 (#1) − $2,300 (#3) + $5,900 (#4) − $1,700 (#7) − $3,300 (#8) − $295 (#9) = $12,005 26) D Ending Capital Balance = $14,600 (#1) + $31,000 (#2) + $6,800 (#4) + $3,850 (#6) − $2,600 (#7) − $385 (#9) = $53,265 27) E 28) D 29) E 30) C 31) B

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CHAPTER 2 TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) The first step in the accounting cycle is to analyze transactions. ⊚ ⊚

true false

2) An account is a detailed record of increases and decreases in a specific asset, liability, or equity item. ⊚ ⊚

A ledger is a type of account. ⊚ ⊚

true false

Goods sold on credit to customers are called accounts payable. ⊚ ⊚

true false

5) A prepaid expense occurs when a company pays in advance for a service or goods for which the benefit extends beyond the current accounting period. ⊚ ⊚

Withdrawals are a type of transaction that affects equity. ⊚ ⊚

true false

A building is an example of an asset that does not provide any benefit to its owner.

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⊚ ⊚

true false

8) Since the value of land typically diminishes over time, the cost of land is separated from the cost of buildings located on the land. ⊚ ⊚

true false

Unearned revenues are assets, because a service or product is owed to the customer. ⊚ ⊚

true false

10) Cash withdrawn by the owner of an unincorporated business in the form of a monthly salary should be treated as an expense of the business. ⊚ ⊚

true false

11) When a company sells services in which cash will not be received until some future date, the company should credit an unearned revenues account for the amount charged to the customer. ⊚ ⊚

12)

true false

A T-Account is a formal account frequently used in business. ⊚ ⊚

true false

13) An account balance is the difference between the increases and decreases recorded in an account.

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⊚ ⊚

true false

14) The left side of a T-account is always the credit side, while the right side is always the debit side. ⊚ ⊚

15)

true false

The accounting equation is expressed as assets = liabilities - equity. ⊚ ⊚

true false

16) In the accounting equation assets = liabilities + equity, a debit always means an increase to an account and a credit always means a decrease to an account. ⊚ ⊚

17)

true false

In a double-entry accounting system, total debits must always equal total credits. ⊚ ⊚

true false

18) Double-entry accounting means every transaction affects and is recorded in at least two accounts ⊚ ⊚

19)

true false

Debits increase asset and expense accounts. ⊚ ⊚

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true false

20)

A Credit to an account always increases its balance. ⊚ ⊚

21)

To credit an asset account means to decrease it. ⊚ ⊚

22)

true false

Increases in liabilities are recorded as debits. ⊚ ⊚

true false

23) Increases to the Cash account are recorded as credits and decreases to the Cash account are recorded as debits ⊚ ⊚

24)

true false

A revenue account normally has a debit balance. ⊚ ⊚

true false

25) Investments in the company made by the owner are credited to owner's capital because they increase equity. ⊚ ⊚

true false

26) Because they decrease equity, withdrawals made by a business owner are credited to his/her Withdrawals account.

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⊚ ⊚

true false

27) Asset accounts normally have credit balances and expense accounts normally have debit balances. ⊚ ⊚

true false

28) The normal balance of an account refers to the debit or credit side where increases are recorded. ⊚ ⊚

29)

The chart of accounts is a list of all the accounts used by a company. ⊚ ⊚

30)

true false

A chart of accounts lists the accounts and balances at a specific time. ⊚ ⊚

31)

true false

Purchasing supplies on credit increases assets while decreasing liabilities. ⊚ ⊚

true false

32) Prepaid Insurance is an expense account which is used for recording expenses that have been paid in advance. ⊚ ⊚

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true false

33) A purchase of a business expense item on account should be recorded with a debit to an expense account and a credit to Accounts Payable. ⊚ ⊚

true false

34) If a company purchases land, paying part with cash and issuing a note payable for the balance, the journal entry to record this transaction will include a debit to Cash. ⊚ ⊚

true false

35) If a company sells products and receives from the customer a formal written promise to pay a definite sum of money on demand or on a defined future date (or dates), the seller should debit the promised amount to Accounts Receivable. ⊚ ⊚

true false

36) A transaction that decreases an asset account and increases a liability account must also affect another account. ⊚ ⊚

true false

37) When a business sends a bill for $200 to a customer for services rendered, the journal entry to record this transaction will include a $200 credit to Accounts Receivable. ⊚ ⊚

true false

38) A transaction that increases an asset account and decreases a liability account must also affect another account.

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⊚ ⊚

true false

39) Step Two of the accounting cycle requires that we record transactions in a record called a journal. ⊚ ⊚

40)

true false

A compound journal entry usually affects three or more accounts. ⊚ ⊚

true false

41) A general journal entry usually includes information about the date of a transaction, titles of affected accounts, dollar amount of each debit and credit, and an explanation of the transaction. ⊚ ⊚

true false

42) Posting is the process of copying the debit and credit amounts from a journal to the general ledger accounts. ⊚ ⊚

true false

43) Since all figures are eventually posted to the ledger, the posting reference column in a journal is not necessary. ⊚ ⊚

true false

44) An abnormal balance in an account refers to a balance on the side where decreases are recorded.

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⊚ ⊚

45)

true false

The trial balance is a list of the accounts that have balances in the ledger. ⊚ ⊚

true false

46) A trial balance that is in balance is proof that no errors were made in journalizing the transactions, posting to the ledger, and preparing the trial balance. ⊚ ⊚

true false

47) If an account was incorrectly debited for $300 instead of a credit for $300, the account is out of balance by $300. ⊚ ⊚

true false

48) On a trial balance, equality of the total debit balance and the total credit balance guarantees the absence of errors. ⊚ ⊚

49)

true false

The total dollar value of all debits and credits recorded in a journal entry must be equal. ⊚ ⊚

true false

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 50) The accounting cycle begins with

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A) preparing financial statements and other reports B) analysis of economic events and recording their effects C) posting to the ledger D) presentation of financial information to decision makers E) None of the choices are correct.

51) A place or location within an accounting system in which the increases and decreases in a specific asset, liability, or equity item is recorded and stored is called a(n) A) journal B) ledger C) trial balance D) account E) chart of accounts

52) An account used to record the owner's investments in the business plus any more or less permanent changes in the equity is called a(n) A) withdrawals account B) capital account C) asset account D) expense account E) revenue account

53) The account sometimes referred to as the owner's personal account or drawing account is called a(n) A) revenue account B) withdrawals account C) capital account D) expense account E) liability account

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54)

Which of the following statements is correct?

A) When an insurance premium is paid in advance, the payment is normally recorded in an asset account called Prepaid Insurance. B) Goods and services are commonly sold to customers based on oral or implied promises of future payment, called promissory notes. C) Increases and decreases in cash are always recorded in the equity account. D) An account called Land is commonly used to record increases and decreases in the land and buildings owned by a business. E) None of the choices are correct.

55)

Unearned revenues are A) revenues that have been earned and received B) revenues that have been earned but not yet collected C) liabilities created by advance cash payments from customers for products or services D) recorded as an asset in the accounting records E) increases to owners' equity

56)

What are prepaid expenses? A) Payments made for economic benefits that never expire B) Classified as liabilities on the balance sheet C) Generally, all combined into one account called "Miscellaneous Expenses" D) Assets created by payments for economic benefits that are not used up until later E) Always debited to an expense account

57)

Which of the following statements is correct?

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A) The left side of a T-account is the credit side. B) Entries that decrease asset and expense accounts, or increase liability, equity, and revenue accounts are posted as debits. C) The left side of a T-account is the debit side. D) The right side of a T-account is the debit side. E) Entries that increase asset, expense, and revenue accounts are posted as debits.

58) An unconditional written promise to pay a definite sum of money on demand or on a defined future date (or dates) is a(n) A) unearned revenue B) prepaid expense C) account payable D) notes receivable E) account receivable

59) What is a simple account form widely used in accounting education to illustrate how debits and credits work is called? A) Withdrawals account B) Capital account C) Ledger D) T-account E) Balance column account

60)

An account balance is

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A) the total of the credit side of the account B) the total of the debit side of the account C) the difference between the increases (including the beginning balance) and decreases recorded in the account D) the same as the balance sheet equation E) not used in the real-world

61)

A record of all accounts used by a business is called a A) journal B) book of original entry C) general journal D) trial balance E) ledger

62)

The right side of a T-account is a(n) A) debit B) increase C) credit D) decrease E) account balance

63)

What is double-entry accounting?

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A) An accounting system that disregards the accounting equation, A = L + E B) An accounting system that records the effects of transactions and other events in at least two accounts with equal debits and credits C) An accounting system in which each transaction affects and is recorded in two or more accounts with unequal debits and equal credits D) An accounting system in which the sum of the debit account balances never equals the sum of the credit account balances E) An accounting system in which errors never occur

64)

A debit is used to record A) an increase in a liability account B) a decrease in an asset account C) a decrease in the withdrawals account D) an increase in an asset account E) an increase in a revenue account

65)

Of the following accounts, the one that normally has a debit balance is A) accounts payable B) accounts receivable C) Ted Neal, capital D) sales revenue E) unearned revenue

66)

Of the following accounts, the one that normally has a credit balance is A) cash B) office equipment C) sales salaries payable D) Ted Neal, withdrawals E) sales salaries expense

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67)

Which of the following statements is incorrect? A) The normal balance of the accounts receivable account is a debit. B) The normal balance of the owner's withdrawals account is a debit. C) The normal balance of an unearned revenues account is a credit. D) The normal balance of an expense account is a credit. E) The normal balance of a revenue account is a credit.

68)

A credit is used to record A) an increase in an expense account B) an increase in an asset account C) an increase in an unearned revenue account D) a decrease in a revenue account E) All of the choices are correct.

69)

A debit entry A) increases asset and expense accounts B) increases liability and equity accounts C) decreases the owner's withdrawals account D) increases revenue accounts E) All of the choices are correct.

70)

A credit entry

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A) increases asset and expense accounts, or decreases liability, equity, and revenue accounts B) Is recorded on the left side of a T-account C) Decreases asset and expense accounts, or increases liability, equity, and revenue account D) Decreases asset, expense, and revenue accounts. E) Increases the withdrawals account

71) A list of all accounts used by a company, including the identification number assigned to each account, is called a A) ledger B) journal C) trial balance D) chart of accounts E) general journal

72) An asset created by a payment for economic benefits that does not expire until some later time is A) recorded as a debit to an unearned revenue account B) recorded as a debit to a prepaid expense account C) recorded as a credit to an unearned revenue account D) recorded as a credit to a prepaid expense account E) not recorded in the accounting records

73) A liability created by the receipt of cash from customers in payment for products or services that have not yet been delivered to the customers is

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A) recorded as a debit to an unearned revenue account B) recorded as a debit to a prepaid expense account C) recorded as a credit to an unearned revenue account D) recorded as a credit to a prepaid expense account E) not recorded in the accounting records

74) On May 31, Charlotte Company had an Accounts Payable balance of $57,000. During the month of June, total credits to Accounts Payable were $34,000, which resulted from purchases on credit. The June 30 Accounts Payable balance was $7,000. What was the amount of payment made during June? A) $32,000 B) $34,000 C) $57,000 D) $59,000 E) $84,000

75) On June 30, the Cash account of Majeau Company had a normal balance of $4,300. During July the account was debited for a total of $3,400 and credited for a total of $3,600. What was the balance in the Cash account on August 1? A) $-0 B) $4,100 debit C) $3,400 credit D) $3,400 debit E) $4,100 credit

76) During the month of November, Duffee Company had cash receipts of $3,500 and paid out $1,000 for expenses. The November 30th cash balance was $5,300. What was the cash balance on November 1?

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A) $1,800 B) $2,800 C) $4,300 D) $5,800 E) $7,300

77)

The following transactions occurred during July for Hurley Services:

Received $1,800 cash for photography services provided to customer during the month.

Received $1,500 cash from Barbara Blanc, the owner of the business.

3 Received $1,300 from a customer in partial payment of his account receivable that arose as a result of sales during June. 4

Rendered photography services to a customer on credit, $1,100.

Borrowed $300 from the bank by signing a promissory note.

Received $700 from a customer in payment for services to be rendered next year.

How much revenue was earned in July? A) $3,600 B) $2,300 C) $2,900 D) $4,900 E) $6,700

78) If Girard Don, the owner of Girard's Software proprietorship, uses cash of the business to purchase a personal computer, the business should record this use of cash with an entry to A) debit Salary Expense and credit cash. B) debit Girard Don, Salary, and credit cash. C) Debit cash and credit Girard Don, withdrawals D) Debit Girard Don, capital, and credit cash E) debit Girard Don, withdrawals, and credit cash

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79)

The process of copying journal information to the ledger is called A) double-entering B) posting C) an internal business transaction D) journalizing E) an external business transaction

80) A column in journals and accounts used to cross reference journal and ledger entries is called the A) account balance B) debit C) posting reference D) credit E) description

81)

Which of the following statements is correct as it relates to journals?

A) When there are special journals set up, a general journal is typically used in practice to record routine transactions B) Special journals are used to capture journal entries relating to similar types of transactions C) Special journals such as the sales journal and purchases journal are typically used to record non-routine transactions D) The process of recording transactions in a journal is called generalizing E) None of the choices are correct.

82)

In order to record a journal entry for the purchase of supplies on credit

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A) the supplies account would be credited and prepaid expense would be debited B) the supplies account would be debited and prepaid expense would be credited C) the supplies account would be credited and accounts payable would be debited D) the supplies account would be debited and accounts payable would be credited E) None of the choices are correct.

83)

A balance column ledger account is

A) An account entered on the balance sheet B) An account with debit and credit columns for recording entries and a third column for showing the balance of the account after each entry is posted C) Another name for the withdrawals account D) An account used to record the transfers of assets from a business to its owner E) A simple form of account that is widely used in accounting education to illustrate the debits and credits required in recording a transaction

84)

A ledger is

A) A book of original entry B) A journal in which transactions are first recorded C) A book in which a complete record of transactions is recorded and from which transaction amounts are posted to the accounts D) A book of final entry E) Another name for the bank account

85)

A book of original entry is A) A book in which amounts are posted from a journal B) Another name for the cash account C) Another name for the general journal D) Also called a ledger E) Sometimes called a book of final entry

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86)

A compound journal entry is A) A journal entry that has three or more debits and three or more credits B) A journal entry that affects at least three accounts C) A journal entry that affects at least four accounts D) A journal entry involving at least two accounting periods E) A journal entry involving only two ledger accounts

87) The most flexible type of journal that can be used to record any kind of transaction is called a A) Ledger B) Trial balance C) Chart of accounts D) General Journal E) Balance column account

88) Welder Company purchases supplies from Plumber Company on account. The entry for this transaction will include a A) Debit to Accounts Payable for Welder Company B) Debit to Accounts Receivable for Welder Company C) Debit to Accounts Receivable for Plumber Company D) Credit to Accounts Payable for Plumber Company E) Credit to Accounts Receivable for Welder Company

89) Green's Book Store purchased a new automobile that cost $35,000, made a down payment of $14,000, and signed a note payable for the balance. The entry to record this transaction is A)

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Cash

21,000

Note Payable

14,000 Automobile

35,000

B) Cash

35,000 Automobile

35,000

C) Automobile

35,000 Cash

21,000

Notes Payable

14,000

D) Automobile

35,000 Cash

35,000

E) Automobile

35,000 Notes Payable

21,000

Cash

14,000

90) Willa opened a new business by investing the following assets: cash, $16,000; land, $23,000; building, $100,000. Also, the business will assume responsibility for a note payable of $22,000. Willa signed the note as part of his payment for the land and building. Which journal entry should be used on the books of the new business to record the investment by Willa?

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A) Assets

139,000 Eli, Capital

139,000

B) Assets

139,000 Liability

22,000

Eli, Capital

117,000

C) Cash

16,000

Land

23,000

Building

100,000 Eli, Capital

139,000

D) Cash

16,000

Land

23,000

Building

100,000 Note Payable

22,000

Eli, Capital

117,000

E) Cash

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3,000

Assets

136,000 Eli, Capital

139,000

91) Zen Hatha opened a Yoga Studio and during a short period as a dealer completed these transactions: (1)

Started the yoga studio, Asha Yoga Studio, by investing $50,000 in cash and equipment with a $28,000 fair value.

(2)

Purchased land valued at $35,000 and a small building valued at $80,000; paid $30,000 cash and signed a note payable, agreeing to pay the balance over a period of years.

(3)

Purchased office supplies on credit, $100.

(4)

Zen Hatha contributed his personal automobile, which had a $12,000 fair value, for exclusive use in the business.

(5)

Paid the yoga instructor salary, $500.

(6)

Completed monthly yoga classes for the value of $6,500 cash.

(7)

Paid $650 cash for a magazine advertisement.

(8)

Paid for the supplies purchased in transaction (3).

(9)

Purchased new yoga mats for the business, paying $300 cash.

(10)

Completed a yoga assessment and billed the client $400.

(11)

Zen Hatha withdrew $200 from the business to pay personal expenses.

(12)

Received payment in full for the appraisal of transaction (10).

What was the total of the debit balances shown in the trial balance prepared after these transactions were posted? A) $152,300 B) $167,700 C) $173,95 D) $181,900 E) $243,620

92) A summary of the ledger that lists the accounts and their balances, in which the total debit balances should equal the total credit balances, is called a(n)

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A) Account balance B) Trial balance C) Ledger D) Chart of account E) General Journal

93)

Which of the following statements is true? A) The trial balance is never used to prepare financial statements. B) The trial balance is a list of all the accounts in the journal C) Another name for the trial balance is the "chart of accounts" D) The trial balance is a list of the accounts in the general ledger E) A trial balance is only prepared at year end

94) While in the process of posting from the journal to the ledger, the accountant of X Company failed to post a $50 debit to the Office Supplies account. The effect of this error will be as follows: A) The Office Supplies account balance will be overstated. B) The trial balance will not balance. C) The error will overstate the debits listed in the journal. D) The total debits in the trial balance will be larger than the total credits. E) This error will not make any difference.

95) A $15 credit to Sales was posted as a $150 credit. By what amount is Sales out of balance? A) $150 understated B) $135 overstated C) $150 overstated D) $15 understated E) $135 understated

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96) A $100 debit to Accounts Receivable was posted as a $150 debit in error. By what amount is Accounts Receivable out of balance? A) $50 understated B) $50 overstated C) $150 overstated D) $150 understated E) $100 understated

97) If, on a trial balance, the total of the debits is $7,500 and the total of the credits is $7,419, the difference could have been caused by A) An error in copying an account balance from the ledger to the trial balance B) A transposition error C) Posting only one side of an entry D) None of the choices are correct. E) All of the choices are correct.

98)

In which of the following situations would the trial balance not balance?

A) A $1,000 collection of an account receivable was incorrectly posted as a debit to Accounts Receivable and a credit to Cash. B) The purchase of office supplies on account for $3,250 was incorrectly recorded in the journal as $2,350. C) $50 cash receipt for the performance of a service was not recorded. D) The purchase of office equipment for $1,200 was posted as a debit to Office Supplies. E) The payment of a $750 account payable was posted as a debit to Accounts Payable and a debit to Cash for $750.

99) The purchase on credit of a delivery truck for $9,600 was posted to Delivery Trucks as a $9,600 debit and to Rent Expense as a $9,600 debit. What effect would this error have on the trial balance?

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A) The total of the Debit column of the trial balance will exceed the total of the Credit column by $9,600. B) The total of the Credit column of the trial balance will exceed the total of the Debit column by $9,600. C) The total of the Debit column of the trial balance will exceed the total of the Credit column by $19,200. D) The total of the Credit column of the trial balance will exceed the total of the Debit column by $19,200. E) The total of the Debit column of the trial balance will equal the total of the Credit column.

100) The purchase on credit of office supplies for $12,000 was posted to the Office Supplies account as a $12,000 debit and to Accounts Receivable as a $12,000 credit. What effect would this error have on the trial balance? A) The total of the Debit column of the trial balance will exceed the total of the Credit column by $12,000 B) The total of the Credit column of the trial balance will exceed the total of the Debit column by $12,000 C) The total of the Debit column of the trial balance will exceed the total of the Credit column by $24,000. D) The total of the Credit column of the trial balance will exceed the total of the Debit column by $24,000 E) The total of the Debit column of the trial balance will equal the total of the Credit column.

101)

If the Debit and Credit column totals of a trial balance are equal, then A) All transactions have been recorded correctly. B) All entries from the journal have been posted to the ledger correctly. C) All ledger account balances are correct. D) The total debit entries and total credit entries in the ledger are equal. E) No sliding or transposition errors have been made.

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102)

Jelly's Grocery Store showed the following account balances at the end of 2022: Cash

$32,000

Accounts receivable

39,000

Accounts payable

27,000

Revenue

51,000

Rent expense

2,000

Insurance expense

13,600

Salary expense

8,000

Supplies

25,000

Jelly, capital

49,600

Jelly, withdrawals

8,000

If all of the accounts have normal balances, what is the total of the trial balance? A) $86,000 B) $119,600 C) $127,600 D) $186,600 E) $255,500

103) Of the following errors, which one by itself will cause the trial balance to be out of balance? A) A $200 salary payment posted as a $200 debit to Cash and a $200 credit to Salaries Expense B) A $100 receipt from a customer in payment of his account posted as a $100 debit to Cash and a $10 credit to Accounts Receivable C) A $75 receipt from a customer in payment of his account posted as a $75 debit to Cash and a $75 credit to Cash D) A $50 cash purchase of office supplies posted as a $50 debit to Office Equipment and a $50 credit to Cash E) All of these errors will cause the trial balance to be out of balance.

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104) A $130 credit to Office Equipment was credited to Sales by mistake. By what amounts are the accounts under- or overstated as a result of this error? A) Office Equipment, understated $130; Sales, overstated $130 B) Office Equipment, understated $260; Sales, overstated $130 C) Office Equipment, overstated $130; Sales, overstated $130 D) Office Equipment, overstated $130; Sales, understated $130 E) Office Equipment, overstated $260; Sales, understated $130

105) A receipt of $12,600 cash from a customer as a payment on their account was incorrectly credited to Rent Revenue. What is the effect of this error on the financial statements of the company? A) Assets are understated by $12,600 and owners' equity is understated by $12,600. B) Assets are overstated by $12,600 and owners' equity is overstated by $12,600. C) Assets are overstated by $25,200 and owners' equity is overstated by $25,200. D) Assets are understated by $12,600 and liabilities are understated by $12,600. E) Assets are understated by $25,200 and owners' equity is understated by $25,200.

106) On March 2, 2022, Lang Company provided snow removal services to a customer for $1,000 cash. What is the impact of this transaction on the net assets of Lang? A) No impact B) Decrease of $1,000 C) Increase of $1,000 D) Increase of $2,000 E) Decrease of $2,000

107)

What types of account balances are increased by credits?

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A) Liabilities and expenses B) Liabilities and revenues C) Revenues and expenses D) Owners' equity and expenses E) Assets and Liabilities

108)

The following is a correct journal entry: Cash

14,400

Consulting revenue

14,400

What is this journal entry recording? A) An increase in an asset and an increase in owners' equity. B) An increase in an asset and a decrease in owners' equity. C) An increase in an asset and an increase in a liability. D) An increase in owners' equity and a decrease in assets. E) A decrease in an asset and a decrease in owners' equity.

109)

The following is a correct journal entry: Accounts Receivable Cash

14,000 14,000

What is the impact of this journal entry? A) Increase to assets and increase to owners' equity. B) Increase to assets and decrease to owners' equity C) No change to assets and no change to owners' equity D) No change to assets and decrease to owners' equity E) Decrease to assets and no change to owners' equity

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110) On January 1 Ignacio Company began operations. Jacqueline Ignacio invested $10,000 cash in Ignacio Company. Which of the following is correct when recording this transaction? A) Ignacio Company would credit Cash and credit J. Ignacio, Capital for $10,000 B) Ignacio Company would debit Cash and credit J. Ignacio, Capital for $10,000. C) Ignacio Company would credit Cash and debit J. Ignacio, Capital for $10,000. D) Ignacio Company would debit Cash and credit Loans Payable for $10,000. E) None of the choices are correct

111) The following T-accounts reflect the correct posting of a journal entry on January 9, 2022, by Bailey Company: Cash

Accounts Payable 10,000

10,000

What transaction is represented by the posting? A) Bailey sold inventory to a customer for $10,000 on credit. B) Bailey bought supplies on credit from a supplier for $10,000 on credit. C) Bailey bought supplies from a supplier for $10,000 cash. D) Bailey paid a supplier $10,000 cash to pay down the amount owing on their account. E) Bailey received $10,000 from a customer in payment of his account.

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 112) List the steps in the accounting cycle.

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113) Put the steps of the accounting cycle in the correct order: Adjust, Analyze transactions, Close, Journalize, Post, Prepare adjusted trial balance, Prepare post-closing trial balance, Prepare statements, Prepare unadjusted trial balance

114) Identify each of the following accounts as a revenue, expense, asset, liability, or equity by placing initials (R, E, A, L, or Q) in the blanks. _____ (1) Rent Expense, _____ (2) Cash, _____ (3) Equipment, _____ (4) Owner, Capital, _____ (5) Revenue, _____ (6) Accounts Receivable, _____ (7) Accounts Payable, _____ (8) Owner, Withdrawals, _____ (9) Supplies, _____ (10) Unearned Revenue, _____ (11) Prepaid Insurance, _____ (12) Sales

115) The following accounts appear on either the Income Statement (IS) or Balance Sheet (BS). In the space provided next to each account write the letters, IS or BS, that identify the statement on which the account appears. _______(1) Office Equipment

_______(6) Owner, Capital

_______(2) Salaries Expense

_______(7) Revenue

_______(3) Unearned Revenue

_______(8) Cash

_______(4) Rent Expense

_______(9) Notes Receivable

_______(5) Accounts Payable

_______(10) Wages Payable

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116) David Thomas is a computer consultant and software engineer. Below are the names of several accounts in his ledger with each account name preceded by a number. Following the account names are several transactions completed by Mr. Thomas. Indicate the accounts debited and credited in recording each transaction by placing the proper account numbers in the boxes to the right of each transaction. (1) Accounts Payable

(6) Office Supplies Expense

(2) Accounts Receivable

(7) Telephone Expense

(3) Cash

(8) Unearned Engineering Service Revenue

(4) Engineering Service Revenue

(9) David Thomas, Capital

(5) Office Supplies

(10) David Thomas, Withdrawals Debit Credit

Example

Completed consulting for a client who promised to pay at a later date.

(1)

Received payment in advance for designing a software package.

____

(2)

Purchased office supplies on credit.

____

David Thomas wrote a cheque on the bank account ____ of the business to pay his home telephone bill. There were no business calls on the bill.

____

(3)

(4)

Received the telephone bill of the business and immediately issued a cheque to pay it.

____

(5)

Returned for credit a portion of the supplies purchased in Transaction 2.

____

117) Dawn Roberts is a real estate consultant and property manager. Below are the names of several accounts in her ledger with each account name preceded by a number. Following the account names are several transactions completed by Ms. Roberts. Indicate the accounts debited and credited in recording each transaction by placing the proper account numbers in the boxes to the right of each transaction. (1) Accounts Payable

(9) Management revenue

(2) Accounts Receivable

(10) Prepaid Insurance

(3) Appraisal Service Revenue

(11) Salaries Expense

(4) Cash

(12) Telephone Expense

(5) Insurance Expense

(13) Unearned Appraisal Service Revenue

(6) Office Equipment

(14) Unearned Management Revenue

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(7) Office Supplies

(15) Dawn Roberts, Capital

(8) Office Supplies Expense

(16) Dawn Roberts, Withdrawals Debit

Credit

Example: Completed an appraisal for a client who promised to pay at a later date.

(1)

Received payment in advance for managing an office building.

____

(2)

Purchased office supplies on credit.

____

(3)

Dawn Roberts wrote a cheque on the bank account of the business to pay her home telephone bill. There were no business calls on the bill.

____

(4)

Received the telephone bill of the business and immediately issued a cheque to pay it.

____

(5)

Paid the salary of the office assistant.

____

(6)

Paid for the supplies purchased in Transaction 2.

____

(7)

Complete an appraisal for a client and immediately collected cash for the work done.

____

118)

Explain the steps in processing transactions in an accounting system.

119)

Explain how accounts are used in recording information about transactions.

120)

Explain the difference between a ledger and a chart of accounts.

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121)

Explain debits and credits and their role in the accounting system.

122) Indicate whether a debit or a credit entry would be made to record the following changes in each account. (a) To decrease Cash. (b) To increase Owner, Capital. (c) To decrease Accounts Payable. (d) To increase Salaries Expense. (e) To decrease Supplies. (f) To increase Revenue. (g) To decrease Accounts Receivable. (h) To increase Owner, Withdrawals.

123)

The following list of accounts is for Shannon Sales Co.: (A) Shannon, Capital

(F) Unearned Rent Revenue

(B) Advertising Expense

(G) Interest Payable

(H) Commissions Revenue

(D) Land

(I) Shannon, Withdrawals

(E) Prepaid Rent

(J) Service Revenue

Use the form below to identify the type of account and its normal balance. The first one has been done for you as an example. Type of Accounts

Normal Balance

Asset

Liab.

Equity

Dr.

Cr.

(A)

____

(B)

____

(C)

____

(D)

____

(E)

____

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(F)

____

(G)

____

(H)

____

(I)

____

(J)

____

124) Discuss how the following transactions affect accounts and financial statements. (1) Jillian Robb invested $30,000 cash in Profile Design Co. (2) Profile Design Co. purchased supplies for $5,000 on its credit card. (3) Profile Design Co. purchased equipment for $19,000 and signed a note payable.

125) The Shreddy Company receives a $3,200 bill from a supplier for delivery services rendered. Set up two or more T-accounts below and show how this transaction would be recorded directly in those accounts.

126) A business paid $2,500 to satisfy a previously recorded account payable. Set up two or more T-accounts below and show how this transaction would be recorded directly in those accounts.

127) A business paid $100 to Karen Smith (the owner of the business) for her personal use. Set up two or more T-accounts below and show how this transaction would be recorded directly in those accounts. Version 1

128) The following are all of the accounts of Vita Mix Company that have a balance at the end of August, the company's first month of operation: Accounts receivable

$11,000

Cash

$10,100

Equipment

39,700

Utilities expense

3,000

Service revenues

42,000

Accounts payable

13,800

Rent expense

1,500

Withdrawals, J. Parsons

2,000

Office supplies

2,300

Salaries expense

19,000

Notes payable

22,500

Capital, J. Parsons

10,300

All accounts have normal balances. (A) Calculate profit. (B) Calculate the amount of equity to be shown on the August 31 balance sheet.

129) Record the following transactions by making entries directly to the T-accounts provided. (a) Walter Nole began an auditing firm by investing $4,000 cash and a computer equipment with a 7,000 fair value. (b) Purchased equipment from Johnson Bros. on credit, $1,500. (c) Completed auditing work for clients on credit, $2,200. (d) Paid Johnson Bros. $1,500 of the amount owed. (e) Completed auditing work for clients on credit, $2,200. (f) Walter Nole withdrew $500 cash from the practice for personal use. (g) Received $2,200 for the audit work completed for the clients in Transaction e. (h) Paid secretary's salary, $1,000. Cash

Equipment

Accounts Payable

Accounts Receivable

Walter Nole, Withdrawal

Salary Expense

Walter Nole, Capital

Audit Revenue

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130) On December 2, 2022, the Tropic Company paid $400 for office supplies. Prepare the general journal entry to record this transaction.

131) Record the following transactions by making entries directly to the T-accounts provided. (a) Ben Horcica began a legal firm by investing $3,000 cash and a computer equipment with a 1,000 fair value. (b) Purchased a computer from Wayjax Ltd. on credit, $500. (c) Completed legal work and received $4,000 cash in full payment. (d) Paid Wayjax Ltd. $250 of the amount owed. (e) Completed legal work for clients on credit, $2,500. (f) Ben Horcica withdrew $500 cash from the practice for personal use. (g) Received $1,500 for the legal work completed for the clients in Transaction e. (h) Paid assistant salary, $700. Cash

Computer

Accounts Payable

Accounts Receivable

Ben Horcica, Withdrawal

Salary Expense

Ben Horcica, Capital

Legal Revenue

132) KrenzKarKare, owned and operated by Karl Krenz, began business in September of the current year. Karl, a master mechanic, had no experience with keeping a set of books. As a result, Karl entered all of September's transactions directly to the General Ledger accounts. When he tried to locate a particular entry originally made on September 8, he found it confusing and time-consuming. He has hired you to improve his bookkeeping procedures. The accounts in his General Ledger follow: Cash 100

Equipment 150

9/1 (a)2,550

9/8 (b)375

9/11 (d)45

9/1 (a)450 9/8 (b)1,125

9/15 (e)22 K.Krenz, Capital 300

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Notes Payable 250

9/1 (a)3,000 Accounts Receivable 105

Revenue 400

9/9 (c)90

9/15 (e) 22

9/8 (b)750

9/9 (c) 90 9/11 (d) 45

Prepare the general journal entries, in chronological order, from the general ledger entries shown. Include a brief description of the probable nature of each transaction.

133) Cheryl Fereday began an engineering design company and during the month of October completed these transactions: (a) Began business by investing cash, $11,000, and computer equipment with a fair value of $3,000. (b) Paid rent for one year in advance, $3,000. (c) Completed a beam design and billed the client for $3,000. (d) Paid the utilities bill for the month, $100. (e) Wrote a $1,000 cheque on the business bank account for personal expenses. Prepare journal entries to record the above transactions. Include a brief description for each entry.

134) Jay Smith's Word Processing began business and completed these transactions during the month of November: (a) Purchased office supplies on account, $75. (b) Completed work for a publisher on credit, $500. (c) Paid for the office supplies purchased in Transaction a. (d) Completed work for a resume writing service and received $85 cash. (e) Received $500 for the work described in Transaction b. Prepare journal entries to record the above transactions. Include a brief description for each entry.

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135) Dave Shurek started Hindsight Electric in February 2022. Hindsight completed the following transactions during February of the current year: Feb. 1 Began a Hindsight Electric company by investing $7,000 in cash and computer equipment having a $5,000 fair value. Feb. 2

Purchased electrical tools for $1,100 on account.

Feb. 4

Completed hot tub electrical work for $1,900 on account.

Feb. 8

Completed electrical panel upgrade for $500 cash.

Feb. 10

Paid for the items purchased on credit on February 2.

Feb. 14

Paid $1,600 for the annual rent.

Feb. 18

Received $900 for the work completed on February 4.

Feb. 27

D. Shurek withdrew $200 cash from the practice to pay personal expenses.

Feb. 28

Paid the February utility bills, $100.

Prepare general journal entries to record the transactions. Include a brief description for each entry.

136) On June 20, 2022, Lucie Majeau invested the following assets in a new sole proprietorship: cash, $12,000; office equipment, $6,000; land, $100,000; building, $115,000. Majeau owes the bank a $25,000 note payable that is secured by the land and building. Prepare the general journal entry to record Majeau's investments in the new business.

137)

Explain the recording and posting processes.

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138)

Discuss the use of the trial balance.

139) For each of the following errors, indicate on the schedule the amount it will cause the trial balance to be out of balance and which trial balance column (i.e., debit or credit) will have the larger total as a result of the error. (a) A $100 debit to Cash was debited to the Cash account twice. (b) A $1,900 credit to Sales was posted as a $190 credit. (c) A $5,000 debit to Office Equipment was debited to Office Supplies. (d) A $625 debit to Prepaid Insurance was posted as a $62.50 debit. (e) A $520 debit to Supplies (purchased on account) was posted correctly, but the corresponding credit to Accounts Payable was not posted. Error

Amount Out of Balance

Column Having Larger Total

(a)

_________

(b)

_________

(c)

_________

(d)

_________

(e)

_________

140) After preparing an unadjusted trial balance at year-end, the accountant for Chu Design Company discovered the following errors: (1) The payment of the $225 telephone bill for December was recorded twice. (2) The payment of a $1,000 note payable was recorded as a debit to Cash and a debit to Notes Payable. (3) A $900 withdrawal by the owner was recorded to the correct accounts as $90. (4) An additional investment of $5,000 by the owner was recorded as a debit to G. Chu, Capital and a credit to Cash. (5) A credit purchase of office equipment for $1,800 was recorded as a debit to the Office Equipment account with no offsetting credit entry. Using the form below, indicate if each error would cause the trial balance to be out of balance. Error

Yes

(1)

________

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(2)

________

(3)

________

(4)

________

(5)

________

141) The balances for the accounts of Millie's Maintenance Co. for the year ended December 31, 2022, are shown below. Each account shown has a normal balance. Accounts payable

$15,000

Equipment

$11,250

Accounts receivable

10,000

Wages expense

22,000

Cash

Utilities expense

2,450

Maintenance supplies

3,300

Millie, withdrawals

Building

50,500

Notes payable

32,000

Supplies expense

2,200

Land

10,000

Millie, capital, beginning

5,000*

Unearned maintenance revenue

22,500

Maintenance revenue

206,000

*The ending balance of the capital account is $20,000; the only addition to the account for the year was profit. Calculate the correct balances for Cash and Millie, Withdrawals and prepare a trial balance.

142) Charlene Addemup prepared the following trial balance from the general ledger of Big Bang Cleaning Service. It did not balance. Big Bang Cleaning Service Trial Balance December 31, 2022

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Cash

$975

Accounts receivable

3,800

Cleaning equipment

13,500

Office equipment

6,600

Accounts payable

4,510

Millie, capital

23,000

Millie, withdrawals*

4,200

Cleaning fees earned

10,875

Cleaning expense

8,600

Totals

$37,675

$38,385

Because the trial balance did not balance, Charlene decided to examine the accounting records very closely. She found that the following errors had been made: (1) A purchase of cleaning equipment on account for $400 was posted as a debit to Cleaning Equipment and as a debit to Accounts Payable. (2)

An investment of $600 by the owner was debited to Frank, Capital and credited to Cash.

(3) In calculating the balance of the Accounts Receivable account, a debit of $910 was omitted from the calculation. (4)

One debit of $300 to the Frank, Withdrawals account was posted as a credit.

(5)

Office equipment purchased for $600 was posted to the Cleaning Equipment account.

(6)

One entire entry was not posted to the general ledger. The transaction involved the receipt of $100 for cleaning services performed for cash.

Prepare a corrected trial balance for the Big Blue Cleaning Service on December 31, 2022.

143) 2022

Use the information in the "T" accounts and prepare a trial balance on November 30,

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144) In accounting, asset accounts are often intuitive in nature. For instance, cash, buildings, machinery, and equipment are all example of asset accounts. What are two other key words to watch for which helps in identifying asset accounts? Elaborate.

145) In accounting, which two words usually identify liability accounts for a business? Elaborate.

SECTION BREAK. Answer all the part questions. 146) The following postings show transactions for November, 2022 for Guttierez Contracting. Cash

Accounts Payable

Nov 1 60,000

Nov 8 33,600

Nov 30 35,000

Nov 25 10,000

Land

Notes Payable

Nov 8 70,000 Building

Nov 21 480

Nov 15 3,200

Nov 25 10,000

Nov 8 100,000

Joe Guttierez, Capital

Nov 8 63,600

Nov 1 60,000 Nov 30 35,000

Office Equipment Nov 15 3,200

Nov 21 480

(a) Nov 1: Cash

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60,000

Joe Guttierez, Capital 60,000

146.1) Use the data from the T-account postings to re-create the journal entries made for November. Prepare an explanation for each entry. The first one is done for you as an example for the November 1 posting.

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Answer Key Test name: Chap 02_17ce_Test Bank 1) TRUE 2) TRUE 3) FALSE 4) FALSE 5) TRUE 6) TRUE 7) FALSE 8) FALSE 9) FALSE 10) FALSE 11) FALSE 12) FALSE 13) TRUE 14) FALSE 15) FALSE 16) FALSE 17) TRUE 18) TRUE 19) TRUE 20) FALSE 21) TRUE 22) FALSE 23) FALSE 24) FALSE 25) TRUE 26) FALSE Version 1

27) FALSE 28) TRUE 29) TRUE 30) FALSE 31) FALSE 32) FALSE 33) TRUE 34) FALSE 35) FALSE 36) TRUE 37) FALSE 38) TRUE 39) TRUE 40) TRUE 41) TRUE 42) TRUE 43) FALSE 44) TRUE 45) TRUE 46) FALSE 47) FALSE 48) FALSE 49) TRUE 50) B 51) D 52) B 53) B 54) A 55) C 56) D Version 1

57) C 58) D 59) D 60) C 61) E 62) C 63) B 64) D 65) B 66) C 67) D 68) C 69) A 70) C 71) D 72) B 73) C 74) E 75) B 76) B 77) C 78) E 79) B 80) C 81) B 82) D 83) B 84) D 85) C 86) B Version 1

87) D 88) C 89) E 90) D 91) D 92) B 93) D 94) B 95) B 96) B 97) E 98) E 99) C 100) E 101) D 102) C 103) B 104) C 105) B 106) C 107) B 108) A 109) C 110) B 111) D 112) (1) Analyze transactions, (2) Journalize, (3) Post, (4) Prepare unadjusted trial balance, (5) Adjust, (6) Prepare adjusted trial balance, (7) Prepare statements, (8) Close, (9) Prepare post-closing trial balance

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113) (1) Analyze transactions, (2) Journalize, (3) Post, (4) Prepare unadjusted trial balance, (5) Adjust, (6) Prepare adjusted trial balance, (7) Prepare statements, (8) Close, (9) Prepare post-closing trial balance 114) (1) E, (2) A, (3) A, (4) Q, (5) R, (6) A, (7) L, (8) Q, (9) A, (10) L, (11) A, (12) R. 115) (1) BS, (2) IS, (3) BS, (4) IS, (5) BS, (6) BS, (7) IS, (8) BS, (9) BS, (10) BS. 116) (1) debit 3, credit 8; (2) debit 5, credit 1; (3) debit 10, credit 3; (4) debit 7, credit 3; (5) debit 1, credit 5 117) (1) debit 4, credit 14 (2) debit 7, credit 1 (3) debit 16, credit 4 (4) debit 12, credit 4 (5) debit 11, credit 4 (6) debit 1, credit 4 (7) debit 4, credit 3 118) Business transactions and events are documented by source documents. These source documents are analyzed for the effects of the transactions and events on the accounting records. The information is recorded into the accounting system. The information is then posted to the accounts and organized in the trial balance. The final step is the preparation of financial statements and reports for decision makers. 119) Accounts are classified into five major classifications: assets, liabilities, equity, revenues, and expenses. Accounts are used to record detailed information about increases or decreases of specific items in these categories. The accounts serve as the information resource for financial statements and reports. 120) A ledger is a record containing all of the accounts of a business. The chart of accounts is a list of all of the accounts in the ledger. The chart of accounts usually includes a numbering system for the accounts.

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121) Debit refers to the left side of an account and credit refers to the right side of an account. Debits and credits form the basis of the doubleentry accounting system. This system is based on the concept that all transactions and events affect at least two accounts. The double-entry system is organized around the accounting equation which states that assets = liabilities + equity. The left side is the normal balance for assets and the right side is the normal balance for liabilities and equity. Revenues have a right-side normal balance and expenses have a left-side normal balance. 122) (a) Credit, (b) Credit, (c) Debit, (d) Debit, (e) Credit, (f) Credit, (g) Credit, (h) Debit. 123) Type of Accounts

Normal Balance

Asset

Liab.

Equity

Dr.

Cr.

(A)

____

(B)

____

(C)

____

(D)

____

(E)

____

(F)

____

(G)

____

(H)

____

(I)

____

(J)

____

124) (1) Assets increased by $30,000 and equity increased by $30,000. This transaction affects the Balance Sheet, Statement of Changes in Equity, and Statement of Cash Flows. (2) Assets increased by $5,000 and liabilities increased by $5,000. This transaction affects the Balance Sheet. (3) Assets increased by $19,000 and liabilities increased by $19,000. This transaction affects the Balance Sheet. Version 1

125) Accounts Payable

Delivery Expense 3,200

3,200

126) Accounts Payable

Cash

2,500

127) Karen Smith, Withdrawal

Cash

100

128) (A)

(B)

$42,000

Service revenues

- 1,500

Rent expense

- 3,000

Utilities expense

- 19,000

Salaries expense

$18,500

Profit

$10,300

Investment by owner

+18,500

Profit

- 2,000

Withdrawals

$26,800

Ending capital

129) Cash

Equipment

4,000

1,500

7,000

3,000

500

1,500

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Accounts Payable

Accounts Receivable 1,500

1,500

2,200 2,200

2,200

1,000

6,200

8,500

Walter Nole, Withdrawal

Salary Expense

500

1,000

500

Walter Nole, Capital

1,000

Audit Revenue 4,000

3,000

7,000

2,200

11,000

5,200

130) Dec 2

Office Supplies

400

Cash

400

To record payment of supplies

131) Cash

Computer

3,000

250

1,000

4,000

500

1,500

700

7,050

1,500

Ben Horcica, Withdrawal

Salary Expense

500

700

500

700

Accounts Payable

Accounts Receivable 500

2,500

250

1,500

250 Ben Horcica, Capital

1,000 Audit Revenue

3,000

4,000

1,000

2,500

4,000

6,500

132) 1

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Cash

100

2,550

Equipment

150

K. Krenz, Capital

300

450 3,000

To record initial investment. 8

Equipment

150

1,125

Cash

100

375

Notes Payable

250

750

To record purchase equipment 9

Accounts Receivable

105

Revenue

400

90 90

To record credit sale of services 11

Cash

100

Revenue

400

45 45

To record cash sale of services. 15

Cash

100

Accounts Receivable

105

22 22

To record collection from customer

133) (a)

Cash

11,000

Computer Equipment

3,000

Cheryl Fereday, Capital

14,000

To record initial investment (b)

Prepaid Rent Cash

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3,000 3,000

To record payment for one year’s rent (c)

Accounts Receivable

3,000

Engineering Design Revenue

3,000

To record computer services completed on account (d)

Utilities Expense

100

Cash

100

To record payment of utilities (e)

Cheryl Fereday, Withdrawals

1,000

Cash

1,000

To record withdrawal by owner

134) (a)

Office Supplies

Accounts Payable

To record office supplies purchased on account (b)

Accounts Receivable

500

Word Processing Revenue

500

To record work completed on credit (c)

Accounts Payable

Cash

To record payment of account payable (d)

Cash

Word Processing Revenue

To record work completed for cash

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(e)

Cash

500

Accounts Receivable

500

To record receipt of receivable

135) Feb

Cash

7,000

Computer Equipment

5,000

D. Shurek, Capital

12,000

Owner invested in business 2

Tools

1,100

Accounts Payable

1,100

Purchased electrical tools on credit 4

Accounts Receivable

1,900

Electrical Service Revenue

1,900

Rendered repair services on account 8

Cash

500

Electrical Service Revenue

500

Rendered electrical services for cash 10

Accounts Payable

1,100

Cash

1,100

Paid for accounts payable on Feb 2 14

Prepaid Rent Cash

1,600 1,600

Paid for rent in advance for one year

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Cash

900

Accounts Receivable

900

Received payment on account 27

D. Shurek, Withdrawals

200

Cash

200

Owner withdraw cash 28

Utilities Expense

100

Cash

100

Paid utility bill

136) Jun 20

Cash

12,000

Office Equipment

6,000

Land

100,000

Building

115,000

Lucie Majeau, Capital

208,000

Note Payable

25,000

To record initial investment by owner

137) Information from business transactions is recorded in the journal in the form of journal entries. The journal entries include the date, the account titles, debit and credit amounts, and a description of the transaction. During the posting process the debit and credit amounts recorded in the journal are transferred to the individual accounts in the general ledger.

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138) The trial balance is a list of all of the accounts in the general ledger with their balances at a specific date. The list is organized in general ledger order, by debit and credit balances. The purpose of the trial balance is to summarize the account totals and to verify the accuracy of the total debits and credits. If the total debits and credits are not equal, then the trial balance is out of balance, which indicates an error in the accounting records. 139) Error

Amount Out of Balance

Column Having Larger Total

(a)

$100

Debit

(b)

$1,710

Debit

(c)

(d)

$562.50

Credit

(e)

$520

Debit

140) Error

Yes

(1)

(2)

(3)

(4)

(5)

141) Millie’s Maintenance Co. Trial Balance December 31, 2022

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Cash**

19,450

Accounts receivable

10,000

Maintenance supplies

3,300

Land

10,000

Building

50,500

Equipment

$11,250

Accounts payable

15,000

Unearned maintenance revenue

22,500

Notes payable

32,000

Millie, capital

20,000

Millie, withdrawals*

164,350

Maintenance revenue

206,000

Wages expense

22,000

Utilities expense

2,450

Supplies expense

2,200

Totals

295,500

*Millie, capital, beginning

$5,000

Add: Profit

179,350

Millie, capital, end

(20,000)

Millie, withdrawals

164,350

295,500

Profit Maintenance revenue

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206,000

Wages expense

22,000

Utilities expense

2,450

Supplies expense

2,200

Total Operating Expenses

26,650

Profit

179,350

**Cash Total Credits

295,500

Total Debits

276,050

Cash

19,450

142) Big Bang Cleaning Service Trial Balance December 31, 2022 Errors Debit Cash

Credit

$975

1,200

Accounts receivable

3,800

910

Cleaning equipment

13,500

Office equipment

6,600

100

600 600

Accounts payable

4,510

800

Frank, capital

23,000

1,200

Frank, withdrawals*

4,200

Cleaning fees earned

600 10,875

Cleaning expense

8,600

Totals

$37,675

100

$38,385

Big Bang Cleaning Service Trial Balance December 31, 2022

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(2) (6)

Cash

$2,275

(3)

Accounts receivable

4,710

(5)

Cleaning equipment

12,900

(5)

Office equipment

7,200

(1)

Accounts payable

5,310

(2)

Frank, capital

24,200

(4)

Frank, withdrawals*

(6)

Cleaning fees earned

4,800 10,975

Cleaning expense

8,600

Totals

$40,485

143) Guttierez Contracting Trial Balance November 30, 2022 Account

Debit

Cash

$51,400

Land

70,000

Building

63,600

Office Equipment

2,720

Credit

Accounts Payable

$2,720

Notes Payable

90,000

Joe Guttierez, Capital

95,000 $187,720

$187,720

144) Two key words that would help in identifying asset accounts are "receivables" and "prepaids." A receivable is an asset because the company has the legal right to collect the outstanding balance. Prepaids indicate the company has paid in advance for service or goods and will benefit from this in the future.

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145) Two key words that usually identify liability accounts are "payable" and "unearned." Payable indicates the liability must be paid, and unearned indicates the liability must be fulfilled through execution of the terms of a contract. 146) Section Break 146.1) Nov-01

Cash

60,000 Joe Guttierez, Capital

60,000

Owner invested 60,000 in the business Nov-08

Land

70,000

Building

63,600 Notes payable

100,000

Cash

33,600

Purchased land and building, paid cash and assumed a notes payable Nov-15

Office Equipment

3,200 Accounts Payable

3,200

Purchased Office Equipment on account Nov-21

Account payable

480 Office Equipment

480

Returned Office Equipment Nov-25

Notes payable

10,000 Cash

10,000

Paid portion of bank loan

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Nov-30

Cash

35,000 Joe Guttierez, Capital

35,000

Owner invested 35,000 into the business

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CHAPTER 3: ALGO MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 1) Centurion Company had the following accounts and balances at December 31: Account Cash

Debit $ 11,900

Accounts Receivable

2,380

Prepaid Insurance

3,160

Supplies

1,380

Credit

Accounts Payable

$ 5,950

T. Happy, Capital

6,040

Service Revenue

8,900

Salaries Expense

690

Utilities Expense

1,380

Totals

$ 20,890

Using the information in the table, calculate the company's reported net income for the period. A) $1,480. B) $4,570. C) $5,260. D) $12,680. E) $6,830.

2) At the end of its first month of operations, JMP Consulting reported Revenue of $39,100. It also reported Wages Expense, $6,700; Rent Expense, $5,700; and Utilities Expense, $1,350. Calculate net income reported on the income statement at month-end.

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A) $31,050 B) $25,350 C) $19,650 D) $5,700 E) $8,050

3) A $26 credit to Revenue was posted as a $260 credit. By what amount is the Revenue account in error? A) $260 understated. B) $234 overstated. C) $260 overstated. D) $26 understated. E) $234 understated.

4) A $220 credit to Supplies was credited to Revenue by mistake. By what amounts are the accounts under- or overstated as a result of this error? A) Supplies, understated $220; Revenue, overstated $220. B) Supplies, understated $440; Revenue, overstated $220. C) Supplies, overstated $220; Revenue, overstated $220. D) Supplies, overstated $220; Revenue, understated $220. E) Supplies, overstated $440; Revenue, understated $220.

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5) Jeff Jackson opened Jackson's Repairs on March 1 of the current year. During March, the following transactions occurred: 1.Jackson invested $38,000 cash in the business. 2.Jackson contributed $113,000 of equipment to the business. 3.The company paid $3,300 cash to rent office space for the month of March. 4.The company received $29,000 cash for repair services provided during March. 5.The company paid $7,500 for salaries for the month of March. 6.The company provided $4,300 of services to customers on account. 7.The company paid cash of $1,800 for utilities for the month of March. 8.The company received $4,400 cash in advance from a customer for repair services to be provided in April. 9.Jackson withdrew $6,300 for his personal use from the company. Based on this information, net income for March would be: A) $20,700. B) $26,400. C) $6,600. D) $7,100. E) $26,500.

6) Wiley Hill opened Hill's Repairs on March 1 of the current year. During March, the following transactions occurred: 1.Wiley invested $33,000 cash in the business. 2.Wiley contributed $108,000 of equipment to the business. 3.The company paid $2,800 cash to rent office space for the month of March. 4.The company received $24,000 cash for repair services provided during March. 5.The company paid $7,000 for salaries for the month of March. 6.The company provided $3,800 of services to customers on account. 7.The company paid cash of $1,300 for utilities for the month of March. 8.The company received $3,900 cash in advance from a customer for repair services to be provided in April. 9.Wiley withdrew $5,800 for his personal use from the company. Based on this information, the balance in Wiley Hill, Capital reported on the Statement of Owner's Equity at the end of March would be:

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A) $155,800. B) $151,900. C) $145,300. D) $7,600. E) $21,500.

7) On July 1 of the current calendar year, Plum Company paid $8,500 cash for management services to be performed over a two-year period beginning July 1. The adjusting entryon December 31 of the current year for Plum would include: A) A debit to an expense and a credit to a prepaid expense for $6,375. B) A debit to a prepaid expense and a credit to Cash for $6,375. C) A debit to an expense and a credit to a prepaid expense for $2,125. D) A debit to a prepaid expense and a credit to an expense for $2,125. E) A credit to a liability and a debit to a prepaid expense for $2,125.

8) Prior to recording adjusting entries, the Office Supplies account had a $363 debit balance. A physical count of the supplies showed $107 of unused supplies available. The required adjusting entry is: A) Debit Office Supplies $107 and credit Office Supplies Expense $107 B) Debit Office Supplies Expense $107 and credit Office Supplies $107. C) Debit Office Supplies Expense $256 and credit Office Supplies $256. D) Debit Office Supplies $256 and credit Office Supplies Expense $256. E) Debit Office Supplies $107 and credit Supplies Expense $256.

9) On April 1, a company paid the $3,900 premium on a three-year insurance policy with benefits beginning on that date. What amount of insurance expense will be reported on the annual income statement for the year ended December 31?

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A) $3,900.00. B) $1,300.00. C) $2,925.00. D) $975.00. E) $108.33.

10) On July 1, a company paid the $3,360 premium on a one-year insurance policy with benefits beginning on that date. What will be the insurance expense on the annual income statement for the first year ended December 31? A) $1,680. B) $3,360. C) $840. D) $2,520. E) $1,400.

11) A company had no office supplies available at the beginning of the year. During the year, the company purchased $420 worth of office supplies. On December 31, $150 worth of office supplies remained. How much should the company report as office supplies expense for the year? A) $150. B) $250. C) $270. D) $420. E) $570.

12) On January 1, a company purchased a five-year insurance policy for $2,800 with coverage starting immediately. If the purchase was recorded in the Prepaid Insurance account, and the company records adjustments only at year-end, the adjusting entry at the end of the first year is:

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A) Debit Prepaid Insurance, $2,800; credit Cash, $2,800. B) Debit Prepaid Insurance, $2,240; credit Insurance Expense, $2,240. C) Debit Prepaid Insurance, $560; credit Insurance Expense, $560. D) Debit Insurance Expense, $560; credit Prepaid Insurance, $560. E) Debit Insurance Expense, $2,240; credit Prepaid Insurance, $2,240.

13) On May 1, a two-year insurance policy was purchased for $21,600 with coverage to begin immediately. What is the amount of insurance expense that would appear on the company's income statement for the first year ended December 31? A) $900. B) $6,300. C) $7,200. D) $8,100. E) $21,600.

14) Fragmental Company leased a portion of its store to another company for eight months beginning on October 1, at a monthly rate of $1,275. Fragmental collected the entire $10,200 cash on October 1 and recorded it as unearned revenue. Assuming adjusting entries are only made at year-end, the adjusting entry made by Fragmental Company on December 31 would be: A) A debit to Rent Revenue and a credit to Cash for $3,825. B) A debit to Rent Revenue and a credit to Unearned Revenue for $3,825. C) A debit to Cash and a credit to Rent Revenue for $10,200. D) A debit to Unearned Revenue and a credit to Rent Revenue for $3,825. E) A debit to Unearned Revenue and a credit to Rent Revenue for $6,375.

15) A company pays each of its two office employees each Friday at the rate of $130 per day for a five-day week that begins on Monday. If the monthly accounting period ends on Tuesday and the employees worked on both Monday and Tuesday, the month-end adjusting entry to record the salaries earned but unpaid is:

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A) Debit Unpaid Salaries $780 and credit Salaries Payable $780. B) Debit Salaries Expense $520 and credit Salaries Payable $520. C) Debit Salaries Expense $780 and credit Salaries Payable $780. D) Debit Salaries Payable $520 and credit Salaries Expense $520. E) Debit Salaries Expense $520 and credit Cash $520.

16) A company pays its employees $200 each Friday, which amounts to $40 per day for the five-day workweek that begins on Monday. If the monthly accounting period ends on Thursday and the employees worked through Thursday, the amount of salaries earned but unpaid at the end of the accounting period is: A) $200. B) $40. C) $80. D) $120. E) $160.

17) On January 1, Eastern College received $1,330,000 from its students for the spring semester that it recorded in Unearned Revenue. The term spans four months beginning on January 1, and the college earns the revenue evenly over the months of the term. Assuming the college prepares adjustments on January 31, what amount of tuition revenue should the college recognize? A) $332,500. B) $665,000. C) $930,000. D) $997,500. E) $1,330,000.

18) On January 1, Fashion Magazine received $16,200 from subscribers for the annual subscriptions that it recorded in Unearned Revenue. The issues of the magazine are sent digitally to subscribers monthly. What amount of subscription revenue should the magazine recognize on January 31 when the first issue is sent?

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A) $16,200. B) $1,350. C) $8,100. D) $4,050. E) $0.

19) An adjusting entry was made on year-end December 31 to accrue salary expense of $3,100. Assuming the company does not prepare reversing entries, which of the following entries would be prepared to record the $6,800 payment of salaries in January of the following year? A) Account Title Salaries Expense

Debit

Credit

6,800

Cash

6,800

B) Account Title Salaries Payable

Debit

Credit

6,800

Cash

6,800

C) Account Title Salaries Payable

Debit

Credit

3,100

Cash

3,100

D) Account Title Salaries Expense

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Debit

Credit

3,100

Salaries Payable

3,100

E) Account Title

Debit

Salaries Payable

3,100

Salaries Expense

3,700

Cash

Credit

6,800

20) A company purchased a new delivery van at a cost of $54,000 on January 1. The delivery van is estimated to have a useful life of 6 years and a salvage value of $4,200. The company uses the straight-line method of depreciation. How much depreciation expense will be recorded for the van during the first year ended December 31? A) $4,900. B) $4,150. C) $5,820. D) $8,300. E) $4,500.

21) A company's Office Supplies account shows a beginning balance of $690 and an ending balance of $580. If office supplies expense for the year is $3,550, what amount of office supplies was purchased during the period? A) $2,970. B) $3,440. C) $3,660. D) $4,130. E) $4,240.

22) A company recorded 2 days of accrued salaries of $2,100 for its employees on January 31. On February 9, it paid its employees $8,400 for these accrued salaries and for other salaries earned through February 9. The January 31 and February 9 journal entries are:

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A) Date 1/31

Account Title Salaries Expense

Debit 2,100

Salaries Payable

2/9

Credit

2,100

Salaries Payable

8,400

Salaries Expense

2,100

Cash

8,400

B) Date 1/31

Account Title Salaries Payable

Debit 2,100

Salaries Expense

2/9

Credit

2,100

Salaries Expense

6,300

Salaries Payable

2,100

Cash

8,400

C) Date 1/31

Account Title Salaries Expense

Debit 2,100

Cash

2/9

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Salaries Expense

Credit

2,100

8,400

Cash

8,400

D) Date

Account Title

1/31

Salaries Expense

Debit 2,100

Salaries Payable

2/9

Salaries Expense

Credit

2,100

8,400

Cash

8,400

E) Date

Account Title

1/31

Salaries Expense

Debit 2,100

Salaries Payable

2/9

2,100

Salaries Expense

6,300

Salaries Payable

2,100

Cash

Credit

8,400

23) On December 1, Simpson Marketing Company received $5,100 from a customer for a 2month marketing plan to be completed January 31 of the following year. The cash receipt was recorded as unearned revenue. The adjusting entry for the year ended December 31 would include: A) a debit to Services Revenue for $5,100. B) a debit to Unearned Revenue for $2,550. C) a credit to Unearned Revenue for $1,700. D) a debit to Services Revenue for $3,400. E) a credit to Services Revenue for $3,400.

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24) Wilson Company paid $5,200 for a 4-month insurance premium in advance on November 1, with coverage beginning on that date. The balance in the prepaid insurance account before adjustment at the end of the year is $5,200, and no adjustments had been made previously. The adjusting entry required on December 31 is: A) Debit Insurance Expense, $2,600; credit Prepaid Insurance, $2,600. B) Debit Prepaid Insurance, $2,600; credit Insurance Expense, $2,600. C) Debit Insurance Expense, $1,300; credit Prepaid Insurance, $1,300. D) Debit Prepaid Insurance, $1,300; credit Insurance Expense, $1,300. E) Debit Cash, $5,200; Credit Prepaid Insurance, $5,200.

25) What is the proper adjusting entry at December 31, the end of the accounting period, if the balance in the prepaid insurance account is $9,350 before adjustment, and the unexpired amount per analysis of policies is $4,050? A) Debit Insurance Expense, $4,050; credit Prepaid Insurance, $4,050. B) Debit Insurance Expense, $5,300; credit Prepaid Insurance, $5,300. C) Debit Prepaid Insurance, $5,300; credit Insurance Expense, $5,300. D) Debit Insurance Expense, $9,350; credit Prepaid Insurance, $9,350. E) Debit Cash, $9,350; Credit Prepaid Insurance, $9,350.

26) On April 1, Griffith Publishing Company received $2,808 from Santa Fe, Inc. for 36month subscriptions to several different magazines. The subscriptions started immediately. What is the amount of revenue that should be recorded by Griffith Publishing Company for the first year of the subscription assuming the company uses a calendar-year reporting period? A) $0. B) $936. C) $702. D) $234. E) $78.

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27) On April 1, Griffith Publishing Company received $22,680 from Santa Fe, Incorporated for 36-month subscriptions to several different magazines. The company credited Unearned Revenue for the amount received and the subscriptions started immediately. Assuming adjustments are only made at year-end, what is the adjusting entry that should be recorded by Griffith Publishing Company on December 31 of the first year? A) debit Unearned Revenue, $22,680; credit Subscription Revenue, $22,680. B) debit Unearned Revenue, $7,560; credit Subscription Revenue, $7,560. C) debit Unearned Revenue, $17,010; credit Subscription Revenue, $17,010. D) debit Unearned Revenue, $1,890; credit Subscription Revenue, $1,890. E) debit Unearned Revenue, $5,670; credit Subscription Revenue, $5,670.

28) On April 1, Santa Fe, Incorporated paid Griffith Publishing Company $3,240 for 36month subscriptions to several different magazines. Santa Fe debited the prepayment to a Prepaid Subscriptions account, and the subscriptions started immediately. What amount should appear in the Prepaid Subscription account for Santa Fe, Incorporated after adjustments on December 31 of the first year assuming the company is using a calendar-year reporting period and no previous adjustment has been made? A) $3,240. B) $810. C) $1,080. D) $2,430. E) $0.

29) A company made no adjusting entry for accrued and unpaid employee salaries of $7,600 on December 31. Which of the following statements is true? A) It will have no effect on income. B) It will overstate assets and liabilities by $7,600. C) It will understate net income by $7,600. D) It will understate assets by $7,600. E) It will understate expenses and overstate net income by $7,600.

30) The correct adjusting entry for accrued and unpaid employee salaries of $10,100 on December 31 is: Version 1

A) Debit Salaries Expense, 10,100; credit Cash, 10,100. B) Debit Salaries Expense, 10,100; credit Revenue, 10,100. C) Debit Salaries Expense, 10,100; credit Prepaid Salaries, 10,100. D) Debit Salaries Expense, 10,100; credit Salaries Payable, 10,100. E) Debit Salaries Payable, 10,100; credit Salaries Expense, 10,100.

31) A company purchased new furniture at a cost of $23,000 on January 1. The furniture is estimated to have a useful life of 5 years and a salvage value of $2,900. The company uses the straight-line method of depreciation. How much depreciation expense will be recorded for the furniture for the first year ended December 31? A) $1,150. B) $1,005. C) $4,020. D) $1,295. E) $4,195.

32) The balances in Sanchez Accounting Services' office supplies account on February 1 and February 28 were $1,000 and $500, respectively. If the office supplies expense for the month is $1,200, what amount of office supplies was purchased during February? A) $700. B) $1,700. C) $1,000. D) $500. E) $1,500.

33) If Regent Tax Services' office supplies account balance on March 1 was $850, the company purchased $800 of supplies during the month, and a physical count of supplies on hand at the end of March indicated $1,000 unused, what is the amount of the adjusting entry for office supplies on March 31?

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A) $1,050. B) $650. C) $850. D) $800. E) $1,650.

34) A physical count of supplies on hand at the end of May for Masters, Inc. indicated $1,256 of supplies on hand. The general ledger balance before any adjustment is $2,160. What is the adjusting entry for supplies that should be recorded on May 31? A) Debit Supplies Expense $1256 and credit Supplies $1256. B) Debit Prepaid Supplies $904 and credit Supplies Expense $904. C) Debit Supplies Expense $1256 and credit Supplies $2160. D) Debit Supplies $1256 and credit Cash $1256. E) Debit Supplies Expense $904 and credit Supplies $904.

35) On December 1, Milton Company borrowed $400,000, at 6% annual interest, from the Tennessee National Bank. Interest is paid when the loan matures one year from the issue date. What is the adjusting entry for accruing interest that Milton would need to make on December 31, the calendar year-end? A) Debit Interest Payable, $2,000; credit Interest Expense, $2,000. B) Debit Interest Expense, $2,000; credit Interest Payable, $2,000. C) Debit Interest Expense, $2,000; credit Cash, $2,000. D) Debit Interest Expense, $4,000; credit Interest Payable, $4,000. E) Debit Interest Expense, $24,000; credit Interest Payable, $24,000.

36) On September 1, Kennedy Company loaned $136,000, at 12% annual interest, to a customer. Interest and principal will be collected when the loan matures one year from the issue date. Assuming adjustments are only made at year-end, what is the adjusting entry for accruing interest that Kennedy would need to make on December 31, the calendar year-end?

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A) Debit Interest Expense, $16,320; credit Interest Payable, $16,320. B) Debit Interest Expense, $5,440; credit Interest Payable, $5,440. C) Debit Interest Receivable, $16,320; credit Cash, $16,320. D) Debit Interest Receivable, $5,440; credit Interest Revenue, $5,440. E) Debit Cash, $5,440; credit Interest Revenue, $5,440.

37) A roofing company collects payment when jobs are complete. The work for one customer, whose job was bid at $4,600, has been completed as of December 31, but the customer has not yet been billed. Assuming adjustments are only made at year-end, what is the adjusting entry the company would need to make on December 31, the calendar year-end? A) Debit Cash, $4,600; credit Roofing Revenue, $4,600. B) Debit Roofing Revenue, $4,600; credit Accounts Receivable, $4,600. C) Debit Accounts Receivable, $4,600; credit Roofing Revenue, $4,600. D) Debit Roofing Revenue, $4,600; credit Cash, $4,600. E) No adjustment is required.

38) On October 1, Goodwell Company rented warehouse space to a tenant for $4,000 per month. The tenant paid five months' rent in advance on that date, with the lease beginning immediately. The cash receipt was credited to the Unearned Revenue account. The company's annual accounting period ends on December 31. The year-end adjusting entry needed on December 31 is: A) Debit Accounts Receivable, $20,000; credit Rent Revenue, $20,000. B) Debit Accounts Receivable, $12,000; credit Rent Revenue, $12,000. C) Debit Unearned Revenue, $12,000; credit Rent Revenue, $12,000. D) Debit Unearned Revenue, $8,000; credit Rent Revenue, $8,000. E) Debit Unearned Revenue, $20,000; credit Rent Revenue, $20,000.

39) On October 1, Goodwell Company rented warehouse space to a tenant for $1,900 per month and received $9,500 for five months’ rent in advance on that date, with the lease beginning immediately. The cash receipt was credited to the Unearned Revenue account. The company’s annual accounting period ends on December 31. The Unearned Revenue account balance at the end of December, after adjustment, should be:

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A) $3,800. B) $5,700. C) $9,500. D) $1,900. E) $7,600.

40) Sanborn Company rents space to a tenant for $2,700 per month. The tenant has agreed to pay the November, December, and January rents in full on January 15. The adjusting entry for Sanborn on December 31 is: A) Debit Accounts Receivable, $8,100; credit Rent Revenue, $8,100. B) Debit Unearned Revenue, $5,400; credit Rent Revenue, $5,400. C) Debit Unearned Revenue, $2,700; credit Rent Revenue, $2,700. D) Debit Accounts Receivable, $5,400; credit Rent Revenue, $5,400. E) Debit Accounts Receivable, $2,700; credit Rent Revenue, $2,700.

41) Sanborn Company has 10 employees, who earn a total of $2,900 in salaries each working day. They are paid on Monday for the five-day workweek ending on the previous Friday. Assume that year ended December 31, is a Wednesday and all employees will be paid salaries for five full days on the following Monday. The adjusting entry needed on December 31 is: A) Debit Salaries Expense, $8,700; credit Salaries Payable, $8,700. B) Debit Salaries Expense, $5,800; credit Salaries Payable, $5,800. C) Debit Salaries Expense, $14,500; credit Salaries Payable, $14,500. D) Debit Salaries Payable, $8,700; credit Salaries Expense, $8,700. E) Debit Salaries Expense, $8,700; credit Cash, $8,700.

42) Holman Company owns equipment with an original cost of $95,480 and an estimated salvage value of $5,240 that is being depreciated at $15,040 per year using the straight-line depreciation method, and only prepares adjustments at year-end. The adjusting entry needed to record annual depreciation is:

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A) Debit Depreciation Expense, $15,040; credit Equipment, $15,040. B) Debit Equipment, $15,040; credit Accumulated Depreciation, $15,040. C) Debit Depreciation Expense, $9,800; credit Accumulated Depreciation, $9,800. D) Debit Depreciation Expense, $9,800; credit Equipment, $9,800. E) Debit Depreciation Expense, $15,040; credit Accumulated Depreciation, $15,040.

43) On November 1, Jovel Company loaned another company $110,000 at a 9.0% interest rate. The note receivable plus interest will not be collected until March 1 of the following year. The company's annual accounting period ends on December 31. The amount of interest revenue that should be reported in the first year is: A) $0. B) $6,800. C) $5,475. D) $17,300. E) $1,650.

44) On December 1, Casio borrowed $61,000 at a 6% interest rate from One Mutual Bank. The note payable plus interest will not be paid until April 1 of the following year. Casio’s accounting period ends on December 31, and adjustments are only made at year-end. The adjusting entry needed on December 31 for Casio is: A) No entry required. B) Debit Interest Expense, $305; credit Interest Payable, $305. C) Debit Interest Expense, $305; credit Note Payable, $305. D) Debit Interest Payable, $1,220; credit Interest Expense, $1,220. E) Debit Interest Expense, $1,220; credit Interest Payable, $1,220.

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Answer Key Test name: Chap 03_17ce_Test Bank_Algo 1) E Net Income = Total Revenues − Total Expenses. (Service Revenue $8,900 − Salaries Expense $690 − Utilities Expense $1,380 = $6,830) 2) B Revenue $39,100 − Wages Expense $6,700 − Rent Expense $5,700 − Utilities Expense $1,350 3) B $260 − 26 = $234 4) C 5) A Net Income = Revenues − Expenses Net Income = $29,000 (#4) − $3,300 (#3) − $7,500 (#5) + $4,300 (#6) − $1,800 (#7) = $20,700 6) B Ending Capital = $33,000 (#1) + $108,000 (#2) − $2,800 (#3) + $24,000 (#4) − $7,000 (#5) + $3,800 (#6) − $1,300 (#7) − $5,800 (#9) = $151,900 7) C $8,500/24 months = $354.17 per month. $354.17 per month × 6 months = $2,125. 8) C 9) D $3,900 × 9/36 = $975.00 10) A Version 1

$3,360 × 6/12 = $1,680 11) C $420 − $150 = $270 12) D $2,800 × 1/5 = $560 per year. 13) C $21,600 × 8/24 = $7,200 14) D $10,200 × 3/8 = $3,825 earned by December 31. 15) B 2 employees × 2 days × $130/employee/day = $520 16) E 4 days × $40/day = $160 17) A $1,330,000/4 = $332,500 18) B $16,200/12 = $1,350 19) E 20) D [($54,000 − $4,200)/6 years] = $8,300 21) B $690 + Supplies Purchased − $3,550 = $580 Supplies Purchased − $2,860 = $580 Supplies Purchased = $3,440 Office Supplies Debit Credit 690 3,440

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3,550

580

22) E 23) B $5,100/2 = $2,550 per month 24) A $5,200 × 2/4 = $2,600 25) B $9,350 − $4,050 = $5,300 26) C $2,808/36 = $78.00 per month Year 1: $78.00 × 9 months = $702 Year 2: $78.00 × 12 months = $936 Year 3: $78.00 × 12 months = $936 Year 4: $78.00 × 3 months = $234 27) E $22,680/36 = $630 × 9 = $5,670 28) D $3,240/36 = $90 per month Year 1 = $3,240 − ($90 × 9) = $2,430 29) E 30) D 31) C ($23,000 − $2,900)/5 years = $4,020 per year. 32) A $1,000 + Supplies Purchased − $1,200 = $500 Supplies Purchased − $200 = $500 Supplies Purchased = $700 Office Supplies Debit Credit

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1,000 700

1,200

500

33) B Beginning Supplies + Supplies Purchased − Ending Supplies = Supplies Used $850 + $800 − $1,000 = $650 Office Supplies Debit Credit 850 800

650

1,000

34) E General Ledger balance − Supplies on hand = Supplies used $2,160 − $1,256 = $904 35) B $400,000 × 0.06 × 30/360 = $2,000 36) D $136,000 × 0.12 × 4/12 = $5,440 37) C 38) C $4,000 × 3 = $12,000 39) A $1,900 × 3 = $5,700 earned $9,500 − $5,700 = $3,800 40) D $2,700 × 2 = $5,400 41) A Version 1

$2,900 × 3 = $8,700 42) E 43) E $110,000 × 0.09 × 60/360 = $1,650 44) B $61,000 × 0.06 × 30/360 = $305

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CHAPTER 3 TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Adjusting entries are designed primarily to correct errors made by bookkeepers. ⊚ ⊚

true false

Adjusting entries are made after the preparation of financial statements. ⊚ ⊚

true false

3) Before making adjusting entries at the end of an accounting period, some accounts may not show proper financial statement amounts even though all transactions were correctly recorded. ⊚ ⊚

true false

Adjusting entries are used to record the effects of internal economic events. ⊚ ⊚

true false

5) External business transactions are transactions between the business entity and some other (outside) party. ⊚ ⊚

true false

Internal transactions have no effect on the accounting equation. ⊚ ⊚

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true false

7) If equipment were purchased from an outside party, the using up of the equipment's economic benefit would be considered an external transaction. ⊚ ⊚

Internal transactions often include cash payments. ⊚ ⊚

true false

A company's fiscal year must correspond with the calendar year. ⊚ ⊚

true false

10) Companies with little seasonal variation in sales often choose the calendar year as their fiscal year. ⊚ ⊚

11)

true false

IFRS requires the preparation of interim financial statements. ⊚ ⊚

true false

12) The timeliness principle assumes that an organization's activities can be divided into specific periods. ⊚ ⊚

13)

true false

Interim financial reports cover a firm's business activity for one year. ⊚ ⊚

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true false 2

14) The 12 consecutive months (or 52 weeks) selected as an organization's accounting period is called the fiscal year. ⊚ ⊚

true false

15) The natural business year can only be used when the seasonal variation in sales does not match the calendar year. ⊚ ⊚

16)

true false

Adjusting entries are required to match revenues and expenses. ⊚ ⊚

true false

17) The two main accounting principles used in the adjusting process are matching and full disclosure. ⊚ ⊚

true false

18) The matching principle requires that revenue be assigned to the accounting period in which it is earned. ⊚ ⊚

true false

19) The revenue recognition principle is the basis for making adjusting entries that pertain to unearned and accrued revenues. ⊚ ⊚

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true false

20) Since the revenue recognition principle requires that revenues be earned, there is no such thing as unearned revenues in accounting. ⊚ ⊚

true false

21) The economic effect of an expense is incurred when the benefit expires or is used up, not when cash is paid. ⊚ ⊚

true false

22) The cash basis of accounting commonly results in financial statements that are not comparable from period to period. ⊚ ⊚

true false

23) Under the cash basis of accounting, no adjustments are made for prepaid, unearned, and accrued items. ⊚ ⊚

true false

24) The cash basis of accounting is an accounting system in which revenues are reported in the income statement when cash is received, and expenses are reported when cash is paid. ⊚ ⊚

true false

25) Both the accrual basis and the cash basis of accounting increase the comparability of financial statement information from period to period. ⊚ ⊚

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true false

26) The accrual basis of accounting is an accounting system in which revenues are reported as earned when cash is received. ⊚ ⊚

true false

27) Generally, accrual basis accounting results in a more accurate measurement of profit for the period than the cash basis accounting. ⊚ ⊚

true false

28) The accrual basis of accounting reflects the understanding that the economic effect of revenue generally occurs when it is earned, not when cash is received. ⊚ ⊚

true false

29) The accrual basis of accounting is a system of accounting in which the adjustment process is used to assign revenues to the periods in which they are earned and to match expenses with revenues. ⊚ ⊚

true false

30) Canadian ASPE allows accrual accounting as an option whereas IFRS requires accrual accounting. ⊚ ⊚

true false

31) Gallery Corp. paid $6,000 for a six-month insurance policy for the company van. The policy coverage began on January 1. On January 31, $1,000 of insurance expense must be reported.

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⊚ ⊚

true false

32) On October 15, Gallery Corp. received $12,500 as a down payment on a consulting contract. The amount was credited to Unearned Consulting Revenue. By October 31, 10% of the contract was completed. Gallery Corp. needs to prepare an adjusting entry for $1,250. ⊚ ⊚

true false

33) Adjustments are necessary for transactions and events that extend over more than one accounting period. ⊚ ⊚

34)

true false

An adjusting entry can only affect income statement accounts. ⊚ ⊚

true false

35) Accrued expenses reflect transactions where cash is paid before a related expense is recognized. ⊚ ⊚

true false

36) Revenues earned, but uncollected that are recorded during the adjusting process, with a credit to a revenue account and a debit to an expense account, are referred to as accrued expenses. ⊚ ⊚

37)

true false

Adjusting entries are always dated at the end of the accounting period.

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⊚ ⊚

38)

Adjusting entries are posted to the general ledger. ⊚ ⊚

39)

true false

Adjusting entries may affect only balance sheet accounts. ⊚ ⊚

true false

40) Before an adjusting entry for expired insurance is made, the amount in Prepaid Insurance is overstated and Insurance Expense is overstated. ⊚ ⊚

true false

41) Before an adjusting entry for accrued salaries is made, the amount in Salaries Expense is understated and the amount in Salaries Payable is also understated. ⊚ ⊚

true false

42) Gallery Corp. owes its employees $7,000 for the week ended March 31. The company will pay the employees on April 5. The adjusting journal entry prepared on March 31 will include a debit to Salaries Expense and a credit to Cash. ⊚ ⊚

43)

true false

Failure to record depreciation expense will overstate the asset and understate the expense. ⊚ ⊚

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true false

44) A contra account is an account the balance of which is added to the balance of an associated account to show a more proper amount for the item recorded in the associated account. ⊚ ⊚

true false

45) If on January 1 of this year, a company paid $12,000 rent for one year and adjusting entries are made at the end of each month, the balance of Prepaid Rent on December 1 of this year should be $1,000. ⊚ ⊚

true false

46) Accumulated depreciation is shown on the balance sheet as a subtraction from the cost of an asset. ⊚ ⊚

47)

true false

A contra-asset account has a normal debit balance. ⊚ ⊚

true false

48) The entry to record a cash receipt from a customer when the service to be provided to earn the cash has not yet been performed involves a debit to an unearned revenue account. ⊚ ⊚

true false

49) Depreciation expense for a period is the portion of a plant asset's cost that is allocated to that period.

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⊚ ⊚

true false

50) All items of plant and equipment, including land, eventually wear out or lose their usefulness. ⊚ ⊚

true false

51) During August, Gallery Corp. purchased $4,000 worth of supplies. On August 31, the adjusted balance in the Supplies account was $2,800. The adjusting entry included a $1,200 debit to Supplies Expense. ⊚ ⊚

true false

52) The amount of the month-end adjusting entry for Insurance Expense is $1,000. If the entry is not made, then expenses are understated by $1,000 and profit is overstated by $1,000. ⊚ ⊚

53)

Salaries earned by employees, but unrecorded, are an example of an accrued expense. ⊚ ⊚

54)

true false

In accrual basis accounting, accrued revenues are recorded as liabilities. ⊚ ⊚

55)

true false

Depreciation expense is an example of accrued expense. ⊚ ⊚

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true false

56) If you fail to record accrued salaries at the end of the month, profit for the month will be overstated. ⊚ ⊚

true false

57) Expenses incurred during an accounting period but that, before end-of-period adjustments, remain unrecorded because payment is not due are referred to as accrued expenses. ⊚ ⊚

true false

58) Gallery Corp. performs 20 days' work on a 30-day contract. The total contract is valued at $6,000. The adjusting entry of $4,000 includes a credit to unearned revenue. ⊚ ⊚

true false

59) Accrued expenses at the end of one period result in cash payments in a subsequent period. ⊚ ⊚

60)

true false

Accrued revenues at the end of one period result in cash payments in a subsequent period. ⊚ ⊚

true false

61) On January 8, Gallery Corp. records $5,000 of accrued salaries. On January 15, $10,000 of salaries is paid. The entry on January 15 includes a debit to the Salaries Payable account. ⊚ ⊚

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true false

62) On April 1, Gallery Corp. entered into a two-month contract for $50,000. Gallery Corp. earned $25,000 of the contract in April and billed the customer. Gallery Corp. should recognize the revenue when it receives the customer's cheque. ⊚ ⊚

63)

true false

The book value of an asset is equivalent to the market value of that asset. ⊚ ⊚

true false

64) Even if no errors have been detected in the processing of accounting data, adjusting entries may be needed at the end of an accounting period. ⊚ ⊚

true false

65) Depreciation attempts to adjust the ledger account balances for assets to equate to their current market value. ⊚ ⊚

66)

An adjusting entry may include an entry to Cash. ⊚ ⊚

67)

true false

Before adjusting for accrued revenues, both assets and equity are understated. ⊚ ⊚

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true false

68) An unadjusted trial balance is a listing of accounts prepared before adjustments are recorded. ⊚ ⊚

69)

true false

The adjusted trial balance must be prepared before the adjusting entries are made. ⊚ ⊚

true false

70) Financial statements can be prepared directly from the information in the adjusted trial balance. ⊚ ⊚

71)

true false

The report format is considered to be the only correct format for the balance sheet. ⊚ ⊚

true false

72) The account format of the balance sheet matches the accounting equation. Assets are on the left side of the statement. Liabilities and equity are on the right side of the statement. ⊚ ⊚

73) first.

In preparing financial statements from the trial balance, the balance sheet is prepared ⊚ ⊚

74)

true false

Correcting entries are a specialized type of adjusting entry.

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⊚ ⊚

75)

Correcting entries cannot involve cash. ⊚ ⊚

76)

true false

Correcting an error always requires two entries. ⊚ ⊚

true false

77) Computerized accounting systems should include controls to show when and where corrections are made. ⊚ ⊚

78)

Prepaid expenses may be recorded as debits to expense accounts. ⊚ ⊚

79)

true false

It is acceptable to credit unearned revenues to revenue accounts when cash is received. ⊚ ⊚

true false

80) Under the alternative method for recording prepaid expenses, the purchase of insurance for cash would be recorded as a debit to Cash and a credit to Prepaid Insurance. ⊚ ⊚

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true false

81) Under the alternative method for recording unearned revenue, the receipt of cash in advance of performing services would be recorded as a credit to Unearned Revenue and a debit to Cash. ⊚ ⊚

true false

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 82) The main purpose of adjusting entries is to A) Record external transactions and events B) Record internal transactions and events C) Recognize revenues received during the period D) Recognize expenses paid during the period E) Adjust assets to their market value

83) The timeliness principle assumes that an organization's activities can be divided into specific time periods including A) One month B) Quarters C) Fiscal year D) Calendar year E) All of the choices are correct.

84) On April 8 Ignacio Ltd. a courier company, receives $500 cash from a customer to provide priority delivery services in the month of May. Ignacio purchases and pays for $200 office supplies on April 15. During the month of May Ignacio provides the priority delivery services to its customer and uses $170 in office supplies. Which of the following is correct as it relates to the revenue and expenses for April and May under generally accepted accounting principles?

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A) April: $0 revenues and $0 expenses; May: $500 revenues and $0 expenses B) April: $0 revenues and $0 expenses; May: $500 revenues and $170 expenses C) April: $0 revenues and $0 expenses; May: $500 revenues and $200 expenses D) April: $500 revenues and $0 expenses; May: $0 revenues and $170 expenses E) April: $500 revenues and $170 expenses; May: $0 revenues and $0 expenses

85)

Interim financial reports are financial reports

A) Covering less than one year, usually based on one- or three-month periods B) That are prepared before any adjustments have been recorded C) That show the assets above the liabilities and the liabilities above the equity D) In which revenues are reported in the income statement when cash is received, and expenses are reported when cash is paid E) In which the adjustment process is used to assign revenues to the periods in which they are earned and to match expenses with revenues

86) The 12-month period that ends when a company's activities are at their lowest point is called the A) Fiscal year B) Calendar year C) Natural business year D) Accounting period E) Interim period

87)

The length of time covered by periodic financial statements and other reports is the A) Fiscal year B) Natural business year C) Accounting period D) Business cycle E) Operating cycle

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88)

The accounting principle that requires revenue to be reported when earned is the A) Matching principle B) Revenue recognition principle C) Timeliness principle D) Cost principle E) Going concern principle

89) The broad principle that requires expenses to be reported in the same period as the revenues that were earned as a result of the expenses is the A) Revenue recognition principle B) Cost principle C) Cash basis of accounting D) Matching principle E) Timeliness principle

90) The approach to preparing financial statements based on recognizing revenues when the cash is received and reporting expenses when the cash is paid is called A) Accrual basis accounting B) The operating cycle of a business C) Cash basis accounting D) The revenue recognition principle E) The matching principle

91) The approach to preparing financial statements based on recognizing revenues when they are earned and matching expenses to those revenues is

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A) Accrual basis accounting B) The operating cycle of a business C) Cash basis accounting D) The revenue recognition principle E) The matching principle

92)

The accrual basis of accounting A) Is generally accepted for external reporting because it gives more useful information B) Is not acceptable because it gives incomplete information about cash flows C) Recognizes revenues when received D) Recognizes expenses when paid E) Eliminates the need for adjusting entries

93) The accounting basis that attempts to measure performance in the period in which it occurred is the A) IFRS Basis B) Cash Basis C) Matching Basis D) Accrual Basis E) Revenue Recognition Basis

94) A Company received a $10,000 deposit from a customer for goods to be delivered the following month. Under the accrual and cash basis of accounting respectively the deposit would be recorded as A) Accrual Basis: a liability | Cash Basis: a liability B) Accrual Basis: a liability | Cash Basis: income C) Accrual Basis: income | Cash Basis: a liability D) Accrual Basis: income | Cash Basis: income E) Accrual Basis: an asset | Cash Basis: an asset

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95) Adjusting entries are journal entries made at the end of an accounting period for the purpose of A) Updating related liability and asset accounts B) Assigning revenues to the period in which they are earned C) Assigning expenses to the period in which the expiration of benefit has incurred D) Recording internal transactions E) All of the choices are correct.

96)

Adjusting entries A) Affect only income statement accounts B) Affect only balance sheet accounts C) Affect both income statement and balance sheet accounts D) Affect only statement of cash flows accounts E) Affect only equity accounts

97) Prepaid expenses, depreciation, accrued expenses, unearned revenues, and accrued revenues are all examples of A) Items that require contra accounts B) Items that require adjusting entries C) Classified balance sheet accounts D) Assets E) Income statement accounts

98)

Which of the following statements is correct?

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A) Prepaid expenses, depreciation, and unearned revenues involve previously recorded assets. B) Accrued expenses and accrued revenues involve liabilities that have not yet been recorded. C) Accrued expenses and accrued revenues involve assets that have not yet been recorded. D) Prepaid expenses, depreciation, and unearned revenues involve previously recorded liabilities. E) Prepaid expenses, depreciation, and unearned revenues involve previously recorded assets and liabilities.

99) An account, the balance of which is subtracted from the balance of a related account so that more complete information than simply the net amount is provided is a(n) A) Accrued expense B) Contra account C) Accrued revenue D) Prepaid expense E) Withdrawal

100) The total amount of depreciation recorded for an asset during the entire time the asset has been owned A) Is not shown on the balance sheet B) Is referred to as accumulated depreciation C) Is shown on the income statement D) Is shown on the statement of changes in equity E) Is recorded in a liability account

101) The expense created by allocating the cost of plant and equipment to the periods benefiting from its use is called

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A) Accumulated depreciation B) The cash basis of accounting C) The matching principle D) Depreciation E) Allowance for depreciation

102) Which of the following would be the effect of a transaction to expense Supplies for the period? A) Increase Supplies, Decrease Supplies expense B) Increase Supplies expense, Decrease Cash C) Increase Supplies, Decrease Cash D) Increase Supplies expense, Decrease Supplies E) Decrease Supplies expense, Decrease Cash

103)

The purpose of depreciation is to A) Measure the change in an asset's value B) Adjust the carrying value of an asset to market value C) Allocate the asset's cost to the periods benefiting from its use D) Recognize the reduced usefulness of an asset E) Adjust the ledger account balances for assets to equate to their current market value

104)

Which of the following accounts is most likely associated with an accrued expense? A) Depreciation expense B) Salaries Payable C) Unearned revenue D) Accounts Receivable E) Service revenue

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105) Before recording adjusting entries, the Office Supplies account had a $359 debit balance while a physical count of the supplies showed $105 of unused supplies on hand. Thus, the required adjusting entry is A) Debit Office Supplies $105 and credit Office Supplies Expense $105 B) Debit Office Supplies Expense $254 and credit Office Supplies $254 C) Debit Office Supplies Expense $105 and credit Office Supplies $105 D) Debit Office Supplies $254 and credit Office Supplies Expense $254 E) None of the entries are correct.

106) If throughout an accounting period the fees for legal services paid in advance by clients are recorded in an account called Unearned Legal Services Revenue, the end-of-period adjusting entry to record the portion of these fees that has been earned is A) Debit Cash and credit Legal Service Revenue B) Debit Cash and credit Unearned Legal Service Revenue C) Debit Unearned Legal Service Revenue and credit Legal Service Revenue D) Debit Legal Service Revenue and credit Unearned Legal Service Revenue E) Some other entry

107) A company paid the $1,350 premium on a three-year insurance policy on April 1, 2022. The policy gave protection beginning on that date. How many dollars of the premium will appear as an expense on the calendar year 2022 income statement assuming the accrual basis of accounting? Assuming the cash basis of accounting? A) $1,350 accrual basis; $337.50 cash basis B) $450 accrual basis; $450 cash basis C) $337.50 accrual basis; $1,350 cash basis D) $1,012.50 accrual basis; $1,350 cash basis E) $1,350 accrual basis; $1,350 cash basis

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108) Zang Company had no office supplies on hand at the beginning of the year. During the year, the company purchased $250 worth of office supplies. At the end of the year, $50 worth of office supplies was on hand. How much should Zang Company report as office supplies expense for the year? A) $75 B) $125 C) $175 D) $200 E) $300

109) On January 1, 2022, Peach Company purchased a five-year insurance policy for $5,000. If the cost was debited to Prepaid Insurance, the adjusting entry at the end of 2022 is A) Debit Prepaid Insurance, $1,800; credit Cash, $1,800 B) Debit Prepaid Insurance, $1,000; credit Insurance Expense, $1,000 C) Debit Prepaid Insurance, $360; credit Insurance Expense, $360 D) Debit Insurance Expense, $360; credit Prepaid Insurance, $360 E) Debit Insurance Expense, $1,000, credit Prepaid Insurance $1,000

110) On Oct. 1, 2021, Bianca Inc. signed a 1-year $75,000 note payable from Prime National Bank. The loan plus 4% interest is to be repaid on Sept. 30, 2022. Bianca's year-end is December 31. In its 2021 financial statements, Bianca will record an interest expense of A) $250 B) $750 C) $3,000 D) $3,375 E) $1,000

111) On July 1, 2021, JazzE Ltd. purchased a 3-year insurance policy and paid a premium of $60,000. JazzE has a December 31 year-end. Under accrual accounting, which of the following statements best describes the effect of this transaction?

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A) The balance in the prepaid insurance account on December 31, 2022, will be $40,000. B) The insurance expense account for the period ending December 31, 2022, will be $20,000. C) The balance in the prepaid insurance account on December 31, 2022, will be $30,000. D) The insurance expense account for the period ending December 31, 2022, will be $10,000. E) The balance in the prepaid insurance account on December 31, 2022, will be $60,000.

112)

An adjusting entry could be made for all the following, except A) Prepaid expenses B) Depreciation expense C) Owner withdrawals D) Unearned revenues E) Accrued revenues

113)

Which of the following assets is not depreciated? A) Store fixtures B) Computers C) Land D) Buildings E) Trucks

114)

Which of the following does not require an adjusting entry at year-end? A) Accrued interest on notes payable B) Supplies used during the period C) Cash invested by owner D) Accrued wages E) Expired portion of prepaid insurance

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115) The premium on a three-year insurance policy purchased on June 30, 2022, was $36,000. What is the amount of insurance expense that should be presented on the company's income statement for the year ended December 31, 2022? A) $500 B) $1,000 C) $3,000 D) $6,000 E) $8,000

116) Lang leased a portion of its store to Pang for 12 months beginning on November 1, at a monthly rate of $400. Pang paid the entire $4,800 on November 1, which Lang recorded as unearned revenue. The journal entry made by Lang at year-end, December 31, would include A) A debit to Rent Earned for $400 B) A credit to Unearned Rent for $400 C) A debit to Cash for $800 D) A credit to Rent Earned for $800 E) A debit to Unearned Rent for $4,800

117) On May 1, 2022. Bee Advertising Company received $2,500 from Julie Cee for advertising services to be completed by April 30, 2022. Assume the receipt was recorded as unearned revenue and that on December 31, 2022, $1,000 of the fees had been earned. The adjusting entry prepared by Bee on December 31, 2022, should include A) A debit to Unearned Revenue for $500 B) A credit to Unearned Revenue for $500 C) A debit to Unearned Revenue for $1,000 D) A debit to Revenue for $1,000 E) A debit to Revenue for $500

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118) On July 1, 2022, Nuby Trucking Company purchased a new truck for $52,000. The truck is estimated to have a useful life of six years and a residual value of $10,000. How much depreciation expense will be recorded for the truck during the year ended December 31, 2022 (Assume straight-line depreciation method to record the depreciation expense)? A) $3,000 B) $3,500 C) $4,000 D) $6,000 E) $7,000

119) The Office Supplies account shows a beginning balance of $600 and an ending balance of $400. If office supplies expense for the year is $3,100, what amount of office supplies was purchased during the year? A) $2,700 B) $2,900 C) $3,300 D) $3,500 E) $3,700

120)

For a prepaid expense, the adjusting entry would A) Result in a debit to an expense account and a credit to an asset account B) Cause a prepaid expense to be overstated and liabilities to be understated C) Result in a credit to an expense account and a debit to an asset account D) Result in a debit to a liability account and a credit to an asset account E) Decrease cash

121) The balance in the Prepaid Insurance account on December 31, 2022, is $9,800. This was for a one-year insurance policy purchased for $16,800 and in effect on July 1, 2022. What is the required adjustment amount on December 31st?

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A) Debit Insurance expense and Credit Prepaid Insurance for $1,400 B) Debit Prepaid Insurance and Credit insurance expense for $1400 C) Debit Insurance Expense and Credit Prepaid Insurance for $9,800 D) Debit Insurance Expense and Credit Prepaid Insurance for $7,000 E) No adjustment is required

122) On December 1, your company paid its insurance agent $2,400 for the annual insurance premium covering the twelve-month period beginning on December 1. The $2,400 payment was recorded on December 1 with a debit to the income statement account Insurance Expense and a credit to the current asset Cash. Your company prepares monthly financial statements at the end of each calendar month. The entry to be made at the December 31 month end to adjust the accounts is A) Debit Prepaid insurance 2200; Credit Insurance Expense 2200 B) Debit Insurance Expense 200; Credit Prepaid Insurance 200 C) Debit Prepaid Insurance 200; Credit Insurance Expense 200 D) Debit Insurance Expense 2200; Credit Prepaid Insurance 2200 E) Debit Insurance Expense 2400; Credit Prepaid Insurance 2400

123) Expenses incurred, but that are unpaid and recorded during the adjusting process with a debit to an expense and a credit to a liability are called A) Operating expense B) Prepaid expenses C) Unearned expense D) Accounts payable E) Accrued expenses

124)

Which of the following is not considered a basic type of adjusting entry?

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A) An entry to convert a liability to a revenue B) An entry to accrue unpaid expenses C) An entry to convert an asset to an expense D) An entry to convert an asset to a liability E) An entry to accrue uncollected revenue

125)

Which of the following accounts is most likely to be associated with an accrued expense? A) Depreciation expense B) Salaries Payable C) Unearned revenue D) Accounts receivable E) Service revenue

126) The adjusting entry to record the earned but unpaid salaries of employees at the end of the accounting period is A) Debit Unpaid Salaries and credit Salaries Payable B) Debit Salaries Payable and credit Salaries Expense C) Debit Salaries Expense and credit Cash D) Debit Salaries Expense and credit Salaries Payable E) Debit Cash and credit Salaries Expense

127) A business pays each of its two office employees each Friday at the rate of $60 per day for a five-day week that begins on Monday. If the accounting period ends on Tuesday and the employees worked on both Monday and Tuesday, the adjusting entry to record the salaries earned but unpaid is

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A) Debit Unpaid Salaries $120 and credit Salaries Payable $120 B) Debit Salaries Payable $240 and credit Office Salaries Expense $240 C) Debit Office Salaries Expense $120 and credit Salaries Payable $120 D) Debit Office Salaries Expense $240 and credit Salaries Payable $240 E) Debit Salaries Expense $240 and credit Cash $240

128) An adjusting entry was made on December 31, 2021, to accrue salaries expense of $1,200. Which of the following entries would be prepared to record the next payment of salaries, on January 5, 2022, for $3,000? A) Salaries Expense

3,000

Cash

3,000

B) Salaries Payable

3,000

Cash

3,000

C) Salaries Payable

1,200

Cash

1,200

D) Salaries Expense Salaries Payable

1,200 1,200

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Salaries Payable

1,200

Salaries Expense

1,800

Cash

3,000

129) If accrued salaries were recorded on December 31 with a credit to Salaries Payable, the entry to record payment of these wages on January 5 would include A) A debit to Cash and a credit to Salaries Payable B) A debit to Cash and a credit to Prepaid Salaries C) A debit to Salaries Payable and a credit to Cash D) A debit to Salaries Payable and a credit to Salaries Expense E) No entry would be necessary on January 5

130) HCF, a finance company, lends Able Business $12,000 at 5% on December 1, 2022. HCF's adjusting entry on December 31, 2022, should include A) A debit to Interest Earned for $50 B) A credit to Interest Receivable for $50 C) A credit to Interest Earned for $50 D) A debit to Cash for $600 E) A debit to Interest Expense for $600

131)

Accrued revenues

A) Are paid in advance B) At the end of one accounting period often result in cash receipts from customers in the next period C) At the end of one accounting period often result in cash payments in the next period D) Are also called unearned revenues E) Are listed on the balance sheet as liabilities

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132) In January, Denton Mabrey College received $120,000 in Unearned Tuition Revenue from its students for the spring semester, which lasts four months. What tuition revenue would the college recognize on January 31? A) $30,000 B) $60,000 C) $80,000 D) $90,000 E) $120,000

133) On January 31 of this year, Gallery Corp. recorded 2 days of accrued salaries ($140) for its employees. On February 13, the company paid its employees a total of $700. The correct journal entries on January 31 and February 13 are A) Jan 31 Salaries Expense

140

Salaries Payable

140

Feb 13 Salaries Payable

560

Salaries Expense

140

Cash

700

B) Jan 31 Salaries Payable

140

Salaries Expense

140

Feb 13 Salaries Expense

560

Salaries Payable

140

Cash

700

C) Version 1

Jan 31 Salaries Expense

140

Cash Feb 13 Salaries Expense

140 700

Cash

700

D) Jan 31 Salaries Expense

140

Salaries Payable Feb 13 Salaries Expense

140 700

Cash

700

E) Jan 31 Salaries Expense

140

Salaries Payable

140

Feb 13 Salaries Expense

560

Salaries Payable

140

Cash

700

134) Laurey's Pet Emporium purchased equipment on January 1 for $35,000. The equipment will be used for five years, after which the estimated residual value will be $2,000. Using straight-line depreciation, what is the depreciation expense for the first year of the asset's life? A) $4,000 B) $5,600 C) $6,600 D) $7,000 E) $7,400

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135) Vanderet's Computer Business owns computer equipment which cost $3,240 and has an expected useful life of three years. No residual value is expected. At the company's year-end, December 31, the equipment's book value is $2,520. In what month was the computer purchased using the straight-line depreciation method? A) January B) March C) May D) June E) August

136)

Which of the following is false?

A) Adjusting entries are made at the end of an accounting period. B) Adjusting entries are not necessary under the cash basis of accounting. C) The cash account will usually be affected by adjusting entries. D) Adjusting entries always affect at least one revenue or one expense account and at least one asset or liability account. E) Adjusting entries are used to record the effects of internal economic events.

137) Due to an oversight, the company bookkeeper made no adjusting entry for accrued and unpaid employee wages of $24,000 on December 31. This oversight would A) Understate profit by $24,000 B) Have no effect on profit C) Overstate profit by $24,000 D) Overstate liabilities E) Have no effect on the balance sheet

138) A company prepays rent of $500 and receives a $3,000 payment for services not yet rendered. Under accrual basis accounting, these two transactions will

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A) Increase profit by $2,500 B) Increase profit by $3,000 C) Decrease profit by $500 D) Have no effect on profit E) Decrease profit by $3,500

139) If an accountant forgot to record depreciation on office equipment at the end of an accounting period, what is the effect on the statements prepared at that time? A) Assets are overstated and equity is understated. B) Assets and equity are both understated. C) Assets are overstated, profit is understated, and equity is overstated. D) Assets, profit, and equity are understated. E) Assets, profit, and equity are overstated.

140) If the accountant failed to make the end-of-period adjustment to reduce the Unearned Management Revenue account by the amount of management revenue earned, the omission would cause A) an overstatement of profit B) an overstatement of assets C) an overstatement of liabilities D) an overstatement of equity E) an understatement of expenses

141) Throughout an accounting period, the fees for legal services paid in advance by clients are recorded in an account called Unearned Legal Service Revenue. If the accountant fails to make the end-of-period adjusting entry to record the portion of these fees that has been earned, one effect will be

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A) an overstatement of equity B) an understatement of equity C) an understatement of assets D) an understatement of liabilities E) an overstatement of profit

142) Adjusting entries are recorded at the end of the accounting period to bring an asset or liability account balance to its proper amount and never affect the Cash account. Which of the following choices is correct? A) In the case of accrued revenues, cash has already been recorded B) In the case of unearned revenues, cash has already been recorded C) In the case of unearned revenues, cash will be paid in the future D) In the case of prepaid assets, cash will be received in the future E) All the choices are correct

143) In reviewing the accounts of Tumblers Co., you discovered that a credit of $1,000 to prepaid insurance was wrongly credited to accounts receivable, and an $800 prepayment was remitted for a radio advertisement that was not posted. Which of the following statements reflects the effect of the errors? A) There is no overstatement or understatement in the total assets and the owner's equity. B) Total assets is understated by $200 and owner's equity is understated by $200. C) Total assets is overstated by $300 and owner's equity is overstated by $300. D) Total assets is overstated by $500 and owner's equity is overstated by $500. E) Total assets is understated by $1,800 and owner's equity is understated by $1000.

144) A receipt of $15,700 cash from a customer as a payment on account was incorrectly credit to service revenue. Which is the effect of this error on the company's financial statements?

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A) Assets are overstated by $31,400 and owners' equity is overstated by $31,400. B) Assets are understated by $15,700 and owners' equity is understated by $15,700. C) Assets are understated by $15,700 and liabilities are understated by $15,700. D) Assets are overstated by $15,700 and owners' equity is overstated by $15,700. E) Assets are understated by $31,400 and liabilities are understated by $31,400.

145)

Which of the following statements is incorrect?

A) An adjusted trial balance shows the account balances after they have been revised to reflect the effects of end-of-period adjustments. B) Interim financial reports can be based on one-month or three-month accounting periods. C) The fiscal year is any 12 consecutive months used by a business as its annual accounting period. D) Property, plant, and equipment are long-term assets. E) The cash basis of accounting is consistent with GAAP.

146)

A trial balance prepared before any adjustments is A) An adjusted trial balance B) Used to prepare the financial statements C) An unadjusted trial balance D) Correct with respect to proper balance sheet and income statement amounts E) Incomplete and will not have the debits equal to the credits

147)

The adjusted trial balance contains information pertaining to A) Asset accounts only B) Balance sheet accounts only C) Income statement accounts only D) All general ledger accounts E) Revenue accounts only

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148) On Ignacio Company's unadjusted trial balance, Prepaid Insurance has a debit balance of $4,400, Accumulated Depreciation, Equipment has a credit balance of $1,000 and Unearned Revenue a credit balance of $3,000. The following adjustments were made at the end of April: • Recorded expired insurance for $400, • Recorded Depreciation Expense, Equipment for $500 and • Recorded earned revenue of $300 previously received in advance. What balances will be shown on the Adjusted Trial balance for Prepaid Insurance, Accumulated Depreciation, Equipment and Unearned Revenue accounts? A) Prepaid Insurance $4,800, Accumulated Depreciation, Equipment $1,500 and Unearned Revenue $$2,700 B) Prepaid Insurance $4,000, Accumulated Depreciation, Equipment $1,500 and Unearned Revenue $$2,700 C) Prepaid Insurance $4,800, Accumulated Depreciation, Equipment $1,500 and Unearned Revenue $$3,300 D) Prepaid Insurance $4,000, Accumulated Depreciation, Equipment $1,500 and Unearned Revenue $$3,300 E) Prepaid Insurance $4,000, Accumulated Depreciation, Equipment $500 and Unearned Revenue $$2,700

149) The unadjusted trial balance for a company has total debit and credit column totals of $148,000. The Adjustments columns contain entries for the following: Office supplies used during the period, $2,650. Expiration of prepaid rent, $1,700. Accrued salaries expense, $3,500. Depreciation expense, $1,625. Accrued service revenues, $2,500. The Adjusted Trial Balance columns total to A) $136,025 B) $148,000 C) $155,625 D) $159,975 E) $151,275

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150)

Financial statements are prepared in the following order A) Balance sheet, statement of changes in equity, income statement B) Statement of changes in equity, balance sheet, income statement C) Income statement, balance sheet, statement of changes in equity D) Income statement, statement of changes in equity, balance sheet E) Balance sheet, income statement, statement of changes in equity

151)

A balance sheet that places the assets above the liabilities and equity is called a(n) A) Report form balance sheet B) Account form balance sheet C) Adjusted balance sheet D) Unadjusted balance sheet E) The accounting equation

152)

A balance sheet that places the liabilities and equity to the right of the assets is called a(n) A) Report form balance sheet B) Account form balance sheet C) Adjusted balance sheet D) Unadjusted balance sheet E) The accounting equation

153)

Unearned revenue is reported in the financial statements as A) A revenue on the balance sheet B) A liability on the balance sheet C) An unearned revenue on the income statement D) An asset on the balance sheet E) An operating activity on the statement of cash flows

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154) A $6,440 debit to interest expense was incorrectly posted as a $644 debit. What is the effect of this error on the trial balance and the interest expense accounts? A) The debit column of the trial balance would be $5,796 overstated and interest expense would be understated by $5,796. B) The debit column of the trial balance would be $5,796 overstated and interest expense would be overstated by $5,796. C) The debit column of the trial balance would be $5,796 understated and interest expense would be understated by $5,796. D) The debit column of the trial balance would be $5,796 understated and interest expense would be overstated by $5,796. E) The debit column of the trial balance would be $6,440 understated and interest expense would be understated by $6,440.

155) The following journal entry (incorrectly) recorded the purchase of office supplies for $1,200 on credit: Office Equipment

1,200

Accounts Payable

1,200

What entry or entries best correct and document the correction of this error? A) None required. The original entry above is correct. B) Accounts Payable

1,200

Office Equipment Office Supplies Accounts Payable

1,200 1,200 1,200

C) Version 1

Office Supplies

1,200

Accounts Payable

1,200

D) Accounts Payable

1,200

Office Equipment Office Supplies

1,200 1,200

Office Equipment

1,200

E) Accounts Payable

1,200

Office Supplies Office Supplies

1,200 1,200

Office Equipment

1,200

156) The following journal entry (incorrectly) recorded the purchase of office supplies for $1,200 on credit: Office Equipment

1,200

Accounts Payable

1,200

If only one entry is to be made to correct this entry it would be A) None required. The original entry above is correct. B) Accounts Payable

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1,200

Office Supplies

1,200

C) Office Supplies

1,200

Accounts Payable

1,200

D) Office Supplies

1,200

Office Equipment

1,200

E) Accounts Payable

1,200

Office Equipment

1,200

157) Karumba Designs' bookkeeper incorrectly recorded a $900 cash purchase of office supplies as a debit to cash and a credit to supplies. Which of the following journal entries would correct this error and reflect the effect of the original transaction? A) Cash

$1,800

Supplies

$1,800

B) Supplies Cash

$1,800 $1,800

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Supplies

$900

Cash

$900

D) Cash

$900

Supplies

$900

E) Cash

$1,000

Supplies

$1,000

158) Under the alternative method for accounting for unearned revenues, which of the following pairs of journal entry formats is correct? A) Original entry: Cash Unearned Consulting Revenue

B) Adjusting entry: Unearned Consulting Revenue Consulting Revenue

C) Original entry: Cash Consulting Revenue Adjusting entry: Consulting Revenue Unearned Revenue

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D) Original entry: Cash Unearned Revenue Adjusting entry: Unearned Revenue Cash

E) Original entry: Consulting Revenue Cash Adjusting entry: Unearned Revenue Consulting Revenue

159) Under the alternative method for accounting for prepaid expenses, which of the following pairs of journal entry formats is correct? A) Original entry: Insurance Expense Cash Adjusting entry: Prepaid Insurance Insurance Expense

B) Original entry: Cash Insurance Expense Adjusting entry: Prepaid Insurance Insurance Expense

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C) Original entry: Prepaid Insurance Cash Adjusting entry: Prepaid Insurance Insurance Expense

D) Original entry: Insurance Expense Cash Adjusting entry: Insurance Expense Prepaid Insurance

E) Original entry: Prepaid Insurance Insurance Expense Adjusting entry: Cash Prepaid Insurance

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 160) At year-end, the accountant for D. Yee Chiropractic Service noted the following errors in the trial balance: The bookkeeper understated the total credits to the Accounts Payable account by $500 when calculating the account balance. A cash sale for $300 was recorded as a credit to the unearned revenue account, but the service had been provided to the customer at the time of the cash exchange. A cash receipt from a customer for $2,600 was never recorded. The $1,000 balance of the Prepaid Rent account was listed in the credit column of the trial balance. A $25,000 car purchase was recorded as a $20,500 debit to Vehicles and a $20,500 credit to Notes Payable.

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A purchase of office supplies for $150 was recorded as a debit to Supplies Expense. The offsetting credit entry was correct. An additional investment of $4,000 by D. Yee chiropractic was recorded as a debit to D. Yee, Capital and as a credit to Cash. The payment of the $510 utility bill for December was recorded twice. The revenue account balance of $79,000 was listed on the trial balance as $97,000. A $1,000 withdrawal made by the owner was recorded to the correct accounts as $100.

Using the form below, indicate if each error would cause the trial balance to be out of balance, the amount of any imbalance, and if a correcting entry is required.

161) On December 14, 2021, Sattva Company received $17,000 for consulting services that will be performed in January 2022. Prepare a general journal entry to record the receipt.

162) Before recording adjusting entries on December 31, the Store Supplies account had a $1,900 debit balance, while a physical count of the supplies showed $300 of unused supplies on hand. Prepare the required adjusting entry.

163) Pure Taste Company had $2,500 of store supplies on hand at the beginning of 2022. During 2022 Pure Taste purchased $300 worth of store supplies. On December 31, 2022, $1,125 worth of store supplies remained. What is the amount of BioVert Company's store supplies expense for 2022?

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164) During the year ended December 31, 2022, clients paid fees in advance for legal services amounting to $5,000. These fees were recorded in an account called Unearned Accounting Service Revenue. If $3,000 of these fees are still unearned on December 31, 2022, what is the required December 31 adjusting entry?

165) Noble Company has 50 employees who are each paid $200 per day for a 5-day workweek. The employees are paid every Friday. This year the accounting period ends on Tuesday. What is the December 31 adjusting journal entry Noble Company should make to accrue salaries owing?

166)

Prepare the December 31 adjusting entry to record $450 of earned but unpaid salaries.

167) On December 31, Cartier Company had performed $8,000 of management services for clients that had not yet been billed to the clients. Prepare an adjusting entry to record these fees.

168)

Explain the purpose of preparing adjusting entries at the end of a period.

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169)

Discuss the importance of periodic reporting and the timeliness principle.

170)

Discuss how accrual accounting adds usefulness to financial statements.

171)

Explain the difference between cash basis accounting and accrual basis accounting.

172) On January 1, 2022, NEW Company purchased a new building for $9,000,000. It is estimated that the Building will have a useful life of 12 years and have a salvage value of $1,000,000. At the end of the year, a similar warehouse across the street from NEW's building sold for $10,000,000. NEW's bookkeeper decides not to record any depreciation expense on the new building in the financial statements for the year ended December 31, 2022, because the building has not declined in value. Required: Identify and explain which accounting principle has been violated by not reporting depreciation expense on the new warehouse for the year ended December 31, 2022. How would this omission affect the credibility of the financial statements? Name two user groups that would be impacted by the omission?

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173)

Identify the types of adjusting entries and explain the purpose of each type.

174) Discuss the types of adjusting entries used for prepaid expenses, depreciation, and unearned revenues.

175)

Discuss the types of adjusting entries used for accrued expenses and accrued revenues.

176)

Describe the types of entries required in later periods that result from accruals.

177) Prepare general journal entries on December 31, 2022, to record the following unrelated year-end adjustments.

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178) In general journal form, record adjusting entries for the following items for Cornish Accounting Co. on December 31, 2022.a) On January 3, 2022, $5,500 of supplies were purchased and recorded as an asset. A count revealed $500 still on hand on December 31, 2022.b) Services performed during December but not yet billed to customers totalled $2,500.c) On July 1, 2022, a $10,000 car was purchased on account. The car is expected to last 4 years and have no residual value at the end of its useful life. d) On December 31, 2022, utilities owed but not yet paid amounted to $500.e) On January 10, 2022, Cornish Accounting Co. accepted a $5,000 deposit from a client for tax work to be completed during the year. The deposit was recorded as unearned revenue. On December 31, 2022, all the tax work for the client is complete.

179) Lightning Advisory Service's unadjusted and adjusted trial balances on December 31, 2022, are as follows: Unadjusted Trial Balance

Adjusted Trial Balance

Debit

Credit

Accounts payable Accounts receivable

Debit

$15,000 $4,000

Accum. Depreciationbuilding

Credit $15,000

$6,000 11,000

20,000

Building

150,000

Cash

67,000

Depreciation expensebuilding

9,000

Interest expense

6,000

7,000

Interest payable

1,000

Interest receivable

1,000

Interest revenue

23,000

24,000

Note payable

74,000

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Prepaid rent

9,000

7,000

Rent expense

14,000

16,000

Salary expense

30,000

Service revenue

74,000

76,000

Supplies

3,000

2,500

Supplies expense

6,000

6,500

Lightning, Capital

78,000

Lightning, Withdrawals

10,000

Unearned service revenue TOTAL

78,000 10,000

24,000 $299,000

$299,000

24,000 $312,000

$312,000

In general journal form, prepare the adjusting entries that were recorded by Lightning Advisory Service. Difference Debit

Credit

Accounts payable Accounts receivable

2,000

Accum. Depreciation-building

(a) 9,000

(b)

Building Cash Depreciation expense-building

9,000

(b)

Interest expense

1,000

(c)

Interest payable Interest receivable

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1,000

(c)

1,000

(d)

Interest revenue

1,000

(d)

2,000

(e)

Note payable Prepaid rent Rent expense

2,000

(e)

Salary expense Service revenue

2,000

(a)

Supplies

500

(f)

Supplies expense

500

(f)

Lightning, Capital Lightning, Withdrawals Unearned service revenue Total

15,500

180) Sally Company's unadjusted and adjusted trial balances on December 31, 2022, are as follows: In general journal form, prepare the adjusting entries that were recorded by Sally Company. Unadjusted Trial Balance

Adjusted Trial Balance

Debit

Credit

Accounts payable Accounts receivable

$2,000 $300

Accum. depreciation-building Building

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Debit

$2,000 $500

1,100 18,000

Credit

2,000 18,000

Cash

6,700

Depreciation expense-building Interest expense

900 600

700

Interest payable

100

Interest receivable

200

Interest revenue

2,400

2,600

Note payable

7,400

Prepaid rent

900

700

Rent expense

1,400

1,600

Salary expense

3,000

Service revenue

8,000

8,500

Supplies

400

350

Supplies expense

600

650

Sally McQueen, Capital Sally McQueen, Withdrawals

9,300 1,000

Unearned service revenue TOTAL

9,300 1,000

2,700 $32,900

$32,900

2,400 $34,300

$34,300

181) Cesar Cielo's consulting business receives an advance payment of 70% of services to be performed. In August, Cesar agreed to perform $20,000 worth of services to be performed in September. Record the entry for the receipt of cash during the month of August.

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182) Of the office supplies Sandhu Consulting buys each month, 60% are paid for during the same month and 40% are paid for during the following month. During July, Sandhu purchased $600 of office supplies. During August, Sandhu paid $450 for office supplies. The office supplies inventory was $160 on July 31 and was $90 on August 31. What should be reported as office supplies expense for August?

183)

Explain the difference between the book value and the market value of an asset.

184) The chief accountant was reviewing the financial statements that you had prepared for the current year with comparative results from last year. She asked you the following questions. Why is Trucking Expense so high? Why is Supplies Expense so low? Why is Unearned Revenue so high? You then investigated the records, and as a result, determined the following: The $20,000 cost of a truck was posted to Trucking Expense. Office supplies costing $1,500 were used, and the entry to record the use debited Depreciation Expense. The company had received a large payment for an order to be delivered next year. Required: Prepare the necessary journal entries to correct any errors discovered as part of the investigation.

185)

Sweet Massage Co. unadjusted trial balance is as follows: Sweet Massage Co. Trial Balance December 31, 2022

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Debit Cash

$3,200

Prepaid insurance

480

Massage supplies

990

Massage equipment

3,860

Credit

Accum depreciation, massage equipment Building

$770 67,500

Accum depreciation, building Land

2,840 55,000

Unearned rent

600

Long-term notes payable

10,000

Sharp, capital

102,560

Sharp, withdrawals

2,700

Rent earned

3,400

Fees earned

23,400

Wages expense

4,200

Utilities expense

690

Property taxes expense

600

Interest expense

4,350

TOTAL

$143,570

Use the following information to prepare any adjusting entries required: (a)

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Examination of an insurance policy showed $240 of expired insurance.

(b)

An inventory showed $210 of unused massage supplies on hand.

(c)

Estimated depreciation expense on massage equipment, $350.

(d)

Estimated depreciation expense on the building, $2,220.

(e)

A massage therapist owes $200 for space rental payments, and this was unrecorded at the time the trial balance was prepared.

(f)

$200 of the Unearned Rent account balance was earned by year-end.

(g)

The one employee, a receptionist, works a five-day workweek at $50 per day. The employee was paid last week but has worked three days this week for which she has not been paid.

(h)

Three months' property taxes, totalling $450, have accrued. This has not been recorded.

186)

Discuss the two alternate methods used to account for prepaid expenses.

187) For the current year, the profit of Alpha and Omega was incorrectly calculated as $547,715 for the year ended December 31. You are called in as the accountant to determine the correct profit. After examination of the accounts, you find the following errors: Overstated

Understated

(1)

Office supplies (ending inventory)

$115

(2)

Depreciation expense, building

5,800

(3)

Depreciation expense, equipment

(4)

Salaries payable (end of year)

(5)

Prepaid insurance (end of year)

4,400

(6)

Rent expense

500

(7)

Interest expense

1,200

(8)

Property taxes expense

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$650 1,600

950

(9)

Services Revenue

(10)

Rental revenue

2,500 500

Calculate the correct profit for this year.

188) On December 31, 2022, the accountant for a proprietorship forgot to record $7,000 of depreciation on office equipment. In the 2022 financial statements, what is the effect of this error on assets, profit, and equity?

189) Given the schedule below, indicate the impact of the following errors made during the adjusting entry process. Use a "+" followed by the amount for overstatements, a "-" followed by the amount for understatements, and a "0" for no effect. (1) Recorded accrued salaries expense of $1,200 with a debit to Prepaid Salaries. (2) The bookkeeper forgot to record $2,700 of depreciation on office equipment. (3) Failed to accrue $300 of interest on a note receivable. Ex. Failed to recognize that $600 of unearned revenues, previously recorded as liabilities, had been earned by year-end.

190) The Surrey Service Company issued financial statements for last year but failed to include the following adjusting entries: (A) Accrued service revenues earned of $2,300. (B) Depreciation expense of $5,000. (C) Office supplies used, $2,100. (D) Accrued salaries of $3,400. (E) Revenues of $4,600, originally recorded as unearned, but earned by the end of the year. Determine the correct amounts for last year's financial statements by completing the following schedule:

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Reported amounts

Assets

Liabilities

Equity

Net Income

$310,000

$190,000

$120,000

$50,000

Add(Subtract) to correct for item (A) (B) (C) (D) (E) Corrected amounts

191) Using the schedule below, indicate the impact of the following errors made during the adjusting entry process. Use a "+" for overstatements, a "-" for understatements, and a "0" for no effect. Error

Revenues

Expenses

Assets

Liabilities

Equity

Did not record depreciation

Did not record unpaid utility bill

_______

________

Failed to adjust unearned revenue account for revenue earned.

_______

________

3. Failed to adjust office supplies for supplied used

_______

________

Failed to accrue employee’s wages.

_______

________

5. Recorded accrued rent expense with a debit to salary expense.

_______

________

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192)

Explain how accounting adjustments affect financial statements.

193) MegaTech Company has total monthly revenues of $325,000 and expenses of $198,000 for the month ended July 31 before monthly adjusting entries are made. The following data are provided on the end of month adjustments to be made: (a) Insurance expired in July, $2,520. (b) Unbilled amounts to customers for July is $4,200. (c) Salaries earned by employees but not yet paid by MegaTech for the last week of July, $13,125. (d) Depreciation on equipment for July, $1,290. (e) Supplies used in July, $1,650. (f) Fees collected in advance from customers which have now been earned during July, $23,400. Complete the schedule below to determine the profit of MegaTech for July after these adjustments are recorded. Begin your schedule with income before adjusting entries and then show the effect of each adjustment to arrive at profit after adjustment.

194)

Discuss the purpose of an adjusted trial balance.

195)

Identify and explain the reasons for the order in which financial statements are prepared.

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SECTION BREAK. Answer all the part questions. 196) April 1, 2023, Stable Insurance Company sold a two-year policy to a customer and recorded the premium payment received by debiting cash and crediting premium revenue for $1,440. It is now December 31, 2023, Stable's year end, and the company needs to prepare its adjusting entries.

196.1)

Premium revenue for 2023 is

A) $540 B) $1,440 C) $900 D) $60 E) $360

196.2)

Unearned Premium Revenue on December 31, 2023, is

A) $540 B) $1,440 C) $900 D) $60 E) $360

197)

Financial data for the Grow Company's prepaid insurance account is below: Prepaid Insurance

197.1)

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Balance January 1, 2023

4,200

Debit entries during 2023

18,000

Balance December 31, 2023

4,500

What was Grow's insurance expense for 2023?

A) $4,500 B) $17,700 C) $18,000 D) $18,300 E) $8,700

197.2)

How much did Grow pay for insurance during 2023?

A) $4,500 B) $17,700 C) $18,000 D) $18,300 E) $8,700

197.3) How much did Grow pay for insurance before December 31, 2023, for insurance coverage in 2024? A) $4,200 B) $4,500 C) $17,700 D) $18,000 E) $8,700

198) Sliders Water Park adjusts and closes its booksmonthly. The unadjusted trial balance is shown below on June 30, 2022: Debit

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Cash

2,200

Supplies

1,800

Prepaid Insurance

4,200

Credit

Equipment

24,000

Accumulated Depreciation-Equipment

6,000

Unearned Admission Revenue

4,000

Capital, M. Thompson, May 31, 2017

21,400

Admissions Revenue

9,200

Salaries Expense

2,700

Utilities Expense

1,900

Rent Expense

3,800 $40,600

$40,600

198.1) On January 1, 2022, a 12-month insurance policy was purchased. Give the adjusting entry that must be made for June.

198.2) Attendance records showed that $2,600 of Unearned Admissions Revenue has been earned in June. Compute the balance left in the following accounts: Unearned admission revenue and Admissions Revenue

198.3) On June 30, supplies on hand were shown to be $350. What amount should be expensed to the income statement for June? Make the needed adjusting entry.

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198.4) The equipment has a useful life of 8 years. Compute the net book value of the equipment after the proper June adjustment has been made.

199)

Below is the adjusted trial balance of Reuben's Cubic Storage on December 31, 2022: Reuben’s Cubic Storage Trial Balance For Year Ended December 31, 2022 Account Debit Cash

$3,050

Accounts receivable

400

Office supplies

770

Prepaid insurance

Long-term note receivable

4,200

Land

98,000

Equipment

115,000

Accumulated depreciation, Equipment Building

$1,100 98,000

Accumulated depreciation, Building Customer list

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Credit

28,000 900

Notes payable

11,000

Unearned accounting fees earned

3,000

Salaries payable

7,060

Reuben, capital Reuben, withdrawals

10,000 5,000

Accounting fees earned

274,500

Depreciation expense, Building

500

Depreciation expense, Equipment

600

Insurance expense

100

Rent expense

1,100

Office supplies expense

900

Repairs expense

5,000

Telephone expense

1,000

Totals

$334,660

The current portion of the note payable is $3,000. Use the adjusted trial balance to answer the following questions:

199.1)

Prepare an income statement for the year ended December 31, 2022.

199.2) Prepare a statement of changes in equity for the year ended December 31, 2022. Mr. Clausen's capital account balance of $10,000 consists of a $5,000 balance on January 1, 2022, plus an additional $5,000 investment during 2022.

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199.3)

Prepare a classified balance sheet on December 31, 2022.

200) The partial unadjusted trial balance of Erif Corporation on December 31, 2022, follows. All accounts have normal balances. Insurance Expense

36,000

Office Supplies

6,200

Rent Expense

44,000

Utilities Expense

3,850

The following additional information is available at the December 31, 2022, year end: (a) Insurance expense represents a 3-year insurance policy for the period from January 1, 2022, to December 31, 2022. (b) A count of office supplies reveals that on December 31, 2022, the company had $500 of office supplies on hand. (c) The company's lease, signed on January 1, 2022, specifies monthly rent of $4,000, or $48,000 a year. (d) The December 2022 utility bill has not yet been received and is not included in the trial balance. The utility bill averages $400 a month. Required: Usingtheinformationabove,findthebalancesinthefollowingaccountbalances,afteradjustment, onDecember31,2022:

200.1)

Prepaid Insurance

200.2)

Office Supplies Expense

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200.3)

Prepaid Rent

200.4)

Utilities Expense

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Answer Key Test name: Chap 03_17ce_Test Bank 1) FALSE 2) FALSE 3) TRUE 4) TRUE 5) TRUE 6) FALSE 7) FALSE 8) FALSE 9) FALSE 10) TRUE 11) FALSE 12) TRUE 13) FALSE 14) TRUE 15) TRUE 16) TRUE 17) FALSE 18) FALSE 19) TRUE 20) FALSE 21) TRUE 22) TRUE 23) TRUE 24) TRUE 25) FALSE 26) FALSE Version 1

27) TRUE 28) TRUE 29) TRUE 30) FALSE 31) TRUE 32) TRUE 33) TRUE 34) FALSE 35) FALSE 36) FALSE 37) TRUE 38) TRUE 39) FALSE 40) FALSE 41) TRUE 42) FALSE 43) TRUE 44) FALSE 45) TRUE 46) TRUE 47) FALSE 48) FALSE 49) TRUE 50) FALSE 51) TRUE 52) TRUE 53) TRUE 54) FALSE 55) FALSE 56) TRUE Version 1

57) TRUE 58) FALSE 59) TRUE 60) FALSE 61) TRUE 62) FALSE 63) FALSE 64) TRUE 65) FALSE 66) FALSE 67) TRUE 68) TRUE 69) FALSE 70) TRUE 71) FALSE 72) TRUE 73) FALSE 74) FALSE 75) FALSE 76) FALSE 77) TRUE 78) TRUE 79) TRUE 80) FALSE 81) FALSE 82) B 83) E 84) B 85) A 86) C Version 1

87) C 88) B 89) D 90) C 91) A 92) A 93) D 94) B 95) E 96) C 97) B 98) E 99) B 100) B 101) D 102) D 103) C 104) B 105) B 106) C 107) C 108) D 109) E 110) B 111) C 112) C 113) C 114) C 115) D 116) D Version 1

117) C 118) B 119) B 120) A 121) A 122) A 123) E 124) D 125) B 126) D 127) D 128) E 129) C 130) C 131) B 132) A 133) E 134) C 135) C 136) C 137) C 138) D 139) E 140) C 141) B 142) B 143) A 144) D 145) E 146) C Version 1

147) D 148) B 149) C 150) D 151) A 152) B 153) B 154) C 155) B 156) D 157) B 158) C 159) A 160) Would the error cause the trial balance Amount of Correcting Journal Entry Error

Yes

Imbalance

(Yes/No)

(1)

_____

(2)

_____

(3)

_____

(4)

_____

(5)

_____

(6)

_____

(7)

_____

(8)

_____

(9)

_____

(10)

_____

Would the error cause the trial balance Amount of Correcting Journal Entry to be out of balance? Required Error

Yes

Imbalance

(Yes/No)

(1)

_____

$500

(2)

_____

Yes

(3)

_____

Yes

(4)

_____

$2,000

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(5)

_____

Yes

(6)

_____

Yes

(7)

_____

Yes

(8)

_____

Yes

(9)

_____

$18,000

(10)

_____

Yes

161) Dec. 14 Cash

17,000

Unearned Consulting Fees

17,000

To record receipt for consulting services in January 162) Dec. 31 Store Supplies Expense

1,600

Store Supplies

1,600

To adjust for store supplies used ($1,900 - $300 = $1,600) 163) $2,500 + $300 - $1,125 = $1,675 164) Dec. 31 Unearned Accounting Service Revenue

2,000

Accounting Service Revenue

2,000

To record accounting fees earned ($5,000 - $3,000 = $2,000) 165) Dec. 31 Salaries Expense

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20,000

Salaries Payable

20,000

To record accrued salaries ($200 × 50 × 2 = $20,000) 166) Dec. 31 Salaries Expense

450

Salaries Payable

450

To record accrued salaries. 167) Dec. 31 Accounts Receivable Management Service Revenue

8,000 8,000

To record accrued revenue. 168) Although all external transactions may be recorded correctly, internal transactions, and events may not be recorded. Adjusting entries are used to record internal transactions. Examples of internal events requiring adjusting entries would be the recognition of accrued revenue, depreciation, and expiration of prepaid expenses. 169) For information to be valuable to decision makers, it must be presented in a timely fashion. To provide timely information for decision making, accounting systems are designed to prepare periodic reports at regular intervals. The timeliness principle assumes that an organization's activities can be divided into specific time periods such as months, quarters, or years. Version 1

170) The accrual accounting method recognizes revenue when earned and expenses when incurred. Accrual accounting measures the economic effect of transactions. 171) Accrual basis accounting recognizes revenues when earned, and expenses when incurred. Cash basis accounting recognizes revenues when cash is received, and expenses when cash is paid out. 172) Not reporting depreciation expense on the new warehouse for the year ended December 31, 2022, violates the matching principle. The warehouse helps NEW earn revenue. Therefore, the warehouse cost should be allocated over the period revenue is earned from the warehouse. This omission would overstate profit which creates a false impression of the income earned by the company. Financial statement users such as lenders and investors who rely on the accuracy of profit to make lending and investing decisions would be impacted by the omission. 173) There are two major types of adjusting entries: accruals and deferrals. Both of these groups can be subdivided into revenues and expenses. The purpose of accrual adjusting entries is to recognize revenues that have been earned and not received and expenses that have been incurred, but not yet paid. Deferrals, on the other hand, recognize that cash has already been received or paid. The purpose of deferrals is to adjust for revenue that has been received but not earned and expenses that have been paid but not incurred.

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174) Prepaid expenses are deferrals, or expenses paid for in advance. The purpose of the adjusting entry for prepaid expenses is to recognize the using up of the asset paid for in advance. Depreciation is the recognition of the decline in usefulness of property, plant and equipment. The adjusting entry for depreciation recognizes this event and treats it as an expense. Unearned revenues represent cash received in advance for products or services. The adjusting entry for unearned revenues recognizes that revenue has been earned through the delivery of a product or service, having been paid for in advance. 175) Accrued expenses are expenses that have been incurred but not yet paid for. Adjusting entries for accrued expenses increases expenses and also increases liabilities to recognize that an expense has been incurred but not yet paid. Accrued revenues are revenues that have been earned but not yet recorded, i.e. are receivable. The adjusting entry recognizes the revenue and also establishes an account receivable. 176) Accrued revenues in one period result in cash received in later periods. Accrued expenses in one period result in cash payments made in later periods. When the cash for these items is received or paid, journal entries must be made to recognize receipt, payment, and the removal of the accrued revenues or accrued expenses from the accounts. 177)

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(a)

On December 2, 2022, $5,200 of supplies were purchased and recorded as an asset. A count revealed $1,000 still on hand on December 31, 2022.

(b)

Services performed during December but not yet billed to customers totalled $2,000.

(c)

Depreciation of equipment is recorded using the straight-line method over 10 years. The equipment was purchased on January 1, 2022, for $300,000, and has no residual value at the end of its useful life.

(d)

Prepaid insurance expired during the month of December was $2,500.

(a) Supplies expense

4,200

Supplies (5,200 - 1,000)

4,200

(b) Accounts Receivable

2,000

Service Revenue

2,000

30,000

Accum. Depreciation – equip 300,000/10 (d) Insurance expense

30,000 2,500

Prepaid Insurance

2,500

178) Supplies Expense

5,000

Supplies Accounts Receivable

5,000 2,500

Service Revenue Depreciation Expense

2,500 1,250

Accumulated Depreciation, Vehicle10,000/4 × 6/12 Utilities Expense

1,250 500

Utilities Payable Unearned Revenue

500 5,000

Service Revenue

5,000

179) (a) Dec. 31

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Accounts receivable

2,000

Service revenue

2,000

To adjust for earned revenue billed but not received. (b) Dec. 31

Depreciation expense-building

9,000

Accumulated depreciation-building

9,000

To record depreciation. (c) Dec. 31

Interest expense

1,000

Interest payable

1,000

To adjust for accrued interest expense. (d) Dec. 31

Interest receivable

1,000

Interest revenue

1,000

To record accrued interest receivable. (e) Dec. 31

Rent expense

2,000

Prepaid rent

2,000

To adjust for used rent. (f)

Dec. 31

Supplies expense

500

Supplies

500

To adjust for supplies used.

180) Difference Debit

Credit

Accounts payable Accounts receivable Accum. depreciation-building

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200 900

Building Cash Depreciation expense-building

900

Interest expense

100

Interest payable Interest receivable

100 200

Interest revenue

200

Note payable Prepaid rent Rent expense

200 200

Salary expense Service revenue

500

Supplies

Supplies expense

Sally McQueen, Capital Sally McQueen, Withdrawals Unearned service revenue

300

Total

1,950

(a)

Dec. 31

Accounts receivable

200

Service revenue

200

To adjust for earned revenue billed but not received. (b)

Dec. 31

Depreciation expense-building

900

Accumulated depreciation-building

Version 1

900

To record depreciation. (c)

Dec. 31

Interest expense

100

Interest payable

100

To adjust for accrued interest expense. (d)

Dec. 31

Interest receivable

200

Interest revenue

200

To record accrued interest receivable. (e)

Dec. 31

Rent expense

200

Prepaid rent

200

To adjust for used rent. (f)

Dec. 31

Supplies expense

Supplies

To adjust for supplies used. (g)

Dec 31

Unearned Service Revenue

300

Service Revenue

300

181) Aug 31 Cash ($20,000 × 70%) Unearned service revenue

14,000 14,000

182) Payments during August

$450

August payments related to July purchases

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($600 × 40%)

240

August payments related to August purchases

$210

August purchases ($210/60%)

$350

July 31 inventory

160

Supplies available during August

$510

August 31 inventory

Office supplies expense for August

$420

183) The book value of an asset is its cost minus the accumulated depreciation. The market value of an asset is the amount the asset can be sold for. In general, the market value is not related to the book value of an asset. Market value and book values do not agree because book values are based on historical costs less residual and depreciation will not match perfectly with swings in the current market values. 184) 1. To correct the error in debiting a truck purchase to Trucking Expense. Truck

20,000 Trucking Expense

20,000

2. To correct the error in debiting use of supplies to Depreciation Expense Office Supplies Expense

1,500 Depreciation Expense

1,500

3. Original was correct; no further entries are required. 185) (a)

Dec. 31

Insurance expense

240

Prepaid insurance

240

To adjust for insurance used. (b)

Dec. 31

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Massage supplies expense

780

Massage supplies

780

To record supplies used (990-210). (c)

Dec. 31

Depreciation expense, massage equipment

350

Accumulated depreciation, massage equipment

350

To adjust for depreciation. (d)

Dec. 31

Depreciation expense, building

2,220

Accumulated depreciation, building

2,220

To adjust for depreciation. (e)

Dec. 31

Rent receivable

200

Rent earned

200

To adjust for accrued rent. (f)

Dec. 31

Unearned rent

200

Rent Revenue

200

To adjust for rent earned. (g)

Dec.31

Wages expense

150

Wages Payable

150

To adjust for accrual of wages (h)

Dec.31

Tax expense Tax Payable

450 450

To accrue property taxes

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186) The first method places all prepaid expenses into asset accounts when cash is paid. Adjusting entries are used to recognize expired amounts which are placed into expense accounts. The second method places all prepaid expenses in the expense accounts when cash is paid. Adjusting entries are used to place unexpired amounts into the asset accounts. 187) Profit, unadjusted

$547,715

(1)

Office supplies

(115)

(2)

Depreciation expense, building

5,800

(3)

Depreciation expense, equipment

(650)

(4)

Salaries payable

1,600

(5)

Prepaid insurance

4,400

(6)

Rent expense

(500)

(7)

Interest expense

(1,200)

(8)

Property taxes expense

950

(9)

Services Revenue

2,500

(10)

Rental revenue

(500)

Profit, adjusted

$560,000

188) (1) Assets are overstated by $7,000 (accumulated depreciation understated). (2) Profit is overstated by $7,000 (expense understated). (3) Equity is overstated by $7,000. 189) Error

Revenues

Expenses

Assets

Liabilities

Equity

Ex.

-$600

+$600

-$600

(1)

_____

(2)

_____

(3)

_____

Answer

Revenues

Expenses

Assets

Liabilities

Equity

Error

Version 1

(1)

-$1,200

+$1,200

(2)

-$2,700

+$2,700

(3)

-$300

190)

Reported amounts

Assets

Liabilities

Equity

Net Income

$310,000

$190,000

$120,000

$50,000

Add(Subtract) to correct for item (A)

2,300

(B)

(5,000)

(C)

(2,100)

(D)

3,400

(3,400)

(E)

(4,600)

4,600

$305,200

$188,800

$116,400

$46,400

Error

Revenues

Expenses

Assets

Liabilities

Equity

Did not record depreciation

Did not record unpaid utility bill

Failed to adjust unearned revenue account for revenue earned.

Failed to adjust office supplies for supplies used

Failed to accrue employee’s wages.

5. Recorded accrued rent expense with a debit to salary expense.

Corrected amounts

191)

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192) Without adjustments, accounts would have mixed balances which would affect both income statement and balance sheet amounts. For example, a Prepaid Insurance account that was unadjusted would include an amount covering the expired cost (expense) plus an amount for the unexpired cost (asset). Adjusting entries thus enhance the accuracy of financial statements so that the amounts on the statements accurately reflect the values in the accounts. 193) Profit before adjusting entries

Adjustments:

__________

Profit after adjustments

Profit before adjustments

$127,000

Adjustments: a. Insurance expense

(2,520)

b. Revenues to be billed

4,200

c. Salaries Expense

(13,125)

d. Depreciation Expense

(1,290)

e. Supplies Expense

(1,650)

f. Revenues earned

23,400

July Profit (after adjustments)

$136,015

194) An adjusted trial balance is a list of accounts and balances prepared after adjusting entries are recorded and posted to the ledger. It is used to prepare the financial statements. 195) The income statement is prepared first. The amount of profit is then used in the statement of changes in equity in order to calculate the ending balance in the capital account. The ending balance in the capital account is then transferred to the balance sheet, which is prepared last. 196) Section Break 196.1) A 196.2) C Version 1

197) Section Break 197.1) B 197.2) C 197.3) B 198) Section Break 198.1) Insurance Expense

600

Prepaid Insurance

600

4200/7 months left = 600 per month 198.2) Unearned admission revenue = $4,000 - 2,600 earned = $1400 Admission Revenue = $9,200 + 2,600 earned in June = $11,800 198.3) 1800 - 350 left = 1450 used; so entry is Supplies Expense Supplies

1450 1450

198.4) 24,000/8 years/12 months = 250 per month depreciated; so cost - accumulated depreciation = 24,000 - 6250 = 17,750 net book value 199) Section Break 199.1) Reuben’s Cubic Storage Income Statement For Year Ended December 31, 2022 Revenue: Accounting fees earned

$274,500

Operating Expenses:

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Depreciation expense, Building

$500

Depreciation expense, Equipment

600

Insurance expense

100

Rent expense

1,100

Office supplies expense

900

Repairs expense

5,000

Telephone expense

1,000 $9,200

Profit

$265,300

199.2) Reuben’s Cubic Storage Statement of Changes in Equity For Year Ended December 31, 2022 Reuben, capital, Jan 1

$5,000

Add: Investments by Owner

5,000

Profit

265,300

Total

$275,300

Less: Withdrawals by owner

5,000

Reuben, capital, Dec 31

$270,300

199.3) Reuben’s Cubic Storage Balance Sheet December 31, 2022 Assets Current Assets

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Cash

$3,050

Accounts receivable

400

Office supplies

830

Prepaid insurance

Total Current Assets

4,360

Long-Term Investments Long-term note receivable

4,200

Property, Plant and Equipment Land Equipment

98,000 115,000

Less: Accumulated depreciation, Equipment

1,100

Building

98,000

113,900

Less: Accumulated depreciation, Building

28,000

70,000

Total Property, Plant and Equipment

281,900

Intangibles Customer list

900 ________

Total Assets

$291,360

Liabilities Current Liabilities Salaries payable

$7,060

Current portion of note payable

3,000

Unearned accounting fees earned

3,000

Total Current Liabilities

13,000

Long-Term Liabilities

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Notes payable less current portion

8,000

Equity Reuben, capital

270,300 ________

Total Liabilities and Equity

$291,360

200) Section Break 200.1) 24,000 (36,000/3 × 2 years prepaid) 200.2) 5,700 ($6,200 - 500) 200.3) 44,000 (48,000 - 4,000) 200.4) 4,250 (3,850 + 400)

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CHAPTER 4: ALGO TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Trekker Bikes’ current assets are $3,335 million and its current liabilities are $1,450 million. Its current ratio is 0.63. ⊚ true ⊚ false

2) If a company has current assets of $18,180 and current liabilities of $10,100, its current ratio is 1.8. ⊚ true ⊚ false

3) After posting the entries to close all revenue and expense accounts, the Income Summary account of Cleaver Auto Services has a $4,800 debit balance. This result implies that Cleaver has net income of $4,800. ⊚ true ⊚ false

4) After posting the entries to close all revenue and expense accounts, Marker Company's Income Summary account has a credit balance of $6,800, and its Marker, Withdrawals account has a debit balance of $2,900. These balances indicate that net income for the current accounting period amounted to $3,900. ⊚ true ⊚ false

5) A company's quick assets are $177,000 and its current liabilities are $158,000. This company's quick ratio is 1.12. ⊚ true ⊚ false

A company's quick ratio is 0.23. This ratio indicates no potential for liquidity problems. ⊚ true ⊚ false

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MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 7) Jennings Company has total assets of $459 million. Its total liabilities are $127.5 million. Its equity is $331.5 million. Calculate the debt ratio.(Round your answer to 1 decimal place.) A) 35.1%. B) 14.4%. C) 38.5%. D) 27.8%. E) 16.1%.

8) Sanders Company has total assets of $389 million. Its total liabilities are $102.1 million, and its equity is $286.9 million. Calculate its debt ratio. (Round your answer to 1 decimal place.) A) 35.6%. B) 26.2%. C) 28.1%. D) 58.4%. E) 38.0%.

9) At the end of the current year, James Company reported total liabilities of $304,000 and total equity of $104,000. The company's debt ratio was: A) 292%. B) 34.2%. C) 74.5%. D) 3.92%. E) $408,000

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10) At the beginning of the current year, Snell Company's total assets were $268,000 and its total liabilities were $184,200. During the year, the company reported total revenues of $113,000, total expenses of $86,000 and owner withdrawals of $15,000. There were no other changes in owner's capital during the year and total assets at the end of the year were $280,000. The company's debt ratio at the end of the current year is: A) 68.7%. B) 65.8%. C) 34.2%. D) 52.0%. E) 145.0%.

11) The Unadjusted Trial Balance columns of a company's work sheet shows the Store Supplies account with a balance of $595. The Adjustments columns show a credit of $335 for supplies used during the period. The amount shown as Store Supplies in the Balance Sheet columns of the work sheet is: A) $260 debit. B) $260 credit. C) $335 debit. D) $595 debit. E) $595 credit.

12) A company shows a $720 balance in Prepaid Rent in the Unadjusted Trial Balance columns of the work sheet. The Adjustments columns show expired rent of $260. This adjusting entry results in: A) $260 decrease in net income. B) $260 increase in net income. C) $260 difference between the debit and credit columns of the Unadjusted Trial Balance. D) $260 of prepaid insurance. E) An error in the financial statements.

13) A company's December 31 work sheet for the current period appears below. Based on the information provided, what is net income for the current period?

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Cash

Unadjusted Trial Balance Debit Credit 1,055

Accounts receivable Prepaid insurance

Adjustments Debit

Credit

380 4,400

230

Supplies

260

150

Equipment

12,720

Accumulated depreciation— equipment Accounts payable

270 1,940

Salaries payable

395

Unearned revenue

5,300

Owner, Capital

10,780

Owner, Withdrawals

455

2,450

Services revenue

8,490

Rent expense

2,300

Salaries expense

2,900

Utilities expense

425

835

395

Insurance expense

230

Supplies expense

150

Depreciation expense—equipment

270

Totals

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26,510

1,880

A) $1,880. B) $2,655. C) $2,865. D) $3,020. E) $6,990.

14) A company's December 31 work sheet for the current period appears below. Based on the information provided, what is net income for the current period?

Cash

Unadjusted Trial Balance Debit Credit 2,045

Adjustments Debit

Credit

Accounts receivable

1,070

Prepaid insurance

1,670

720

Supplies

400

185

Equipment

8,390

Accumulated depreciation—equipment

945

790

Accounts payable

1,210

Owner, Capital

9,530

Owner, Withdrawals

260

1,120

Services revenue

7,320

Rent expense

1,370

Salaries expense

2,370

Utilities expense

415

945

Insurance expense

720

Supplies expense

185

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Depreciation expense—equipment Totals

260 18,850

18,850

2,110

A) $3,165. B) $4,110. C) $2,000. D) $2,260. E) $2,945.

15) The Unadjusted Trial Balance columns of a work sheet total $89,300. The Adjustments columns contain entries for the following: 1.Office supplies used during the period, $2,900. 2.Expiration of prepaid rent, $1,200. 3.Accrued salaries expense, $1,000. 4.Depreciation expense, $1,300. 5.Accrued consulting revenue, $900. The Adjusted Trial Balance columns total is: A) $82,000. B) $89,300. C) $92,500. D) $93,400. E) $96,600.

16) K. Canopy, the proprietor of Canopy Services, withdrew $6,300 from the business during the current year. The entry to close the withdrawals account at the end of the year is: A) Debit K Canopy, Withdrawals $6,300; credit Cash, $6,300 B) Debit K. Canopy, Capital $6,300; credit K. Canopy, Withdrawals $6,300 C) Debit K. Canopy, Withdrawals $6,300; credit K. Canopy, Capital $6,300 D) Debit K. Canopy, Capital $6,300, credit Salary Expense $6,300 E) Debit Income Summary $6,300; credit K. Canopy, Capital $6,300

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17) Tara Westmont, the owner of Tiptoe Shoes, had annual revenues of $199,000, expenses of $110,700, and withdrew $23,600 from the business during the current year. The owner’s capital account before closing had a balance of $311,000. The entry to close the Income Summary account at the end of the year, after revenue and expense accounts have been closed, is: A) Debit T. Westmont, Capital $311,000; credit Income Summary $311,000 B) Debit T. Westmont, Capital $64,700; credit Income Summary $64,700 C) Debit Income Summary $64,700; credit T. Westmont, Capital $64,700 D) Debit Income Summary $88,300, credit T. Westmont, Capital $88,300 E) Debit T. Westmont, Capital $88,300, credit Income Summary $88,300

18) Tara Westmont, the proprietor of Tiptoe Shoes, had annual revenues of $189,000, expenses of $105,700, and withdrew $19,600 from the business during the current year. The owner’s capital account before closing had a balance of $301,000. The Net Income for the year is: A) $189,000 B) $63,700 C) $83,300 D) $364,700 E) $384,300

19) Tara Westmont, the proprietor of Tiptoe Shoes, had annual revenues of $191,000, expenses of $106,700, and withdrew $20,400 from the business during the current year. The owner’s capital account before closing had a balance of $303,000. The ending owner’s capital balance after closing is: A) $191,000 B) $63,900 C) $84,300 D) $366,900 E) $387,300

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20) A company had revenues of $62,000 and expenses of $47,500 for the accounting period. The owner withdrew $6,800 in cash during the same period. Which of the following entries could not be a closing entry? A) Debit Income Summary $14,500; credit Owner's, Capital $14,500. B) Debit Income Summary $62,000; credit Revenues $62,000. C) Debit Revenues $62,000; credit Income Summary $62,000. D) Debit Income Summary $47,500, credit Expenses $47,500. E) Debit Owner's, Capital $6,800, credit Owner's, Withdrawals $6,800.

21) The following information is available from the adjusted trial balance of the Harris Vacation Rental Agency. After closing entries are posted, what will be the balance in the Sue Harris, Capital account? Total revenues Total expenses Sue Harris, Capital Sue Harris, Withdrawals

$ 180,000 86,400 115,200 21,600

A) $93,600. B) $115,200. C) $187,200. D) $208,800. E) $86,400.

22) The following information is available for the Higgins Travel Agency. After closing entries are posted, what will be the balance in the C. Higgins, Capital account? Net Income C. Higgins, Capital C. Higgins, Withdrawals

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$ 52,500 135,000 16,000

A) $66,500. B) $203,500. C) $98,500. D) $171,500. E) $135,000.

23) The following information is available for the Noir Detective Agency. After closing entries are posted, what will be the balance in the G. Noir, Capital account? Net Loss G. Noir, Capital G. Noir, Withdrawals

$ 30,600 295,500 37,200

A) $227,700. B) $288,900. C) $302,100. D) $295,500. E) $258,300.

24) The F. Mercury, Capital account has a credit balance of $17,850 before closing entries are made. If total revenues for the period are $57,700, total expenses are $41,700, and withdrawals are $9,450, what is the ending balance in the F. Mercury, Capital account after all closing entries are made? A) $8,400. B) $16,000. C) $24,400. D) $17,850. E) $33,850.

25) The F. Mercury, Capital account has a credit balance of $48,000 before closing entries are made. Services revenue for the period is $66,200, wages expense is $45,300, and withdrawals are $13,400. What is the correct closing entry for the revenue accounts?

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A) Debit Income Summary $66,200; credit Services revenue $66,200. B) Debit Services revenue $48,000; credit F. Mercury, Capital $48,000. C) Debit Services revenue $66,200; credit F. Mercury, Capital $48,000. D) Debit Services revenue $66,200; credit Income Summary $66,200. E) Debit Income Summary $48,000; credit F. Mercury Capital $48,000.

26) The F. Mercury, Capital account has a credit balance of $40,000 before closing entries are made. Services revenue for the period is $58,200, wages expense is $41,300, and withdrawals are $10,200. What is the correct closing entry for the expense accounts? A) Debit Income Summary $41,300; credit Wages expense $41,300. B) Debit Wages expense $40,000; credit F. Mercury, Capital $40,000. C) Debit F. Mercury, Withdrawals accounts $41,300; credit Wages expense $41,300. D) Debit Wages expense $41,300; credit Income Summary $41,300. E) Debit Income Summary $41,300; credit F. Mercury Capital $41,300.

27) Jen Rogers withdrew a total of $25,000 from her business during the current year. The entry needed to close the withdrawals account is: A) Debit Income Summary and credit Cash for $25,000. B) Debit Jen Rogers, Withdrawals and credit Cash for $25,000 C) Debit Income Summary and credit Jen Rogers, Withdrawals for $25,000. D) Debit Jen Rogers, Capital and credit Jen Rogers, Withdrawals for $25,000. E) Debit Jen Rogers, Withdrawals and credit Jen Rogers, Capital for $25,000.

28) A company's ledger accounts and their end-of-period balances before closing entries are posted are shown below. What amount will be posted to Wilson Peters, Capital in the process of closing the Income Summary account? (Assume all accounts have normal balances.) Wilson Peters, Capital Wilson Peters, Withdrawals Revenue Rent expense Salaries expense Insurance expense

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$ 5,250 7,350 21,000 2,100 5,000 235 10

Depreciation Expense-equipment Accumulated depreciation-equipment

320 960

A) $13,345 debit. B) $5,995 credit. C) $13,345 credit. D) $14,305 credit. E) $5,995 debit.

29) At the beginning of the year, a company's balance sheet reported the following balances: Total Assets = $135,000; Total Liabilities = $76,500; and Owner's Capital = $58,500. During the year, the company reported revenues of $46,900 and expenses of $30,600. In addition, owner's withdrawals for the year totaled $20,400. Assuming no other changes to owner's capital, the balance in the owner's capital account at the end of the year would be: A) $67,300. B) $95,200. C) $4,100. D) $54,400. E) $62,600.

30) At the beginning of the year, Sigma Company's balance sheet reported Total Assets of $357,000 and Total Liabilities of $138,000. During the year, the company reported total revenues of $424,000 and expenses of $328,000. Also, owner withdrawals during the year totaled $84,000. Assuming no other changes to owner's capital, the balance in the owner's capital account at the end of the year would be: A) $363,000. B) $312,000. C) $225,000. D) $228,000. E) $231,000.

31) After preparing and posting the closing entries for revenues and expenses, the income summary account has a debit balance of $32,000. The entry to close the income summary account will be: Version 1

A) Debit Owner Withdrawals $32,000; credit Income Summary $32,000. B) Debit Income Summary $32,000; credit Owner Withdrawals $32,000. C) Debit Income Summary $32,000; credit Owner Capital $32,000. D) Debit Owner Capital $32,000; credit Income Summary $32,000. E) Debit Owner Withdrawals $32,000; Credit Owner Capital $32,000.

32) Kline Company accrued wages of $9,150 that were earned by employees but were unpaid at the year-end. Assuming Kline uses reversing entries, which of the following entries correctly reverses the accrued wages at the beginning of the following year? A) Debit Wages Expense $9,150; credit Cash $9,150. B) Debit Wages Expense $9,150; credit Wages Payable $9,150. C) Debit Wages Payable $9,150; credit Cash $9,150. D) Debit Cash $9,150; credit Wages Expense $9,150. E) Debit Wages Payable $9,150; credit Wages Expense $9,150.

33) Use the information in the adjusted trial balance presented below to calculate current assets for Taron Company: Account Title Cash

Debit $ 80,000

Accounts receivable

35,000

Prepaid insurance

14,200

Equipment

290,000

Accumulated depreciation—Equipment Land

Credit

$ 145,000 114,000

Accounts payable

36,000

Interest payable

7,150

Unearned revenue

10,700

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Long-term notes payable

87,000

Z. Taron, Capital

247,350

Totals

$ 533,200

A) $114,000. B) $129,200. C) $25,100. D) $36,000. E) $13,200.

34) Use the information in the adjusted trial balance presented below to calculate the current ratio for Taron Company: Account Title Cash

Debit $ 44,000

Accounts receivable

23,000

Prepaid insurance

9,400

Equipment

170,000

Accumulated depreciation—Equipment Land

Credit

$ 85,000 102,000

Accounts payable

24,000

Interest payable

4,150

Unearned revenue

7,100

Long-term notes payable

51,000

Z. Taron, Capital

177,150

Totals

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$ 348,400

A) 2.17. B) 0.46. C) 2.89. D) 2.07. E) 1.90.

35) Use the information in the adjusted trial balance presented below to calculate total current liabilities for Taron Company: Account Title Cash

Debit $ 38,000

Accounts receivable

31,000

Prepaid insurance

13,600

Equipment

115,000

Accumulated depreciation—Equipment Land

Credit

$ 65,000 110,000

Accounts payable (due in 1 week)

32,000

Interest payable (due in 1 month)

3,900

Unearned revenue (service to be provided in 2 months) Long-term notes payable

6,500 49,000

Z. Taron, Capital

151,200

Totals

$ 307,600

A) $242,600. B) $91,400. C) $42,400. D) $57,000. E) $63,500.

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36) Based on the following information from Schrute Company's balance sheet, calculate the current ratio. Current assets Investments Plant assets Current liabilities Long-term liabilities A. Schrute, Capital

$ 126,000 57,800 380,000 52,000 103,000 408,800

A) 0.41. B) 3.64. C) 3.54. D) 1.19. E) 2.42.

37) The following information is available for Zephyr Company before closing the accounts. After all of the closing entries are made, what will be the balance in the Zephyr, Capital account? Net Income Zephyr, Capital Zephyr, Withdrawals

$ 119,600 114,000 43,000

A) $119,600. B) $233,600. C) $267,200. D) $190,600. E) $991,400.

38) The following information is available for Brendon Company before closing the accounts. What will be the amount in the Income Summary account that should be closed to Brendon, Capital? J. Brendon, Capital J. Brendon, Withdrawals Services revenue

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$ 123,000 38,000 205,000

Depreciation Expense—Equipment Wages expense Interest expense Insurance expense Rent expense

13,325 77,900 3,700 12,900 26,650

A) $85,000. B) $70,525. C) $44,000. D) $45,850. E) $32,525.

39) For the year ended December 31, a company had services revenue of $190,000 and wages expense of $114,000. The owner withdrew $38,000 during the year. Which of the following entries could not be a closing entry? A) Debit Income Summary $76,000; credit Owner's, Capital $76,000. B) Debit Owner’s Capital $38,000; credit Owner Withdrawals $38,000. C) Debit Services Revenue $190,000; credit Income Summary $190,000. D) Debit Income Summary $114,000, credit Wages Expense $114,000. E) Debit Income Summary $190,000; credit Services Revenue $190,000.

40) Flagg records adjusting entries at its December 31 year-end. At December 31, employees had earned $9,200 of unpaid and unrecorded salaries. The next payday is January 3, at which time $23,000 will be paid. Prepare the January 1 journal entry to reverse the effect of the December 31 salary expense accrual. A) Debit Salaries expense $9,200; credit Salaries payable $9,200. B) Debit Salaries expense $13,800; debit Salaries payable $9,200; credit Cash $23,000. C) Debit Salaries payable $13,800; credit Cash $13,800. D) Debit Salaries payable $9,200, credit Salaries expense $9,200. E) Debit Salaries expense $13,800; credit Salaries payable $13,800.

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41) Flagg records adjusting entries at its December 31 year-end. At December 31, employees had earned $10,400 of unpaid and unrecorded salaries. The next payday is January 3, at which time $26,000 will be paid. Prepare the journal entry on January 3 to record payment assuming the adjusting and reversing entries were made on December 31 and January 1. A) Debit Salaries expense $10,400; debit Salaries payable $15,600; credit Cash $26,000. B) Debit Salaries expense $26,000; credit Cash $26,000. C) Debit Salaries payable $26,000; credit Cash $26,000. D) Debit Salaries expense $15,600, debit Salaries payable $10,400; credit Cash $26,000. E) Debit Salaries expense $15,600; credit Cash $15,600.

42) For the year ended December 31, a company has revenues of $334,000 and expenses of $204,500. The owner withdrew $56,800 during the year. The balance in the owner’s capital account before closing is $98,000. Which of the following entries would be used to close the withdrawal account? A) Debit Income Summary $56,800; credit Owner’s, Capital $56,800. B) Debit Owner’s Capital $56,800; credit Owner's Withdrawals $56,800. C) Debit Owner’s Capital $98,000; credit Income Summary $98,000. D) Debit Income Summary $98,000, credit Owner’s Withdrawals $98,000. E) Debit Owner’s Withdrawals $56,800; credit Owner’s Capital $56,800.

43) KLM Corporation's quick assets are $6,111,000, its current assets are $13,260,000 and its current liabilities are $8,136,000. Its quick ratio equals: A) 0.46. B) 0.61. C) 0.75. D) 1.33. E) 2.38.

44) A company's current assets are $22,100, its quick assets are $12,920 and its current liabilities are $13,600. Its quick ratio is closest to:

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A) 0.95. B) 1.05. C) 1.62. D) 1.71. E) 2.58.

45)

Using the following year-end information for WorkFit calculate the quick ratio:

Cash Short-term investments Accounts receivable (all current) Inventory Supplies Accounts payable Wages payable

$ 60,840 16,500 63,000 320,000 12,220 110,500 32,700

A) 0.48 B) 0.57 C) 0.68 D) 0.89 E) 0.98

46) A company's current assets are $32,920, its quick assets are $17,690 and its current liabilities are $13,170. Its quick ratio equals: A) 0.744. B) 2.50. C) 1.34. D) 0.40. E) 0.86.

47)

Using the following year-end information for Blackstone, LLC, calculate the quick ratio:

Cash Short-term investments Accounts receivable Inventory

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$ 48,670 10,400 43,500 247,000 18

Prepaid expenses Accounts payable Salaries payable

12,930 92,100 24,400

A) 1.14 B) 0.88 C) 3.11 D) 4.11 E) 1.00

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Answer Key Test name: Chap 04_17ce_Test Bank_Algo 1) FALSE Current Ratio = Current Assets/Current Liabilities Current Ratio = $3,335 million/$1,450 million = 2.3 2) TRUE Current Ratio = Current Assets/Current Liabilities Current Ratio = $18,180/$10,100 = 1.8 3) FALSE 4) FALSE 5) TRUE Quick Ratio = Quick Assets/Current Liabilities Quick Ratio = $177,000/$158,000 = 1.12 6) FALSE 7) D Debt Ratio = Total Liabilities/Total Assets Debt Ratio = $127.5 million/$459 million; Debt Ratio = 0.278 = 27.8% 8) B Debt Ratio = Total Liabilities/Total Assets Debt Ratio = $102.1 million/$389 million; Debt Ratio = 0.263 = 26.2% 9) C Debt Ratio = Total Liabilities/Total Assets Debt Ratio = $304,000/$408,000*; Debt Ratio = 0.745 = 74.5% *Total Assets = Total Liabilities + Total Equity Total Assets = $304,000 + $104,000; Total Assets = $408,000 10) B

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Debt Ratio = Total Liabilities/Total Assets Debt Ratio = $184,200**/ $280,000; Debt Ratio = 0.658 = 65.8% *Beginning Total Assets = Beginning Total Liabilities + Beginning Total Equity $268,000 = $184,200 + Beginning Total Equity; Beginning Total Equity = $83,800 **Ending Total Assets = Ending Total Liabilities + Ending Total Equity $280,000 = Ending Total Liabilities + (Beginning Equity + Revenues − Expenses − Withdrawals) $280,000 = Ending Total Liabilities + ($83,800 + $113,000 − $86,000 − $15,000) $280,000 = Ending Total Liabilities + $95,800; Ending Total Liabilities = $184,200 11) A Unadjusted Store Supplies − Supplies used = Supplies unused $595 − $335 = $260 debit 12) A 13) B Services revenue ($8,490 + $835) Rent Expense Salaries Expense ($2,900 + $395) Insurance Expense Utilities Expense Supplies Expense Depreciation Expense, Equipment

$ 9,325 (2,300) (3,295) (230) (425) (150) (270)

Net Income

$ 2,655

14) E Services revenue ($7,320 + $945) Rent Expense Salaries Expense Insurance Expense Utilities Expense Supplies Expense

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$ 8,265 (1,370) (2,370) (720) (415) (185) 21

Depreciation Expense, Equipment Net Income

(260) $ 2,945

15) C Unadjusted Balances $ 89,300 1. Incorporated Supplies Expense, December Supplies 0 * 2. Incorporated Rent Expense, December Prepaid Rent 0 * 3. Incorporated Salaries Expense, Incorporated 1,000 Salaries Payable 4. Incorporated Depreciation Expense, Incorporated 1,300 Accumulated Depreciation 5. Incorporated Accounts Receivable, Incorporated 900 Consulting Revenue Adjusted Balances $ 92,500

$ 89,300

1,000 1,300 900 $ 92,500

* Adjustments for Prepaid Expenses do not change totals. $s are shifted between accounts with normal debit balances (assets and expenses). 16) B 17) D Revenue − Expenses = Net income to close to owner's equity $199,000 − $110,700 = $88,300 18) C Revenues $189,000 − Expenses $105,700 = Net Income $83,300 19) D Beginning Owner’s Capital + Revenues − Expenses − Owner Withdrawals = Ending Owner’s Capital $303,000 + 191,000 − 106,700 − 20,400 = $366,900 20) B 21) C Ending Capital Balance = Beginning Capital Balance + Revenues − Expenses − Withdrawals Ending Capital Balance = $115,200 + $180,000 − $86,400 − $21,600 = $187,200 22) D Version 1

Ending Capital Balance = Beginning Capital Balance + Net Income − Withdrawals Ending Capital Balance = $135,000 + $52,500− $16,000 = $171,500 23) A Ending Capital Balance = Beginning Capital Balance − Net loss − Withdrawals Ending Capital Balance = $295,500 − $30,600 − $37,200 = $227,700 24) C Ending Capital Balance = Beginning Capital Balance + Revenues − Expenses − Withdrawals Ending Capital Balance = $17,850 + $57,700 − $41,700 − $9,450 = $24,400 25) D 26) A 27) D 28) C Items closed to Income Summary: $ 21,000 2,100 5,000 235 320 $ 13,345

Credit Debit Debit Debit Debit credit, closed with a debit of $13,345; credit to Wilson Peters, Capital

29) D Beginning Owner's Capital $58,500 + Revenues $46,900 − Expenses $30,600 − Owner Withdrawals $20,400 = Ending Owner's Capital $54,400. 30) E

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Beginning Owner's Capital = Total Assets $357,000 − Total Liabilities $138,000 = 219,000. Beginning Owner’s Capital $219,000 + Revenues $424,000 − Expenses $328,000 − Owner Withdrawals $84,000 = Ending Owner's Capital $231,000. 31) D 32) E 33) B Current Assets = Cash + Accounts Receivable + Prepaid Insurance Current Assets = $80,000 + $35,000 + $14,200 = $129,200 34) A Current Ratio = Current Assets/Current Liabilities Current Ratio = ($44,000 + $23,000 + $9,400)/($24,000 + $4,150 + $7,100) Current Ratio = $76,400/$35,250 = 2.17 35) C Current Liabilities = Accounts Payable + Interest Payable + Unearned Revenue Current Liabilities = $32,000 + $3,900 + $6,500 = $42,400 36) E Current Ratio = Current Assets/Current Liabilities Current Ratio = $126,000/$52,000 = 2.42 37) D Ending Capital Balance = Beginning Capital Balance + Net Income − Withdrawals Ending Capital Balance = $114,000 + $119,600 − $43,000 = $190,600 38) B

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Income Summary = Revenues − Expenses Income Summary = $205,000 − $13,325 − $77,900 − $3,700 − $12,900 − $26,650 = $70,525 39) E 40) D 41) B 42) B 43) C Acid-Test Ratio = Quick Assets/Current Liabilities Acid-Test Ratio = $6,111,000/$8,136,000 = 0.75 44) A Acid-Test Ratio = Quick Assets/Current Liabilities Acid-Test Ratio = $12,920/$13,600 = 0.95 45) E Quick Assets = $140,340 = $60,840 + 16,500 + 63,000 Quick Ratio = Quick Assets/Current Liabilities Quick Ratio = $140,340/$143,200 = 0.98 46) C Quick Ratio = Quick Assets/Current Liabilities Quick Ratio = $17,690/$13,170 = 1.34 47) B Quick Ratio = Quick Assets/Current Liabilities Quick Ratio = $102,570/$116,500 = 0.88

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CHAPTER 4 TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) A work sheet is a tool of the accountant for bringing together information needed in preparing the statements, adjusting the accounts, and preparing closing entries. ⊚ ⊚

true false

2) Financial statements prepared from a work sheet offer more information than if it is not used and statements are just prepared from an adjusted trial balance. ⊚ ⊚

A work sheet is prepared before entering the adjustments in the accounts. ⊚ ⊚

true false

A work sheet can be prepared manually or with a computer spreadsheet program. ⊚ ⊚

true false

The work sheet is used to record transactions as they occur. ⊚ ⊚

true false

A work sheet is a substitute for the financial statements. ⊚ ⊚

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true false

7) To prepare the income statement all necessary numbers can be found in the income statement columns of the work sheet, including the profit or loss. ⊚ ⊚

true false

8) On the work sheet, a loss is indicated if the total of the Income Statement Debit column exceeds the total of the Income Statement Credit column. ⊚ ⊚

true false

9) If all columns balance upon completion of a work sheet, you can be sure that no errors were made in preparing the work sheet. ⊚ ⊚

true false

10) Recording closing entries helps to reset revenue and expense accounts to zero on the income statement ⊚ ⊚

true false

11) After entering adjustments on a work sheet, there is no need to enter adjusting entries in the journal and post them to the ledger. ⊚ ⊚

true false

12) On a work sheet, adjusted balances of revenues and expenses are sorted to the Income Statement columns. ⊚ ⊚

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true false

13) On the work sheet, profit is entered in the Income Statement Credit column and in the Statement of Changes in Equity or Balance Sheet Debit column. ⊚ ⊚

14)

true false

Permanent accounts include asset, liability, and withdrawal accounts ⊚ ⊚

true false

15) One of the benefits of a worksheet is it is useful in preparing interim (monthly or quarterly) financial statements when journalizing and posting adjusting entries are postponed until the year-end. ⊚ ⊚

16)

true false

Revenue accounts should begin each accounting period with zero balances. ⊚ ⊚

true false

17) Closing revenue and expense accounts at the end of the accounting period serves to make the revenue and expense accounts ready for use in the next period. ⊚ ⊚

true false

18) Accounts that appear in the balance sheet are often called permanent or temporary accounts. ⊚ ⊚

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true false

19) Revenue and expense accounts are permanent accounts and should not be closed at the end of the fiscal period. ⊚ ⊚

true false

20) The closing process is a step in the accounting cycle that prepares accounts for the next accounting period. ⊚ ⊚

true false

21) Asset, liability, and revenue accounts are not closed as long as a company continues in business. ⊚ ⊚

22)

true false

Closing entries are needed at the end of the fiscal period to close all ledger accounts. ⊚ ⊚

true false

23) Closing entries accomplish the goal of reflecting revenues and expenses in the owner's capital account. ⊚ ⊚

24)

true false

Income Summary is a temporary account. ⊚ ⊚

true false

25) The closing process is a two-step process. First revenue, expense, and withdrawals are set to zero balance. Second, the process summarizes a period's assets and expenses.

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⊚ ⊚

true false

26) An expense account is normally closed by debiting Income Summary and crediting the expense account. ⊚ ⊚

27)

true false

The withdrawals account is normally closed by debiting it. ⊚ ⊚

true false

28) After posting the entries to close all revenue accounts and all expense accounts, the Income Summary account of Waif Services has a $4,000 debit balance. This shows that Waif Services earned profit of $4,000. ⊚ ⊚

true false

29) After posting the entries to close all revenue and expense accounts, Hatfield Company's Income Summary account has a credit balance of $6,000, and the Hatfield, Withdrawals account has a debit balance of $2,500. These balances indicate that profit for the accounting period amounted to $3,500. ⊚ ⊚

true false

30) Closing entries are designed to transfer the end-of-period balances in the revenue accounts, the expense accounts, and the withdrawals account to a balance sheet equity account. ⊚ ⊚

31)

true false

In a sole proprietorship, the Income Summary account is closed to the capital account.

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⊚ ⊚

true false

32) When expenses exceed revenues, there is a loss, and the Income Summary account has a credit balance. ⊚ ⊚

true false

33) Income Summary is a temporary account that contains a debit for the sum of all revenues and a credit for the sum of all expenses ⊚ ⊚

true false

34) The Income Summary account is a permanent account that will be carried forward year after year. ⊚ ⊚

true false

35) The steps in the closing process are: (1) close credit balances in revenue accounts to Income Summary; (2) close credit balances in expense accounts to Income Summary; (3) close Income Summary to Owner's Capital; and (4) close Withdrawals to Owner's Capital. ⊚ ⊚

true false

36) To close a Sales Revenue account at the end of a period, we would debit Income Summary and Credit Sales Revenue ⊚ ⊚

true false

37) A post-closing trial balance is a list of permanent accounts and their balances from the ledger after all closing entries are journalized and posted. Version 1

⊚ ⊚

true false

38) The purpose of a post-closing trial balance is to verify that (1) total debits equal total credits for temporary accounts and (2) all temporary accounts have zero balances. ⊚ ⊚

true false

39) Sharp's post-closing trial balance has debit totals of $40,350 and credit totals of $40,650. The next step is to review for errors in the closing process. ⊚ ⊚

true false

40) The first step in the accounting cycle is to analyze and record transactions during the accounting period. ⊚ ⊚

true false

41) To close the withdrawals account to owner's capital the owner's capital account is debited and the withdrawals account is credited ⊚ ⊚

true false

42) The first five steps in the accounting cycle include analyzing transactions, journalizing, posting, preparing an unadjusted trial balance, and recording adjusting entries. ⊚ ⊚

true false

43) In order, the last four steps in the accounting cycle include preparing the adjusted trial balance, preparing financial statements, preparing adjusting entries and preparing closing entries.

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⊚ ⊚

44)

true false

A classified balance sheet organizes assets and liabilities into important subgroups. ⊚ ⊚

true false

45) An unclassified balance sheet provides more information to users than a classified balance sheet. ⊚ ⊚

true false

46) Current assets and current liabilities are expected to be used up or come due within the longer of one year or the company's operating cycle. ⊚ ⊚

true false

47) Assets are classified into current assets, investments, property, plant and equipment, and intangible assets. ⊚ ⊚

true false

48) Current liabilities are cash and other resources that are expected to be sold, collected, or used within the longer of one year or the company's operating cycle. ⊚ ⊚

49)

true false

Non-current investments can include land not currently being used in operations. ⊚ ⊚

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true false

50) Property, plant and equipment and intangible assets are non-current assets used to produce or sell products and services. ⊚ ⊚

51)

Current liabilities include accounts receivable, unearned revenues, and taxes owed. ⊚ ⊚

52)

true false

For a partnership, the equity section is called Shareholders Equity. ⊚ ⊚

53)

true false

Reversing entries are optional. ⊚ ⊚

true false

54) Reversing entries are prepared to adjust accrued assets and liabilities that were created by adjusting entries at the end of the previous reporting period. ⊚ ⊚

true false

55) The current ratio is used to evaluate the ability of a business to meet its short-term obligations. ⊚ ⊚

56)

true false

The current ratio is calculated by dividing current liabilities by current assets.

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⊚ ⊚

true false

57) Harley Davidson's current assets are $400 million, and its current liabilities are $250 million. Its current ratio is.63 to 1. ⊚ ⊚

true false

58) Sharp has current assets of $15,200 and current liabilities of $9,500. Its current ratio is 1.6 to 1. ⊚ ⊚

true false

59) Harley Davidson's current ratio is.9 to 1. The industry average current ratio is 1.2. Harley Davidson does not have a problem in covering its current liabilities because of its strong sales and position in its industry. ⊚ ⊚

60)

true false

Current liabilities are listed in the order of liquidity. ⊚ ⊚

true false

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 61) Which of the following is correct as it relates to use of worksheets in preparing financial statements?

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A) The work sheet is a mandatory working paper that can simplify the accountant's efforts in preparing financial statements B) It is an internal document that is generally distributed to decision makers. C) It is useful in preparing interim (monthly or quarterly) financial statements when journalizing and posting adjusting entries are postponed until the year-end D) It captures the accounting process only partially as it does not link economic transactions to their effects in financial statements. E) All of the choices are correct.

62) A spreadsheet used to draft a company's unadjusted trial balance, adjusting entries, adjusted trial balance, and financial statements, and which is an optional step in the accounting process, is a(n) A) Adjusted trial balance B) Work sheet C) Post-closing trial balance D) Unadjusted trial balance E) Book of final entry

63) Internal documents prepared by accountants when organizing the information presented in formal reports to internal and external decision makers are called A) Adjusting papers B) Statement papers C) Working papers D) Closing papers E) Business papers

64)

Which of the following is true as it relates to the debt-to-equity ratio?

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A) The debt-to-equity ratio is a modification from the current ratio and is a more robust measure of liquidity. B) The higher the debt-to-equity ratio the higher the risk associated with the potential for bankruptcy C) Investors and external users typically like to assess debt to equity to determine the short-term liquidity of the company D) A higher number is more favourable; the higher the number, the lower the risk associated with the potential for bankruptcy E) All of the choices are correct.

65) The Unadjusted Trial Balance columns of the work sheet show the balance in the Office Supplies account at $750. The Adjustments columns show that $425 of these supplies were used during the period. The amount shown as Office Supplies in the Balance Sheet columns is A) $325 debit B) $325 credit C) $425 debit D) $750 debit E) $750 credit

66)

Which of the following statements is incorrect?

A) Working papers are invaluable tools of the accountant. B) The work sheet shows the effects of adjustments on the account balances. C) After the work sheet is completed, the work sheet information is used to prepare the financial statements. D) On the work sheet, the accountant sorts the adjusted amounts into columns according to whether the accounts are used in preparing the unadjusted trial balance or the adjusted trial balance. E) The work sheet is an optional step in the accounting cycle.

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67) A company shows an $800 balance in Prepaid Insurance in the Unadjusted Trial Balance columns of the work sheet. The Adjustments columns show expired insurance of $600. This adjusting entry results in A) $600 less profit B) $600 more profit C) $200 difference between the debit and credit columns of the unadjusted trial balance D) $400 in the Income Statement Debit column on the work sheet E) $400 in the Balance Sheet Credit column on the work sheet

68) If, in preparing a work sheet, an adjusted trial balance amount is sorted to the wrong work sheet column, the Balance Sheet columns will balance on completing the work sheet, but with the wrong profit, if the amount sorted in error is A) An expense amount entered in the Balance Sheet Credit column B) A revenue amount entered in the Balance Sheet Debit column C) A liability amount entered in the Income Statement Credit column D) An asset amount entered in the Balance Sheet Credit column E) A liability amount entered in the Balance Sheet Debit column

69) If the Balance Sheet columns of a work sheet fail to balance when the amount of profit is added to the Balance Sheet Credit column, the cause could be A) An expense amount entered in the Balance Sheet Debit column B) A revenue amount entered in the Balance Sheet Credit column C) An asset amount entered in the Income Statement Debit column D) A liability amount entered in the Balance Sheet Debit column E) A liability amount entered in the Income Statement Credit column

70) The following items appeared on December 31 Excel work sheet. Based on the following information, what is profit for the year? Account

Version 1

Unadjusted Trial Balance

Adjustments

Adjusted Trial Balance

Dr.

Cr.

Dr.

Cr.

Cash

975

Prepaid insurance

3,600

150

Supplies

180

Equipment

10,320

Accounts payable

1,140

Unearned fees

4,500

Owner, capital

9,180

Owner, withdrawals

Dr. Cr.

375

1,650

Fees earned

5,850

{375 {300

Rent expense

1,500

Salaries expense

2,100

Utilities expense

345

315

Insurance expense

150

Supplies expense

Depreciation expense, equipment

190

Accumulated depreciation, equipment

190

Salaries payable

315

Accounts receivable Total

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300 20,670

20,670

1,400

A) $1,725 B) $1,855 C) $1,905 D) $4,125 E) $4,670

71) Which of the following errors would cause the balance sheet columns of a work sheet to be out of balance? A) Entering an asset amount in the Income Statement Debit column. B) Entering a liability amount in the Income Statement Credit column. C) Entering an expense amount in the Balance Sheet Debit column. D) Entering a revenue amount in the Balance Sheet Debit column. E) Entering a liability amount in the Balance Sheet Credit column.

72) The Unadjusted Trial Balance columns of a work sheet total $84,000. The Adjustments columns contain entries for the following: (1) Office supplies used during the period, $1,200. (2) Expiration of prepaid rent, $700. (3) Accrued salaries expense, $500. (4) Depreciation expense, $800. (5) Accrued repair service fees receivable, $400. The Adjusted Trial Balance columns total A) $80,400 B) $84,000 C) $85,700 D) $85,900 E) $87,600

73)

Another name for income summary accounts is

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A) Permanent accounts B) Contra accounts C) Accrued accounts D) Balance column accounts E) Temporary account

74)

When closing entries are made A) All ledger accounts are closed to start the new fiscal period B) All temporary accounts are closed but not the permanent accounts C) All permanentaccounts are closed but not the temporary accounts D) All permanent accounts are closed but not the temporary accounts E) All balance sheet accounts are closed

75) Accounts that are used to describe revenues, expenses, and owner's withdrawals, and are closed at the end of the reporting period, are A) Financial accounts B) Temporary accounts C) Closing accounts D) Permanent accounts E) Summary accounts

76)

Which of the following statements is incorrect?

A) Permanent accounts are another name for temporary accounts. B) Temporary accounts carry a zero balance at the beginning of each accounting period. C) The Income Summary account is a temporary account. D) Permanent accounts remain open as long as the asset, liability, or equity items recorded in the accounts continue in existence. E) Permanent accounts include assets.

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77)

Closing the temporary accounts at the end of each accounting period

A) Serves to transfer the effects of these accounts to the proper equity account on the balance sheet B) Prepares the withdrawals account for use in the next period C) Gives the revenue and expense accounts zero balances D) Gives the withdrawals account a zero balance E) All of the choices are correct.

78) Accounts that are used to describe assets, liabilities, and equity, that are not closed as long as the company continues to own the assets, owe the liabilities, or have equity, and whose balances appear on the balance sheet are called A) Summary accounts B) Temporary accounts C) Permanent accounts D) Contra accounts. E) Accrued accounts

79) Pivot Dance School, a sole proprietorship, has a loss of $12,000 for its year ended December 31st. Which of the following is correct as it relates to the closing process and the income summary account? A) The owner's capital account would be credited $12,000 and the Income Summary account would be debited B) The owner's withdrawals account would be debited for $12,000 and the Income Summary account would be credited C) The owner's capital account would be debited for $12,000 and the Income Summary account would be credited D) The owner's withdrawals account would be credited for $12,000 and the Income Summary account would be debited E) None of the choices are correct.

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80) Journal entries recorded at the end of each accounting period to prepare the revenue, expense, and withdrawals accounts for the upcoming year and to update the owner's capital account for the events of the year just finished are A) Adjusting entries B) Closing entries C) Final entries D) Work sheet entries E) None of the choices are correct.

81)

The Income Summary account is

A) The account from which the amount of profit or loss is transferred to the owners' capital accounts in a partnership B) A temporary account C) Used in the closing process to summarize the amounts of revenues and expenses D) Not a permanent account E) All of the choices are correct.

82) The special account used only in the closing process to temporarily hold the amounts of revenues and expenses before the net difference is added to (or subtracted from) the owner's capital account is the A) Income Summary account B) Closing account C) Balance column account D) Contra account E) Temporary account

83) J. Flow, the proprietor of Flow Services, withdrew $8,700 from his business during 2023. These withdrawals will result in which of the following closing entries at the end of 2023? A) Version 1

J. Flow, Withdrawals

8,700

Cash

8,700

B) J. Flow, Capital

8,700

J. Flow, Withdrawals

8,700

C) J. Flow, Withdrawals

8,700

J. Flow, Capital

8,700

D) J. Flow, Capital Salary Expense

8,700 8,700

84) Given the following accounts and their adjusted balances before closing entries are posted, what amount will be posted to Bessie Cool, Capital in the process of closing the Income Summary account? Assume all accounts have normal balances.

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Bessie Cool, capital

$ 7,000

Bessie Cool, withdrawals

9,600

Service Revenue

35,500

Rent expense

3,600

Salaries expense

7,200

Insurance expense

920

Depreciation expense, equip.

500

Accumulated depreciation, equipment.

1,500

A) $12,180 credit B) $21,780 debit C) $21,780 credit D) $23,280 credit E) $28,780 credit

85) A company had revenues of $75,000, withdrawals of $10,000 and expenses of $62,000 during an accounting period. Which of the following entries should not be journalized in the closing process? A) Income Summary

13,000

Capital

13,000

B) Capital

10,000

Withdrawals

10,000

C) Revenues

75,000

Income Summary

75,000

D) Income Summary Expenses

62,000 62,000

E) All of these should be journalized in the closing process.

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86) After all appropriate closing entries to the following accounts have been made, what will be the balance in the Jeff Corvette, Capital account? Service fees revenue

$140,000

Various expenses

60,000

Jeff Corvette, capital

80,000

Jeff Corvette, withdrawals

15,000

A) $65,000 B) $80,000 C) $130,000 D) $145,000 E) $280,000

87) The J. Dawson, Capital account has a credit balance of $1,200 before closing entries are made. If total revenues for the year are $65,200, total expenses $49,800, and withdrawals are $2,400, what is the ending balance in the J. Dawson, Capital account after all closing entries have been made? A) $5,200 B) $7,600 C) $14,200 D) $16,600 E) $23,200

88)

The Income Summary account is used A) To adjust and update asset accounts B) To close the revenue and expense accounts C) To determine the appropriate withdrawal amount D) To replace the income statement under certain circumstances E) To replace the capital account in some businesses

89) Emilia Feridy, the proprietor of EF Services, withdrew a total of $50 for to pay for her daughter's swimming lessons. What is the entry needed to record this transaction? Version 1

A) Debit Emilia Feridy, Capital, and credit Cash for $50. B) Debit Emilia Feridy, Withdrawals, and credit Cash for $50. C) Debit Emilia Feridy, Withdrawals and credit Emilia Feridy, Capital for $50. D) Debit Emilia Feridy, Capital and credit Emilia Feridy, Withdrawals for $50. E) Debit Cash and credit Emilia Feridy, Withdrawals for $50.

90)

Which statement is incorrect? A) Revenue accounts are closed to Income Summary. B) Expense accounts are closed to Income Summary. C) Income Summary is closed to Capital. D) Withdrawals are closed to Income Summary. E) Withdrawals are closed to Capital.

91)

When closing the Withdrawals account A) The income summary account should be debited B) The income summary account should be credited C) The owners' capital account should be credited D) The owners' capital account should be debited E) Liability account should be credited

92) After all closing entries are made and posted, the balance in the owners' capital account in the ledger will be equal to A) Profit or loss for the year B) The balance of owners' capital on the post-closing trial balance C) Zero D) The beginning balance in owners' capital in the statement of changes in equity E) The balance of owners' capital on the pre-closing trial balance

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93)

The Income Summary account is a(n) A) Temporary account B) Income Statement account C) Permanent account D) Balance Sheet account E) Both Income Statement and Balance Sheet accounts

94) A trial balance prepared after the adjusting and closing entries have been posted, and which is the final step in the accounting cycle, is a(n) A) Unadjusted trial balance B) Post-closing trial balance C) Book of final entry D) Adjusted trial balance E) Work sheet

95) An error is indicated if the following account has a balance appearing on the post-closing trial balance A) Office Equipment B) Accumulated Depreciation, Office Equipment C) Depreciation expense, Office Equipment D) Ted Nash, Capital E) Salaries Payable

96)

A post-closing trial balance shows

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A) All ledger accounts with a balance, none of which can be temporary accounts B) All ledger accounts with a balance, none of which can be permanent accounts C) All ledger accounts with a balance, which include some temporary and some permanent accounts D) Only revenue and expense accounts E) Only asset accounts

97)

Which of the following statements is true?

A) Journalizing consists of analyzing and recording transactions in T-accounts. B) Preparing a post-closing trial balance helps to prove the accuracy of the adjusting and closing procedures. C) The information on the work sheet can be used in place of preparing financial statements. D) By using a work sheet to prepare adjusting entries you need not post these entries to the ledger accounts. E) All of the choices are correct.

98) The eight recurring steps performed each accounting period, starting with recording transactions in the journal and continuing through the post-closing trial balance, is called the A) Accounting period B) Operating cycle C) Accounting cycle D) Closing cycle E) Natural business year

99)

Which of the following is the final step in the accounting cycle?

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A) Journalizing B) Preparing an adjusted trial balance C) Preparing a post-closing trial balance D) Preparing the statements E) Preparing a work sheet

100)

A classified balance sheet A) Measures a company's ability to pay its bills on time B) Organizes assets and liabilities into important subgroups C) Presents revenues, expenses, and profit D) Shows operating, investing, and financing activities E) Shows the effect of profit and withdrawals on owner's capital

101)

The asset section of a classified balance sheet includes A) Current assets, long-term investments, property, plant and equipment, and intangible

assets. B) Current assets, non-current assets, equity, and intangible assets. C) Current assets, long-term investments, property, plant and equipment, and withdrawals. D) Current liabilities, long-term investments, property, plant and equipment, and intangible assets. E) Current assets, liabilities, property, plant and equipment, and intangible assets.

102)

Current liabilities become due A) Within one year B) Within the operating cycle of a business C) When bills have to be paid D) A or B, whichever is longer E) All of the choices are correct.

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103)

The normal order for the asset section of a classified balance sheet is A) Current assets, prepaid expenses, long-term investments, and intangible assets B) Long-term investments, current assets, property, plant and equipment, and intangible

assets C) Current assets, long-term investments, property, plant and equipment, and intangible assets D) Intangible assets, current assets, long-term investments, property, and plant and equipment E) Property, plant and equipment, intangible assets, long-term investments, and current assets

104)

Current Liabilities A) Are listed in order of liquidity B) Are closed at the end of the accounting period to current assets C) Are due to be settled within the shorter of one year or the operating cycle D) Are usually settled by paying out current assets E) Are due to be settled after one year or the operating cycle

105)

The ending balance of owner's capital is calculated as A) Owner's capital account balance plus profit minus the withdrawals account balance B) Owner's capital account balance minus loss plus the withdrawals account balance C) Profit minus the withdrawals account balance D) Assets plus liabilities E) None of the choices are correct.

106)

Reversing entries

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A) Are optional B) Are mandatory C) Fix errors in journal entries D) Are required by CRA E) Are not posted to the ledger

107)

Which of the following is incorrect? Reversing entries are

A) Optional B) Linked to accrued assets and liabilities that were created by adjusting entries at the end of the previous accounting period C) Used to simplify a company's record keeping D) Dated the last day of the current accounting period E) All of the choices are correct.

108)

The current ratio A) Is used to measure a company's profitability B) Is used to measure the relationship between assets and long-term debt C) Measures the effect of operating income on profit D) Is used to evaluate a company's ability to pay its short-term obligations E) Only relates to non-current liabilities

109)

The current ratio A) Is current assets divided by current liabilities B) Helps to assess a company's ability to pay its debts in the near future C) Suggests there may be problems in a business if it is less than 1 D) Is a measure of a company's liquidity E) All of the choices are correct.

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110)

Which statement is true about liquidity? Prepaid Rent is A) Less liquid than land B) Less liquid than rent revenue C) Less liquid that inventories D) More liquid than cash E) More liquid than inventories

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 111) (A) In a sole proprietorship, Income Summary is closed to what account? (B) In following the steps of the accounting cycle, what two steps must be done before preparation of an unadjusted trial balance?

112) The following are the steps in the accounting cycle. List them in the order in which they are completed: Completing the work sheet; Posting; Preparing an unadjusted trial balance; Journalizing; Preparing the statements; Closing the temporary accounts; Adjusting the ledger accounts; Preparing a post-closing trial balance

113) The alphabetized adjusted trial balance for SimCo Electrical Outfitters on August 31, 2020, is shown below. Identify how each account balance would be classified on a balance sheet given the following classification symbols: CA

Current assets

Current liabilities

PPE

Property, plant, and equipment

LTL

Long-term liabilities

Intangible asset

Equity

LTI

Long-term investment

Not applicable to a balance sheet

_____

Accounts payable

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_____

Accounts receivable

_____

Accumulated depreciation, equipment

_____

Advertising expense

_____

Cash

_____

Depreciation expense, equipment

_____

Equipment

_____

Insurance expense

_____

Interest revenue

_____

Jenna Lee, capital

_____

Jenn Lee, withdrawals

_____

Notes payable due August 31, 2020

_____

Notes payable due December 31, 2022

_____

Notes receivable due November 20, 2022

_____

Patent

_____

Prepaid insurance

_____

Repair expense

_____

Salaries payable

_____

Salary expense

_____

Service revenue

_____

Supplies

_____

Supplies expense

_____

Tools

_____

Unearned service revenue

_____

Utilities expense

114) In the blank space beside each numbered item, enter the letter of its balance sheet classification. If the item should not appear on the balance sheet, enter "z" in the blank. a. Current assets

e. Current liabilities

b. Long-term investments

f. Long-term liabilities

c. Property, plant, and equipment

g. Equity

d. Intangible asset 1. Office supplies

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11. Building

2. Owner, capital

12. Prepaid insurance

3. Patent

13. Current portion of long-term notes payable

4. Notes receivable (due in 120 days)

14. Interest receivable

5. Accumulated depreciation, truck

15. Short-term investments

6. Salaries payable

16. Land (used in operations)

7. Commissions earned

17. Copyrights

8. Notes receivable (due in 18 months)

18. Owner, withdrawals

9. Office equipment

19. Trademark

10. Notes payable (due in three years)

20. Land (for future expansion)

115) Calculate the current ratio in each of the following cases. Generally speaking which case or cases demonstrate a healthy (favourable) current ratio. Explain.

116)

Current Assets

Current Liabilities

Case 1

$60,000

$30,000

Case 2

$150,000

$85,000

Case 3

$57,000

$53,000

Case 4

$130,000

$127,000

Case 5

$70,000

$110,000

Describe a work sheet and explain why it is useful.

117) Using the following partial Excel work sheet for Breakout Maze Co., prepare the Income Statement, the Statement of Changes in Equity, and an unclassified Balance Sheet for the company. Assume the owner did not make any investments in the business during the year. Breakout Maze Co. Work Sheet for Year Ended June 30, 2023

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Account

Income Statement

Statement of Changes in Equity and Balance Sheet

Dr.

Cr.

Dr.

Cash

11,265

Accounts receivable

1,500

Office supplies

1,300

Prepaid insurance

4,400

Building

120,000

Cr.

Accumulated depreciation, Building

24,000

Notes payable

3,000

Salaries payable

3,160

M. Tomas, capital

65,355

M, Tomas, withdrawals

5,000

Motel rental revenue

55,000

Depreciation expense, Building

3,000

Salaries expense

1,200

Insurance expense

500

Rent expense

1,400

Office supplies expense

300

Repairs expense

400

Telephone expense

250

Totals

7,050

Profit

47,950

Totals

55,000

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55,000

143,465

95,515 47,950

55,000

143,465

118) Using the following partial Excel work sheet for Pendulum Service Co., prepare the Income Statement, the Statement of Changes in Equity, and an unclassified Balance Sheet. Assume the owner did not make any investments in the business during the year. Pendulum Service Co. Work Sheet For Year Ended December 31, 2023 Account

Income Statement Dr.

Statement of Changes in Equity and Balance Sheet Cr.

Dr.

Cash

5,000

Accounts receivable

1,200

Supplies

500

Prepaid rent

7,000

Equipment

40,000

Cr.

Accumulated depreciation, Equipment

2,800

Notes payable

5,000

Accounts payable

5,300

R. Christie, capital

28,450

R. Christie, withdrawals

500

Service revenue

19,000

Depreciation expense, Building

700

Wages expense

600

Rent expense

2,000

Supplies expense

1,200

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Utilities expense

500

Repairs expense

600

Telephone expense

750

Totals

6,350

Profit

12,650

Totals

19,000

54,200

41,550 12,650

19,000

54,200

119) Shown below are the data taken from the unadjusted and adjusted trial balances for Wallaby Company on December 31, 2023: Trial Balance

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Unadjusted

Adjusted

Dr.(Cr.)

Accounts payable

$(36,400)

Accounts receivable

88,270

90,770

Accum depreciation, office equipment

(A)

(10,260)

Advertising expense

15,000

Cash

10,000

J. Wadrip, capital

(C)

(113,420)

Depreciation expense, office equipment

2,160

Insurance expense

4,300

Office equipment

49,600

Office supplies

700

Office supplies expense

480

Prepaid insurance

2,500

Rent expense

28,500

Salaries expense

462,000

Salaries payable

(-0-)

(2,700)

Sales

(H)

(542,000)

The differences between the unadjusted and adjusted trial balances can be explained by adjusting entries that were made for an unrecorded sale, depreciation, expired insurance, office supplies expense, and accrued salaries expense. Determine the amounts that should appear in the trial balance blanks labelled A through H and write your answers below. (Show credit amounts in parentheses.) A. ____________, B. ___________, C. ____________, D. ____________, E. ____________, F. ___________, G. ____________, and H. ____________.

120) Below is an alphabetical listing of General Ledger accounts with identifying numbers for Scott's Suntanning Parlour. Indicate the accounts debited and credited in each of the following transactions by placing the proper account identifying number(s) in the columns to the right of each transaction. 1. Accounts Payable

10. Prepaid Insurance

2. Accounts Receivable

11. Rent Expense

3. Accum depreciation, Suntan Equip

12. Salaries Expense

4. Cash

13. Salaries Payable

5. Depreciation expense, Suntan Equip

14. Suntanning Equipment

6. Income Summary

15. Suntanning Revenue

7. Insurance Expense

16. Scott Smith, Capital

8. Office Supplies

17. Scott Smith, Withdrawals

9. Office Supplies Expense Debit (a)

Invested suntanning equipment and cash in a suntanning business.

______ ______

(b)

Rented a store and paid rent for one month.

______ ______

(c)

Paid the premium on a two-year insurance policy.

______ ______

(d) (e) (f)

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Credit

Purchased office supplies for cash and recorded ______ ______ an asset Rendered services to clients for cash

______ ______

Scott Smith withdrew cash from the business for ______ ______

personal use.

121)

(g)

Rendered services to clients on account.

______ ______

(h)

Paid salaries.

______ ______

(i)

Made an adjusting entry to record expired insurance.

______ ______

(j)

Made an adjusting entry to record accrued salaries.

______ ______

(k)

Made an adjusting entry to record office supplies used.

______ ______

(l)

Made an adjusting entry to record depreciation ______ ______ on suntanning equipment.

(m)

Closed the Income Summary account, which reflected a net loss.

______ ______

(n)

Closed the owner’s withdrawals account.

______ ______

Explain why closing entries are a necessary step in the accounting cycle.

122) Indicate beside each of the following accounts whether the account is a temporary or permanent account: (a) Cash, (b) Prepaid insurance, (c) Unearned Revenue, (d) Accounts receivable, (e) Insurance expense, (f) Smith, capital, (g) Smith, withdrawals, (h) Rent expense, (i) Revenue, (j) Supplies, (k) Supplies expense, (l) Depreciation expense, building (m) Accumulated depreciation, building

123)

Explain the purpose of closing entries and describe the closing process.

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124)

Explain why temporary accounts are closed each period.

125) Presented below are the year-end balances on October 31 of Max Missle Paintball Co. All accounts have normal balances. Accounts receivable

$5,000

Accounts payable

13,000

Accumulated depreciation, equipment

15,000

Advertising expense

1,000

Cash

30,000

Depreciation expense, equipment

3,000

Insurance expense

1,000

Interest revenue

1,000

Laundry equipment

130,000

Notes payable

30,000

Max Missle, capital

47,500

Max Missle, withdrawals

5,000

Prepaid insurance

6,000

Salaries payable

2,000

Salary expense

4,000

Service revenue

80,000

Supplies

1,000

Supplies expense

100

Repair expense

500

Unearned laundry service revenue

100

Utilities expense

1,000

Prepare the necessary closing entries on October 31.

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126) Shown below is Bill Brady Law's adjusted trial balance at the end of its annual accounting period. Bill Brady Trial Balance Law December 31, 2023 Debit Cash

$13,000

Accounts receivable

20,000

Office supplies

10,300

Office equipment

40,500

Credit

Accumulated depreciation, office

$22,000

Long-term notes payable

60,000

Bill Brady, capital

11,000

Bill Brady, withdrawals

10,000

Service Revenue

51,100

Salary expense

30,000

Rent expense

12,300

Depreciation expense, office equipment

1,000

Advertising expense

4,000

Office supplies expense

3,000

2,500

Total

$144,100

Prepare the necessary closing entries.

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127)

The adjusted trial balance of Sara's Photography follows: Sara’s Photography Trial Balance December 31, 2023 Debit Cash

$800

Accounts receivable

1,400

Office supplies

300

Photography equipment

9,000

Credit

Accumulated depreciation, photography equipment

$1,000

Accounts payable

700

Sara Vegara, capital

5,100

Sara Vegara, withdrawals

1,800

Photography revenue

11,000

Supplies expense

500

Cleaning expense

100

Repairs expense

Developing expense

1,850

Rental expense

2,000

Total

$17,800

Prepare the necessary closing entries on December 31. What is the balance of Sara's capital account after the bookkeeper posts the closing entries? Version 1

128) The following are selected accounts and their balances after adjustments on December 31, 2023, the end of Mark's Furniture Refinishing's fiscal year. Mark’s Furniture Refinishing Trial Balance December 31, 2023 Debit Cash

$1,000

Accounts receivable

2,000

Refinishing supplies

3,000

Tools

10,000

Credit

Accumulated depreciation, tools

$11,000

Accounts payable

3,000

Mark Madman, capital

4,000

Mark Madman, withdrawals

2,000

Fees earned

15,750

Wages expense

4,000

Supplies expense

250

Depreciation expense

5,500

Utilities expense

3,500

Rental expense

2,500

_______

Total

$33,750

Prepare the necessary closing entries on December 31. What is the balance of Mark's capital account after the bookkeeper posts the closing entries?

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129)

The adjusted trial balance of Richardson Electric on May 31, 2023 is as follows Richardson Electric Trial Balance May 31, 2023 Debit Cash

$6,000

Prepaid insurance

2,000

Equipment

18,000

Credit

Accumulated depreciation, equipment

$20,000

Salaries payable

1,000

Mitch Richardson, capital

12,700

Mitch Richardson, withdrawals

6,000

Repair fees earned

11,800

Unearned repair fees

1,200

Insurance expense

3,500

Depreciation expense

11,200

Total

$46,700

Prepare the necessary closing entries on May 31.

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130) The items that follow appeared in the Income Statement columns of the work sheet prepared for a sole proprietorship at year-end, December 31, 2023. Also, the owner's withdrawals account was debited for $12,000 during the year. Prepare the necessary closing entries on December 31. Income Statement Revenue from services

$97,400

Office salaries expense

$28,100

Rent expense

13,800

Insurance expense

1,700

Office supplies expense

800

Depreciation expense, office equipment

4,800

__________

$49,200

$97,400

48,200

__________

$97,400

Net income

131) The amounts below appeared in the Income Statement and Balance Sheet columns of a company's December 31 work sheet. In the space provided record the closing entries on December 31 (no explanations are necessary). Income Statement

Balance Sheet

Debit

Credit

Debit

Cash

7,500

Accounts receivable

4,500

Credit

Liabilities

3,000

Kate Smith, capital

7,500

Kate Smith, withdrawals

Version 1

1,500

Sales

19,500

Salaries expense

11,250

Other operating expenses

5,250

______

_____

16,500

19,500

13,500

10,500

3,000

______

3,000

19,500

13,500

Net income

132)

Discuss the purpose of a post-closing trial balance.

133)

Identify the steps in the accounting cycle.

134)

Describe a classified balance sheet.

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135) Classified balance sheets commonly include the following categories.(a) Current assets(b) Investments(c) Property, plant and equipment(d) Intangible assets(e) Current liabilities(f) Non-current liabilities(g) Equity Indicate the typical classification of each item listed below by placing the letter of the correct balance sheet category in the blank space next to the item.(1) ______ Margarita Acosta, capital(2) ______ Cash(3) ______ Office supplies(4) ______ Accounts receivable(5) ______ Prepaid expenses(6) ______ Merchandise inventory(7) ______ Buildings used in business operations(8) ______ Wages payable(9) ______ Long-term note payable(10) ______ Accounts payable(11) ______ Patents(12) ______ Land held for future plant expansion

136)

Explain the purpose of reversing entries.

137)

Explain the current ratio. Describe how it is used to evaluate a company.

138) Listed below are a number of accounts for Melcier Industries. Use the schedule shown below to classify each account, and indicate if it is included in the closing process and, if so, how it is closed. Accounts Titles

Permanent or Temporary

Income Statement or Balance Sheet

Ex: Accounts payable

B/S

Accounts receivable

_________

Accum amort, equipment

_________

Advertising

_________

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Closed or Closed with a Debit Remains Open or Credit

expense Cash

_________

Amort exp, equipment

_________

Melcier, withdrawals

_________

Equipment

_________

Insurance expense

_________

Interest expense

_________

Miscellaneous expense

_________

Notes payable

_________

Office supplies

_________

Office supplies expense

_________

Prepaid Insurance

_________

Rent expense

_________

Melcier, capital

_________

Salaries expense

_________

Salaries payable

_________

Sales

_________

SECTION BREAK. Answer all the part questions. 139) Below is the year-end adjusted trial balance for Lucie Accounting. Lucie Accounting Trial Balance For Year Ended December 31, 2023

Version 1

Account

Debit

Cash

$8,000

Accounts receivable

2,200

Office supplies

700

Prepaid insurance

1,100

Long-term note receivable

3,00

Credit

Land

50,000

Equipment

15,000

Accumulated depreciation, Equipment Building

$1,200 150,000

Accumulated depreciation, Building Customer list

1,500 900

Notes payable*

11,000

Unearned accounting fees earned

3,000

Salaries payable

7,000

Lucie Majeau, capital**

10,000

Lucie Majeau, withdrawals

5,000

Accounting fees earned

211,400

Depreciation expense, Building

500

Depreciation expense, Equipment

600

Insurance expense

100

Rent expense

1,100

Office supplies expense

900

Repairs expense

5,000

Telephone expense

1,000

Totals

$245,100

*The current portion of the note payable due this year is $3,000 **$5,000 was invested during the year

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139.1) Using the above reference, prepare an income statement, statement of changes in equity and a classified balance sheet.

139.2) Using the information from Lucie Accounting, calculate the current ratio quick ratio and the debt-to-equity ratio (round to 2 decimal places). Comment whether you think each ratio is favourable or unfavourable.

140) The following account balances are taken from the adjusted trial balance of Best of Fun Bowling Lanes on December 31, 2023. Debit

Credit

Bowling Supplies Prepaid Insurance

320.00

Accounts Payable

535.00

Long-Term Notes Payable

15,000.00

D. Allen, Capital

31,800.00

Bowling Equipment

74,325.00

Accumulated Depreciation- Bowling Equip. D. Allen, Withdrawals

18,585.00 23,500.00

Bowling Revenue

Version 1

81,750.00

Equipment Repairs Expense

630.00

Rent Expense

8,175.00

Interest Expense

900.00

Bowling Supplies Expense

1,835.00

Insurance Expense

1,680.00

Depreciation Expense, Bowling Equipment

7,125.00

Wages payable

420.00

Wages Expense

24,720.00

Cash

1,250.00

Rent Payable

975.00

Property Taxes Payable

285.00

Utilities Expense

3,530.00

Property Tax Expense

1,045.00

Totals

149,350.00

140.1)

Prepare closing entries on December 31, 2023.

140.2)

Prepare a classified balance sheet on December 31, 2023

149,350.00

140.3) Use the balance sheet you prepared above to calculate the current ratio. Comment on the company's liquidity position

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Answer Key Test name: Chap 04_17ce_Test Bank 1) TRUE 2) FALSE 3) TRUE 4) FALSE 5) TRUE 6) FALSE 7) TRUE 8) TRUE 9) FALSE 10) TRUE 11) FALSE 12) TRUE 13) FALSE 14) FALSE 15) TRUE 16) TRUE 17) TRUE 18) FALSE 19) FALSE 20) TRUE 21) FALSE 22) FALSE 23) TRUE 24) TRUE 25) FALSE 26) TRUE Version 1

27) FALSE 28) FALSE 29) FALSE 30) TRUE 31) TRUE 32) FALSE 33) FALSE 34) FALSE 35) FALSE 36) FALSE 37) TRUE 38) FALSE 39) TRUE 40) TRUE 41) TRUE 42) TRUE 43) FALSE 44) TRUE 45) FALSE 46) TRUE 47) TRUE 48) FALSE 49) TRUE 50) TRUE 51) FALSE 52) FALSE 53) TRUE 54) TRUE 55) TRUE 56) FALSE Version 1

57) FALSE 58) TRUE 59) FALSE 60) FALSE 61) C 62) B 63) C 64) B 65) A 66) D 67) A 68) C 69) D 70) B 71) D 72) C 73) E 74) B 75) B 76) A 77) E 78) C 79) C 80) B 81) E 82) A 83) B 84) D 85) E 86) D Version 1

87) C 88) B 89) B 90) D 91) D 92) B 93) A 94) B 95) C 96) A 97) B 98) C 99) C 100) B 101) A 102) D 103) C 104) D 105) A 106) A 107) D 108) D 109) E 110) C 111) (A) Owner's capital account. (B) Journalizing and posting.

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112) (1) Journalizing (2) Posting (3) Preparing an unadjusted trial balance (4) Completing the work sheet (5) Adjusting the ledger accounts (6) Preparing the statements (7) Closing the temporary accounts (8) Preparing a post-closing trial balance 113) Cl

Accounts payable

Accounts receivable

PPE

Accumulated depreciation, equipment

Advertising expense

Cash

Depreciation expense, equipment

PPE

Equipment

Insurance expense

Interest revenue

Jenna Lee, capital

Jenn Lee, withdrawals

Notes payable due August 31, 2020

NCL

Notes payable due December 31, 2022

LTI

Notes receivable due November 20, 2022

Patent

Prepaid insurance

Repair expense

Salaries payable

Salary expense

Service revenue

Supplies

Supplies expense

PPE

Tools

Unearned service revenue

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Utilities expense

114) -a-1. Office supplies

-c-11. Building

-g-2. Owner, capital

-a-12. Prepaid insurance

-d-3. Patent

-e-13. Current portion of long-term notes payable

-a-4. Notes receivable (due in 120 days)

-a-14. Interest receivable

-c-5. Accumulated depreciation, truck

-a-15. Short-term investments

-e-6. Salaries payable

-c-16. Land (used in operations)

-z-7. Commissions earned

-d-17. Copyrights

-b-8. Notes receivable (due in 18 months)

-g-18. Owner, withdrawals

-c-9. Office equipment

-d-19. Trademark

-f-10. Notes payable (due in three years)

-b-20. Land (for future expansion)

115) Case 1

2.00

Case 2

1.76

Case 3

1.08

Case 4

1.02

Case 5

0.64

Generally speaking (although it varies between industries), a healthy (favourable) current ratio falls between 1.0 and 2.0. When the current ratio is less than this, a company could face challenges in paying for its current obligations. Therefore, Cases 1, 2, 4, and 4 demonstrate a favourable current ratio. 116) A work sheet is a useful tool for organizing the preparation and analysis of financial statements. It contains pairs of debit and credit columns for the trial balance, adjusting entries, adjusted trial balance, income statement accounts, and balance sheet accounts. 117) Breakout Maze Co. Income Statement for Year Ended June 30, 2023

Version 1

Revenue: Motel rental revenue

$55,000

Operating Expenses: Depreciation expense,

$3,000

Salaries expense

1,200

Insurance expense

500

Rent expense

1,400

Office supplies expense

300

Repairs expense

400

Telephone expense

250

Profit

$7,050 $47,950

Breakout Maze Co. Statement of Changes in Equity For Year Ended June 30, 2023 M. Tomas, capital, July 1

$65,355

Add: Profit

47,950

Total

$113,305

Less: Withdrawals by owner

5,000

M. Tomas, capital, Jun 30

$108,305

Breakout Maze Co. Balance Sheet June 30, 2023 Assets Cash

$11,265

Salaries payable

$3,160

Accounts receivable

1,500

Notes payable

3,000

Office supplies

1,300

Total Liabilities

6,160

Prepaid insurance

4,400

Building

Version 1

Liabilities

120,000

Equity

Less: Accumulated depreciation, Building

24,000

Total Assets

96,000

M. Tomas, capital 108,305

$114,465

Total Liabilities and Equity

$114,465

118) Pendulum Service Co. Income Statement for Year Ended December 31, 2023 Revenue: Service revenue

$19,000

Operating Expenses: Depreciation expense,

$700

Wages expense

600

Rent expense

2,000

Supplies expense

1,200

Utilities expense

500

Repairs expense

600

Telephone expense

750

Profit

$6,350

$12,650

Pendulum Service Co. Statement of Changes in Equity for Year Ended December 31, 2023 R. Christie, capital, Jan 1

$28,450

Add: Profit

12,650

Total

$41,100

Less: Withdrawals by owner

500

R. Christie, capital, Dec 31

$40,600

Pendulum Service Co. Balance Sheet December 31, 2023 Assets

Version 1

Liabilities

Cash

$5,000

Accounts Payable

$5,300

Accounts receivable

1,200

Notes payable

5,000

Supplies

500

Total Liabilities

10,300

Prepaid rent

7,000

Equipment

40,000

Equity

Less: Accumulated depreciation, Equipment

2,800

Total Assets

37,200

R. Christie, capital

40,600

_______

$50,900

Total Liabilities $50,900 and Equity

119) (a) (8,100), (b) 10,000, (c) (113,420), (d) 49,600, (e) 220, (f) 6,800, (g) 464,700, and (h) (540,000) 120) Debit

Credit

(a)

4, 14

(b)

(c)

(d)

(e)

(f)

(g)

(h)

(i)

(j)

(k)

(l)

(m)

(n)

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121) Closing entries are a necessary step because we want the following: (1) The revenue, expense, and withdrawals accounts (a) to be reflected in equity and (b) to begin with zero balances after measuring the results from the period just ended. (2) Owner's capital account to reflect (a) increases from profit and (b) decreases from losses and withdrawals from the period just ended. 122) (a) permanent, (b) permanent, (c) permanent, (d) permanent, (e) temporary, (f) permanent, (g) temporary, (h) temporary, (i) temporary, (j) permanent, (k) temporary, (l) temporary, (m) permanent 123) The purpose of closing entries is to transfer the end of period balances in the temporary accounts to the owner's capital account. The closing process has four steps: (1) Close credit balances in revenue accounts to income summary, (2) close debit balances in expense accounts to income summary, (3) close income summary to the capital account, and (4) close withdrawals to the capital account. 124) Temporary accounts are closed at the end of each accounting period for two main reasons. First, the closing process updates the owner's capital account to include the effects of all transactions and events recorded for the period. Second, it prepares revenue, expense, and withdrawal accounts for the next reporting period by bringing the balances in those accounts to zero. 125) Oct-31

Service revenue

80,000

Interest revenue

1,000

Income Summary Oct -31

Version 1

Income Summary

81,000 10,600

Oct -31

Advertising expense

1,000

Depreciation expense, equipment

3,000

Insurance expense

1,000

Salary expense

4,000

Supplies expense

100

Repair expense

500

Utilities expense

1,000

Income Summary

70,400

Max Missle, capital Oct -31

Max Missle, capital

70,400 5,000

Max Missle, withdrawals

5,000

126) Dec-31

Service Revenue

51,100

Income Summary Dec-31

Dec-31

Income Summary

51,100 50,300

Salary expense

30,000

Rent expense

12,300

Depreciation expense, office equipment

1,000

Advertising expense

4,000

Office supplies expense

3,000

Income Summary

800

Bill Brady, capital Dec-31

Version 1

Bill Brady, capital

800 10,000

Bill Brady, withdrawals

10,000

127) Dec-31

Photography revenue

11,000

Income Summary Dec-31

Dec-31

Income Summary

11,000 4,500

Supplies expense

500

Cleaning expense

100

Repairs expense

Developing expense

1,850

Rental expense

2,000

Income Summary

6,500

Sara Vegara, capital Dec-31

Sara Vegara, capital

6,500 1,800

Sara Vegara, withdrawals

1,800 Sara Vegara, capital 5,100 6,500 1,800 9,800

128) Dec-31

Fees earned Income Summary

Version 1

15,750 15,750

Dec-31

Income Summary

15,750

Wages expense

4,000

Supplies expense

250

Depreciation expense

5,550

Utilities expense

3,500

Rental expense

2,500

Income Summary

Mark Madman, capital Dec-31

Mark Madman, capital

0 2,000

Mark Madman, withdrawals

2,000 Mark Madman, 4,000 0 2,000 2,000

129) May-31

Repair fees earned

11,800

Income Summary May-31

May-31

Income Summary

14,700

Insurance expense

3,500

Depreciation expense

11,200

Mitch Richardson, capital Income Summary

Version 1

11,800

2,900 2,900

May-31

Mitch Richardson, capital

6,000

Mitch Richardson, withdrawals

6,000 Mitch Richardson 12,700 2,900 6,000 3,800

130) Dec.31

Revenue from Services

97,400

Income Summary 31

Income Summary

97,400 49,200

Office Salaries Expense

28,100

Rent Expense

13,800

Insurance Expense

1,700

Office Supplies Expense

800

Depreciation Expense, Office Equipment

4,800

Income Summary

48,200

Owner, Capital 31

Owner, Capital

48,200 12,000

Owner, Withdrawals

12,000

131) Dec. 31

Version 1

Sales

19,500

Income Summary 31

Income Summary

19,500 16,500

Salaries Expense

11,250

Other Operating Expenses

5,250

Income Summary

3,000

Kate Smith, Capital 31

Kate Smith, Capital Kate Smith, Withdrawals

3,000 1,500 1,500

132) A post-closing trial balance is a list of permanent accounts and their balances after all the closing entries are journalized and posted. It is used to verify the equality of debits and credits of the permanent account balances. It also verifies that the temporary accounts have zero balances. 133) The accounting cycle consists of ten steps: (1) analyze transactions, (2) journalize entries, (3) post data to the ledger, (4) prepare an unadjusted trial balance, (5) prepare and post adjusting entries, (6) prepare an adjusted trial balance, (7) prepare financial statements, (8) prepare and post-closing entries, (9) prepare a post-closing trial balance. 134) Classified balance sheets usually report four groups of assets: current assets, long-term investments, property, plant and equipment, and intangible assets. Liabilities are divided into current and long-term. For sole proprietorships and partnerships capital accounts are reported under Equity. For corporations, the equity section is called Shareholders Equity. 135) (1) g (2) a (3) a (4) a (5) a (6) a (7) c (8) e (9) f (10) e (11) d (12) b

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136) Reversing entries are an optional part of the accounting cycle. They apply to accrued assets and liabilities. The purpose of the reversing entries is to simplify regular transaction journal entries made during the subsequent accounting period. Reversing entries have no effect on the financial statements. 137) The current ratio is current assets divided by current liabilities. It is used to evaluate a company's ability to pay its current debts with the amount of current assets available. 138) Accounts Titles

Permanent or Temporary

Income Statement or Balance Sheet

Closed or Remains Open

Closed with a Debit or Credit

Accounts receivable

B/S

Accum Depreciation, equipment

B/S

Advertising expense

I/S

Cr.

Cash

B/S

Depreciation exp, equipment

I/S

Cr.

Melcier, withdrawals

---

Cr.

Equipment

B/S

Insurance expense

I/S

Cr.

Interest expense

I/S

Cr.

Miscellaneous expense

I/S

Cr.

Notes payable

B/S

Office supplies

B/S

Office supplies expense

I/S

Cr.

Prepaid Insurance

B/S

Rent expense

I/S

Cr.

Melcier, capital

B/S

Salaries expense

I/S

Cr.

Salaries payable

B/S

Sales

I/S

Dr.

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139) Section Break 139.1) Lucie Accounting Income Statement For Year Ended December 31, 2023 Revenue: Accounting fees earned

$211,400

Operating Expenses: Depreciation expense, Building

$500

Depreciation expense, Equipment

600

Insurance expense

100

Rent expense

1,100

Office supplies expense

900

Repairs expense

5,000

Telephone expense

1,000 $9,200

Profit

$202,200

Lucie Accounting Statement of Changes in Equity For Year Ended December 31, 2023 Lucie Majeau, capital, Jan 1

$5,000

Add: Investments by owner

5,000

Profit

202,200

Total

$212,200

Less: Withdrawals by owner

5,000

Lucie Majeau, capital, Dec 31

$207,200

Lucie Accounting Balance Sheet December 31, 2023 Assets

Version 1

Liabilities

Current Assets

Current Liabilities

Cash

$8,000

Accounts receivable

2,200

Current 3,000 portion of note payable

Office supplies

700

Unearned accounting fees earned

Prepaid insurance

1,100

Total Current Liabilities

Total Current Assets

Salaries payable

$7,000

3,000

13,000

12,000 Long-Term Liabilities

Long-Term Investments

Notes payable

Long-term note receivable

3,000

less current portion

8,000

Property, Plant and Equipment Land Equipment

50,000

Equity

15,000

Less:

Lucie Majeau, capital

Accumulated depreciation, Equipment

1,200

Building

150,000

207,200

13,800

Less: Accumulated depreciation, Building

1,500

148,500

Total Property, Plant and Equipment

212,300

Intangibles

900

Customer list

Version 1

Total Assets

$228,200

Total Liability and Equity

$228,200

139.2) Current ratio: 12,000 ¸ 13,000 = 0.92: 1 = 0.92. A current ratio of one or over 1.0 means that current obligations can be covered with current assets. The current ratio for Lucie Accounting is slightly below 1.0. This could mean that it may face slight challenges in covering current liabilities. Quick ratio: (8,000 + 2,200)/13,000 = 0.78: 1 or 0.78. It measures the dollar value of liquid assets available to settle current liabilities. It excludes items such as prepaid assets to focus on assets that more easily convert to cash. Similar to the current ratio, Lucie Accounting may face some challenges in covering its current liabilities. Debt-to-equity ratio: (13,000 + 8,000)/207,200 = 0.10:1 or 0.10. A lower number is more favourable; the higher the number, the higher the risk associated with the potential for bankruptcy. In this case, there appears to be low risk. 140) Section Break 140.1) Bowling Revenue

81,750

Income Summary Income Summary

Version 1

81,750 49,640

Equipment Repairs Expense

630

Rent Expense

8,175

Interest Expense

900

Depreciation Expense, Bowling Equipment

7,125

Wages Expense

24,720

Utilities Expense

3,530

Property Tax Expense

1,045

Insurance Expense

1,680

Bowling Supplies Expense

1,835

Income summary

32,110

D. Allen, Capital

32,110

D. Allen, Capital

23,500

Withdrawals, Allen

23,500

140.2) Best of Fun Bowling Lanes Balance Sheet on December 31, 2023 Assets Current Assets: Cash

$1,250

Bowling Supplies

315

Prepaid Insurance

320

Total Current Assets

$1,885

Property, Plant and Equipment

Total Assets

Bowling Equipment

$74,325

Less: Accumulated DepreciationBowling Equipment

18,585

55,740 $57,625

Liabilities Current Liabilities

Version 1

Accounts Payable

$ 535

Wages Payable

420

Rent Payable

975

Property Taxes Payable

285

Total Current Liabilities

$ 2,215

Non-Current Liabilities Long-Term Notes Payable

15,000

Total Liabilities

$17,215

D. Allen, Capital

40,410

Owners' Equity

Total Liabilities and Equity

$57,625

140.3) The current ratio is1, 885 ÷ 2,215 =.85:1With a ratio of.85 the company will have difficulties paying off its current liabilities. Specifically, if we look at the current asset types, prepaid insurance, which is not very liquid, is almost 17% of the entire amount of current assets. This will increase the company's difficulty to pay down its current liabilities.

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CHAPTER 5: ALGO TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) A company had net sales of $366,000 and cost of goods sold of $208,000. Its gross profit equals $158,000. ⊚ true ⊚ false

2) A company had net sales of $563,000 and cost of goods sold of $354,000. Its gross profit equals $917,000. ⊚ true ⊚ false

3) A company had a gross profit of $326,000 based on net sales of $413,000. Its cost of goods sold equals $739,000. ⊚ true ⊚ false

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 4) A company has net sales of $739,200 and cost of goods sold of $296,200. Its gross profit equals: A) $263,000. B) $739,200. C) $296,200. D) $443,000. E) $1,035,400.

5) A company has net sales of $394,800 and its gross profit is $166,300. Its cost of goods sold is:

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A) $205,800. B) $394,800. C) $166,300. D) $228,500. E) $561,100.

6) A company's gross profit was $81,880 and its net sales were $356,000. Its gross profit margin ratio is: A) 3%. B) 23%. C) 72%. D) $81,630. E) $272,170.

7) A company's net sales were $738,800, its cost of goods sold was $246,020 and its net income was $68,200. Its gross profit margin ratio equals: A) 9.2%. B) 27.7%. C) 33.3%. D) 66.7%. E) 300.3%.

8) A company had net sales of $788,500 and cost of goods sold of $562,260. Its net income was $25,640. The company's gross profit margin ratio equals: A) 25.4% B) 22.7% C) 28.7% D) 35.7% E) 40.2%

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9) Mega Skateboard Supplier had net sales of $3,200,000, its cost of goods sold was $2,000,000, and its net income was $1,300,000. Its gross profit margin ratio equals: A) 41%. B) 160%. C) 38%. D) 65%. E) 63%.

10) A company purchased $2,600 of merchandise on July 5 with terms 1/10, n/30. On July 7, it returned $285 worth of merchandise. On July 8, it paid the full amount due. The amount of the cash paid on July 8 equals: A) $285. B) $2,289. C) $2,292. D) $2,315. E) $2,600.

11) A company purchased $2,300 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $450 worth of merchandise. On July 12, it paid the full amount due. Assuming the company uses a perpetual inventory system, and records purchases using the gross method, the correct journal entry to record the payment on July 12 is: A) Debit Merchandise Inventory $1,850; credit Cash $1,850. B) Debit Cash $1,850; credit Accounts Payable $1,850. C) Debit Accounts Payable $1,850; credit Merchandise Inventory $37; credit Cash $1,813. D) Debit Accounts Payable $2,300; credit Cash $2,300. E) Debit Accounts Payable $1,850; credit Cash $1,850.

12) A company purchased $4,900 worth of merchandise. Transportation costs for the buyer were an additional $430. The company returned $340 worth of merchandise and then paid the invoice within the 1% cash discount period. The total cost of this merchandise is:

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A) $4,810.00. B) $4,773.00. C) $4,941.00. D) $4,944.40. E) $4,990.00.

13) A buyer of $8,400 in merchandise inventory failed to take advantage of the vendor's credit terms of 2/15, n/45, and instead paid the invoice in full at the end of 45 days. By not taking advantage of the cash discount, the buyer lost the discount of: A) $840. B) $100. C) $84. D) $168. E) $1,260.

14) Garza Company had sales of $150,200, sales discounts of $2,250, and sales returns of $3,605. Garza Company's net sales equals: A) $5,855. B) $144,345. C) $147,950. D) $150,200. E) $156,055.

15) On February 3, Smart Company sold merchandise in the amount of $2,400 to Truman Company, with credit terms of 1/10, n/30. The cost of the items sold is $1,650. Smart uses the perpetual inventory system and the gross method. Truman pays the invoice on February 8 and takes the appropriate discount. The journal entry that Smart makes on February 8 is: A) Account Title Cash

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Debit

Credit

1,650

Accounts Receivable

1,650

B) Account Title Cash

Debit

Credit

2,400

Accounts Receivable

2,400

C) Account Title Cash

Debit

Credit

2,320

Sales discounts

Accounts Receivable

2,337

D) Account Title Cash

Debit

Credit

1,570

Accounts Receivable

1,570

E) Account Title Cash Sales discounts Accounts Receivable

Debit

Credit

2,376 24 2,400

16) Prentice Company had cash sales of $94,825, credit sales of $83,775, sales returns and allowances of $1,925, and sales discounts of $3,700. Prentice’s net sales for this period equal:

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A) $94,825. B) $172,975. C) $174,900 D) $176,675. E) $178,600.

17) A company has net sales of $788,500 and cost of goods sold of $569,500. Its net income is $26,280. The company's gross profit and operating expenses, respectively, are: A) $219,000 and $192,720 B) $219,000 and $245,750 C) $543,220 and $245,750 D) $245,750 and $543,220 E) $761,750 and $192,720

18) On September 12, Vander Company sold merchandise in the amount of $7,500 to Jepson Company, with credit terms of 3/10, n/30. The cost of the items sold is $5,700. Vander uses the periodic inventory system and the gross method of accounting for sales. The journal entry or entries that Vander will make on September 12 is (are): A) Account Title Sales

Debit

Credit

7,500

Accounts Receivable

7,500

B) Account Title Sales

Debit 7,500

Accounts Receivable Cost of goods sold

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Credit

7,500 5,700

Merchandise Inventory

5,700

C) Account Title Accounts Receivable

Debit

Credit

7,500

Sales

7,500

D) Account Title Accounts Receivable

Debit

Credit

7,500

Sales

7,500

Cost of goods sold

5,700

Merchandise Inventory

5,700

E) Account Title Accounts Receivable

Debit

Credit

5,700

Sales

5,700

19) On September 12, Vander Company sold merchandise in the amount of $8,800 to Jepson Company, with credit terms of 3/10, n/30. The cost of the items sold is $5,500. Jepson uses the periodic inventory system and the gross method of accounting for purchases. The journal entry that Jepson will make on September 12 is: A) Account Title Purchases Accounts Receivable

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Debit

Credit

8,800 8,800

B) Account Title Purchases

Debit

Credit

5,500

Accounts Receivable

5,500

C) Account Title Purchases

Debit

Credit

8,800

Accounts payable

8,800

D) Account Title Merchandise inventory

Debit

Credit

8,800

Accounts payable

8,800

E) Account Title Accounts payable

Debit

Credit

5,500

Merchandise inventory

5,500

20) On September 12, Vander Company sold merchandise in the amount of $9,600 to Jepson Company, with credit terms of 2/10, n/30. The cost of the items sold is $5,900. Jepson uses the periodic inventory system and the gross method of accounting for purchases. Jepson pays the invoice on September 18 and takes the appropriate discount. The journal entry that Jepson makes on September 18 is: A) Account Title Purchases

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Debit

Credit

9,408

Cash

9,408

B) Account Title Accounts payable

Debit

Credit

9,600

Merchandise inventory

192

Cash

9,408

C) Account Title Accounts payable

Debit

Credit

9,600

Purchases discounts

192

Cash

9,408

D) Account Title Cash

Debit

Credit

9,408

Accounts receivable

9,408

E) Account Title Cash Purchases discounts Accounts payable

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Debit

Credit

9,408 192 9,600

21) On September 12, Vander Company sold merchandise in the amount of $3,950 to Jepson Company, with credit terms of 2/10, n/30. The cost of the items sold is $2,725. Vander uses the periodic inventory system and the gross method of accounting for sales. On September 14, Jepson returns some of the merchandise. The selling price of the merchandise is $340 and the cost of the merchandise returned is $240. Jepson pays the invoice on September 18 and takes the appropriate discount. The journal entry that Vander makes on September 18 is: A) Account Title Cash

Debit

Credit

3,950.00

Accounts Receivable

3,950.00

B) Account Title Cash

Debit

Credit

2,725.00

Accounts Receivable

2,725.00

C) Account Title Cash

Debit

Credit

3,537.80

Sales discounts

72.20

Accounts Receivable

3,610.00

D) Account Title Cash

Debit

Credit

3,877.80

Accounts Receivable

3,877.80

E) Account Title

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Debit

Credit 10

Cash

3,877.80

Sales discounts Accounts Receivable

72.20 3,950.00

22) Cushman Company had $844,000 in net sales, $369,250 in gross profit, and $211,000 in operating expenses. Cost of goods sold equals: A) $369,250. B) $263,750. C) $844,000. D) $474,750. E) $211,000.

23) Cushman Company had $844,000 in sales, sales discounts of $12,660, sales returns and allowances of $18,990, cost of goods sold of $400,900, and $290,335 in operating expenses. Gross profit equals: A) $812,350. B) $121,115. C) $411,450. D) $424,110. E) $430,440.

24) Cushman Company had $812,000 in sales, sales discounts of $12,180, sales returns and allowances of $18,270, cost of goods sold of $385,700, and $279,330 in operating expenses. Profit equals: A) $781,550. B) $146,970. C) $395,850. D) $116,520. E) $177,420.

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25) A company purchased $9,900 of merchandise on June 15 with terms of 3/10, n/45. On June 20, it returned $495 of that merchandise. On June 24, it paid the balance owed for the merchandise taking any discount it was entitled to. The cash paid on June 24 equals: A) $9,123. B) $9,603. C) $9,900. D) $9,405. E) $9,172.

26) A company purchased $11,500 of merchandise on June 15 with terms of 2/10, n/45, and FOB shipping point. On June 20, it returned $2,000 of that merchandise. The shipping charges for the purchase totaled $1,250. On June 24, it paid the balance owed for the merchandise taking any discount it is entitled to. The cash paid on June 24 equals: A) $9,080. B) $12,150. C) $12,750. D) $12,250. E) $10,560.

27) A company's net sales are $787,030, its costs of goods sold are $439,160, and its profit is $106,280. Its gross profit margin ratio equals: A) 44.2%. B) 55.8%. C) 24.2%. D) 13.50%. E) 30.70%.

28) A company purchases merchandise for $22,500. The seller also offers credit terms of 2/10, n/30. Assuming no returns were made and that payment was made within the discount period, what is the net cost of the merchandise?

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A) $22,500. B) $22,050. C) $2,250. D) $15,750. E) $7,250.

29) A company has net sales of $910,000 and cost of goods sold of $603,500. Its profit is $108,900. The company's gross profit and operating expenses, respectively, are: A) $306,500 and $407,900 B) $306,500 and $197,600 C) $306,500 and $108,900 D) $197,600 and $108,900 E) $712,400 and $197,600

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Answer Key Test name: Chap 05_17ce_Test Bank_Algo 1) TRUE 2) FALSE 3) FALSE 4) D Gross Profit = Net Sales − Cost of Goods Sold Gross Profit = $739,200 − $296,200 = $443,000 5) D Gross Profit = Net Sales − Cost of Goods Sold Cost of Goods Sold = $394,800 − $166,300 = $228,500 6) B Gross Profit Margin Ratio = Gross Profit/Net Sales Gross Profit Margin Ratio = $81,880/$356,000 = 23.0% 7) D Gross Profit Margin Ratio = (Net Sales − Cost of Goods Sold)/Net Sales Gross Profit Margin Ratio = ($738,800 − $246,020)/$738,800 = 66.7% 8) C Gross Profit Margin Ratio = (Net Sales − Cost of Goods Sold)/Net Sales Gross Profit Margin Ratio = ($788,500 − $562,260)/$788,500 = 28.7% 9) C Gross Profit Margin Ratio = (Net Sales − Cost of Goods Sold)/Net Sales Gross Profit Margin Ratio = ($3,200,000 − $2,000,000)/$3,200,000 = 38% 10) C Cash Paid = ($2,600 − $285) × 0.99 = $2,292 11) C 12) D Version 1

Cash Paid = [($4,900 − $340) × 0.99] + $430 = $4,944.40 No discount may be taken on the transportation costs. 13) D $8,400 × 0.02 = $168 14) B Net Sales = $150,200 − $2,250 − $3,605 = $144,345 15) E Sales Discounts = $2,400 × 0.01 = $24 Cash = $2,400 − $24 = $2,376 16) B Net Sales = $94,825 + $83,775 − $1,925 − $3,700 = $172,975 17) A Gross Profit = Net Sales − Cost of Goods Sold; $788,500 − $569,500 = $219,000 Operating Expenses = Gross Profit − Net Income; $219,000 − $26,280 = $192,720 18) C 19) C 20) C Purchases Discounts = $9,600 × 0.02 = $192 Cash = $9,600 − $192 = $9,408 21) C Accounts Receivable = $3,950 − $340 = $3,610.00 Sales Discounts = $3,610 × 0.02 = $72.20 Cash = $3,610 − $72.20 = $3,537.80 22) D Cost of Goods Sold = Net Sales − Gross Profit; $844,000 − $369,250 = $474,750 23) C

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Gross Profit (Margin) = $844,000 − $12,660 − $18,990 − $400,900 = $411,450 24) D Profit = $812,000 − $12,180 − $18,270 − $385,700 − $279,330 = $116,520 25) A Cash Paid = ($9,900 − $495) × 0.97 = $9,123 26) E Cash Paid = $11,500 − $2,000 = $9,500 × 0.98 = $9,310.00 + $1,250 = $10,560 27) A Gross Profit Margin Ratio = (Net Sales − Cost of Goods Sold)/Net Sales Gross Profit Margin Ratio = ($787,030 − $439,160)/$787,030 = 44.2% 28) B Cost of Merchandise = $22,500 × 0.98 = $22,050 29) B Gross Profit = Net Sales − Cost of Goods Sold; $910,000 − $603,500 = $306,500 Operating Expenses = Gross Margin − Profit ; $306,500 − $108,900 = $197,600

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CHAPTER 5 TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) A merchandiser earns profit by buying and selling merchandise. ⊚ ⊚

true false

A service company earns profit by buying and selling merchandise. ⊚ ⊚

true false

3) A wholesaler is a company that buys products from manufacturers and sells them to consumers. ⊚ ⊚

true false

4) A retailer is a middleman that buys products from manufacturers and sells them to wholesalers. ⊚ ⊚

Gross profit is also called gross margin. ⊚ ⊚

true false

Cost of goods sold represents the cost of buying and preparing merchandise for sale. ⊚ ⊚

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true false

7) Y-Mart had sales of $350,000. Its cost of goods sold was $200,000. Its gross profit is $550,000. ⊚ ⊚

true false

8) Y-Mart had net sales of $645,000. Its cost of goods was $445,000. Its gross margin was $200,000. ⊚ ⊚

true false

9) Z-Mart had a gross profit of $340,000 based on sales of $700,000. Its cost of goods sold is $350,000. ⊚ ⊚

10)

true false

Cost of goods sold is reported on both the income statement and the balance sheet. ⊚ ⊚

true false

11) Merchandise inventory refers to products a company owns for purposes of selling to customers. ⊚ ⊚

true false

12) A merchandising company's operating cycle begins with the sale of merchandise and ends with the collection of cash from the sale. ⊚ ⊚

13)

true false

Companies try to lengthen their operating cycles to increase profit.

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⊚ ⊚

true false

14) Merchandise inventory is included in the Plant and Equipment section of the balance sheet. ⊚ ⊚

15)

Merchandise inventory includes merchandise and office supplies. ⊚ ⊚

16)

true false

Assets tied up in inventory are not productive assets. ⊚ ⊚

true false

17) A company's cost of merchandise available for sale consists of beginning inventory plus the net cost of purchases minus ending inventory. ⊚ ⊚

true false

18) A periodic inventory system requires updating the inventory account at the beginning of an accounting period. ⊚ ⊚

true false

19) A perpetual inventory system gives a continuous record of the amount of inventory on hand. ⊚ ⊚

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true false

20) In a perpetual inventory system, the cost of inventory purchased is recorded in the Purchases account. ⊚ ⊚

true false

21) In a perpetual inventory system, the net cost of purchases is accumulated in the Inventory account. ⊚ ⊚

true false

22) Companies that sold large quantities of low-value items historically used periodic inventory systems. ⊚ ⊚

23)

In a periodic inventory system, Purchases is a temporary account. ⊚ ⊚

24)

true false

The purchaser usually records a purchase return by a credit memorandum. ⊚ ⊚

26)

true false

In a periodic inventory system, cost of goods sold is not recorded as each sale occurs. ⊚ ⊚

25)

true false

Trade discounts are entered into the accounting system.

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⊚ ⊚

true false

27) Credit terms are the listing of the amounts and timing of payments between a buyer and a seller. ⊚ ⊚

true false

28) The terms 2/10, n/30 means that the seller offers the purchaser a 2% cash discount if the amount is paid in full within 10 days. Otherwise, the full amount is due in 30 days. ⊚ ⊚

true false

29) For a prompt payment for purchases on account, a seller offers a purchase discount to buyer. ⊚ ⊚

true false

30) Z-Mart did not take advantage of a supplier's offer of 2/10, n/30, and paid the invoice at the end of the month. By not taking the discount Z-Mart lost the equivalent of 18% annual interest on the amount of the purchase. ⊚ ⊚

true false

31) FOB shipping or FOB factory means ownership of goods transfers to the buyer at the buyer's place of business. ⊚ ⊚

true false

32) For each sales transaction of a seller using a perpetual inventory system, it recognizes revenue and cost of goods sold. Version 1

⊚ ⊚

true false

33) A credit memorandum informs a customer of a credit to its Accounts Payable account from a sales return or allowance. ⊚ ⊚

true false

34) A debit to Sales Returns and Allowances and a credit to Accounts Receivable mean that a customer may have returned the merchandise. ⊚ ⊚

true false

35) A journal entry with a debit to cash of $980, a debit to Sales Discounts of $20, and a credit to Accounts Receivable of $1,000 means that a customer has taken a 10% cash discount for the early payment of the purchase. ⊚ ⊚

36)

Sales of $350,000 and net sales of $323,000 may reflect sales discounts of $27,000. ⊚ ⊚

37)

true false

A sales discount of 1/15 means the seller will receive 85% of the selling price. ⊚ ⊚

38)

true false

Transportation-in increases cost of goods purchased. ⊚ ⊚

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true false

39) The Merchandise Inventory account balance at the end of one period is the amount of beginning inventory in the next period. ⊚ ⊚

40)

true false

A perpetual inventory system is able to directly measure shrinkage. ⊚ ⊚

true false

41) The adjustment to reflect shrinkage is a debit to Income Summary and a credit to Shrinkage Expense. ⊚ ⊚

true false

42) The amount of gross profit for a merchandising business will be the same under both the accrual basis and the cash basis of accounting. ⊚ ⊚

true false

43) Merchandising sales and costs reported on the income statement usually differ from cash receipts and payments for the period. ⊚ ⊚

true false

44) A classified multiple-step income statement is a format that shows intermediate totals between sales and profit and detailed calculations of net sales and cost of goods sold. ⊚ ⊚

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true false

45) sold.

Operating expenses are classified into two categories: selling expenses and cost of goods ⊚ ⊚

true false

46) Generally accepted accounting principles require companies to use a specific format for financial statements. ⊚ ⊚

true false

47) The cost of goods sold section of a multiple-step income statement includes beginning and ending inventories, goods available for sale and operating expenses. ⊚ ⊚

true false

48) The periodic inventory system is superior to the perpetual inventory system in preventing shrinkage. ⊚ ⊚

true false

49) Businesses normally get a full credit for the goods and services tax (GST) and/or Harmonized Sales Tax (HST) that they have paid. ⊚ ⊚

50)

true false

Businesses normally get a full credit for the provincial sales tax (PST) they have paid. ⊚ ⊚

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true false

51) Businesses normally get a full credit for both the goods and services tax (GST) and/or Harmonized Sales Tax (HST), and the provincial sales tax (PST) that they have paid. ⊚ ⊚

true false

52) For a business, goods and services tax (GST) and/or Harmonized Sales Tax (HST) paid is included in the amount recorded as an asset or an expense when a purchase is made. ⊚ ⊚

true false

53) For a business, provincial sales tax (PST) paid are included in the amount recorded as an asset or an expense when a purchase is made. ⊚ ⊚

true false

54) Some businesses use only one account to keep track of the amount of goods and services tax (GST) and/or Harmonized Sales Tax (HST) owed or owing. ⊚ ⊚

true false

55) When a single goods and services tax (GST) or Harmonized Sales Tax (HST) account is used, a credit balance in the account means that the government owes money to the business. ⊚ ⊚

true false

56) When a single goods and services tax (GST) or Harmonized Sales Tax (HST) account is used, a debit balance in the account means the government owes money to the business. ⊚ ⊚

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true false

57) Provincial sales tax (PST) is normally calculated on the original purchase price plus the goods and services tax (GST) or Harmonized Sales Tax (HST). ⊚ ⊚

true false

58) Goods and services tax (GST) or Harmonized Sales Tax (HST) is calculated on the original purchase price plus the provincial sales tax (PST). ⊚ ⊚

true false

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 59) Which of the following is true about a merchandising company? A) A merchandising company's activities are the same as those of a service company B) A merchandising company only includes retailers and not wholesalers C) A merchandising company only includes wholesalers and not retailers D) A merchandising company's operating cycle begins with the purchase of merchandise and ends with the sale of merchandise E) A merchandising company buys products from manufacturers and sells them directly to consumers

60)

Merchandisers A) Earn profit from buying and selling merchandise B) Receive fees in exchange for services C) Earn profit from commissions D) Earn profit from fare E) Do not report gross profit

61)

Wholesalers

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A) Buy products from manufacturers and sell to retailer B) Buy products from other wholesalers and sell to consumers C) Buy products from manufacturers and sell to consumers D) Buy products from retailers and sell to consumers E) All of the choices are correct

62)

Retailers A) Buy products from manufacturers and sell to wholesalers B) Buy products from wholesalers and sell to other wholesalers C) Buy products from manufacturers and wholesalers and sell to consumers D) Buy only from wholesalers E) All of the choices are correct

63)

Gross profit is A) The same as profit B) Subtracted from operating income to get profit C) Net sales less cost of goods sold D) A special general ledger account E) Only calculated when using the perpetual inventory system

64)

Cost of goods sold is A) Another term for net sales B) The term used for the cost of buying and preparing merchandise C) An operating expense D) Also called gross margin E) The cost of goods sold to customers

65)

Z-Mart had sales of $500,100. Cost of goods sold was $143,400. What is the gross profit?

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A) $216,600 B) $217,100 C) $356,700 D) $500,100 E) $213,300

66)

Z-Mart had sales of $572,300. Gross profit was $239,106. What is the cost of goods sold? A) $279,194 B) $333,194 C) $360,194 D) $572,300 E) $40,088

67)

Merchandise inventory is(are) A) Reported on the balance sheet under plant and equipment B) Products a company owns for resale to customers C) Reported on the income statement as an expense D) An asset that Includes supplies E) Included on a service company's balance sheet

68) Which of the following is correct as it relates to the operating cycle of a merchandising company? A) It begins with the collection of cash from sale of merchandise B) It ends with the collection of cash from the sale of merchandise C) A longer operating cycle is normally desirable for a business to earn a profit D) It applies only to cash sales and not to credit sales E) It applies only to credit sales and not to cash sales

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69)

Merchandise inventory A) Is a capital asset B) Is a current asset C) Can include supplies D) Is a type of long-term investment E) Is an expense

70)

The cash sales operating cycle moves from A) Purchases to inventory for sale to cash sales B) Purchases to inventory for sale to accounts receivable to cash sales C) Inventory for sale to cash sales to purchases D) Accounts receivable to purchases to inventory for sale to cash sales E) Accounts receivable to inventory for sale to cash sales

71)

A periodic inventory system A) Requires updating the inventory account every month B) Records the cost of new merchandise purchased in a permanent account C) Does not require a physical count of inventory D) Records the cost of new merchandise purchased in a temporary account E) All of the choices are correct

72)

A perpetual inventory system A) Gives a continuous record of the amount of inventory on hand B) Uses a Purchases account for the cost of new merchandise purchased C) Was historically used by companies that sold large quantities of low-value items D) Is not widely used in practice E) All of the choices are correct

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73)

A periodic inventory system A) Gives more timely information B) Is widely used in practice C) Was historically used by companies that sold large quantities of low-value items D) Provides point of sale data E) Does not use a Purchases account

74)

In a periodic inventory system

A) The company records the cost of new merchandise in the permanent Purchases account B) The cost of merchandise on hand is determined by relating the quantities on hand to records showing each item's original cost C) The inventory value is not based on a physical count D) A continuous record of the amount of inventory on hand is maintained E) None of the choices are correct

75)

2/10, n/30 is interpreted as A) 2% cash discount if the whole amount is paid within 10 days, the balance is due in 30

days B) 10% cash discount if the whole amount is paid within 2 days, the balance is due in 30 days C) 30% discount if paid within 2 days D) 30% discount if paid within 10 days E) 2% discount if paid within 30 days

76)

A trade discount is

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A) A term used by a purchaser to describe a cash discount given to customers for prompt payment B) A reduction below a list price C) A term used by a seller to describe a cash discount granted to customers for prompt payment D) A reduction in price for prompt payment E) Also called a rebate

77)

Which of the following is correct as it relates to the cost of merchandise inventory? A) We can include in merchandise inventory all purchase costs, shipping fees, and duties B) We can include in merchandise inventory all purchase costs but excluding shipping

fees C) We can include in merchandise inventory all purchase costs but excluding shipping fees and duties D) None of the choices are correct E) All of the choices are correct.

78)

Z-Mart uses the perpetual inventory system and recorded the following journal entry: Accounts Payable

2,500

Merchandise Inventory

Cash

2,450

The transaction was A) A purchase B) A return C) A return and payment of the account payable D) A payment of the account payable and recognition of a cash discount taken E) A purchase and recognition of a cash discount taken

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79) On December 5, Z-Mart purchased $1,800 worth of merchandise. On December 7, ZMart returned $800 worth of merchandise. On December 8, it paid the balance in full after taking a 2% discount. The amount of the payment was A) $200 B) $980 C) $1,000 D) $1,764 E) $1,800

80) Z-Mart purchased $3,000 worth of merchandise on credit. Transportation costs were an additional $100, paid cash to the cartage company on delivery. Z-Mart returned $300 worth of merchandise and paid the invoice on time, and took a 2% purchase discount. The amount of this payment was A) $2,646 B) $2,744 C) $3,000 D) $3,100 E) $2,940

81) Under a perpetual inventory system, merchandising companies must account for credit sales transactions A) by debiting accounts receivable and crediting cost of goods sold B) by debiting cost of goods sold and crediting merchandise inventory C) by debiting sales and crediting accounts receivable D) by debiting cash and crediting sales E) All of the choices are correct

82)

Sales returns

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A) Refer to merchandise that customers return to the seller after the sale B) Refer to reductions in the selling price of merchandise sold to customers C) Represent cash discounts D) Represent trade discounts E) Are related to purchase discounts

83)

For a merchandiser, each sales transaction involves A) Revenue received in the form of a liability from a customer B) Recognizing the cost of merchandise sold to a customer C) Recognizing cash discounts D) Recognizing purchase discounts E) Recording accounts payable

84)

Sales returns and allowances

A) Should always be recorded as a debit to the Sales account to help managers monitor returns and allowances B) Are usually recorded in separate contra-revenue accounts C) Are always reported in the published statements by showing a separate contra revenue account D) Represent an increase of the customer's account receivable E) All of the choices are correct.

85)

A debit to Sales Returns and Allowances and a credit to Accounts Receivable

A) Is not possible; it should be a credit to Sales Returns and Allowances and a debit to Accounts Receivable B) Recognizes that a customer returned merchandise C) Requires a debit memorandum to recognize the customer's return D) Recognizes a cash discount taken by a customer E) All of the choices are correct

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86)

The normal balance of the following accounts is a debit A) Sales discounts and interest revenue B) Sales returns and allowances, and purchase discounts. C) Sales returns and allowances, cost of goods sold D) Transportation-in and income summary E) Cost of goods sold, and purchase discounts

87) On April 4, Fignola Company (FC) sold sweaters to one of its customers for $65,000 on credit terms of 3/15, net 30. On April 8, the customer contacted FC to say that the sweater colours did not match their original order. FC reached an agreement with the customer to keep the shipment and FC granted the customer a price reduction of $3,000. The customer paid the outstanding bill on April 15. The journal entry to be made by FC on April 15 is A) Debit Sales Returns and Allowances $3,000; Credit Accounts Receivable $3,000 B) Debit Accounts Receivable $62,000; Credit Sales Revenue $62,000 C) Debit Cash $62,000; Credit Accounts Receivable $62,000 D) Debit Cash $60,140; Debit Sales Discounts $1,860; Credit Accounts Receivable $62,000 E) Debit Cash $62,000; Debit Sales Discounts $1,860; Credit Accounts Receivable $55,290

88)

Shrinkage A) Does not include the theft of merchandise B) Is able to be directly measured by a perpetual inventory system C) Is recognized by crediting Cost of Goods Sold D) Can arise because of theft and deterioration of merchandise E) All of the choices are correct

89) An income statement on which the cost of goods sold, and operating expenses are added together and subtracted from net sales in one step to get profit is a(n)

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A) Balanced income statement B) Single-step income statement C) Multiple-step income statement D) Merchandise income statement E) Unclassified income statement

90) Expenses that support the overall operations of a business and include the expenses of such activities as providing accounting services, human resource management, and financial management are called A) Operating expenses B) Selling expenses C) Purchasing expenses D) General and administrative expenses E) Miscellaneous expenses

91)

Classified multiple-step income statements A) Are required by Canada Revenue Agency B) Are generally used for internal reporting C) Are required for the perpetual system D) List cost of goods sold as an operating expense E) Do not report gross profit

92)

Gross profit is derived from A) Sales B) Beginning inventory C) Ending inventory D) Cost of goods sold E) All these above

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93)

The difference between a company's gross profit on sales and total operating expenses is A) Profit B) Income from operations C) Income summary D) Net sale E) Net loss

94)

The first step in preparing the multi-step income statement is to find A) Net sales B) Gross profit C) Operating income D) Profit E) Operating loss

95) A car dealership has a used truck on its lot that it bought for $10,000 and is selling it for $20,000. The rate of markup on cost is A) 20% B) 30% C) 50% D) 100% E) None of the choices are correct

96) JEANSTOP sells jeans that cost it $43.99 per pair for $62.99 per pair. The percentage markup on cost is

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A) 30.2% B) 43.2% C) 70% D) 185.3% E) None of the choices are correct

97) MicroAge sells cellphones at a selling price that includes a 65% markup on cost. If a cellphone costs MicroAge $300, its selling price is A) $495.00 B) $391.50 C) $214.81 D) $461.54 E) None of the choices are correct

98) Marshalls Retailing now carries the Fabletics yoga pants line of athletic wear. Marshalls needs to ensure that the new line contributes no less to their profit than other clothing lines it carries. The Fabletics line needs to provide a 48.5% gross profit margin percentage. Marshalls buys the Fabletics yoga pants at a cost of $12 per pair. At what price should Marshalls sell the Fabletics Yoga pants? A) $17.82 B) $23.30 C) $18.18 D) $6.18 E) None of the choices are correct

99) You work at a sporting goods store. You are considering adding baseball gloves and bats to your inventory. What would be the selling price of baseball bats with a mark-up percentage of 85% (cost is $12) and the baseball gloves with a target gross margin of 60% (cost is $20).

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A) Selling Price (bats) = $32; Selling Price (gloves) = $10.2 B) Selling Price (bats) = $37; Selling Price (gloves) = $22 C) Selling Price (bats) = $22.20; Selling Price (gloves) = $50 D) Selling Price (bats) = $24; Selling Price (gloves) = $25.00 E) None of these answers is correct.

100) If a merchandising company ends a period with a larger inventory than it owned at the beginning of the period, then, A) The cost of goods sold was larger than net purchases. B) Profit was larger than gross profit. C) The cost of goods sold was smaller than net purchases. D) The cost of goods available for sale was smaller than the cost of goods sold. E) Gross profit was larger than the cost of goods sold.

101) The agreed cost of an item to be purchased by a business on credit is $4,000. The applicable cost will be debited to advertising expense. The item is subject to 5% goods and services tax (GST) and 7% provincial sales tax (PST). When this transaction is recorded, what amount will be debited to advertising expense? A) $4,000 B) $4,200 C) $4,280 D) $4,480 E) None of the choices are correct.

102) The agreed cost of an item to be purchased by a business on credit is $4,000. The applicable cost will be debited to advertising expense. The item is subject to 5% goods and services tax (GST) and 7% provincial sales tax (PST). When this transaction is recorded, what amount will be credited to accounts payable?

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A) $4,000 B) $4,200 C) $4,240 D) $4,480 E) None of the choices are correct

103) The agreed cost of an item to be purchased by a business on credit is $4,000. The applicable cost will be debited to advertising expense. The item is subject to 5% goods and services tax (GST) and 7% provincial sales tax (PST). When this transaction is recorded, what amount will be recorded as GST Receivable? A) $200 debit B) $200 credit C) $240 debit D) $240 credit E) None of the choices are correct

104) A business sold some inventory that had cost $5,000 before taxes. The sale is subject to 5% goods and services tax (GST) and 7% provincial sales tax (PST). The business uses a perpetual inventory system. How much will be credited to the Merchandise Inventory account as a result of this sale? A) $5,000 B) $5,300 C) $5,350 D) $5,600 E) None of the choices are correct

105) A business sold some inventory on credit for $5,000 before taxes. The sale is subject to 5% goods and services tax (GST) and 7% provincial sales tax (PST). The business uses a perpetual inventory system. What is the amount of the accounts receivable that was recorded as a result of this sale?

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A) $5,000 B) $5,300 C) $5,350 D) $5,600 E) None of the choices are correct

106) A business sold some inventory on credit for $5,000 before taxes. The sale is subject to 5% goods and services tax (GST) and 7% provincial sales tax (PST). The business uses a perpetual inventory system. What is the amount that will be recorded in the GST payable account as a result of this sale? A) $250 debit B) $250 credit C) $350 debit D) $350 credit E) None of the choices are correct

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 107) Describe the difference between wholesalers and retailers.

108)

Identify and explain the components of income for a merchandising company.

109)

Describe the attributes of inventory as an asset of a merchandising company.

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110)

Describe the periodic and perpetual inventory systems.

111)

Discuss the difference between the periodic and perpetual inventory systems.

112) Describe the recording process for purchases of merchandise inventory using a perpetual inventory system.

113)

Evenflow had the following transactions for October:

October 6: Purchased 300 units of inventory at $8 per unit. The seller offered credit terms of 2/10, n/30. October 8:

Returned 25 defective units and received full credit.

October 10:

Paid the amount in full, less the returned items.

Prepare journal entries to record each of the preceding transactions. Assume a perpetual inventory system.

114)

Evenflow had the following sales transactions in January.

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January 3: Sold 100 units of inventory at $6 per unit. Cost of $4 per unit. The seller offered credit terms of 2/10, n/30. January 6:

Customer returned 20 units and received full credit. The units were returned to inventory.

January 10:

Paid the amount in full, less the returned items.

Prepare journal entries to record these transactions.

115) Describe the recording process for sales of merchandise inventory using a perpetual inventory system.

116)

Explain inventory shrinkage.

117)

Explain the difference between single-step and multiple-step income statements.

118) Calculate net sales, gross profit, and gross profit ratio for each of the following situations. Round the gross profit ratio figure to the nearest whole percent. a

Sales

$170,000

$450,000

$225,000

$330,000

Sales discounts

5,000

3,000

11,000

2,000

Sales returns and allowances

1,100

2,100

4,000

11,500

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Cost of goods sold

133,000

301,000

110,000

220,000

a. Which situation has the highest net sales? b. Which situation has the highest gross profit ratio?

119)

Complete the work sheet for the year ended October 31, 2023. Fellow’s End company Work Sheet October 31, 2023 Unadjusted

Adjustments

Adjusted Trial Balance

Income Statement Balance Sheet & Statement of Changes Account

Dr.

Cash

1,800

Merchandise inventory

41,500

Store supplies

16,700

Prepaid insurance

5,700

Prepaid rent

11,000

Store equipment

167,600

Cr.

Dr.

Cr.

Dr. Cr. Dr. Cr.

2,700

60,000

Accounts payable

34,700

Dallas End, capital

172,100

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Cr.

5,000

Accumulated depreciation, store equipment

Dallas End, withdrawals

Dr.

70,000

12,000

Sales

391,000

Sales discounts

3,500

Sales return and allowances

8,000

Cost of goods sold

149,600

Depreciation expense, store equipment

-0-

Salaries expense

144,000

Interest expense

800

Insurance expense

-0-

Rent expense

56,000

Store supplies expense

-0-

Advertising expense

39,600

Totals

657,800

10,000

3,000 67,000 5,000

657,800

120) Given the following partial income statement information for Ellen's Office Supplies, determine the missing amounts and fill in the blanks.

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Sales

$40,000

Less: Sales discounts

_____

Sales returns and allowances

5,000

Net sales

11,000

Cost of goods sold

_____

Gross profit

6,000

Gross profit ratio

_____

(a)

(b)

(c)

121)

The following information is available for Marshals for the year ended March 31, 2023: Marshals Trial Balance For the year ended March 31, 2023 Accounts payable

$3000

Accounts receivable

7,500

Accumulated amortization, equipment

8,000

Advertising expense

3,500

Sales Discounts

300

Cash

1,300

Cost of goods sold

75,000

Equipment

76,110

Insurance expense

250

Interest expense

Jen Duncan, capital

32,300

Jen Duncan, withdrawals

1,100

Inventory

2,200

Notes payable*

6,000

Rent expense

160

Rent payable

120

Salaries expense

120

Sales

120,000

Sales returns and allowances

1,500

Supplies

300

Supplies expense

Prepare a multiple-step income statement in good form for Marshals.

122) Pluton uses a periodic inventory system. Prepare general journal entries to record the following transactions on the books of Pluton: June 10

Pluton purchased merchandise on credit from Nixon for $6,000, terms 2/10, n/30, FOB

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destination. Transportation costs of $350 were paid by Nixon. 12

Pluton returned $700 of merchandise from the June 10 purchase.

Pluton paid Nixon for the June 10 purchase.

123) Maeve's Store had the following transactions during December, the last month of the accounting period: Dec.

Sold merchandise on credit for $7,000, cost $3,000 terms 1/10, n/30.

Purchased merchandise for cash, $1,900.

Purchased merchandise on credit for $5,600, terms 2/10, n/30.

Issued a credit memorandum for $600 to a customer who returned merchandise purchased November 29, cost $400.

Received payment for merchandise sold December 1.

Received a credit memorandum for $600 for the return of faulty merchandise purchased on December 4.

Paid freight charges of $50 for merchandise ordered last month.

Paid for the merchandise purchased December 4 less merchandise returned.

Sold merchandise on credit for $9,000, terms 1/10 n/30, cost $6,500.

Received payment for merchandise sold on December 24.

Prepare general journal entries to record these transactions, using a perpetual inventory system.

124) First Shot Photography Store has the following trial balance at their year-end, December 31, 2023. First Shot Photography Store Trial Balance For the year ended December 31, 2023

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Account

Debit

Accounts Payable Accounts receivable

$40,000 $85,000

Accumulated amortization, office equipment

10,000

Accumulated amortization, store cash register

3,000

Advertising expense

3,500

Amortization expense, office equipment

17,000

Amortization expense, store cash register

7,000

Sales Discounts

1,800

Cash

14,000

Cost of goods sold

216,900

Equipment

115,000

Insurance expense

7,500

Interest expense

1,400

Screen, capital

303,000

Screen, withdrawals

2,100

Inventory

219,000

Notes payable

5,000

Rent expense, office

15,000

Rent expense, sales

5,000

Rent revenue

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Credit

2,200

Salaries expense, office

13,000

Salaries expense, selling

12,000

Sales

405,000

Sales returns and allowances

20,000

Supplies

8,000

Supplies expense, store

5,000 $768,200

$768,200

Prepare a classified multiple-step income statement in good form for First Shot Photography Store for their 2023 fiscal year.

SECTION BREAK. Answer all the part questions. 125) The partially completed income statements for Marshal Advertising Co follow: Marshal Advertising Co. Income Statement 2022

2023

2024

Revenues:

$146,100

Sales

$120,100

Less: Sales Discounts Sales Returns and Allowances

______

1,400

1,800

4,000

4,300

3,000

3,700

(a)

______ (f)

$300 $700

Net sales

(b)

136,700

142,400 72,000

Cost of goods sold

74,000

81,000

Gross profit from sales

$44,300

$55,700

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(i)

Operating Expenses: Advertising expense

________

Insurance expense

1,500

3,000

150

350

600

Rent expense

260

300

Salaries expense

220

1,140

240

Supplies expense

1,060

180

Total operating expenses

(c)

5,170

Income from operations

______ (g) (d)

4,320

$51,390

(j)

Other revenues and expenses Interest expense

140

Profit

_________

______ (h) (e)

$51,330

180 $65,900

125.1)

a) Calculate the value for each missing item.

125.2)

b) Calculate the gross profit ratio for each year. Interpret the ratio for 2022.

126) Accounts and their balances from the trial balance of Blade Runner Store for the year ended December 31, 2023 are below. Blade Runner Store Trial Balance For the year ended December 31, 2023 Account

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Debit

Credit

Accounts Payable Accounts receivable

$4,000 $8,500

Accumulated amortization, equipment

9,000

Amortization expense, equipment

4,500

Sales Discounts

400

Cash

1,200

Cost of goods sold

76,000

Equipment

75,110

Insurance expense

350

Interest expense

140

Rita Roller, capital

32,500

Rita Roller, withdrawals

1,200

Inventory

2,100

Notes payable Rent expense

3,000 660

Rent revenue Salaries expense

1,200 2,700

Sales

125,000

Sales returns and allowances

1,400

Supplies

350

Supplies expense, store

90 $174,700

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$174,700

126.1) Use the information above to prepare a multi-step income statement for the year ended December 31, 2023

126.2) Calculate the gross profit ratio for the year ended December 31, 2023. Interpret the ratio.

126.3)

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Is Blade Runner Store using a periodic or perpetual inventory system? Explain.

Answer Key Test name: Chap 05_17ce_Test Bank 1) TRUE 2) FALSE 3) FALSE 4) FALSE 5) TRUE 6) FALSE 7) FALSE 8) TRUE 9) FALSE 10) FALSE 11) TRUE 12) FALSE 13) FALSE 14) FALSE 15) FALSE 16) TRUE 17) FALSE 18) FALSE 19) TRUE 20) FALSE 21) TRUE 22) TRUE 23) TRUE 24) TRUE 25) FALSE 26) FALSE Version 1

27) TRUE 28) TRUE 29) FALSE 30) FALSE 31) FALSE 32) TRUE 33) FALSE 34) TRUE 35) FALSE 36) TRUE 37) FALSE 38) TRUE 39) TRUE 40) FALSE 41) FALSE 42) FALSE 43) TRUE 44) TRUE 45) FALSE 46) FALSE 47) FALSE 48) FALSE 49) TRUE 50) FALSE 51) FALSE 52) FALSE 53) TRUE 54) TRUE 55) FALSE 56) TRUE Version 1

57) FALSE 58) FALSE 59) E 60) A 61) A 62) C 63) C 64) E 65) C 66) B 67) B 68) B 69) B 70) A 71) D 72) A 73) C 74) B 75) A 76) B 77) A 78) D 79) B 80) A 81) B 82) A 83) B 84) B 85) B 86) C Version 1

87) D 88) D 89) B 90) D 91) B 92) E 93) B 94) A 95) D 96) B 97) A 98) B 99) C 100) C 101) C 102) D 103) A 104) A 105) D 106) B 107) A wholesaler is a middleman who buys products from manufacturers and sells to retailers or other wholesalers. A retailer is a middleman who buys products from manufacturers or wholesalers and sells them to consumers. 108) The basic components of income start with net sales. From net sales is subtracted the cost of goods sold. The resulting amount is called gross profit or gross margin.

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109) Merchandise inventory is a current asset. It represents merchandise held for sale to customers. In essence, merchandise or merchandising inventory consists of products that a company acquires for the purpose of reselling them to customers. 110) A periodic inventory system provides for updating the inventory account at the end of the period. The information is used to adjust the quantity and cost of both goods on hand and goods sold. A perpetual inventory system provides a continuous record of the amount of inventory on hand. 111) Under the periodic system the cost of inventory is recorded when purchased. However, the quantity on hand or sold to customers is not tracked. The accounting records are updated at the end of each period to reflect the results of physical counts of the items on hand. Under the perpetual system a continuous record of the cost of inventory on hand and the cost of goods sold is kept. 112) Purchases net of trade discounts are added (debited) to the Merchandise Inventory account. Purchases discounts and purchases returns and allowances are subtracted (credited) from Merchandise Inventory. Transportation-in costs are added (debited) to Merchandise Inventory. 113) October 6:

Merchandise inventory

2,400

Accounts Payable

2,400

Inventory purchase. October 8:

Accounts Payable Merchandise Inventory

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200 200

Inventory return. October 10:

Accounts Payable

2,200

Merchandise Inventory

Cash

2,156

Payment.

114) January 3:

Accounts Receivable

600.00

Sales Cost of Goods sold

600.00 400.00

Merchandise Inventory

400.00

Inventory sale. January 6:

Sales Returns and Allowances

120.00

Accounts Receivable Merchandise Inventory

120.00 80.00

Cost of Goods sold

80.00

Inventory return. January 10:

Cash

470.40

Sales Discounts

9.60

Accounts Receivable

480.00

Payment.

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115) Sales are recorded at list price less any trade discounts. The cost of items sold is transferred from Merchandise Inventory to Cost of Goods Sold. Refunds or credits for returned merchandise are recorded (debited) in Sales Returns and Allowances. When cash discounts from the sales price are taken, the seller records (debits) the amount of the discounts in Sales Discounts. 116) Shrinkage is the loss of merchandise inventory usually due to theft or deterioration. Merchandising companies can lose merchandise in several ways, including theft by employees and customers, accounting errors such as input errors or inventory counting errors, and damage. Shrinkage is calculated by comparing the recorded quantities of inventory in the accounting system with quantities recorded during the physical inventory count. 117) A single-step income statement format includes cost of goods sold as an operating expense, and shows only one subtotal for total expenses. A multiple-step income statement shows intermediate totals between sales and profit. It also includes detailed computations of net sales and cost of goods sold. 118) a

Sales

$170,000

$450,000

$225,000

$330,000

Less: Sales discounts

5,000

3,000

11,000

2,000

Sales returns and allowances

1,100

2,100

4,000

11,500

Net sales

163,900

444,900

210,000

316,500

Cost of goods sold

133,000

301,000

110,000

220,000

Gross profit

30,900

143,900

100,000

96,500

Gross profit ratio

19%

32%

48%

30%

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a. Situation (b) has the highest net sales. b. Situation (c) has the highest gross profit ratio. 119) Fellow’s End company Work Sheet October 31, 2023 Unadjuste Adjustmen Adjuste Income Balance d ts d Trial Statemen Sheet & Balance t Statemen t of Changes Account

Dr.

Cr.

Cash

1,800

Merchandis e inventory

41,500

Store supplies

16,700

5,000

11,700

Prepaid insurance

5,700

3,000

2,700

Prepaid rent

11,000

-0-

Store equipment

167,600

167,60 0

Accumulate d depreciatio n, store equipment

60,000

Accounts payable Dallas End, capital

Sales discounts

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Cr.

Dr.

10,000

Dr.

Cr.

Dr.

Cr.

70,000

34,700

172,100

172,10 0

12,000 391,000

3,500

Cr.

70,000

Dallas End, 12,000 withdrawals Sales

Dr.

12,000 391,00 0

3,500

391,00 0 3,500

Sales return 8,000 and allowances

8,000

Cost of 149,600 goods sold

149,600

149,60 0

10,000

Depreciatio -0n expense, store equipment

10,000

Salaries expense

144,000

144,00 0

Interest expense

800

Insurance expense

-0-

3,000

Rent expense

56,000

11,000

67,000

Store supplies expense

-0-

5,000

39,600

Advertising 39,600 expense Totals

657,800

29,000 29,000

Profit/Loss

667,800 667,80 430,50 391,00 237,30 276,80 0 0 0 0 0 39,500 39,500

Totals 430,50 430,50 276,80 276,80 0 0 0 0

120)

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Sales

$40,000

Less: Sales discounts

24,000

Sales returns and allowances

5,000

Net sales

11,000

Cost of goods sold

5,000

Gross profit

6,000

(a)

(b)

Gross profit ratio

55%

(c)

121) Marshals Income statement For the year ended March 31, 2023 Net sales

118,200

Cost of goods sold

75,000

Gross profit from sales

$43,200

Operating Expenses: Advertising expense

3,500

Insurance expense

250

Rent expense

160

Salaries expense

120

Supplies expense

Total operating expenses

4,070

Income from operations

$39,130

Other revenues and expenses Interest expense

Profit

$39,090

122) June

Purchases

6,000

Accounts Payable

6,000

Inventory purchase. June

Accounts Payable Purchase Returns and Allowances

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700 700

Inventory return. June

Accounts Payable

5,300

Cash

5,194

Purchase Discounts

106

Payment.

123) Dec

Accounts Receivable

7,000

Sales Cost of Goods Sold

7,000 3,000

Merchandise Inventory

3,000

Inventory sale terms 1/10, n/30 Dec

Merchandise Inventory

1,900

Cash

1,900

Inventory purchase Dec

Merchandise Inventory

5,600

Accounts Payable

5,600

Inventory purchase terms 2/10, n/30. Dec

Sales Returns and Allowances

600

Accounts Receivable Merchandise Inventory

600 400

Cost of Goods Sold

400

Inventory return for November 29th sale. Dec

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Cash

6,930

Sales Discounts

Accounts Receivable

7,000

Payment for December 1st sale. Discount(7,000 × 1%) = $70 Dec

Accounts Payable

600

Merchandise Inventory

600

Credit memorandum faulty merchandise. Dec

Merchandise Inventory

Cash

Shipping charges. Dec

Accounts Payable

5,000

Cash

Dec

Accounts Receivable

5,000

9,000

Sales Cost of Goods Sold

9,000 6,500

Merchandise Inventory

6,500

Inventory sale. Terms 1/10, n/30 Dec

Cash

8,910

Sales Discounts

Accounts Receivable

9,000

Payment. Discount(9,000 × 1%) = $90

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124) First Shot Photography Store Trial Balance For the year ended December 31, 2023 Sales Less: Sales Discounts Sales Returns and Allowances

$405,000 $1,800 20,000 21,800

Net sales

$383,200

Cost of goods sold

216,900

Gross profit from sales

$166,300

Operating expenses: Selling expenses: Advertising expense

$3,500

Amortization expense, store cash register

7,000

Insurance expense

7,500

Rent expense, sales

5,000

Salaries expense, sales

12,000

Supplies expense, store

5,000

Total selling expenses

$40,000

General and administrative expenses: Amortization expense, office equipment

$17,000

Rent expense, office

15,000

Salaries expense, office

13,000

Total general and administrative expenses Total operating expenses

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45,000 85,000

Income from operations

$81,300

Other revenues and expenses Interest expense

$1,400

Rental revenue

$2,200

Total other revenues and expense

800

Profit

$82,100

125) Section Break 125.1) Marshal Advertising Co. Income Statement 2022

2023

2024

Revenues: Sales

$120,100

Less: Sales Discounts Sales $400 Returns and Allowances 1,400

1,800

4,300

$141,000 (f) (a)

$300 4,000

$146,100 $700 3,000

3,700

$700 3,000

3,700 Net sales

118,300

Cost of goods sold Gross profit from sales

(b)

136,700

142,400

74,000

81,000

72,000

$44,300

$55,700

$70,400

Operating Expenses: Advertising expense

4,500

Insurance expense

1,500

3,000

150

350

600

Rent expense

260

300

Salaries expense

220

1,140

240

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(c)

(i)

Supplies expense

1,060

Total operating expenses

5,170

Income from operations

$39,130

180 4,310

(d)

(g)

4,320

$51,390

$66,080

180

(j)

Other revenues and expenses Interest expense

140

Profit

$38,990

(e)

$51,330

(h)

$65,900

125.2)

Gross Profit Ratio

2022

2023

2024

44,300/118,300 * 100 = 37.4%

55,700/136,700 * 100 = 40.7%

70,400/142,400 * 100 = 49.4%

For 2022, the ratio means that every $1 in net sales yielded $0.374 in gross profit to cover off operating expenses. The trend is favourable from 2022 through to 2024. This means that we can cover off more of our operating expenses from year to year from every dollar in net sales. This trend is not surprising given that net sales are increasing while operating expenses are decreasing. 126) Section Break 126.1) Blade Runner Store Trial Balance For the year ended December 31, 2023 Net sales

123,200

Cost of goods sold

76,000

Gross profit from sales

$47,200

Operating Expenses: Amortization expense, equipment

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4,500

Insurance expense

350

Rent expense

660

Salaries expense

2,700

Supplies expense

Total operating expenses

8,300

Income from operations

$38,900

Other revenues and expenses: Interest expense

140

Rent revenue

1,200

Profit

1,060 $39,960

126.2) Gross profit ratio = GP ratio = 47,200/123,200 = 38.3%This tells us that every $1 in sales provides $.383 in gross profit to cover operating expenses. 126.3) A perpetual system is used since there is no opening inventory account; there is only an ending inventory account. There is also no purchases account - everything purchased is in inventory.

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CHAPTER 6: ALGO TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Using the retail inventory method, if the cost-to-retail ratio is 75% and ending inventory at retail is $146,000, then estimated ending inventory at cost is $208,143. ⊚ true ⊚ false

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 2) On December 31 of the current year, Plunkett Company reported an ending inventory balance of $219,500. The following additional information is also available: ● Plunkett sold and shipped goods costing $38,900 to Savannah Enterprises on December 28 with shipping terms of FOB shipping point. The goods were not included in the ending inventory amount of $219,500. ● Plunkett purchased goods costing $44,900 on December 29. The goods were shipped FOB destination and were received by Plunkett on January 2 of the following year. The shipment was a rush order that was supposed to arrive by December 31. These goods were included in the ending inventory balance of $219,500. ● Plunkett's ending inventory balance of $219,500 included $15,900 of goods being held on consignment from Carole Company. (Plunkett Company is the consignee.) ● Plunkett's ending inventory balance of $219,500 did not include goods costing $95,900 that were shipped to Plunkett on December 27 with shipping terms of FOB destination and were still in transit at year-end. Based on the above information, the amount that Plunkett should report in ending inventory on December 31 is: A) $197,600 B) $213,500 C) $203,600 D) $174,600 E) $158,700

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3) Bedrock Company reported a December 31 ending inventory balance of $412,000. The following additional information is also available: ● The ending inventory balance of $412,000 included $73,200 of consigned inventory for which Bedrock was the consignor. ● The ending inventory balance of $412,000 incorrectly included $24,400 of office supplies that were stored in the warehouse and were to be used by the company's supervisors and managers during the coming year. Based on this information, the correct balance for ending inventory on December 31 is: A) $412,000 B) $338,600 C) $314,200 D) $303,000 E) $387,600

Lucia Company reported cost of goods sold for Year 1 and Year 2 as follows: Year 1

Year 2

Beginning inventory Cost of goods purchased Cost of goods available for sale Ending inventory

$ 121,000 250,200 371,200 130,200

$ 130,200 276,000 406,200 135,200

Cost of goods sold

$ 241,000

$ 271,000

Lucia Company made two errors: 1) ending inventory at the end of Year 1 was understated by $15,200 and 2) ending inventory at the end of Year 2 was overstated by $6,200. Given this information, the correct cost of goods sold figure for Year 2 would be: A) $250,000 B) $264,800 C) $277,200 D) $292,400 E) $286,200

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Ace Company reported the following information for the current year:

Sales Cost of goods sold:

$ 429,000

Beginning inventory Cost of goods purchased Cost of goods available for sale Ending inventory Cost of goods sold

$ 160,500 292,000 452,500 163,000 289,500

Gross profit

$ 139,500

The beginning inventory balance is correct. However, the ending inventory figure was overstated by $39,000. Given this information, the correct gross profit would be: A) $100,500. B) $139,500. C) $178,500. D) $113,500. E) $121,500.

6) Giorgio had cost of goods sold of $9,457 million, ending inventory of $2,125 million, and average inventory of $2,001 million. Its inventory turnover equals: A) 4.73. B) 4.50. C) 0.22. D) 82.0 days. E) 77.2 days.

7) Beckenworth had cost of goods sold of $11,021 million, ending inventory of $3,689 million, and average inventory of $2,125 million. Its days' sales in inventory equals: (Use 365 days a year.)

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A) 51.8. B) 0.3. C) 70.4 days. D) 122.2 days. E) 51.5.

A company's inventory records indicate the following data for the month of April:

Date

Activities

April 1 April 7

Beginning inventory Purchase

April 11

Sale

April 16

Purchase

April 22

Sale

April 29

Purchase

Units Acquired at Cost

Units Sold at Retail

760 units @ $36 = $27,360 640 units @ $40 = $25,600 1,120 units @ $110 560 units @ $44 = $24,640 400 units @ $110 540 units @ $50 = $27,000

The company uses a periodic inventory system. Determine the cost assigned to ending inventory using the specific identification method. Ending inventory consists of 310 units from the April 29 purchase, 260 units from the April 16 purchase, 270 units from the April 7 purchase, and 100 units from beginning inventory. A) $50,440. B) $75,560. C) $47,480. D) $66,400. E) $41,340.

9) Marquis Company uses a weighted-average perpetual inventory system and has the following purchases and sales: Date

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Activities

Units Acquired at Cost

Units Sold at

Retail August 2

Purchase

August 18

Purchase

August 29

Sales

10 units @ $34 = $340 15 units @ $36 = $540 12 units sold

What is the amount of the cost of goods sold for this sale? (Round average cost per unit to 2 decimal places.) A) $150.50 B) $412.00 C) $880.00 D) $540.00 E) $422.40

10) Grays Company has the following purchases and sales during the month of August. Using the FIFO perpetual inventory method, what amount will be reported as cost of goods sold for the 12 units that were sold? Date

Activities

August 1 August 3

Beginning inventory Purchase

August 6

Sales

Units Acquired at Cost

Units Sold at Retail

10 units @ $44 = $440 20 units @ $46 = $920 12 units sold

A) $504. B) $548. C) $460. D) $532. E) $502.

11)

A company's inventory records report the following:

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Date

Activities

August 1 August 5

Beginning inventory Purchase

August 12

Purchase

August 15

Sales

Units Acquired at Cost

Units Sold at Retail

15 units @ $20 = $300 10 units @ $21 = $210 20 units @ $22 = $440 30 units sold

Using the FIFO perpetual inventory method, what is the value of the inventory at August 15 after the sale? A) $220 B) $200 C) $330 D) $620 E) $950

12) Jammer Company uses a weighted average perpetual inventory system and reports the following: Date August 2

Activities Purchase

Units Acquired at Cost 10 units @ $24 = $240

August 18

Purchase

15 units @ $27 = $405

August 29

Sales

August 31

Purchase

Units Sold at Retail

20 units sold 14 units @ $28 = $392

What is the per unit value of ending inventory on August 31? Answers should be rounded to the nearest cent.

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A) $25.80 B) $29.37 C) $28.00 D) $27.42 E) $24.00

13) A company has the following products in its ending inventory. Compute lower of cost or market for inventory applied separately to each product Product Product A Product B Product C

Quantity 10 15 20

Cost per Unit $ 710 $ 510 $ 660

Market per Unit $ 680 $ 550 $ 685

A) $27,950. B) $27,650. C) $1,880. D) $28,750. E) $1,915.

14) A company has the following purchases and sales during February. Using the FIFO periodic inventory method, what is the cost of the 12 units that are sold? Date February 1

Activities

February 3

Beginning inventory Purchase

February 5

Sales

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Units Acquired at Cost 10 units @ $16 = $160 20 units @ $20 = $400

Units Sold at Retail

12 units sold

A) $192 B) $200 C) $220 D) $196 E) $212

15) A company has the following purchases and sales during October. Using the FIFO periodic inventory method, what is the value of the inventory on October 15 after the sale? Date

Activities

October 1 October 5

Beginning inventory Purchase

October 12

Purchase

October 15

Sales

Units Acquired at Cost 15 units @ $22 = $330 10 units @ $23 = $230 20 units @ $24 = $480

Units Sold at Retail

30 units sold

A) $240 B) $210 C) $360 D) $630 E) $1,040

16) A company has the following purchases and sales during March. Using the FIFO perpetual inventory method, what was the cost of the 22 units sold? Date March 1

Activities

March 2

Beginning inventory Purchase

March 6

Purchase

March 8

Sales

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Units Acquired at Cost

Units Sold at Retail

10 units @ $27 = $270 10 units @ $29 = $290 6 units @ $32 = $192 22 units @ $61

A) $624 B) $651 C) $597 D) $752 E) $688

17) A company uses the periodic inventory system and had the following activity during the current monthly period. Date

Activities

November 1 November 5

Beginning inventory Purchase

November 8

Purchase

November 16

Sales

November 19

Purchase

Units Acquired at Cost

Units Sold at Retail

148 units @ $20 = $2,960 124 units @ $22 = $2,728 74 units @ $23 = $1,702 248 units @ $45 74 units @ $25 = $1,850

Using the weighted-average inventory method, the company's ending inventory would be: A) $2,960 B) $3,784 C) $3,330 D) $2,496 E) $5,456

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18) A flood destroyed a company’s warehouse contents on September 12. The following information was the only information that was salvaged: 1.Inventory, beginning: $28,800 2.Purchases for the period: $17,800 3.Sales for the period: $55,800 4.Sales returns for the period: $780 The company's average gross profit ratio is 32%. What is the estimated cost of the lost inventory using the gross profit method? A) $9,186.40. B) $28,993.60. C) $31,688.00. D) $46,600.00. E) $45,600.00.

19) On March 31 a company needed to estimate its ending inventory to prepare its first quarter financial statements. The following information is available: Beginning inventory, January 1: $5,700 Net sales: $57,000 Net purchases: $58,000 The company's gross profit ratio is 15%. Using the gross profit method, the cost of goods sold would be: A) $48,450. B) $5,700. C) $6,700. D) $36,050. E) $30,350.

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20) On March 31 a company needed to estimate its ending inventory to prepare its first quarter financial statements. The following information is available: Beginning inventory, January 1: $5,400 Net sales: $83,000 Net purchases: $81,000 The company's gross profit ratio is 25%. Using the gross profit method, the estimated ending inventory value would be: A) $20,750. B) $86,400. C) $62,250. D) $24,150. E) $20,250.

21) Big Box Store has operated with a 30% average gross profit ratio for a number of years. It had $117,000 in net sales during the second quarter of this year. If it began the quarter with $19,700 of inventory at cost and purchased $73,700 of inventory during the quarter, its estimated ending inventory by the gross profit method is: A) $35,100. B) $24,570. C) $11,500. D) $19,700. E) $32,100.

22) Jefferson Company has net sales of $313,000 and cost of goods available for sale of $271,300. If the gross profit ratio is typically 30%, the estimated cost of the ending inventory under the gross profit method would be: A) $41,700 B) $177,400 C) $52,200 D) $93,900 E) $104,400

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23) On April 24 of the current year, The Memphis Pecan Company experienced a tornado that destroyed the company's entire inventory. At the beginning of April, the company reported beginning inventory of $227,350. Inventory purchased during April (until the date of the tornado) was $198,400. Net Sales for the month of April through April 24 were $643,100. Assuming the company's typical gross profit ratio is 50%, estimate the amount of inventory destroyed in the tornado. A) $158,088 B) $217,350 C) $212,875 D) $321,550 E) $104,200

24) Sandoval needs to determine its year-end inventory. The warehouse contains 24,000 units, of which 3,400 were damaged by flood and are not sellable. Another 2,400 units were purchased from Markor Company, FOB shipping point, and are currently in transit. The company also consigns goods and has 4,400 units at a consignee's location. How many units should Sandoval include in its year-end inventory? A) 27,400 B) 25,000 C) 22,600 D) 30,800 E) 34,200

25) Salmone Company reported the following purchases and sales of its only product. Salmone uses a perpetual inventory system. Determine the cost assigned to the ending inventory using FIFO. Date May 1

Activities

May 5

Beginning inventory Purchase

May 10

Sales

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Units Acquired at Cost

Units Sold at Retail

172 units @ $10 = $1,720 242 units @ $12 = $2,904 162 units @ $20

May 15

Purchase

May 24

Sales

122 units @ $13 = $1,586 112 units @ $21

A) $3,266 B) $2,944 C) $3,136 D) $2,876 E) $3,146

26) Salmone Company reported the following purchases and sales of its only product. Salmone uses a perpetual inventory system. Determine the cost assigned to cost of goods sold using FIFO. Date

Activities

May 1 May 5

Beginning inventory Purchase

May 10

Sales

May 15

Purchase

May 24

Sales

Units Acquired at Cost

Units Sold at Retail

168 units @ $10 = $1,680 238 units @ $12 = $2,856 158 units @ $20 118 units @ $13 = $1,534 108 units @ $21

A) $3,214 B) $2,856 C) $3,084 D) $2,824 E) $6,070

27) Salmone Company reported the following purchases and sales of its only product. Salmone uses a periodic inventory system. Determine the cost assigned to the ending inventory using FIFO. Date

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Activities

Units Acquired at Cost

Units Sold at 13

Retail May 1 May 5

Beginning inventory Purchase

May 10

Sales

May 15

Purchase

May 24

Sales

172 units @ $10 = $1,720 242 units @ $12 = $2,904 162 units @ $20 122 units @ $13 = $1,586 112 units @ $21

A) $3,266 B) $6,210 C) $2,944 D) $3,400 E) $3,074

28) Salmone Company reported the following purchases and sales of its only product. Salmone uses a periodic inventory system. Determine the cost assigned to cost of goods sold using FIFO. Date

Activities

May 1 May 5

Beginning inventory Purchase

May 10

Sales

May 15

Purchase

May 24

Sales

Units Acquired at Cost

Units Sold at Retail

178 units @ $10 = $1,780 248 units @ $12 = $2,976 168 units @ $20 128 units @ $13 = $1,664 118 units @ $21

A) $3,076 B) $3,560 C) $3,680 D) $3,550 E) $3,206

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29) On September 1 of the current year, Scots Company experienced a flood that destroyed the company's entire inventory. Because the company had not completed its month end reporting for August, it must estimate the amount of inventory lost using the gross profit method. At the beginning of August, the company reported beginning inventory of $216,050. Inventory purchased during August was $192,770. Net Sales for the month of August were $543,700. Assuming the company's typical gross profit ratio is 40%, estimate the amount of inventory destroyed in the flood. A) $81,600 B) $82,600 C) $134,880 D) $191,340 E) $87,600

30) Use the following information for Shafer Company to compute inventory turnover for year 2.

Net sales Cost of goods sold Ending inventory

Year 2

Year 1

$ 657,500 390,500 79,700

$ 584,900 361,040 81,380

A) 5.85 B) 4.00 C) 8.25 D) 4.85 E) 7.19

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Answer Key Test name: Chap 06_17ce_Test Bank_Algo 1) FALSE $146,000 × 0.75 = $109,500 2) E Start with beginning inventory of $219,500. The information in the first bullet point was handled correctly. No adjustment is needed for that merchandise. For the second bullet point, the $44,900 of goods should not have been included in ending inventory since the goods were shipped FOB destination. Subtract $44,900. For the third bullet point, ending inventory should not include goods held on consignment from another company. Subtract $15,900. The information in the fourth bullet point was handled correctly. No adjustment is needed. $219,500 − $44,900 − $15,900 = $158,700. 3) E Start with beginning inventory of $412,000. The information in the first bullet point was handled correctly since inventory should include consigned goods for which the subject company is the consignor. No adjustment. With respect to the second bullet point, inventory should not include office supplies held for use. Subtract $24,400. Ending inventory should be $412,000 − $24,400 = $387,600. 4) D

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If ending inventory for Year 1 was reported at $130,200 but was understated by $15,200, the correct ending inventory figure for Year 1 was $145,400. That amount becomes the beginning inventory for Year 2. Add to that amount the $276,000 of cost of goods purchased in Year 2 and you get cost of goods available for sale of $421,400. Finally, the reported ending inventory figure for Year 2 of $135,200 was overstated by $6,200. Thus, the correct ending inventory figure for Year 2 was $129,000. Subtracting ending inventory of $129,000 from cost of goods available for sale of $421,400 yields cost of goods sold of $292,400. 5) A If ending inventory of $163,000 was overstated by $39,000, the correct amount of ending inventory was $124,000. As a result, cost of goods sold was not $289,500 as reported, but rather $328,500. Thus, gross profit was $100,500 (Sales of $429,000 − Cost of Goods Sold of $328,500). 6) A Inventory Turnover = Cost of Goods Sold/Average Inventory Inventory Turnover = $9,457/$2,001 = 4.73 times 7) D Days' Sales in Inventory = Ending Inventory/Cost of Goods Sold × 365 Days' Sales in Inventory = $3,689/$11,021 × 365 = 122.2 days 8) E Ending Inventory: Date

Goods Available for Cost of Goods Sold Sale April 1 760 units @ $36 660 units @ $ 23,760 = $27,360 $36 = April 7 640 units @ $40 370 units @ $ 14,800 = $25,600 $40 = April 16 560 units @ $44 300 units @ $ 13,200 = $24,640 $44 = April 29 540 units @ $50 230 units @ $ 11,500

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Ending Inventory 100 units @ $ 3,600 $36 = 270 units @ $ 10,800 $40 = 260 units @ $ 11,440 $44 = 310 units @ $ 15,500

= $27,000

$50 =

Total

$50 = $ 63,260

$ 41,340

9) E Cost of goods sold Date August 2

Goods Purchased Cost of Goods Sold 10 units @ $34

Inventory Balance 10 units @ = $ 340 $34 10 units @ = $ 880 $34 15 units @ $36 Average Cost = $35.20

August 18

15 units @ $36

August 29

Sales

12 units @ $35.20 = $ 422.40

13 units @ $35.20

Goods Purchased

Cost of Goods Sold

Inventory Balance

= $ 457.60

10) D Date August 1 August 3

20 units @ $46

August 6

10 units @ $44 2 units @ $46

= $532

10 units @ = $ 440 $44 10 units @ = $ 1,360 $44 20 units @ $46 18 units @ = $ 828 $46

11) C Date August 1

Goods Purchased

August 5

10 units @ $21

August 12

20 units @ $22

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Cost of Goods Sold

Inventory Balance 15 units @ = $ 300 $20 15 units @ = $ 510 $20 10 units @ $21 15 units @ = $ 950 $20 10 units @ 18

August 15

$21 20 units @ $22 15 units @ = $ 330 $22

15 units @ = $ 620 $20 10 units @ $21 5 units @ $22

12) D Date August 2 August 18

Goods Purchased 10 units @ $24 15 units @ $27

August 29 August 31

Cost of Goods Sold

10 units @ $24 = $ 645 15 units @ $27 Average Cost = $25.80 20 units @ $25.80 = $516

14 units @ $28

Inventory Balance 10 units @ $24 = $ 240

5 units @ = $ 129 $25.80 5 units @ = $ 521 $25.80 14 units @ $28.00 Average Cost = $27.42

13) B Product

Quantity Cost per Market Total Cost Total Unit per Unit Market Product A 10 $ 710 $ 680 $ 7,100 $ 6,800 Product B 15 $ 510 $ 550 $ 7,650 $ 8,250 Product C 20 $ 660 $ 685 $ 13,200 $ 13,700 $ 27,950 $ 28,750

LCM Items $ 6,800 $ 7,650 $ 13,200 $ 27,650

14) B Date February 1 February 3

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Goods Available for Cost of Goods Sold Sale 10 units @ $16 10 units @ $ 160 = $160 $16 = 20 units @ $20 2 units @ $ 40 = $400 $20 =

Ending Inventory

18 units @ $ 360 $20 =

$ 200

$ 360

Goods Available for Cost of Goods Sold Sale 15 units @ $22 = 15 units @ $ 330 $330 $22 = 10 units @ $23 = 10 units @ $ 230 $230 $23 = 20 units @ $24 = 5 units @ $ 120 $480 $24 =

Ending Inventory

$ 680

$ 360

15) C Date October 1 October 5 October 12 Total

15 units @ $ 360 $24 =

16) A Date March 1

Goods Purchased

March 2

10 units @ $29

March 6

6 units @ $32

March 8

Cost of Goods Sold

10 units @ = $ 624 $27 10 units @ $29 2 units @ $32

Inventory Balance 10 units @ = $ 270 $27 10 units @ = $ 560 $27 10 units @ $29 10 units @ = $ 752 $27 10 units @ $29 6 units @ $32 4 units @ = $ 128 $32

17) B Date November 1

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Goods Available for Cost of Goods Sold Sale 148 units @ $20 = $2,960

Ending Inventory

November 5

124 units @ $22 = $2,728 November 8 74 units @ $23 = $1,702 November 19 74 units @ $25 = $1,850 $9,240/420 units = $22 per unit 248 units @ $22 = $5,456

172 units @ $22 = $3,784

18) A COGS = ($55,800 − $780) × 68% = $37,413.60 Goods available for sale = $28,800 + $17,800 = $46,600 EI = $46,600 − $37,413.60 = $9,186.40 19) A 85% × $57,000 = $48,450 20) D Beginning inventory + Purchases = Cost of Goods Available for Sale $5,400 + $81,000 = $86,400 Cost of Goods Available for Sale − Estimated Cost of Goods Sold = Estimated Ending Inventory $86,400 − (75% × $83,000) = Estimated Ending Inventory $24,150 = Estimated Ending Inventory 21) C COGS = $117,000 × 70% = $81,900 Costs available for sale = $19,700 + $73,700 = $93,400 Ending Inventory = $93,400 − $81,900 = $11,500 22) C If net sales for the period were $313,000 and the company's typical gross profit ratio is 30%, gross profit would be approximately $93,900. That means that cost of goods sold must have been $219,100. Subtracting cost of goods sold of $219,100 from the $271,300 of cost of goods available for sale yields ending inventory of $52,200. 23) E Version 1

Beginning inventory on April 1 was $227,350. Purchases for the month of April amounted to $198,400, yielding cost of goods available for sale of $425,750. If the company's typical gross profit ratio is 50% and if net sales for the month of April were $643,100, then the cost of goods sold during April was $321,550. Subtracting that amount from the cost of goods available for sale yields ending inventory of $104,200. 24) A 24,000 − 3,400 + 2,400 + 4,400 = 27,400 25) A Ending inventory Date May 1

Goods Purchased

May 5

242 units @ $12

May 10

May 15

Cost of Goods Sold

162 units @ $10

= $ 1,620

10 units @ $10 102 units @ $12

= $ 1,324

122 units @ $13

May 24

Total

$ 2,944

Inventory Balance 172 units @ = $ 1,720 $10 172 units @ = $ 4,624 $10 242 units @ $12 10 units @ = $ 3,004 $10 242 units @ $12 10 units @ = $ 4,590 $10 242 units @ $12 122 units @ $13 140 units @ = $ 3,266 $12 122 units @ $13 $ 3,266

26) B Cost of goods sold Date

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Goods Purchased

Cost of Goods Sold

Inventory Balance

May 1 May 5

238 units @ $12

May 10

May 15

158 units @ $10

= $ 1,580

10 units @ $10 98 units @ $12

= $ 1,276

118 units @ $13

May 24

Total

$ 2,856

168 units @ = $ 1,680 $10 168 units @ = $ 4,536 $10 238 units @ $12 10 units @ = $ 2,956 $10 238 units @ $12 10 units @ = $ 4,490 $10 238 units @ $12 118 units @ $13 140 units @ = $ 3,214 $12 118 units @ $13 $ 3,214

27) A Ending inventory Date May 1 May 5 May 15

Goods Available for Sale 172 units @ $10 = $1,720 242 units @ $12 = $2,904 122 units @ $13 = $1,586

Total

Cost of Goods Sold 172 units @ $ 1,720 $10 = 102 units @ $ 1,224 $12 =

$ 2,944

Ending Inventory

140 units @ $ 1,680 $12 = 122 units @ $ 1,586 $13 = $ 3,266

28) A Cost of goods sold Date May 1

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Goods Available for Sale 178 units @ $10 = $1,780

Cost of Goods Sold

Ending Inventory

178 units @ $ 1,780 $10 =

May 5 May 15 Total

248 units @ $12 = $2,976 128 units @ $13 = $1,664

108 units @ $ 1,296 $12 =

$ 3,076

140 units @ $ 1,680 $12 = 128 units @ $ 1,664 $13 = $ 3,344

29) B Merchandise available for sale: $216,050 + $192,770 = $408,820 Estimate cost of goods sold: $543,700 × 0.6 = $326,220 Estimated ending inventory: $408,820 − $326,220 = $82,600 30) D Inventory Turnover = Cost of Goods Sold/Average Inventory Inventory Turnover = $390,500/[($79,700 + $81,380)/2] Inventory Turnover = $390,500/$80,540 = 4.85

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CHAPTER 6 TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Goods in transit are automatically included in inventory. ⊚ ⊚

true false

Damaged goods are not counted in inventory if they cannot be sold. ⊚ ⊚

true false

3) Goods on consignment are goods shipped by their owner, called the consignee, to another party called the consignor. ⊚ ⊚

true false

4) If obsolete or damaged goods can be sold, they will be included in inventory at their net realizable value if it is less than cost. ⊚ ⊚

true false

5) If the supplier pays freight charges, then ownership of inventory passes when goods arrive at their destination. ⊚ ⊚

true false

6) Net realizable value for damaged or obsolete goods is sales price plus the cost of making the sale. ⊚ ⊚

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true false

7) One of the most important decisions in accounting for inventory is determining the perunit costs assigned to inventory items. ⊚ ⊚

true false

8) The cost of an inventory item includes its invoice price plus any added or incidental costs necessary to put it in a place and condition for sale. ⊚ ⊚

true false

9) When taking a physical count of inventory, the use of pre-numbered inventory tickets assists in the control process. ⊚ ⊚

true false

10) The total dollar value of inventory on hand is determined by: (1) estimating the units on hand, (2) multiplying the count by cost per unit, and (3) adding the costs for all products. ⊚ ⊚

true false

11) Incidental costs added to the value of inventory include import duties, transportation-in, storage, and insurance. ⊚ ⊚

true false

12) All material incidental costs of inventory acquisition and handling are assigned to inventory. ⊚ ⊚

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true false

13) The principle of faithful representation is used by some companies to justify allocating incidental inventory costs to cost of goods sold. ⊚ ⊚

true false

14) A business that has inventory items that are ordinarily interchangeable is required to use the specific identification method of assigning costs to inventory. ⊚ ⊚

true false

15) A business that has inventory items that are ordinarily interchangeable may use either the FIFO or moving weighted average methods to assign costs to inventory. ⊚ ⊚

true false

16) An advantage of the moving weighted-average method is that it tends to smooth out price changes. ⊚ ⊚

true false

17) In a period of inflation, FIFO usually gives a lower taxable income and thus a tax advantage. ⊚ ⊚

true false

18) The consistency principle allows companies to use different inventory valuation methods period to period as long as the changes are fully disclosed. ⊚ ⊚

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true false

19) The advantage of FIFO is that it assigns the most recent costs to cost of goods sold, and better matches current costs with revenues on the income statement. ⊚ ⊚

true false

20) The three methods of inventory valuation that are most often used in Canada are specific identification, FIFO, and (moving) weighted average. ⊚ ⊚

true false

21) The assignment of costs to cost of goods sold and inventory using (moving) weighted average usually gives different results depending on whether a perpetual or periodic system is used. ⊚ ⊚

22) first.

true false

The FIFO method assumes that costs for the most recently purchased items are recovered ⊚ ⊚

true false

23) The materiality principle requires that the inventory valuation method follow the flow of goods. ⊚ ⊚

true false

24) The choice of an inventory cost flow assumption can have a dramatic impact on amounts in financial statements.

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⊚ ⊚

true false

25) The inventory cost flow assumption that is used cannot have a material impact on the financial statements. ⊚ ⊚

true false

26) The necessary financial statement disclosure is accomplished if the amount presented is properly calculated. ⊚ ⊚

true false

27) The necessary financial statement disclosure is accomplished if the amount disclosed is properly calculated and the costing method used is stated. ⊚ ⊚

true false

28) When purchase prices do not change, the choice of an inventory costing method is unimportant. ⊚ ⊚

true false

29) The consistency principle means that one costing method, such as FIFO or moving weighted average, has to be used exclusively. ⊚ ⊚

true false

30) The inventory cost flow assumption that assigns the highest cost to ending inventory in a period of rising prices is moving weighted average.

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⊚ ⊚

true false

31) The inventory cost flow assumption that assigns the highest cost to cost of goods sold in a period of rising prices is FIFO. ⊚ ⊚

true false

32) When preparing the financial statements, management can choose the inventory cost flow assumption it will use for a particular year in order to impact the reported net income. ⊚ ⊚

true false

33) The consistency principle helps ensure that financial statements are comparable across periods. ⊚ ⊚

true false

34) The decline in merchandise inventory from cost to NRV is recorded in an adjusting entry at the end of the period. ⊚ ⊚

true false

35) In applying LCNRV, net realizable value is defined as the sales price less costs incurred to make the sale. ⊚ ⊚

true false

36) The principle of faithful representation requires that information be complete, neutral and free from error so that assets and income are not overstated and liabilities and expenses are not understated. Version 1

⊚ ⊚

true false

37) Trekking Company's total cost of inventory was $305,000. The net realizable value is $297,000. Under LCNRV, the amount reported should be $305,000. ⊚ ⊚

true false

38) Trekking Company has inventory with a net realizable value of $217,000 and a cost of $241,000. According to the guidance provided by the principle of faithful representation, the inventory should be written down to $217,000. ⊚ ⊚

true false

39) Trekking Company's cost of inventory was $317,500. Due to phenomenal demand the net realizable value has increased to $323,000. Trekking Company should write up the value of inventory under the LCNRV rule. ⊚ ⊚

40)

true false

An error in valuing inventory will cause an error in the amount of cost of goods sold. ⊚ ⊚

true false

41) Errors in inventory valuation only affect the current period's records and financial statements. ⊚ ⊚

true false

42) Because an inventory error causes an offsetting error in the next period, it is sometimes said to be self-correcting. Version 1

⊚ ⊚

true false

43) Because inventory errors are self-correcting in following accounting periods, managers will be able to make correct decisions based on changes in net income and cost of goods sold. ⊚ ⊚

true false

44) An understatement of ending inventory will understate cost of goods sold and overstate net income. ⊚ ⊚

true false

45) An understatement of beginning inventory will understate cost of goods sold and overstate net income. ⊚ ⊚

true false

46) The principle of faithful representation provides the guidance in reporting inventory at net realizable value when net realizable value is lower than cost. ⊚ ⊚

true false

47) In applying the faithful representation principle, an accountant should choose the most realistic value available, so that the inventory value is not overstated. ⊚ ⊚

true false

48) Most businesses use expected sales price minus the cost of making the sale as the definition of net realizable value.

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⊚ ⊚

true false

49) Most businesses apply the lower of cost and net realizable value rule to groups of similar or related items. ⊚ ⊚

true false

50) When businesses apply the lower of cost and net realizable value rule on an item by item basis, they will report the lowest inventory value possible. ⊚ ⊚

true false

51) The retail inventory method estimates the cost of ending inventory by applying the gross profit ratio to net sales. ⊚ ⊚

true false

52) The retail amount of inventory refers to its dollar amount measured using selling prices of inventory items. ⊚ ⊚

true false

53) To avoid the time-consuming process of taking an inventory each month, some companies use the gross profit method to estimate ending inventory. ⊚ ⊚

true false

54) If the cost to retail ratio is 60% and ending inventory at retail is $45,000, then estimated ending inventory at cost is $27,000.

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⊚ ⊚

true false

55) Trekking Company's inventory in its River Oaks store was destroyed by a flood. Its gross profit ratio was 65% and net sales were $30,000. The estimated cost of goods available for sale was $32,500. The estimated value of the lost inventory was $18,000. ⊚ ⊚

56)

true false

The gross profit ratio measures how much of each dollar of net sales is gross profit. ⊚ ⊚

true false

57) Strom Inc. has $40,000 in sales and $2,000 in sales returns for the month of December. If the gross profit ratio is 30%, then cost of goods sold for December is $28,000. ⊚ ⊚

true false

58) If your inventory is destroyed by fire you can estimate the amount of inventory destroyed if you know: beginning inventory, purchases, net sales, and gross profit ratio. ⊚ ⊚

true false

59) All businesses should take an inventory count once each year to avoid inventory errors or shortages. ⊚ ⊚

true false

60) All businesses should take an inventory count once each year to identify inventory errors or shortages.

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⊚ ⊚

true false

61) The retail inventory method of estimating inventory uses the ratio of goods available for sale at cost to goods available for sale at retail. ⊚ ⊚

true false

62) The retail inventory method of estimating inventory can be used to estimate the amount of inventory shortage if a physical count is also done. ⊚ ⊚

true false

63) There is no difference in the amount of inventory calculated by the periodic and perpetual inventory systems when using FIFO or weighted average cost flow assumptions. ⊚ ⊚

true false

64) There is no difference in the amount of inventory calculated by the periodic and perpetual inventory systems when using the FIFO cost flow assumption. ⊚ ⊚

true false

65) A company's ability to pay its short-term obligations depends on how quickly it sells its merchandise inventory. ⊚ ⊚

66)

true false

The merchandise turnover ratio is used to measure profitability.

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⊚ ⊚

true false

67) The merchandise turnover ratio is calculated by dividing average merchandise inventory by cost of goods sold. ⊚ ⊚

true false

68) The days' sales in inventory ratio is calculated by dividing ending inventory by cost of goods sold and multiplying the result by 365. ⊚ ⊚

true false

69) Trekking Company's cost of goods sold was $15,550. Its average merchandise inventory was $4,575. Its merchandise turnover was 3.4. ⊚ ⊚

true false

70) Toys "R" had cost of goods sold of $6,900 million. Its ending inventory was $2,000 million. Therefore, its days' sales in inventory was 90 days. ⊚ ⊚

true false

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 71) Damaged or obsolete goods

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A) Are not counted as saleable inventory B) Are counted at full cost C) Are included in inventory at net realizable value if that is less than the cost D) Are not counted as saleable inventory or are counted at full cost E) Are not counted as saleable inventory and are included in inventory at net realizable value if that is less than the cost

72)

Merchandise inventory includes A) All goods owned by a company and held for sale B) Goods in transit C) Goods on consignment D) Damaged goods E) All of the choices are correct

73)

Goods in transit are included in inventory

A) At any time in transit B) When the purchaser is responsible for paying freight charges C) When the supplier pays the freight charges D) When ownership has passed to the purchaser E) When the purchaser is responsible for paying freight charges and when ownership has passed to the purchaser

74)

Goods on consignment

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A) Are goods shipped by the owner to the consignee who sells the goods for the owner B) Are reported in the consignee's books as inventory C) Are reported on the consignor's books as inventory D) Are goods shipped by the owner to the consignee who sells the goods for the owner and are reported in the consignee's books as inventory E) Are goods shipped by the owner to the consignee who sells the goods for the owner and are reported on the consignor's books as inventory

75)

Physical counts of inventory A) Are not necessary under the perpetual system B) Are necessary to adjust for shrinkage C) Should be taken at least once a month D) Are necessary to adjust for shrinkage and should be taken at least once a month E) Are not necessary under the perpetual system and should be taken at least once a

month

76)

Costs included in the value of inventory are A) Purchase price less discounts plus transportation-out B) Purchase price less discounts plus transportation-in C) Purchase price less discounts less transportation-in D) None of the choices are correct E) All of the choices are correct.

77)

The accepted method for valuing inventory includes

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A) Counting the units of each product on hand B) Multiplying the count for each product by its cost per unit C) Adding the costs for all products D) Counting the units of each product on hand and multiplying the count for each product by its cost per unit E) All of the choices are correct.

78)

Incidental costs of inventory A) Can be assigned to every unit but is subject to the materiality principle B) Are never immaterial C) Cannot be allocated to cost of goods sold directly D) Must be assigned to every unit regardless of materiality E) All of the choices are correct.

79)

A form attached to the counted items in the process of taking a physical inventory is a(n) A) Sales tag B) Subsidiary record C) Inventory ticket D) Credit invoice E) Sales receipt

80) Management must include which of the following considerations when accounting for inventory A) Costing method B) Inventory system C) Items to be included and their cost D) Use of lower of cost and net realizable value E) All of the choices are correct.

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81) The pricing of an inventory where the purchase invoice of each item in the ending inventory is identified and used to determine the cost assigned to the inventory is A) Weighted-average inventory method B) First-in, first-out method C) Average costing method D) Specific identification method E) Retail method

82) Trekking Company markets a climbing kit and uses a perpetual inventory system to account for its merchandise. The beginning balance of the inventory and transactions during January were as follows: January 1:

Balance: 18 units at $13

January 12:

Purchased 30 units at $14

January 19:

Sold 24 units at $17

January 20:

Purchased 24 units at $17

January 27:

Sold 27 units

If the ending inventory is valued at $357, what inventory cost flow assumption was used? A) Average costing. B) FIFO. C) Weighted-average. D) Specific identification. E) Retail.

83)

Acceptable inventory cost flow assumptions in Canada include

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A) FIFO and weighted-average methods only B) Specific identification and FIFO methods only C) Specific identification and weighted-average methods only D) FIFO, weighted average and specific identification methods only E) FIFO only

84) Which inventory cost flow assumption results in the highest tax expense in a period of inflation? A) Retail method B) FIFO C) Average cost D) Specific identification E) Moving weighted average

85)

Use of the FIFO cost flow assumption means that A) Ending inventory items are the ones most recently purchased B) Goods are removed from inventory at their average cost C) The periodic costing system is used D) The beginning inventory contains the oldest costs E) All of the choices are correct.

86)

The consistency principle

A) Requires a company to use the same accounting methods period after period B) Requires a company to use one cost flow assumption exclusively C) Allows a company to change its cost flow assumption period after period in order to maximize net income D) Is also called the matching principle E) Allows a company to change its cost flow assumption period after period in order to minimize income taxes

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87)

The full disclosure principle

A) Requires that when a change in inventory cost flow assumption is made, the notes to the statements report the type of change B) Requires that when a change in inventory cost flow assumption is made, the notes to the statements report the justification for the change C) Requires that any change in net income due to changes in the inventory cost assumption be disclosed D) Does not require a company to use one cost flow assumption exclusively E) All of the choices are correct.

88) During a period of steadily falling prices, which inventory cost flow assumption results in reporting the lowest net income? A) Specific identification B) Average cost C) Weighted-average D) FIFO E) Retail method

89) During a period of steadily rising prices, which inventory cost flow assumption results in reporting the highest inventory value? A) Specific identification B) Average cost C) Moving weighted average D) FIFO E) None of these choices are correct

90) In the process of adjusting inventory, how can the lower of cost and net realizable value be applied to the ending inventory?

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A) The inventory as a whole B) Current replacement cost C) Current sales price D) To groups of similar or related items E) Purchase price

91) Generally accepted accounting principles require that the inventory of a company be reported at: A) Net realizable value B) Historical cost C) Lower of cost and net realizable value D) Replacement cost E) Purchase price

92)

The principle of faithful representation

A) Requires that information be complete, neutral and free from error, so assets and income are not overstated, and liabilities and expenses are not understated B) Requires that a company use the same accounting methods period after period C) Requires that revenues and costs be reported in the period in which they are earned or incurred D) Requires that all items of a material nature be included in financial statements E) Requires that all inventory items be reported at full cost

93) DVDs usually sell for $14 per unit, and have a profit margin of 25%. However, the expected selling price has fallen to $7 per unit. The Movie Company's current inventory includes 200 units purchased at $10 per unit. Calculate the value of the inventory at the lower of cost and net realizable value.

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A) $1,350 B) $1,400 C) $1,500 D) $1,800 E) $2,000

94) Coronado Company sells two types of inventory, MP3 players and Blu Ray players. The MP3 players originally cost $2,250 and have a net realizable value $1,075 while the Blu Ray players had an original cost of $500 and have a net realizable value of $700. Calculate the year end adjustment to inventory when applying the lower of cost and net realizable value on an item by item basis. A) $375 B) $1,175 C) $1,112 D) $1,575 E) $2,950

95)

If an inventory amount is reported in error, it can cause a misstatement in A) Cost of goods sold B) Gross profit C) Net income D) Current assets E) All of the choices are correct.

96)

An inventory error carried forward into the next period causes misstatements in

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A) Cost of goods sold B) Gross profit C) Net income D) Gross profit and net income E) All of the choices are correct.

97)

Because an inventory error causes an offsetting error in the next period, A) Managers can ignore the error. B) It is sometimes said to be self-correcting. C) It affects only income statement accounts. D) If affects only balance sheet accounts. E) Managers can ignore the error and it is sometimes said to be self-correcting.

98)

Understatement of ending inventory causes A) Cost of goods sold to be overstated and net income to be understated B) Cost of goods sold to be overstated and net income to be overstated C) Cost of goods sold to be understated and net income to be understated D) Cost of goods sold to be understated and net income to be overstated E) Cost of goods sold to be overstated and net income to be accurate

99)

Understatement of beginning inventory causes A) Cost of goods sold to be understated and net income to be understated B) Cost of goods sold to be understated and net income to be overstated C) Cost of goods sold to be overstated and net income to be overstated D) Cost of goods sold to be overstated and net income to be understated E) Cost of goods sold to be overstated and net income to be accurate

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100) On September 30, Stark Company needed to estimate its ending inventory in order to prepare its third-quarter financial statements. The following information is available: (1) Inventory, July 1: $12,500 (2) Third quarter net sales: $40,000 (3) Third quarter net purchases: $17,500 Stark's gross profit ratio is 15%. Estimated cost of goods sold would be A) $6,000 B) $34,000 C) $30,000 D) $40,000 E) $27,500

101) On March 15, Stark Company's inventory was destroyed by a tornado. The following was the only information salvaged: (1) Inventory, January 1: $31,000 (2) Purchases, Mar 15: $14,000 (3) Sales, Mar 15: $65,000 (4) Sales returns, Mar 15: $7,000 Stark's average gross profit ratio is 35%. What is the estimated value of the destroyed inventory? A) $7,300 B) $8,500 C) $6,700 D) $13,000 E) $45,000

102) Patel Packing had the following information for its inventory: Beginning inventory: cost $107,000; retail $130,000 Net purchases: cost $58,000; retail $120,000 Sales at retail: $145,000 What is the estimated cost of the ending inventory? A) $44,188 B) $57,102 C) $57,750 D) $69,300 E) $105,000

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103) A company that has operated with a 30% average gross profit ratio for a number of years had $110,000 in net sales during the first quarter of this year. If it began the quarter with $28,000 in inventory at cost and purchased $75,000 of merchandise during the quarter, its estimated ending inventory by the gross profit method is A) $7,000 B) $21,000 C) $33,000 D) $25,000 E) $26,000

104) For the current month, Brixell Company had net sales of $13,000. Brixell typically achieves a gross profit of 15%. Cost of goods sold under the gross profit method would be A) $6,000 B) $7,000 C) $14,950 D) $11,050 E) $13,000

105)

Interim statements

A) Are required by CRA B) Are necessary to achieve full disclosure about a business's operation C) Are usually monthly or quarterly statements prepared in between the traditional, annual statements D) Are required by CRA and are necessary to achieve full disclosure about a business's operations E) All of the choices are correct.

106) Strom Inc. has $46,400 gross profit from sales and $160,000 net sales in the current year. Which of the following statements is correct?

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A) The gross profit margin is 29% B) Each $1 of sales yield 29 cents in gross profit C) There is 29% sales dollars left over after covering cost of goods sold D) The gross profit ratio is 29% E) All of the choices are correct.

107)

Trekking Company had the following purchases during the year: January 1:

10 units at $120

February 1:

20 units at $130

May 1:

15 units at $140

September 1:

12 units at $150

November 1:

10 units at $160

On December 31, there were 26 units in ending inventory. These 26 units consisted of 2 from January, 4 from February, 6 from May, 4 from September, and 10 from November. Using the specific identification method, what is the cost of the ending inventory? A) $3,500 B) $3,800 C) $3,960 D) $3,280 E) $3,640

108) Martock Company uses the periodic inventory system. The following information is available for the period ending December 31: (1) Sales: $30,000 (2) Beginning inventory: $17,500 (3) Ending inventory: $8,000 (4) Purchases: $10,000. The cost of goods sold for the period is A) $19,500 B) $21,500 C) $24,500 D) $25,500 E) $27,500

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109)

The merchandise turnover ratio A) Is used to analyze profitability B) Is used to measure solvency C) Measures how quickly a firm sells its merchandise inventory D) Validates the acid-test ratio E) Depends on the type of inventory valuation method

110)

Which of the following is correct regarding days' sales in inventory?

A) It is a ratio that estimates how many days it will take to convert inventory on hand to accounts receivable or cash B) It is a ratio that estimates how many days it will take to convert inventory on hand to accounts payable or cash C) Days' sales in inventory focuses on average inventory, whereas merchandise turnover focuses on ending inventory D) The higher the days' sales in inventory figure, the better the company is managing its inventory E) All of the answers are correct

111)

The merchandise turnover ratio A) Is cost of goods sold divided by average merchandise inventory B) Is average merchandise inventory divided by cost of goods sold C) Is ending inventory divided by cost of goods sold D) Is cost of goods sold divided by ending inventory E) Is cost of goods sold divided by ending inventory times 365

112)

Days' sales in inventory is calculated by

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A) Dividing average merchandise inventory by cost of goods sold B) Dividing cost of goods sold by average merchandise inventory C) Dividing ending inventory by cost of goods sold times 365 D) Dividing cost of goods sold by ending inventory times 365 E) Dividing ending inventory by cost of goods sold

113) Toys "R" Ltd. had cost of goods sold of $6,000 million, ending inventory of $2,500 million, and average inventory of $2,000 million. The merchandise turnover is A) 2.40 B) 3.00 C) 0.33 D) 0.4 E) 12.00

114) Toys "R" Ltd. had cost of goods sold of $6,000 million, ending inventory of $2,500 million, and average inventory turnover of $2,000 million. The days' sales in inventory is A) 152.1 B) 121.7 C) 87 D) 1,095 E) 30.5

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 115) During the current year, Carter Company reported $500,000 in sales, and purchased merchandise that cost $300,000. The company's beginning inventory and ending inventory was $60,000. Calculate the gross profit ratio.

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116) What special cases are sometimes seen when dealing with ownership of merchandise inventory?

117)

What types of costs are assigned to merchandise inventory?

118)

What are the effects of inventory methods on financial and tax reporting?

119)

Using the perpetual system, what are the three types of inventory cost flow assumptions?

120) During January, a company that uses a perpetual inventory system had beginning inventory, purchases, and sales as follows: Units

Cost per unit

Begin Inventory

100

Jan 5

Sale

Purchase

Sale

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Sale

Prepare a schedule to show the cost of goods sold and ending inventory using the FIFO cost flow assumption.

121) During January, a company that uses a perpetual inventory system had beginning inventory, purchases, and sales as follows: Units

Cost per unit

Begin Inventory

100

Jan 5

Sale

Purchase

Sale

Prepare a schedule to show the cost of goods sold and ending inventory using the moving weighted average method of costing rounding calculations to two decimals.

122)

A company made the following purchases during the year:

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Jan. 10

units at $360

Mar. 15

units at $390

Apr. 25

units at $420

July 30

units at $450

Oct. 10

units at $480

On December 31, there were 27 units in ending inventory. These 27 units consisted of 4 from the January 10 shipment, 6 from the March 15 shipment, 3 from the April 25 shipment, 12 from the July 30 shipment, and 2 from the October 10 shipment. Using specific identification, calculate the cost of the ending inventory.

123) A company sells a single product and had the following beginning inventory, purchases, and sales during March. Number of units

Price per unit

Beginning Inventory

March 6

Purchase

Sale

Purchase

Calculate the cost of the ending inventory under each assumption below: (1)

The company uses a periodic inventory system and determines cost on a FIFO basis. Ending inventory cost ____________

(2)

The company uses a periodic inventory system and determines cost on a weighted average basis. (Round average cost per unit to 2 decimals.) Ending inventory cost ____________

124)

Explain why the lower of cost and net realizable value rule is used to value inventory.

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125)

Bethel Co. has collected the following data related to its ending inventory: Product

Units on Hand

Unit Cost

Unit NRV

849

200

$12

$11

842

160

$13

$14

847

$12

$13

860

$21

$22

Calculate the lower of cost and net realizable value (LCNRV) on an item by item basis.

126)

Isaiah's Gear had the following ending inventory costs: Units on Hand

Unit Cost

Unit NRV

$50

$60

$40

$45

$30

$25

$20

$15

Calculate the lower of cost and net realizable value (LCNRV) on an item by item basis.

127)

Explain the effect of an error in inventory valuation on financial statements.

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128) Evaluate each inventory error and determine whether it overstates or understates each item. Inventory Error

Cost of Goods Sold

Net Income

Understate beginning inventory Understate ending inventory Overstate beginning inventory Overstate ending inventory

129)

Explain how to calculate the gross profit ratio and interpret its meaning.

130) Explain the difference between the retail method and gross profit method for valuing inventory.

131) A company's store was destroyed by a fire on February 10. The only information that could be salvaged included the following: (1) Inventory, January 1: $34,000(2) Purchases: $118,000(3) Sales: $140,000The company's gross profit rate was 30%. Calculate the estimated value of the destroyed inventory.

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132) Apply the retail method to the following information and calculate the cost of the ending inventory: Cost

Retail

Beginning inventory

$16,800

$31,600

Net purchases

47,500

97,000

Sales

89,000

133) Harlingen Store uses the retail method and has the following information available concerning their most recent accounting period: At Cost

At Retail

Beginning-of-period inventory

$148,600

$ 245,200

Net purchases

677,400

1,229,800

Sales

1,200,000

(1) What is the cost ratio using the retail method? (2) What is the estimated cost of the ending inventory?

134) Bakstreet Company wants to estimate inventory destroyed by flood. Its average gross profit percentage is 37%. The following information is available:

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(1) Beginning inventory:

$112,350

(2) Purchases:

$520,850

(3) Purchases returns and allowances:

$5,000

(4) Transportation-in:

$4,725

(5) Sales:

$885,950

(6) Sales returns and allowances:

$9,760 32

Instructions: Calculate the value of the destroyed ending inventory using the gross profit method. Round numbers to the nearest dollar, if necessary.

135)

Describe the accounting aspects of a periodic inventory system.

136)

Rudd Company made the following merchandise purchases during the current year: Jan

1 Purchase

380

8 Purchase

270

10 Purchase

300

12 Purchase

250

There was no beginning inventory, but ending inventory consisted of 105 units. If Rudd uses the weighted-average cost method and the periodic inventory system, what would be the cost of the ending inventory?

137)

Player Company made the following merchandise purchases during the current year:

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Jan.1

380

units at $15.00

May.1

270

units at $20.00

June.1

300

units at $24.00

Oct.1

250

units at $30.00

There was no beginning inventory, but ending inventory consisted of 105 units. If Player uses the first-in, first-out method and the periodic inventory system, what would be the cost of the ending inventory?

138) Normandy Company has collected the following inventory data prior to preparing financial statements for the month of October. All purchases and sales are on credit. Units

Unit Cost

Total Cost

Sales Price

10/1

Inventory

$90

10/6

Purchase

280

10/11

Purchase

225

10/16

Purchase

300

10/30

Purchase

100

700

Goods available

295

10/12

Sale

$10

10/20

Sale

Goods sold

100

Inventory

195

10/31

$1,595

Assuming the periodic inventory system is used, determine the cost of the ending inventory and cost of goods sold using FIFO. Prepare the appropriate journal entries to record: (A) The October 6 purchase. (B) The October 12 sale. (C) The entries to close the October income statement items to Income Summary. (Assume that sales revenue and the elements of cost of goods sold are the only income statement items.)

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139) Explain how inventory management is evaluated using the merchandise turnover and days' sales in inventory ratios.

140)

Trekking Company reported the following data: YR 1

YR 2

YR 3

Cost of goods sold

$347,600

$379,650

$443,900

Average inventory

$85,000

$91,050

$98,350

Instructions: (1) Calculate Trekking Company's merchandise turnover for each year to two decimal places. (2) Comment on the company's efficiency in managing its inventory.

141)

Annie's Attic reported the following data: YR 1

YR 2

YR 3

Cost of goods sold

$40,000

$36,000

$22,000

Average inventory

$25,000

$23,000

$21,000

Instructions: (1) Calculate inventory turnover ratio for each year.

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142) Fresh Foods Co. is a small fruit and vegetable grocer. Fresh Foods is concerned that sales have been down over the past three quarters. As the company accountant, you decide to perform some analysis to uncover the source of the problem. You gather the following data from the accounting records by quarter: Quarter

COGS

Beginning Inventory

Ending Inventory

$300,000

$40,000

$20,000

$455,000

$20,000

$92,500

$530,000

$92,500

$120,200

Required: Use the information above to draw some conclusions and discuss the financial impact of your analysis to Fresh Foods Co. management.

SECTION BREAK. Answer all the part questions. 143) Bella Ltd. is a calendar-year corporation. Bella uses a periodic inventory system. Its financial statements for 2023 contained errors as follows: 2023

143.1)

Ending inventory

$4,000 overstated

Depreciation expense

$2,000 understated

By how much will net income for 2023 be over or understated?

A) $2,000 understated B) $4,000 overstated C) $6,000 understated D) $6,000 overstated E) There is no effect on net income.

143.2) Assume that the 2023 errors are not discovered in 2024. However, ending inventory at the end of year 2023 is recorded at correct amount. By how much will 2024 net income be over or understated?

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A) $6,000 overstated B) $4,000 understated C) $4,000 overstated D) $6,000 understated E) There is no effect on net income.

144) Majik Carpet Company sells its carpet inventory using a perpetual inventory system. Its inventory opening balances, purchases and sales activity for the month of June, 2023 follows: Date

Activity

June 1 (opening inventory)

Item #354 at cost of $$4,600 Item #362 at cost of $6,385 Item #369 at cost of $9,615

June 8 purchases

Item #371 purchased at $3,280

June 12 sales

Sold item #362 for $8,400

June 14 purchases

Item #372 purchased at $5,900

June 22 sales

Sold item #369 for $12,000

June 28 sales

Sold item #372 for $8,000

Majik Carpet uses the specific identification method when assigning costs to ending inventory.

144.1) Calculate the cost of goods sold for June and the ending inventory balance at June 30, 2023.

144.2) The net realizable value of Majik's ending inventory items at June 30, 2023 are as follows: Item #354

$2,800

Item #371

$5,600

Make the adjusting entry, if needed, to state Majik's inventory at its lower of cost and net realizable value (LCNRV) on an item-by-item basis at June 30, 2023. Version 1

144.3) Provide calculations to find how many days it will take to convert inventory on hand into cash.

144.4) Majik Carpet was having problem selling inventory item #371 so the owner decided to place that item with a consignee to see if they could sell it. The consignee still had the carpet at June 30, 2020 and it was mistakenly not included in the ending inventory count. Indicate the amount of any over or understatement of net income for the month of June as a result of this error

144.5) Would an entry be needed if the calculation of LCNRV was made on a group basis? If so, make the entry. If not, state why.

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Answer Key Test name: Chap 06_17ce_Test Bank 1) FALSE 2) TRUE 3) FALSE 4) TRUE 5) TRUE 6) FALSE 7) TRUE 8) TRUE 9) TRUE 10) FALSE 11) TRUE 12) TRUE 13) FALSE 14) FALSE 15) TRUE 16) TRUE 17) FALSE 18) FALSE 19) FALSE 20) TRUE 21) TRUE 22) FALSE 23) FALSE 24) TRUE 25) FALSE 26) FALSE Version 1

27) TRUE 28) TRUE 29) TRUE 30) FALSE 31) FALSE 32) FALSE 33) TRUE 34) TRUE 35) TRUE 36) TRUE 37) FALSE 38) TRUE 39) FALSE 40) TRUE 41) FALSE 42) TRUE 43) FALSE 44) FALSE 45) TRUE 46) TRUE 47) TRUE 48) TRUE 49) TRUE 50) TRUE 51) FALSE 52) TRUE 53) FALSE 54) TRUE 55) FALSE 56) TRUE Version 1

57) FALSE 58) TRUE 59) FALSE 60) TRUE 61) TRUE 62) TRUE 63) FALSE 64) TRUE 65) TRUE 66) FALSE 67) FALSE 68) TRUE 69) TRUE 70) FALSE 71) C 72) A 73) E 74) E 75) B 76) B 77) E 78) A 79) C 80) E 81) D 82) B 83) D 84) B 85) A 86) A Version 1

87) E 88) D 89) D 90) D 91) C 92) A 93) B 94) B 95) E 96) E 97) B 98) A 99) B 100) B 101) A 102) D 103) E 104) D 105) C 106) E 107) B 108) A 109) C 110) A 111) A 112) C 113) B 114) A 115) $500,000 - $300,000 = $200,000 gross profit. $200,000/600,000 = 33% Version 1

116) Three special cases involving ownership decisions are goods in transit, consigned goods, and damaged goods. Goods in transit are included in the inventory of the company that owns the goods. Consigned goods are included in the inventory of the consignor. Damaged goods are valued at net realizable value if it is less than cost. 117) Costs of merchandise inventory include the purchase price less discounts, plus any added or incidental costs necessary to put the inventory in place and ready to sell. Additional (incidental) costs include import duties, transportation-in (freight), storage and insurance. 118) The specific identification method exactly matches expenses and revenues. The weighted average method smooths out changes in prices. FIFO provides different amounts in periods of rising or falling prices. For example, FIFO calculations provide higher income and taxes in periods of rising prices and lower income and taxes in periods of declining prices. 119) The specific identification method assigns costs to each inventory item based on specific invoice prices. The moving weighted average method assigns costs by using the current moving average cost per unit. The first-in, first-out method assigns costs to items sold assuming that the cost of the first units purchased are the first to be recovered. 120)

Date

Purchases

Sales(at cost)

Inventory Balance

Units

Unit Cost

Total Cost

$12

$1,200

Units

Unit Cost

COGS Units Unit Cost

Total Cost

100

$12

$1,200

$12

$600

Beginning inventory 100 Jan-05

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$12

$600

$16

$1,120

Totals

170

$2,320

$12

$300

$12

$600

$16

$1,120

$12

$300

$16

$1,120

$16

$960

$12

$300

$16

$160

$1,360

110

$960

121)

Date

Purchases

Sales(at cost)

Inventory Balance

Units

Unit Cost

Total Cost

$12.00

$1,200

Units

Unit Cost

COGS Units

Unit Cost

Total Cost

Beginning inventory 100 Jan-05 10

50 70

$16.00

$12.00

$600

$1,120

100

$12.00 $1,200

$12.00

120

$14.33 $1,720

$600

$14.33

$358

$14.33 $1,362

$14.33

$502

$14.34

$1,460

Totals

170

$2,320

110

$860 $860

122) 4 × 360 =

1,440.00

6 × 390 =

2,340.00

3 × 420 =

1,260.00

12 × 450 =

5,400.00

2 × 480 =

960.00 $11,400.00

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123) (1) Periodic FIFO Number of units

Price per unit

Total cost

$175

$270

Ending Inventory

$445

(2) Periodic Weighted Average Step 1: Number of units

Price per unit

Cost of Goods Available for Sale

$160

6 Purchase

$10

$400

8 Purchase

$450

30 Purchase

$175

_______

$1,185

$8.78

Beginning Inventory March

135 Step 2:

Average Cost

Average Cost = $1,185/135 units = $8.78/unit Number of Average cost units per unit Ending Inventory

$8.78

Total Cost $482.90

124) The principle of faithful representation requires that information be complete, neutral and free from error so that assets and income are not overstated and liabilities and expenses are not understated when uncertainty exists. With the guidance of the principle of faithful representation, the lower of cost and net realizable value rule compares the cost of inventory with its current net realizable value. The lower of the two values is the amount to be reported to ensure that inventory is not overstated. Version 1

125) Product

Units on Hand

Unit Cost

Unit NRV

Total Cost

Total NRV

LCNRV by item

849

200

$12

$11

$2,400

$2,200

842

160

$13

$14

$2,080

$2,240

$2,080

847

$12

$13

$1,020

$1,105

$1,020

860

$21

$22

$840

$880

$840

$6,340

$6,425

$6,140

126) Units on Hand

Unit Cost

Unit NRV

Total Cost

Total NRV

LCNRV by item

$50

$60

$1,000

$1,200

$1,000

$40

$45

$400

$450

$400

$30

$25

$900

$750

$20

$15

$800

$600

$3,100

$3,000

$2,750

127) An error in the amount of ending inventory affects assets, net income, and equity of the current period. Since ending inventory affects the following period's beginning inventory, an error in ending inventory affects the following period's cost of goods sold and net income. The financial statement effects of errors in one period are offset in the following statement period. 128) Inventory Error

Cost of Goods Sold

Net Income

Understate beginning inventory

Understate

Overstate

Understate ending inventory

Overstate

Understate

Overstate beginning inventory

Overstate

Understate

Overstate ending inventory

Understate

Overstate

129) The gross profit ratio measures how much of net sales is gross profit. It is calculated by dividing gross profit by net sales.

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130) The retail method is generally used to prepare interim statements. It uses the cost to retail ratio in order to give an estimated ending inventory at cost. The gross profit method is used to reconstruct the value of lost, stolen, or destroyed inventory. It uses the gross profit ratio to estimate cost of goods sold and the value of ending inventory. 131) Beginning Inventory

$34,000

Purchases

118,000

COGAS

$152,000

COGS ($140,000 × 70%)

98,000

Est Inv @ Feb 10

$54,000

132) At Cost

At Retail

Beginning inventory

$16,800

$31,600

Net purchases

47,500

97,000

Goods available for sale

$64,300

$128,600

Goods available for sale:

Cost ratio: $64,300/$128,600 = 50% Sales at retail

89,000

Ending inventory at retail

$39,600

Ending inventory at cost ($39,600 × 50%)

$19,800

(1) Beginning inventory

$148,600

$245,200

Purchases

677,400

1,229,800

Cost of goods available for sale

$826,000

$1,475,000

133)

Cost ratio is 56%

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(2) Sales

1,200,000

Ending inventory at retail

$275,000

Estimated cost (56% × $275,000) $154,000

134) Net sales: $885,950 - $9,760 = $876,190 Beginning Inventory

$112,350

Purchases

520,850

Purchases R & A

(5,000)

Transportation-in

4,725

COGAS

$632,925

COGS ($876,190x63%)

552,000

Ending Inventory

$ 80,925

135) Each purchase of merchandise is debited to the Purchases account. Cost of goods sold is not recorded at the time of sale. Instead, a physical count of inventory at the end of the accounting period is used to determine the amount of inventory sold. Certain costs of inventory such as transportation-in, purchases discounts, and purchases returns and allowances are recorded in separate accounts. The aim of the periodic system is the same as the perpetual system: to assign costs to the inventory and the goods sold. The same three methods are used in assigning costs: first-in, first-out; weighted average; and specific identification. 136) Number of units

Price per unit

Cost of Goods Available for Sale

1 Purchase

380

$10

$3,800

8 Purchase

270

$12

$3,240

10 Purchase

300

$13

$3,900

12 Purchase

250

$14

$3,500

_______

$14,440

$12.03

1200

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Average Cost

Average Cost = $14,440/1200 units = $12.03/unit Number of units

Average cost per unit

Total Cost

105

$12.03

$1,263.15

Ending Inventory

137) Number of units

Price per unit

Total cost

105

$3,150

138) FIFO Periodic Inventory System Units

Unit Cost

Total Cost

$90

$280

$225

$300

100

$700

Purchases

280

COGS = $90 + 280 COGS = $370 Ending Inventory = 225 + 300 +700 Ending Inventory = $1,225 (A) October 6

Accounts Payable (B) October 12

Accounts Receivable

280 400

Sales (C) October 31

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Income Summary

400 1,595

Merchandise Inventory

Purchases

1,505

Merchandise Inventory

1,225

Sales

1,060

Income Summary

2,285

139) The goal in inventory management is to have a high turnover as long as inventory is not out of stock and customers' needs are met. Merchandise turnover measures the number of times per year inventory is sold. Days' sales in inventory measures the number of days it takes to sell inventory and realize cash from the sale. Combined, these ratios help analysts to measure inventory management and to evaluate a company's short-term liquidity. 140) YR1

YR2

YR3

Cost of goods sold

$347,600

$379,650

$443,900

Average inventory

$85,000

$91,050

$98,350

4.09

4.17

4.51

The company's inventory management is improving year over year. 141) YR1

YR2

YR3

Cost of goods sold

$40,000

$36,000

$22,000

Average inventory

$25,000

$23,000

$21,000

Inventory Turnover

1.60

1.57

1.05

The company's inventory management is declining year over year. Version 1

142) The company's inventory turnover has been worsening each quarter: Quarter

COGS

Average Inventory

Inventory Turnover

Days Sales in Inventory (365/Inventory Turnover)

$300,000

$30,000

$300,000/$30,000 = 10 times

$20,000/$300,000 × 365 = 24 days

$455,000

$56,250

$455,000/$56,250 = 8.09 times

$92,500/$455,000 × 365 = 74 days

$530,000

$106,350

$530,000/$106,350 = 4.98 times

$120,200/$530,000 × 365 = 83 days

We can see that each quarter, the Inventory turnover slows up. Inventory used to turnover 10 times each quarter but now is only turning over 5 times (half as quickly). We can also use the data to show that it takes longer to convert inventory into cash. In fact, it used to take 24 days but it now takes over triple that at 83 days. This will negatively impact the company's ability to pay its current liabilities if it does not generate sufficient cash to pay them down. Given that Fresh Foods sells items that are highly perishable, customers would likely be able to spot spoiled inventory on the shelves and not buy it. Fresh Foods management should consider buying fewer inventories so they have a lesser obligation to suppliers. This may also increase inventory turnover if they buy inventory they can sell. If product quality remains high, this will spur future sales. 143) Section Break 143.1) D 143.2) B 144) Section Break 144.1) PURCHASES

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COST OF GOODS

INVENTORY BALANCE

SOLD Beginning Inventory, June 1 June 8

Item #371 at $3,280

June 12 June 14

Item #362 at $6,385 Item #372 at $5,900

Item #354 at $4,600 Item #362 at $6,385 Item #369 at $9,615

$20,600

Item #354 at $4,600 Item #362 at $6,385 Item #369 at $9,615 Item #371 at $3,280

$23,880

Item #354 at $4,600 Item #369 at $9,615 Item #371 at $3,280

$17,495

Item #354 at $4,600 Item #369 at $9,615 Item #371 at $3,280 Item #372 at $5,900

$23,395

June 22

Item #369 at $9,615

Item #354 at $4,600 Item #371 at $3,280 Item #372 at $5,900

$13,780

June 28

Item #372 at $5,900

Item #354 at $4,600 Item #371 at $3,280

$7,880

$21,900

144.2) Cost

NRV

LCNRV (item by item)

Item #354

$4,600

$2,800

Item #371

$3,280

$5,600

$3,280

Totals

$7,880

$8,400

$6,080

Need adjustment of $7,880 - $6,080 = $1,800 Cost of Goods Sold Merchandise Inventory

1,800 1,800

144.3) $6,080/21,900 × 365 = 101 days 144.4) Since ending inventory for item #371 is set at $3,280 and it was excluded in the ending inventory count for the month, then cost of goods sold is overstated leaving net income for the month as understated by $3,280.

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144.5) On a group basis, no entry would be needed since total cost of $7,880 is already less than total NRV of $8,400.

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CHAPTER 7: ALGO MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 1) The following information is available for Birch Company at December 31:

Cash in registers Investment maturing in 9 years Accounts receivable Cash in bank account Accounts payable Cash in petty cash fund Inventory of postage stamps Treasury bill maturing in 15 days

$ 2,820 $ 15,300 $ 1,550 $ 22,731 $ 680 $ 230 $ 21 $ 10,300

Based on this information, Birch Company should report Cash and Cash Equivalents on December 31 of: A) $38,311 B) $36,951 C) $51,381 D) $36,081 E) $41,102

The following information is available for Fenton Manufacturing Company at June 30:

Cash in bank account Inventory of postage stamps Bank account balance Petty cash balance NSF cheques from customers returned by bank Accounts payable Cash in register A certificate of deposit maturing in five years

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$ 6,755 $ 77 $ 12,700 $ 380 $ 897 $ 466 $ 557 $ 8,300 1

Based on this information, Fenton Manufacturing Company should report Cash and Cash Equivalents on June 30 of: A) $20,732 B) $15,992 C) $20,809 D) $19,835 E) $20,392

3) At the end of the day, the cash register's record shows $1,276, but the count of cash in the cash register is $1,258. The correct entry to record the cash sales is A) Debit Cash $1,276; credit Sales $1,276. B) Debit Cash $1,276; credit Cash Over and Short $1,258; credit Sales $18. C) Debit Cash $1,258; debit Cash Over and Short $18; credit Sales $1,276. D) Debit Cash $1,258; Credit Sales $1,258. E) Debit Cash Over and Short $18, credit Sales $18.

4) At the end of the day, the cash register tape shows $1,180 in cash sales but the count of cash in the register is $1,235. The proper entry to account for this excess is: A) Debit Cash $1,180; credit Sales $1,180. B) Debit Cash $1,235; credit Sales $1,235. C) Debit Cash $1,235; credit Sales $1,180; credit Cash Over and Short $55. D) Debit Cash $1,180; debit Cash Over and Short for $55; credit Sales $1,235. E) Debit Cash Over and Short $55; credit Cash $55.

5) Spencer Company has a $370 petty cash fund. At the end of the first month the accumulated receipts represent $60 for delivery expenses, $195 for merchandise inventory, and $29 for miscellaneous expenses. The fund has a balance of $86. The journal entry to record the reimbursement of the account includes a:

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A) Debit to Petty Cash for $370. B) Debit to Cash Over and Short for $86. C) Credit to Cash for $284. D) Credit to Inventory for $195. E) Credit to Cash Over and Short for $86.

6) The custodian of a $450 petty cash fund discovers that the fund has $61.90 in coins and currency plus $383.00 in receipts at the end of the month. The entry to replenish the petty cash fund will include: A) A debit to Cash for $388.10. B) A debit to Petty Cash for $383.00. C) A credit to Cash Over and Short for $5.10. D) A debit to Cash for $377.90. E) A credit to Cash for $388.10.

7) The custodian of a $555 petty cash fund discovers that the fund has $97.50 in coins and currency plus $445.50 in receipts at the end of the month. The entry to replenish the petty cash fund will include: A) A debit to Cash for $434. B) A debit to Cash Over and Short for $12.00. C) A debit to Petty Cash for $445.50. D) A credit to Cash for $445.50. E) A credit to Cash Over and Short for $458.

8) A company wants to decrease its $200.00 petty cash fund to $50.00. The entry to reduce the fund is: A) Debit Cash Over and Short for $8.50; credit Petty Cash $8.50. B) Debit Petty Cash $131.00; credit Cash $131.00. C) Debit to Cash $150.00; credit Petty Cash $150.00. D) Debit Petty Cash for $50.00; debit Cash Over and Short $181.00; credit Cash $200.00. E) Debit Miscellaneous Expenses $19.00; credit Cash $19.00.

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9) A company had $16 missing from petty cash that was not accounted for by petty cash receipts. The correct procedure is to: A) Debit Cash Over and Short for $16. B) Credit Cash Over and Short for $16. C) Debit Petty Cash for $16. D) Credit Petty Cash for $16. E) Debit Cash for $16.

10) Childers Company, which uses a perpetual inventory system, has an established petty cash fund in the amount of $500. The fund was last reimbursed on November 30. At the end of December, the fund contained the following petty cash receipts:

December 4 December 7 December 12 December 18

Merchandise purchased Delivery expense Purchase of office supplies Miscellaneous expense

$ 49 $ 73 $ 38 $ 57

If, in addition to these receipts, the petty cash fund contains $271.25 of cash, the journal entry to reimburse the fund on December 31 will include: A) A debit to Transportation-In of $87. B) A credit to Cash of $228.75. C) A debit to Petty Cash of $87. D) A credit to Cash Over and Short of $11.75. E) A credit to Office Supplies Expense of $73.

11) If a cheque correctly written and paid by the bank for $838 is incorrectly recorded in the company's books for $883, how should this error be treated on the bank reconciliation?

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A) Subtract $45 from the bank's balance and add $45 to the book's balance. B) Subtract $45 from the book balance. C) Subtract $45 from the bank's balance. D) Add $45 to the book balance. E) Add $45 to the bank's balance.

12) If a cheque correctly written and paid by the bank for $282 is incorrectly recorded in the company's books for $236, how should this error be treated on the bank reconciliation? A) Add $46 to the book balance. B) Subtract $46 from the book balance. C) Subtract $46 from the bank's balance and add $46 to the book's balance. D) Add $46 to the bank's balance. E) Subtract $46 from the bank's balance.

13) During the month of July, Clanton Industries issued a cheque in the amount of $823 to a supplier on account. The cheque did not clear the bank during July. In preparing the July 31 bank reconciliation, the company should: A) Deduct the cheque amount from the book balance of cash. B) Add the cheque amount to the book balance of cash. C) Deduct the cheque amount from the bank balance. D) Add the cheque amount to the bank balance. E) Make a journal entry in the company records for an error.

14) In the process of reconciling its bank statement for April, Donahue Enterprises' accountant compiles the following information:

Cash balance per company books on April 30 Deposits in transit at month-end Outstanding cheques at month-end Bank charge Note collected by bank on Donahue’s behalf

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$ 6,230 $ 1,390 $ 710 $ 90 $ 680

A cheque paid to Donahue during the month by a customer is returned by the bank as NSF

570

The adjusted cash balance per the books on April 30 is: A) $6,820 B) $6,250 C) $5,750 D) $8,070 E) $4,150

15) In the process of reconciling its bank statement for January, Maxi's Clothing's accountant compiles the following information:

Cash balance per company books on January 30 Deposits in transit at month-end Outstanding cheques at month-end Bank service charges An NSF cheque returned on a customer account

$ 6,525 $ 2,160 $ 700 $ 43 $ 740

The adjusted cash balance per the books on January 31 is: A) $7,457 B) $6,757 C) $5,742 D) $6,399 E) $6,863

16) Ryan Company deposits all cash receipts on the day they are received and makes all cash payments by cheque. Ryan's June bank statement shows a $21,861 balance in the bank. Ryan's comparison of the bank statement to its cash account revealed the following:

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Deposit in transit Outstanding cheques

2,150 1,026

Additionally, a $45 cheque written and recorded by the company was incorrectly recorded by the bank as a $54 deduction. The adjusted cash balance per the bank records should be: A) $22,985 B) $22,976 C) $25,046 D) $22,994 E) $18,694

17) Clayborn Company deposits all cash receipts on the day they are received and makes all cash payments by cheque. At the close of business on May 31, its Cash account shows a debit balance of $24,525. Clayborn's May bank statement shows a $21,800 balance in the bank. Determine the adjusted cash balance using the following information:

Deposit in transit Outstanding cheques Bank service fees, not yet recorded by company A NSF cheque from a customer, not yet recorded by the company

$ 7,450 $ 6,100 $ 100 $ 1,275

The adjusted cash balance should be: A) $23,150 B) $15,700 C) $29,250 D) $23,175 E) $24,425

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18) Franklin Company deposits all cash receipts on the day they are received and makes all cash payments by cheque. At the close of business on August 31, its Cash account shows a debit balance of $24,162. Franklin's August bank statement shows a $23,037 balance in the bank. Determine the adjusted cash balance using the following information:

Deposit in transit Outstanding cheques Bank service fees, not yet recorded by company The bank collected on a note receivable, not yet recorded by the company

$ 7,800 $ 6,100 $ 160 $ 735

The adjusted cash balance should be: A) $30,837 B) $16,937. C) $24,897 D) $24,002 E) $24,737

19) Easton Co. deposits all cash receipts on the day they are received and makes all cash payments by cheque. At the close of business on June 30, its Cash account shows a debit balance of $71,209. Easton's June bank statement shows a $67,149 balance in the bank. Determine the adjusted cash balance using the following information:

Deposit in transit Outstanding cheques cheque printing fee, not yet recorded by company Interest earned, not yet recorded by the company

$ 7,100 $ 3,025 $ 37 $ 52

The adjusted cash balance should be:

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A) $71,172 B) $71,261 C) $74,249 D) $64,124 E) $71,224

20)

Great Falls Co.'s bank reconciliation as of February 28 is shown below.

Bank balance

38,543

Book balance

+ Deposit in transit

3,400

Note collection

835

- Outstanding cheques

− 2,180

Cheque printing

−

Adjusted bank balance

39,763

Adjusted book balance

38,958

39,763

One of the journal entries that Great Falls Co. must record as a result of the bank reconciliation includes: A) Debit Notes Payable $835; credit Cash $835. B) Debit Cash $835; credit Notes Receivable $835. C) Debit Cash $3,400; credit Sales $3,400. D) Debit Cash $3,400; credit Accounts Receivable $3,400. E) Debit Miscellaneous Expense $30; credit Accounts Payable $30.

21) Havermill Co. establishes a $410 petty cash fund on September 1. On September 30, the fund is replenished. The accumulated receipts on that date represent $89 for Office Supplies, $169 for merchandise inventory, and $38 for miscellaneous expenses. The fund has a balance of $114. On October 1, the accountant determines that the fund should be increased by $82. The journal entry to record the establishment of the fund on September 1 is:

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A) Debit Cash $410; credit Petty Cash $410. B) Debit Petty Cash $410; credit Accounts Payable $410. C) Debit Miscellaneous Expense $410; credit Cash $410. D) Debit Petty Cash $410; credit Cash $410. E) Debit Cash $410; credit Accounts Payable $410.

22) Havermill Co. establishes a $270 petty cash fund on September 1. On September 30, the fund is replenished. The accumulated receipts on that date represent $75 for Repairs Expense, $141 for merchandise inventory, and $24 for miscellaneous expenses. The fund has a balance of $30. On October 1, the accountant determines that the fund should be increased by $54. The journal entry to record the reimbursement of the fund on September 30 includes a: A) Debit to Repairs Expense for $75. B) Credit to Merchandise Inventory for $141. C) Credit to Cash for $270. D) Debit Petty Cash for $240. E) Credit to Cash for $30.

23) Havermill Co. establishes a $440 petty cash fund on September 1. On September 30, the fund is replenished. The accumulated receipts on that date represent $92 for Office Supplies, $156 for merchandise inventory, and $41 for miscellaneous expenses. The fund has a balance of $37. On October 1, the accountant determines that the fund should be increased by $80. The journal entry to record the increase in the fund balance on October 1 is: A) Debit Petty Cash $520; credit Cash $520. B) Debit Cash $80; credit Petty Cash $80. C) Debit Miscellaneous Expense $80; credit Cash $80. D) Debit Petty Cash $80; credit Accounts Payable $80. E) Debit Petty Cash $80; credit Cash $80.

24) Meng Co. maintains a $330 petty cash fund. On January 31, the fund is replenished. The accumulated receipts on that date represent $86 for office supplies, $172 for merchandise inventory, and $26 for miscellaneous expenses. There is a cash shortage of $16. Based on this information, the amount of cash in the fund before the replenishment is:

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A) $330. B) $284. C) $46. D) $62. E) $30.

25) Meng Co. maintains a $365 petty cash fund. On January 31, the fund is replenished. The accumulated receipts on that date represent $93 for office supplies, $186 for merchandise inventory, and $33 for miscellaneous expenses. There is a cash shortage of $10. The journal entry to replenish the fund on January 31 is: A) Dr. Office Supplies Expense, $93; Dr. Merchandise Inventory, $186; Dr. Miscellaneous Expenses, $33; Dr. Cash Over and Short, $10; Cr. Petty Cash, $322. B) Dr. Office Supplies Expense, $93; Dr. Merchandise Inventory, $186; Dr. Miscellaneous Expenses, $33; Cr. Cash Over and Short, $10; Cr. Petty Cash, $302. C) Dr. Office Supplies Expense, $93; Dr. Merchandise Inventory, $186; Dr. Miscellaneous Expenses, $33; Cr. Cash Over and Short, $10; Cr. Cash, $302. D) Dr. Office Supplies Expense, $93; Dr. Merchandise Inventory, $186; Dr. Miscellaneous Expenses, $33; Dr. Cash Over and Short, $10; Cr. Cash, $322. E) Dr. Office Supplies Expense, $93; Dr. Merchandise Inventory, $186; Dr. Miscellaneous Expenses, $33; Cr. Cash Over and Short, $10; Cr. Petty Cash, $365.

26) Pelcher Co. maintains a $445 petty cash fund. On January 31, the fund is replenished. The accumulated receipts on that date represent $119 for office supplies, $158 for merchandise inventory, and $79 for miscellaneous expenses. There is a cash overage of $7. Based on this information, the amount of cash in the fund before the replenishment is: A) $445. B) $356. C) $89. D) $82. E) $96.

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27) Pelcher Co. maintains a $460 petty cash fund. On January 31, the fund is replenished. The accumulated receipts on that date represent $122 for office supplies, $164 for merchandise inventory, and $82 for miscellaneous expenses. There is a cash overage of $4. The journal entry to replenish the fund on January 31 is: A) Dr. Office Supplies Expense, $122; Dr. Merchandise inventory, $164; Dr. Miscellaneous expenses, $82; Dr. Cash over and short, $4; Cr. Petty cash, $372. B) Dr. Office Supplies Expense, $122; Dr. Merchandise inventory, $164; Dr. Miscellaneous expenses, $82; Dr. Cash over and short, $4; Cr. Cash, $372. C) Dr. Office Supplies Expense, $122; Dr. Merchandise inventory, $164; Dr. Miscellaneous expenses, $82; Cr. Cash over and short, $4; Cr. Petty cash, $364. D) Dr. Office Supplies Expense, $122; Dr. Merchandise inventory, $164; Dr. Miscellaneous expenses, $82; Cr. Cash over and short, $4; Cr. Cash, $364. E) Dr. Office Supplies Expense, $122; Dr. Merchandise inventory, $164; Dr. Miscellaneous expenses, $82; Dr. Cash over and short, $4; Cr. Petty cash, $460.

28) Jervis accepts all major bank credit cards, including those issued by Northern Bank (NB), which assesses a 3.5% charge on sales for using its card. On June 28, Jervis had $4,600 in NB Card credit sales. What entry should Jervis make on June 28 to record the deposit? A) Debit Cash $4,600; credit Sales $4,600 B) Debit Accounts Receivable $4,600; credit Sales $4,600 C) Debit Cash $4,761.00; credit Credit Card Expense $161.00; credit Sales $4,600 D) Debit Cash $4,439.00; debit Credit Card Expense $161.00; credit Sales $4,600 E) Debit Accounts Receivable $4,439.00; debit Credit Card Expense $161.00; credit Sales $4,600

29) Brinker accepts all major bank credit cards, including First Savings Bank's, which assesses a 2.5% charge on sales for using its card. On May 26, Brinker had $6,600 in First Savings Bank Card credit sales. What entry should Brinker make on May 26 to record the deposit?

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A) Debit Cash $6,600; credit Sales $6,600. B) Debit Cash $6,435; debit Credit Card Expense $165; credit Sales $6,600. C) Debit Cash $6,765; credit Credit Card Expense $165; credit Sales $6,600. D) Debit Accounts Receivable $6,435; debit Credit Card Expense $165; credit Sales $6,600. E) Debit Accounts Receivable $6,600; credit Sales $6,600.

30) MacKenzie Company sold $740 of merchandise to a customer who used a Regional Bank credit card. Regional Bank charges a 2.5% fee for sales on its credit cards. The journal entry to record this sales transaction would be: A) Debit Cash of $740 and credit Sales $740. B) Debit Cash of $740 and credit Accounts Receivable $740. C) Debit Accounts Receivable $740 and credit Sales $740. D) Debit Cash $721.50; debit Credit Card Expense $18.50 and credit Sales $740. E) Debit Cash $721.50 and credit Sales $721.50.

31) MacKenzie Company sold $420 of merchandise to a customer who used a Regional Bank credit card. Regional Bank charges a 5.0% fee for sales on its credit cards. The journal entry to record this sales transaction would be: A) Debit Cash of $420 and credit Sales $420. B) Debit Cash of $420 and credit Accounts Receivable—Regional $420. C) Debit Accounts Receivable—Regional $399.00; debit Credit Card Expense $21.00 and credit Sales $420. D) Debit Cash $399.00; debit Credit Card Expense $21.00 and credit Sales $420. E) Debit Cash $399.00 and credit Sales $399.00.

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Answer Key Test name: Chap 07_17ce_Test Bank_Algo 1) D Add $2,820 of cash in registers + $22,731 of cash in bank + $230 of cash in petty cash fund + $10,300 of Treasury bill with maturity of less than three months = $36,081. 2) E Add $6,755 of cash in bank + $12,700 bank account balance + $380 of petty cash balance + $557 of cash in register = $20,392. 3) C 4) C 5) C 6) E $450 − $61.90 − $383.00 = $5.10 cash shortage (Cash Over and Short is debited) $450 − $61.90 = $388.10 cash reimbursement needed 7) B $555 − $97.50 − $445.50 = $12.00 cash shortage $555.00 − $97.50 = $457.50 reimbursement and credit to cash 8) C 9) A 10) B Journal entry: Merchandise Inventory

Debit 49.00

Delivery Expense

73.00

Office Supplies Expense

38.00

Miscellaneous Expense

57.00

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Credit

Cash Over and Short

11.75

Cash

228.75

11) D $883 − $838 = $45 too much originally deducted from the company's cash account balance that must now be added back to cash. 12) B $282 − $236 = $46 not enough originally deducted from the company's cash account balance that must now be subtracted from cash. 13) C 14) B Book balance + note collection

$ 6,230 + 680

− bank charge

− 90

− NSF cheque returned by bank

− 570

Adjusted book balance

$ 6,250

15) C Book balance - bank service charges - NSF cheque returned by bank Adjusted book balance

$ 6,525 -43 -740 $ 5,742

16) D

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Bank balance + Deposit in transit

$ 21,861 +2,150

− Outstanding cheques

−1,026

+ Bank error

Adjusted bank balance

$ 22,994

17) A Bank balance + Deposit in transit

$ 21,800 +7,450

Book balance Bank service fees

- Outstanding cheques

-6,100

Adjusted bank balance

$ 23,150

Adjusted book balance

$ 23,150

Bank balance + Deposit in transit

$ 23,037 +7,800

Book balance Bank service fees

$ 24,162 -160

- Outstanding cheques

-6,100

Adjusted bank balance

$ 24,737

Adjusted book balance

$ 24,737

Bank balance + Deposit in transit

$ 67,149 +7,100

Book balance Interest earned

$ 71,209 +52

- Outstanding cheques

−3,025

Cheque printing

−37

Adjusted bank balance

$ 71,224

NSF returned

$ 24,525 -100 -1,275

18) E

Note collected

+735

19) E

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Adjusted book balance

$ 71,224

20) B 21) D 22) A 23) E 24) E $330 fund balance minus $284 in receipts = $46 theoretical cash balance. Since there was an $16 shortage, the cash on hand was less than expected. $46 − $16 = $30. 25) D $365 fund balance minus $312 in receipts = $53 theoretical cash balance. Since there was an $10 shortage, the cash on hand was less than expected. $53 − $10 = $43. Cash replenishment is $322 ($365 Petty cash fund balance minus $43 cash on hand). 26) E $445 fund balance minus $356 in receipts = $89 theoretical cash balance. Since there was a $7 overage, the cash on hand was more than expected. $89 + $7 = $96. 27) D $460 fund balance minus $368 in receipts = $92 theoretical cash balance. Since there was a $4 overage, the cash on hand was more than expected. $92 + $4 = $96. Cash replenishment is $364 ($460 Petty cash fund balance minus $96 cash on hand). 28) D Credit card fee expense: $4,600 × 0.035 = $161.00 Cash received: $4,600 − $161.00 = $4,439.00 29) B Credit card fee expense: $6,600 × 0.025 = $165 Cash received: $6,600 − $165 = $6,435 30) D 31) D Version 1

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CHAPTER 7 TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) A properly designed internal control system is a key part of systems design, analysis, and performance. ⊚ ⊚

true false

2) When preparing a bank reconciliation, if the adjusted book balance and the adjusted bank balance are equal, then there is no need to have an external auditor test internal controls for the "cash" account. ⊚ ⊚

true false

3) When preparing a bank reconciliation, adjustments are made to the bank side and not the ledger (book) side. ⊚ ⊚

true false

4) The use of internal controls provides guaranteed protection against losses due to operating activities. ⊚ ⊚

true false

5) An internal control system is comprised of the policies and procedures companies use to protect assets, ensure reliable accounting, and promote efficient operations. ⊚ ⊚

true false

6) When used to monitor and control operations, internal control systems are a low priority for managers.

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⊚ ⊚

true false

7) Preventing unauthorized access to company resources is one of the most difficult and time-consuming tasks for internal control experts. ⊚ ⊚

Internal control policies and procedures are standard across companies. ⊚ ⊚

true false

Maintaining accurate records is an important internal control principle. ⊚ ⊚

true false

10) The principles of internal control include: ensure transactions and activities are authorized, maintain records, insure assets, separate recordkeeping and custody of assets, and perform internal and external audits. ⊚ ⊚

true false

11) Bonding does not discourage loss from theft because employees know that bonding is an insurance policy against loss from theft. ⊚ ⊚

true false

12) Collusion occurs when a person embezzles money from a company and tries to hide the evidence.

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⊚ ⊚

true false

13) Risks involved in e-commerce include: credit card theft, computer viruses and impersonation. ⊚ ⊚

true false

14) Firewalls and encryption can be used as methods to eliminate some of the risks involved in e-commerce. ⊚ ⊚

true false

15) Separation of duties divides responsibility for a series of transactions between two or more employees or departments. Despite the increased complexity, separation of duties reduces the risk of error and fraud. ⊚ ⊚

true false

16) Cash consists of cash on hand and demand deposits. This includes coins, currency, and amounts on deposits in bank accounts, chequing accounts and some savings accounts. ⊚ ⊚

true false

17) Cash equivalents are short-term investments that a company invests in to increase earnings. ⊚ ⊚

true false

18) Liquidity measures how easily assets can be converted to another asset or be used to pay for services or obligations. Version 1

⊚ ⊚

19)

Money orders, cashier's cheques, and certified cheques are examples of cash equivalents. ⊚ ⊚

20)

true false

Chequing accounts are sometimes called savings accounts. ⊚ ⊚

true false

21) Good internal control procedures for cash receipts imply that cash receipts by mail should be opened by an accounting employee who is responsible for recording and depositing receipts. ⊚ ⊚

true false

22) Small differences between cash sales and the amounts on the cash register are directly debited or credited to the cash account. ⊚ ⊚

true false

23) Internal control over cash receipts ensures that all cash received is properly recorded and deposited. ⊚ ⊚

true false

24) If Cash Over and Short has a debit at the end of the period, the dollar amount represents miscellaneous revenue. ⊚ ⊚

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true false

25) The clerk who has access to the cash in the cash register should not have access to the register tape or file. ⊚ ⊚

true false

26) At the end of the day, the cash register shows a balance of $635. The cash drawer has a balance of $650. The difference of $15 should be debited to miscellaneous expense. ⊚ ⊚

true false

27) Cash sales total $705 and the amount of cash in the register is $685. The shortage of $20 represents an expense. ⊚ ⊚

28)

The Petty Cash account is a separate chequing account used for small amounts. ⊚ ⊚

29)

true false

All monies disbursed from petty cash should be documented by a petty cash receipt. ⊚ ⊚

true false

30) The journal entry for petty cash reimbursement is a debit to various expenses and a credit to Petty Cash. ⊚ ⊚

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true false

31) The petty cash fund should be reimbursed at the end of the period even if the fund is not low on money. ⊚ ⊚

true false

32) The entry to increase the balance in petty cash from $50 to $75 would include a credit to Petty Cash of $25. ⊚ ⊚

33)

true false

Maintaining a petty cash fund makes it possible to determine human fraud. ⊚ ⊚

true false

34) Basic services provided by banks such as bank accounts, deposit slips and cheques contribute to the control and safeguarding of cash. ⊚ ⊚

true false

35) Firms have the option of recording credit card expense as a discount from sales or as a selling expense. ⊚ ⊚

36)

true false

The payee is the person who signs a cheque. ⊚ ⊚

true false

37) It is not necessary for businesses to reconcile their chequing accounts since banks keep accurate records and provide internal control support for cash.

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⊚ ⊚

true false

38) Outstanding cheques are cheques the bank has paid and deducted from the customer's account during the month. ⊚ ⊚

39)

true false

EFT is the use of electronic communication to transfer cash from one party to another. ⊚ ⊚

true false

40) A cheque involves three parties: the maker, who signs the cheque; the payee, who is the recipient; and the bank, on which the cheque is drawn. ⊚ ⊚

true false

41) Internal control devices for banking activities include signature cards, deposit slips, cheques, and bank statements. ⊚ ⊚

true false

42) Credit card is seen as an advantage by businesses because the cash is normally received quicker than with other forms of extended credit. ⊚ ⊚

true false

43) Credit cards do not remove the risk of bad debts to the business accepting payment by credit card.

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⊚ ⊚

true false

44) Banks normally use a flat rate fee for the processing of debit card transactions and a percentage fee for the processing of credit card transactions. ⊚ ⊚

true false

45) An error made by the bank should result in a reconciling item on the book side of a bank reconciliation. ⊚ ⊚

true false

46) Bank service charges are treated as a reconciling item on the book side of a bank reconciliation. ⊚ ⊚

true false

47) A bank reconciliation explains the difference between the balance of a chequing account on the customer's books and the balance on the bank statement. ⊚ ⊚

true false

48) A bank reconciliation results in creating an adjusted bank balance as well as an adjusted book balance. ⊚ ⊚

true false

49) An NSF cheque for $17.50 would be recorded as a debit to Cash and a credit to Accounts Receivable.

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⊚ ⊚

true false

50) Factors that cause the bank statement balance of a chequing account to be different from the business chequing account balance include: outstanding cheques, deposits in transit, deductions for bank fees, additions for interest, and errors. ⊚ ⊚

true false

51) The steps to reconcile the balance of the bank statement to the adjusted balance include adding outstanding cheques, deposits, and bank service charges to the bank balance. ⊚ ⊚

52)

The acid-test ratio is also called the quick ratio. ⊚ ⊚

53)

true false

The quick ratio is current assets divided by current liabilities. ⊚ ⊚

55)

true false

Quick assets include cash, inventory, and receivables. ⊚ ⊚

54)

true false

The quick ratio is a more accurate measure of a company's liquidity than the current ratio. ⊚ ⊚

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true false

56)

The common rule of thumb is that a company's quick ratio should be at least 1.5 to 1. ⊚ ⊚

true false

57) Z-Mart's quick assets are $147,000. With current liabilities of $143,000, Z-Mart's quick ratio is 1.03 to 1. ⊚ ⊚

true false

58) Omega Supply's current ratio is 2 to 1. Its quick ratio is.75 to 1. Omega Supply has a good credit risk because the ratios reveal no liquidity problem. ⊚ ⊚

true false

59) Strom Inc. has cash, accounts receivable and inventory as part of its current assets and the current ratio is 0.65. This means that the quick ratio will be higher than the current ratio. ⊚ ⊚

true false

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 60) An internal control system is the policies and procedures that managers use to A) Protect assets B) Ensure reliable accounting C) Promote efficient operations D) Encourage adherence to company policies. E) All of the choices are correct.

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61) Managers place a high priority on internal control systems because the systems assist managers in the A) Prevention of avoidable losses B) Planning of operation C) Monitoring of company performance D) Monitoring of employee performance E) All of the choices are correct.

62)

A good system of internal control

A) Encourages adherence to prescribed managerial policies B) Promotes operational efficiencies C) Eliminates the need for an audit D) Both encourages adherence to prescribed managerial policies and promotes operational efficiencies E) All of the choices are correct.

63)

Internal control procedures: A) Eliminate the risk of loss. B) Include policies and procedures to safeguard assets. C) Prevent unavoidable losses. D) Both eliminate the risk of loss and include policies and procedures to safeguard assets. E) All of the choices are correct.

64)

Principles of internal control include:

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A) Establish responsibilities. B) Maintain adequate records. C) Insure assets. D) Bond key employees. E) All of the choices are correct.

65)

Principles of internal control include:

A) Record purchases using the gross method. B) Divide responsibilities for related transactions. C) Perform regular and independent reviews. D) Divide responsibilities for related transactions and perform regular and independent reviews. E) All of the choices are correct.

66) Two clerks sharing the same cash register is a violation of which internal control principle? A) Establish responsibilities B) Maintain adequate records C) Insure assets D) Bond key employees E) Apply technological controls

67)

Prenumbered printed cheques are an example of which internal control principle? A) Technological controls B) Maintain adequate records C) Perform regular and independent reviews D) Technological controls and maintain adequate record E) All of the choices are correct.

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68)

The impact of technology on internal controls includes A) Reduced processing error B) Elimination of the need for regular audits. C) Fewer hard copies of source documents D) More efficient separation of duties E) Reduced processing errors and fewer hard copies of source documents

69)

Limitations of internal control include A) Human error B) Human fraud C) Cost-benefit standard D) Human error and fraud E) All of the choices are correct.

70)

Risks involved in e-commerce include A) Firewalls B) Encryption C) Missing documents D) Computer viruses E) All of the choices are correct.

71)

Policies and procedures used to promote efficient company operations are known as A) Asset controls B) Internal controls C) Management controls D) Cash controls E) Inventory control

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72) The owner of Zeke's Landscaping Designs just hired an office manager to handle all the office functions for him. Among other responsibilities, the office manager will handle key accounting functions such as processing customer payments, writing cheques to employees to pay the payroll, handle daily bank deposits at the bank, pay suppliers, and reconcile the company bank account bank reconciliations. What internal cash control practice is being overlooked by the owner? A) Making daily cash deposits B) Frequent preparation of bank reconciliations C) Separation of cash payment from cash disbursement function D) Ensuring all cash disbursements are tracked by making payments by cheque E) Performing external audit

73)

Cash consists of A) Postage stamps B) Coins, currency, and chequing accounts C) IOUs D) Certificates of deposit E) Coins, currency, chequing accounts, and certificates of deposit

74)

Cash equivalents A) Are short-term, highly liquid investments B) Include 6-month certificates of deposit C) Include chequing accounts D) Are recorded in petty cash E) Are short-term, highly liquid investments and include chequing accounts

75)

Cash equivalents

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A) Include savings accounts B) Include chequing accounts C) Are short-term investments that a company invests their cash in to increase their earnings D) Include savings and chequing accounts E) All of the choices are correct.

76)

Cash equivalents

A) Are readily convertible to a known cash amount B) Include short-term investments purchased to increase earnings C) Are often combined with cash as a single balance sheet item D) Are readily convertible to a known cash amount and include short-term investments purchased to increase earnings E) All of the choices are correct.

77) An income statement account used to record cash overages and cash shortages arising from omitted petty cash receipts and from errors in making change is the A) Cash Lost account B) Bank Reconciliation account C) Petty Cash account D) Cash Over and Short account E) Cash Receivable account

78)

Which of the following is NOT a principle of internal control? A) Responsibilities should be clearly established B) Adequate records should be maintained C) Responsibility for related transactions should be divided D) Assets should be insured and employees bonded E) Audits should always be conducted by employees internal to the organization

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79)

Cash receipts are the result of A) Cash sales B) Cash disbursements C) Collection of accounts receivable D) Collection of accounts payable E) Cash sales and collection of accounts receivable

80)

Internal control procedures for cash receipts require

A) Separation of custody of cash receipts from their recordkeeping B) In-store cash sales be recorded on a cash register at the time of each sale C) All cheques to be numbered in sequence D) Separation of custody of cash receipts from its recordkeeping and in-store cash sales be recorded on a cash register at the time of each sale E) All of the choices are correct.

81) Video Buster had $62 in extra cash in the petty cash box at the end of the day. The correct procedure is A) Credit Cash for $62 B) Debit Cash for $62 C) Credit Cash Over and Short for $62 D) Debit Cash Over and Short for $62 E) Debit Petty Cash for $62

82)

The Cash Over and Short account

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A) Is used to record a credit balance in the cash account B) Is an income statement account used for recording the income effects of cash overages and cash shortages from errors in making change and missing petty cash receipts C) Is not necessary in a computerized accounting system D) Is an income statement account used for recording the income effects of cash overages and cash shortages from errors in making change and missing petty cash receipts and is not necessary in a computerized accounting system E) None of the choices are correct.

83)

Z-Mart had $43 in missing petty cash receipts. The correct procedure is to A) Debit Cash Over and Short for $43 B) Credit Cash Over and Short for $43 C) Debit Petty Cash for $43 D) Credit Petty Cash for $43 E) Credit Cash for $43

84)

The entry necessary to establish a petty cash fund should include A) A debit to Cash B) A credit to Cash C) A debit to Petty Cash D) A credit to Petty Cash E) A credit to Cash and a debit to Petty Cash

85) The entry to record reimbursement of the petty cash fund for postage expense should include

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A) A debit to Postage Expense B) A debit to Petty Cash C) A debit to Cash D) A debit to Cash Short and Over E) A debit to Supplies

86)

When a petty cash fund is in use,

A) Expenses paid with petty cash are recorded when the fund is replenished. B) Petty Cash is debited when funds are replenished. C) Petty Cash is credited when funds are replenished. D) Expenses paid with petty cash are recorded when the fund is replenished and petty cash is debited when funds are replenished. E) Expenses paid with petty cash are recorded when the fund is replenished and petty cash is credited when funds are replenished.

87)

In reimbursing the petty cash fund, A) Cash is debited. B) Petty Cash is credited. C) Petty Cash is debited. D) Expense accounts are debited. E) Petty Cash is credited and expense accounts are debited.

88) The custodian of a $450 petty cash fund has $62.50 in coins and currency plus $382.50 in receipts at the end of the month. The entry to replenish the petty cash fund will include A) A debit to Miscellaneous Expenses for $377.50 B) A credit to Cash Over and Short for $5.00 C) A debit to Petty Cash for $382.50 D) A credit to Cash for $387.50 E) A debit to Cash for $387.50

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89) Z-Mart plans to eliminate a $200 petty cash fund. The current balance in the account includes $45 in receipts and $165 in currency. The entry to eliminate the fund will include a A) Debit to Cash Short and Over for $10 B) Debit to Cash for $165 C) Debit to Miscellaneous Expenses for $35 D) Credit to Petty Cash for $165 E) Credit to Cash for $165

90) MainCo Company's accounting policies require the company to maintain a petty cash balance of $235. MainCo's junior accountant reviews the content of the petty cash box at June 30 to find receipts for purchases of office supplies of $40, shipping supplies of $30 and a left over balance in cash of $7.50. What entry would you make to replenish the petty cash fund at June 30? A) Office Supplies Expense

Shipping Supplies Expense

Petty Cash

B) Cash

158

Petty Cash

158

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Office Supplies Expense

Shipping Supplies Expense

Cash over and short

157.5

Cash

227.5

D) Office Supplies Expense

Shipping Supplies Expense

Cash over and short

Cash

158

E) Petty Cash

235

Cash

91)

235

Banking activities include A) Bank accounts B) Bank deposits C) Chequing D) Electronic funds transfer E) All of the choices are correct

92)

A cheque A) Involves the writer, the signers, the casher, and the bank B) Involves the maker, the payee, and the bank C) Involves the maker and the payee D) Involves the bookkeeper, the payee, and the bank E) Involves the signer, the casher, and the company

93)

Credit card expense may be classified as

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A) A discount deducted from sales to get net sales B) A selling expense C) An administrative expense D) A selling expense and an administrative expense E) All of the choices are correct

94)

A credit memorandum from the bank may be used as A) An explanation for a payment by cheque B) A bank statement C) A voucher. D) An EFT E) A cancelled cheque

95)

A bank statement includes A) A list of outstanding cheques B) A list of petty cash amounts C) The beginning and ending balance of the depositor's chequing account D) A list of outstanding cheques and a list of petty cash amounts E) All of the choices are correct

96)

A bank issues a debit memorandum

A) To notify a depositor of all increases to the depositor's account B) To notify a depositor of a deduction from a depositor's account C) To notify a depositor of an NSF cheque D) To notify a depositor of an EFT E) To notify a depositor of a deduction from a depositor's account and to notify a depositor of an NSF cheque

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97) The fees charged to businesses by banks on credit card transactions can be shown on the income statement as A) A discount from revenue used in determining net sales B) A selling expense C) An administrative expense D) All of the choices are correct E) None of the choices are correct

98) Strom Inc. provided interior design services for $170,000 to customers using debit cards. Assume the bank charges 0.5% for all debit card transactions. Which of the following is correct? A) Strom Inc. would have Debit Card expenses in the amount of $850 and Service Revenue of $169,150 B) Strom Inc. would have Debit Card expenses in the amount of $850 and Service Revenue of $170,000 C) Strom Inc. would have an increase in Cash of $169,150 and Service Revenue of $169,150 D) Strom Inc. would have an increase in Cash of $170,000 and Service Revenue of $169,150 E) None of the choices are correct

99) An analysis that explains the difference between the balance of a chequing account shown in the depositor's records and the balance shown on the bank statement is a(n) A) Internal audit B) Bank reconciliation C) Bank audit D) Trial reconciliation E) Analysis of debits and credits

100) In reconciling the bank balance, an unrecorded debit memorandum for printing cheques should be

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A) Noted as a memo B) Added to the book balance of cash C) Deducted from the book balance of cash D) Added to the bank balance of cash E) Deducted from the bank balance of cash

101)

Outstanding cheques are cheques that

A) Have been written, recorded, sent to the payees, received, and paid by the bank B) Have been written and not yet recorded in the company books C) Are blank cheques D) Have been written, recorded on the company books, and sent to the payees, but have not yet been paid by the bank E) Have been issued by the bank

102) be:

In reconciling the bank balance, the amount of an unrecorded bank service charge should

A) Added to the book balance of cash. B) Deducted from the book balance of cash. C) Added to the bank balance of cash. D) Deducted from the bank balance of cash. E) Noted as a memo.

103) A cheque that was outstanding on last month's bank reconciliation was not among the cancelled cheques returned by the bank this month. As a result, in preparing this month's reconciliation, the amount of this cheque should be

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A) Added to the book balance of cash B) Deducted from the book balance of cash C) Added to the bank balance of cash D) Deducted from the bank balance of cash E) Noted as a memo

104) Z-Mart made a bank deposit on September 30 that did not appear on September's bank statement. In preparing September's bank reconciliation, the company should A) Deduct the deposit from the bank statement balance B) Send the bank a debit memorandum C) Deduct the deposit from September's book balance and add it to October's book balance D) Add the deposit to the book balance of cash E) Add the deposit to the bank statement balance

105) You just joined XYZ Company as their junior accountant. Your first task is to prepare a bank reconciliation in good form at June 30. Your boss provides you with the bank statement and the following information from the accounting records at June 30 Non-sufficient funds (NSF) cheque returned by bank

$350

Deposit in transit on June 30

$1,015

Outstanding cheques at June 30

$2,660

Balance per bank statement on June 30

$16,280

Bank service charges

$35

Your review of the bank statement at June 30 shows that a cheque was incorrectly recorded by company as $2,500 was correctly recorded by the bank at $2,050. What is the unadjusted (opening) balance of cash in XYZ's general ledger on June 30?

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A) $15,470 B) $14,285 C) $14,570 D) $16,703 E) $16,470

106)

The acid-test ratio A) Is also called the quick ratio B) Measures profitability C) Measures liquidity D) Is also called the quick ratio and measures liquidity E) All of the choices are correct

107)

The quick assets are A) Cash, short-term investments, prepaid expenses B) Cash, short-term investments, accounts receivable C) Cash, inventory, accounts receivable D) Cash, accounts receivable, prepaid expenses E) Accounts receivable, inventory, prepaid expenses

108) J.C Penny has the following current assets (in millions): cash $4,888, receivables $1,000 and inventory $5,812. Its current liabilities (in millions) were $8,000. The quick ratio is A) .74 B) .50 C) 1.3 D) .6 E) 2.2

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109) Z-Mart's current assets were $17,980. Its quick assets were $11,420. Its current liabilities were $12,190. Its quick ratio is A) 1.48 B) 1.57 C) .94 D) 2.40 E) 1.07

110)

Liquidity problems exist for a company when its quick ratio A) Is less than the industry average B) Is 1 to 1 C) Is higher than 1 to 1 D) Is lower than 1 to 1 E) Is less than the industry average and is lower than 1 to 1

111)

The quick ratio differs from the current ratio

A) Because liabilities are divided by current assets B) Because prepaid expenses and inventory are excluded C) Because it measures profitability D) Because it excludes short-term investments E) Because prepaid expenses and inventory are excluded and because it measures profitability

112) Control over cash disbursements is especially important for companies. Which of the following is the best method for minimizing payments of fictitious invoices?

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A) Match the purchase order with the receiving report before any cash disbursement is approved B) Match the purchase order, receiving report and the invoice before any cash disbursement is approved C) Match the goods received with the invoice before any cash disbursement is approved D) Request that duplicate invoices be issued by the vendor E) Use electronic funds transfer (EFT) instead of a cheque to make a payment

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 113) Match each of the following items with the appropriate internal control principle(s). (a) Establish responsibility. (b) Maintain adequate records. (c) Insure assets and bond employees. (d) Separate recordkeeping from custody of assets. (e) Divide responsibility for related transactions. (f) Apply technological controls. (g) Perform regular and independent reviews._____ (1) The cashier does not have access to the cash register record tape and file.: _____ (2) Z-Mart uses a voucher system._____ (3) Two clerks share the same cash drawer._____ (4) The bookkeeper prepares and signs cheques._____ (5) Z-Mart uses a computerized point of sale system._____ (6) Z-Mart hires Nelson and McGuire, CAs, to perform an audit._____ (7) Z-Mart buys an insurance policy to protect against employee theft._____ (8) Z-Mart has separate departments for purchasing, receiving, and accounts payable._____ (9) Z-Mart has an internal auditor on staff._____ (10) Z-Mart uses a cheque protector.

114) Identify each of the following items as either (a) cash or (b) cash equivalent._____ 1. Coins _____ 2. Petty cash _____ 3. Three-month certificate of deposit _____ 4. Currency _____ 5. Certified cheque _____ 6. Cashier's cheque _____ 7. EFT deposits _____ 8. Money orders

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115) Identify whether each of the following items affects the bank side or the book side of a bank statement reconciliation._____ (1) Bank service charges _____ (2) Outstanding cheques _____ (3) Deposits in transit _____ (4) NSF cheque _____ (5) Interest on a chequing account _____ (6) The bank recorded a cheque for $958. The company wrote the cheque for $9,580 _____ (7) The bank printed cheques for the depositor. ____ (8) Debit memo _____ (9) Credit memo _____ (10) The bank collected a $1,000 note for the depositor.

116) Identify how each of the following items would be treated on a bank reconciliation by entering one of the following codes in the space provided. B+

Bank balance increased

B-

Bank balance decreased

G+

General ledger (book) balance increased

G-

General ledger (book) balance decreased

No effect on the bank reconciliation

Outstanding cheques.

Deposits in transit.

Cheque #32, subtracted from the bank balance on last month's bank reconciliation, was returned with this month's statement.

Included with the bank statement was a debit memo for bank service charges.

Cash receipts placed in the bank's night depository after banking hours were not included on the bank statement prepared on the same date.

Cheque #47 was written and recorded by the bank as $753. The business recorded the cheque as $735.

A cheque listed as outstanding on last month's bank reconciliation was not returned with the current month's cancelled cheques.

A deposit listed as outstanding on last month's bank reconciliation appeared as a deposit on the current month's bank statement.

A credit memo enclosed with the bank statement shows that the bank collected a note on behalf of the account holder.

10.

A debit memo enclosed with the bank statement shows that the bank paid a note on behalf of the account holder.

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117)

Discuss the purpose of an internal control system.

118)

Identify the principles of internal control.

119)

Explain the difference between cash and cash equivalents.

120)

Discuss how the principles of internal control apply to cash receipts.

121)

What is the purpose of the petty cash account?

122) On September 1, Bartoletti Company established a petty cash fund for $100. On September 10, the petty cash fund was replenished when there was $16.50 on hand and there were petty cash receipts for office supplies, $27; transportation-in, $32; and postage, $21.50. On September 15, the petty cash fund was increased to $125. Record these transactions in general journal format.

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123) A petty cash fund was originally established with a cheque for $150. On December 31, you find the following items in the petty cash fund: Postage

$43.50

Office supplies

51.85

Office equipment repair

49.00

Cash

4.25

Prepare the general journal entry to record the replenishment of the petty cash fund on December 31.

124) The Crown Company established a $1,000 petty cash fund by issuing a cheque to the custodian on October 1. On October 15, the petty cash fund was replenished and increased to $1,500. The contents of the petty cash fund prior to the October 15 replenishment were: Currency and coins

$112

Petty cash receipts for: Transportation-in

$137

Delivery expense

240

Repairs to office equipment

153

Postage

230

Entertainment of customers

130

Total

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890 $1,002

Prepare the general journal entry to record the reimbursement and increasing of the fund on October 15.

125) Ten days ago, a company established a $90 petty cash fund. Today, October 5, the petty cash box contains $3 in cash and the following paid petty cash receipts: transportation-in, $14.25; postage, $34.50; and office supplies, $36. Prepare the general journal entry to reimburse the fund and to increase its size to $150.

126) Z-Mart established a petty cash fund recently and the following transactions affecting the fund occurred during February: Feb

Established a $250 petty cash fund.

Paid $55 to replenish office supplies.

Gave $30 to company controller for business lunch with customers.

Paid $45 for postage.

Paid $65 C.O.D. charges on merchandise purchased for sale.

Paid $50 for janitorial services.

When sorting the receipts in order to replenish the fund, the custodian noted that there was $245 in receipts and $10 in cash.

Additionally, a decision was made to reduce the fund to $200.

Prepare the journal entry to reimburse the fund and to reduce its size.

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127)

Discuss how banking activities promote the control of cash.

128) Identify the advantages for retailers of allowing credit cards to be used in making purchases by their customers.

129)

What is the main motivation for retailers to accept credit cards or debit cards?

130)

Discuss the purpose of a bank reconciliation.

131)

Guy Company's records revealed the following data for September:

Bank statement balance, Sept 30

$29,279.00

Add: Deposits in transit

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Book balance, Sept 30

$27,202.00

Add: 1,775.50

Notes receivable collected by bank

Bank error

568.25

2,343.75

(includes $100.50 interest)

1,100.50

31,622.75

Book error*

322.00

1,422.50 $28,624.50

Deduct:

Outstanding Cheques

Adjusted bank balance

4,082.00

Bank service charges

$25.85

_________

NSF cheque, Bill Yong 1,057.90

1,083.75

$27,540.75

Adjusted book balance

$27,540.75

* This error relates to a deposit from a customer on account made on September 14. The correct amount of the deposit was $1,322. However, the bookkeeper had recorded it as $1,000. Prepare the general journal entries necessary to correct the Cash balance.

132) Below, preceded by identifying letters, are seven items that would cause Xavier Sales Company's book balance of cash to differ from its bank statement balance. (a)

A customer's cheque returned by the bank marked "Not Sufficient Funds."

(b)

A cheque listed as outstanding on the previous month's reconciliation that is still outstanding.

(c)

A service charge made by the bank.

(d)

A deposit consisting solely of cheques which was mailed to the bank on the last day of November and is unrecorded on the November bank statement.

(e) A cheque paid by the bank at its correct $200 amount but recorded in error in the Cheque Register at $20. (f)

An unrecorded credit memorandum indicating the bank had collected a note receivable for Xavier Sales Company and deposited the proceeds in the company's account.

(g)

A cheque written but not yet paid or returned by the bank.

Indicate where each item would appear on Xavier Sales Company's bank reconciliation by putting an "X" in the correct column below.

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Bank

Ledger(Book)

ADD

DEDUCT

ADD

DEDUCT

(a) (b) (c) (d) (e) (f) (g)

133) The bank statement and relevant portions of Bernie Company's cash records for the month ended June 30, 2023 are given below. Bernie Company Cheque Register Date

Explanation

31-May

Deposit

1-Jun

Cheque

882

659.00

20,583.92

1-Jun

Cheque

876

226.00

20,357.92

1-Jun

Cheque

883

2,390.00

17,967.92

1-Jun

Cheque

884

565.00

17,402.92

3-Jun

Cheque

885

424.00

16,978.92

4-Jun

Cheque

886

352.00

16,626.92

9-Jun

Deposit

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Debit

Credit

Balance

9,050.00

6,280.00

21,242.92

22,906.92

12-Jun

Cheque

887

2,113.78

20,793.14

12-Jun

Cheque

888

2,169.43

18,623.71

12-Jun

Cheque

889

1,248.00

17,375.71

18-Jun

Deposit

20-Jun

Cheque

890

2,369.00

16,926.71

21-Jun

Cheque

891

6,669.00

10,257.71

24-Jun

Cheque

892

1,452.00

8,805.71

26-Jun

Cheque

893

256.00

8,549.71

29-Jun

Deposit

1,920.00

19,295.71

3,695.00

12,244.71

Bank Statement Cheques/Charges

Deposits/Credits

Balance 31-May 6/1

12,192.92

#884

6/1

565.00

9,050.00

20,677.92

#883

6/4

2,390.00

#876

6/9

226.00

#889

6/12

1,248.00

23,093.92

#882

6/14

659.00

22,434.92

#887

6/18

2,003.78

#885

6/20

424.00

21,927.14

#891

6/21

6,569.00

15,358.14

#886

6/29

352.00

15,006.14

6/30

89.30

18,287.92 6/9

6/18

6/30

6,280.00

1,920.00

24,341.92

22,351.14

14,916.84

Notes: Cheque #887 was recorded incorrectly by the bookkeeper for equipment purchase. Cheque #891 was recorded incorrectly by the

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bank.

Prepare the bank reconciliation at June 30, 2023.

134) The following information was available for Wild Oat Company for the month ended May 31, 2023. (a) The book balance at May 31, 2020 was $6,890.22. (b) The bank balance at May 31, 2020 was $8,660.22. (c) Outstanding cheques amounted to $6,310. (d) The May 31st cash receipts of $5,600 were deposited but have not yet appeared on the bank statement. (e) A $50 debit memorandum for cheques printed by the bank was included with the cancelled cheques. (f) A customer’s note for $1,000 was collected by the bank. In addition interest on the note was $110.

Prepare a bank reconciliation for Wild Oat Company at May 31, 2023.

135) The bank statement and relevant portions of Lauren Lunch Service cash records for the month ended July 31, 2023 are given below. Lauren Lunch Service Cheque Register

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Date

Explanation

Debit

Credit

Balance

30-Jun

Deposit

1-Jul

Cheque

1612

1,250.00

10,800.00

1-Jul

Cheque

1613

4,650.00

6,150.00

1-Jul

Cheque

1614

2,500.00

3,650.00

1-Jul

Cheque

1615

658.00

2,992.00

2,050.00

12,050.00

3-Jul

Cheque

1616

450.00

2,542.00

4-Jul

Cheque

1617

1,245.00

1,297.00

9-Jul

Deposit

12-Jul

Cheque

1618

4,003.78

10,533.22

12-Jul

Cheque

1619

3,500.00

7,033.22

12-Jul

Cheque

1620

1,245.00

5,788.22

18-Jun

Deposit

20-Jun

Cheque

1621

1,010.00

16,778.22

21-Jun

Cheque

1622

6,669.00

10,109.22

24-Jun

Cheque

1623

1,200.00

8,909.22

26-Jul

Cheque

1624

500.00

8,409.22

29-Jul

Deposit

13,240.00

14,537.00

12,000.00

4,500.00

17,788.22

12,909.22

Bank Statement Cheques/Charges Deposits/Credit Balance 10,000.00

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#1615

658.00

2,050.00

11,392.00

#1614

2,500.00

#1613

4,650.00

#1616

450.00

17,032.00

#1612

1,250.00

15,782.00

#1618

3,003.00

#1620

1,245.00

23,534.00

#1622

6,069.00

17,465.00

#1617

1,245.00

16,220.00

200.00

16,020.00

8,892.00 13,240.00

12,000.00

17,482.00

24,779.00

Notes: Cheque#1618 was recorded incorrectly by the bookeeper for supplies purchase. Cheque#1622 was recorded incorrectly by the bank.

Prepare the bank reconciliation at July 31, 2020.

136) The following information was available for Rachel Supply Company for the month ended May 31, 2023. (a) On May 31, 2020 the Cash account of Rachel Supply Company had a balance of $25,850 (b) On May 31, 2020 the bank statement indicated a balance of $44,580. (c) The bank reported the collection of a note receivable for Rachel of $3,800 plus $500 interest. (d) It was observed that the bank statement did not include a deposit of $2,700 made by Rachel on May 31 and that cheques totalling $15,830 issued by Rachel had not cleared the bank. (e) Rachel recorded an insurance expense payment of $150 as $1,500. (f) Service charges of $50 were charged for cheque printing. Prepare the bank reconciliation.

Prepare the bank reconciliation at May 31, 2023.

137) You are a supervisor in the accounting department of Finest Hours Consulting. The person you just hired shows you the bank reconciliation prepared for March 31, as shown below. Finest Hours Dance Service Bank Reconciliation March 31, 2023 Bank statement balance, March 31

$35,552.00

Book balance, March 31

$42,967.00

Add: Add:

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Deposits in transit

14,600.00 ________

Note paid by bank

2,885.00

14,600.00

$45,852.00

50,152.00 Deduct:

Deduct:

NSF

1,180.00

Outstanding Cheques 1037

3,615.00

1072

540.00

Bank service charges

$35.00

Error in cheque 1012

1,000.00

5,335.00 Adjusted bank balance

$44,817.00

1,035.00

_________ Adjusted book balance

$44,817.00

In comparing the bank reconciliation to the Cash account in the General Ledger, you notice a problem. You investigate further and come up with some additional information as follows: a. The Cash account in the General Ledger showed the following: Cash Acct. No. 101 Date

Explanation

Debit

Credit

Balance

2023 Feb.28

Balance

42,967

Mar. 31

CR32

Mar. 31

CD47

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54,670

97,637 45,940

51,697

b. The $14,600 deposit in transit represents the February 28 deposit that cleared the bank on March 1. c. The $1,000 error deducted from the book balance is from cheque #1012, for Office Equipment that was correctly drawn by the bank for $7,800 but was recorded incorrectly in the cash disbursements journal as $8,800. d. The bank paid a note on our behalf; $2,500 principal, interest of $380, plus a service charge of $5. There were no other notes collected or paid by the bank in March. e. A $17,200 deposit of March 31 does not appear on the bank statement. Instructions: Prepare a corrected bank reconciliation for March 31, 2023.

138)

The following information pertains to Z-Mart, its competitors, and the industry standards. Z-Mart

Diablo

Luisi

Cash

$10,350

$28,000

$29,000

Accounts receivable

13,140

4,600

15,640

Merchandise inventory

30,480

66,000

40,250

Prepaid expense

1,600

8,000

4,900

Accounts payable

18,800

15,720

28,490

Salaries payable

20,090

30,000

9,750

Other current payables

550

1,200

4,240

The industry standard for the current ratio is 1.8 to 1. The industry standard for the quick ratio is 1 to 1. Instructions: (1) Calculate the current ratio and quick ratio for each firm. (2) Rank the firms in decreasing order of liquidity. (3) Comment on Z-Mart's relative position.

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139) The following information refers to Annie's Attic and competitors in the antiques business. Current Ratio

Quick Ratio

Annie’s Attic

1.7 to 1

.85 to 1

Bart’s Basement

1.3 to 1

.90 to 1

Chisolm’s Collectibles

1.5 to 1

1.1 to 1

Martin’s Meubles

1.6 to 1

.7 to 1

Information: Comment on the relative liquidity positions of the companies.

140)

Annie's Attic reported the following information for September 30. Cash

$23,000

Accounts receivable

53,200

Merchandise inventory

220,000

Prepaid expense

13,200

Accounts payable

83,000

Salaries payable

12,000

Other current payables

1,500

Instructions: (1) Explain the purpose of the quick ratio. (2) Calculate the current ratio to two decimals. (3) Calculate the quick ratio to two decimals. What does the quick ratio reveal about Annie's Attic?

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141) DMS offers lawn and garden maintenance services. DMS customers pay largely by cheque and submit a remittance slip with their payment, to identify the customer account number to which the payment is applied. Ditta Mistry is the company owner and she attended a conference on internal controls. She plans to institute stronger internal controls over customer cash receipts. What controls might Ditta introduce?

142) Contactless payment options include tap to pay technology for both debit and credit cards and the use of mobile wallets wherever contactless payments are accepted. What are the main advantages of these apps?

SECTION BREAK. Answer all the part questions. 143) Jules Company requires a petty cash balance of $250. The company's accountant provided you with the following information regarding payments made from the petty cash fund for the month of January. Office Expenses: January 5

Purchase cream and sugar for coffee station

$63.00

January 11

Purchased floral arrangement for front office reception area

95.00

Marketing proposal sent by express courier to client

36.00

Paid shipping bill for merchandise inventory purchased by Jules

43.00

Delivery Expense January 18 Transportation-In January 26

You inspect the petty cash box and find it has $3 left.

143.1)

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Prepare the Petty Cash Payments Report for January.

143.2)

Make the entry to replenish the petty cash fund at the end of January.

144) The following information is available to Swingset Company to prepare its bank reconciliation at the end of March 2022: The company recorded a $1,764 cheque in payment of an account payable incorrectly as $1,674. The bank charged the company $45 for monthly standard service charges. A review of cashed cheques returned with the bank statement indicated that cheques amounting to$3,431 had not been cashed by March 31. March 31 general ledger Cash account balance is $12,010. The credit memo enclosed with the bank statement showed that the bank collected a $3,458 note plus interest of $125 on behalf of the company. The debit memo included with the bank statement listed a non-sufficient funds (NSF) cheque for $1,758 plus a $25 NSF bank charge as a result of a nonpayment from its customer, Ferrow and Bell. The bank charged the company $37 for printing new cheques during the month. March 31 cash balance on the bank statement is $16,169. The bank recorded a deposit of $7,600 incorrectly as a deposit of $6,700.

144.1)

Prepare the bank reconciliation for Swingset Company at March 31, 2022.

144.2)

Prepare the journal entries resulting from the bank reconciliation.

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Answer Key Test name: Chap 07_17ce_Test Bank 1) TRUE 2) FALSE 3) FALSE 4) FALSE 5) TRUE 6) FALSE 7) TRUE 8) FALSE 9) TRUE 10) TRUE 11) FALSE 12) FALSE 13) TRUE 14) TRUE 15) TRUE 16) TRUE 17) TRUE 18) TRUE 19) FALSE 20) FALSE 21) FALSE 22) FALSE 23) TRUE 24) FALSE 25) TRUE 26) FALSE Version 1

27) TRUE 28) FALSE 29) TRUE 30) FALSE 31) TRUE 32) FALSE 33) FALSE 34) TRUE 35) TRUE 36) FALSE 37) FALSE 38) FALSE 39) TRUE 40) TRUE 41) TRUE 42) TRUE 43) FALSE 44) TRUE 45) FALSE 46) TRUE 47) TRUE 48) TRUE 49) FALSE 50) TRUE 51) FALSE 52) TRUE 53) FALSE 54) FALSE 55) TRUE 56) FALSE Version 1

57) TRUE 58) FALSE 59) FALSE 60) E 61) E 62) D 63) B 64) E 65) D 66) A 67) B 68) E 69) E 70) D 71) B 72) C 73) B 74) A 75) C 76) E 77) D 78) E 79) E 80) D 81) C 82) B 83) A 84) E 85) A 86) A Version 1

87) D 88) D 89) B 90) C 91) E 92) B 93) E 94) D 95) C 96) E 97) D 98) B 99) B 100) C 101) D 102) B 103) D 104) E 105) C 106) D 107) B 108) A 109) C 110) D 111) B 112) B 113) (1) a, d (2) e, b (3) a (4) d (5) f (6) g (7) c (8) e, d (9) g (10) f 114) (1) a (2) a (3) b (4) a (5) a (6) a (7) a (8) a

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115) (1) Book (2) Bank (3) Bank (4) Book (5) Book (6) Bank (7) Book (8) Book (9) Book (10) Book 116) 1.

B-

Outstanding cheques.

B+

Deposits in transit.

Cheque #32, subtracted from the bank balance on last month's bank reconciliation, was returned with this month's statement.

G-

Included with the bank statement was a debit memo for bank service charges.

B+

Cash receipts placed in the bank's night depository after banking hours were not included on the bank statement prepared on the same date.

G-

Cheque #47 was written and recorded by the bank as $753. The business recorded the cheque as $735.

B-

A cheque listed as outstanding on last month's bank reconciliation was not returned with the current month's cancelled cheques.

NE A deposit listed as outstanding on last month's bank reconciliation appeared as a deposit on the current month's bank statement.

G+ A credit memo enclosed with the bank statement shows that the bank collected a note on behalf of the account holder.

10. G-

A debit memo enclosed with the bank statement shows that the bank paid a note on behalf of the account holder.

117) An internal control system is the set of policies and procedures designed to protect the firm's assets and to ensure reliable accounting. It also should promote efficient operations and encourage employees to comply with company policies. 118) Principles of internal control include the following: establishing responsibilities, maintaining adequate records, insuring assets and bonding employees, separating recordkeeping from custody of assets, dividing responsibilities for related transactions, applying technological controls, and performing regular independent reviews.

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119) Cash consists of cash on hand and demand deposits. For example, this would include coins, currency, and amounts on deposits in bank accounts, chequing accounts and some savings accounts. Cash equivalents are short-term, highly liquid investments made to increase earnings. However, they are similar to cash and many companies combine them with cash in a single balance sheet amount. 120) Internal control principles as applied to cash should ensure that all cash received is properly recorded and deposited. Cash receipts are usually generated via over-the-counter sales and through the mail as cheques received as payments on account. Employees who receive cash should not be allowed to record the amounts of the cash received into the accounting system. Technological devices such as cash registers enforce this principle of separation of recordkeeping from custody of cash. Responsibilities for receipt of cash should include at least two people assigned to open mail and prepare a list that includes the sender's name, amount, and explanation for the payment. This meets the internal control principles of establishing responsibilities and dividing responsibility for related transactions. 121) The petty cash account is used to serve as a controlling account for small amounts of cash disbursements. 122) Sept.

Petty Cash

100.00

Cash 10

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100.00

Office Supplies

27.00

Inventory

32.00

Postage Expense

21.50

Cash Over and Short

3.00

Cash 15

Petty Cash

83.50 25.00

Cash

25.00

123) Dec. 31

Postage Expense

43.50

Office Supplies

51.85

Office Equipment Repair Expense

49.00

Cash over and Short

1.40

Cash

145.75

124) Oct.15

Transportation-in

137.00

Delivery Expense

240.00

Repairs Expense

153.00

Postage Expense

230.00

Entertainment Expense

130.00

Petty Cash

500.00

Cash Over and Short

2.00

Cash

1,388.00

125) Oct. 5

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Transportation-in

14.25

Postage Expense

34.50

Office Supplies

36.00

Cash Over and Short

2.25

Petty Cash

60.00

Cash

147.00

126) Feb 28

Office Supplies

55.00

Entertainment Expenses

30.00

Postage Expense

45.00

Transportation-in

65.00

Janitorial Expense

50.00

Cash Over and Short

5.00

Petty Cash

50.00

Cash

190.00

127) Banking activities can be organized into three categories: the bank account, deposit services, and chequing services. A bank account is an account set up by a bank permitting a customer to deposit money for safeguarding and to withdraw funds by writing cheques. A bank deposit is money contributed to the account with a deposit slip as proof. A cheque is a document signed by the authorized representative of the depositor. The cheque instructs the bank to transfer cash from the depositor's account to the payee. The internal control features provided by the bank include safeguarding of cash, record keeping, technological controls, independent review, and divided responsibility for transactions.

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128) The retailer normally receives payment faster than if he had to collect his own credit sales. The retailer transfers the risk of bad debts to the credit card company. The retailer does not have to provide the necessary administrative support required when deciding to grant credit. 129) The retailer hopes to increase their sales and market share by making it easier for customers to make purchases. 130) A bank reconciliation is a procedure designed to explain the differences between the bank balance per the books and the balance on the bank statement. The reconciliation procedure examines the differences based on the information available to each party and adjusts for the differences. It also serves as a format for the discovery and correction of recording errors. 131) Cash

1,422.50

Notes Receivable

1,000.00

Interest Revenue

100.50

Accounts Receivable

322.00

Service charge expense

25.85

Accounts Receivable, Bill Yong

1,057.90

Cash

1,083.75

132)

(a)

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Bank

Ledger(Book)

ADD

DEDUCT

ADD

DEDUCT X

(b)

(c)

(d)

(e)

(f)

(g)

133) Bernie Company Bank Reconciliation June 30, 2023 Bank statement balance, June 30

$14,916.84

Book balance, June 30

$12,244.71

Add: Add: Deposits in transit

3,695.00

Book error cheque 887 3,695.00

110.00 $12,354.71

18,611.84 Deduct: Bank error

Deduct: 100.00

Bank service charges

89.30

Outstanding Cheques 888

2,169.43

890

2,369.00

892

1,452.00

893

256.00

Adjusted bank balance

6,346.43 $12,265.41

_________ Adjusted book balance

$12,265.41

134) Version 1

Wild Oat Company Bank Reconciliation May 31, 2023 Bank statement balance, May 31

$8,660.22

Book balance, May 31

$6,890.22

Add: Add: Deposits in transit

5,600.00

Note Collection 5,600.00

1,110.00 $8,000.22

14,260.22 Deduct:

Deduct: Bank service charges

Outstanding Cheques

6,310.00

6,310.00 __________

Adjusted bank balance

50.00

$7,950.22

__________ Adjusted book balance

$7,950.22

135) Lauren Lunch Service Bank Reconciliation July 31, 2023 Bank statement balance, July 31

$16,020.00

Book balance, July 31

$12,909.22

Add: Add: Deposits in transit

4,500.00

Bookkeeper Error 4,500.00

1,000.78 $13,910.00

20,520.00 Deduct: Bank error

Deduct: 600.00

Bank service charges

200.00

Outstanding Cheques

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1619

3,500.00

1621

1,010.00

1623

1,200.00

1624

500.00

Adjusted bank balance

6,810.00

_________

$13,710.00

Adjusted book balance

$13,710.00

136) Rachel Supply Company Bank Reconciliation May 31, 2023 Bank statement balance, May 31

$44,580.00

Book balance, May 31

$25,850.00

Add: Add:

Book error(1,500-150)

Deposits in transit

2,700.00

1,350.00

Note Collection($500 interest) 4,300.00

47,280.00

$31,500.00

Deduct:

Deduct: Bank service charges

Outstanding Cheques

50.00

15,830.00 _________

Adjusted bank balance

5,650.00

$31,450.00

_________ Adjusted book balance

$31,450.00

137) Finest Hours Dance Service Bank Reconciliation March 31, 2023 Bank statement balance, March 31

$35,552.00

Book balance, March 31

$51,697.00

Add: Add: Deposits in transit

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Error in cheque 1012 17,200.00

1,000.00 _________

17,200.00

$52,697.00

52,752.00 Deduct:

Deduct:

Outstanding Cheques

Bank service charges

$35.00

NSF, customer Borne

1,180.00

Note paid by bank 2,885.00 1037

3,615.00

1072

540.00

4,100.00

4,155.00 Adjusted bank balance

_________

$48,597.00

Adjusted book balance

$48,597.00

138) (1)

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Z-Mart

Diablo

Luisi

Cash

$10,350

$28,000

$29,000

Accounts Receivable

13,140

4,600

15,640

Merchandise Inventory

30,480

66,000

40,250

Prepaid expenses

1,600

8,000

4,900

Total Current Assets

$55,570

$106,600

$89,790

Accounts Payable

$18,800

$15,720

$28,490

Salary Payable

20,090

30,000

9,750

Other Payable

550

1,200

4,240

Total Current Liabilities

$39,440

$46,920

$42,480

Current Ratio

1.41

2.27

2.11

Z-Mart

Diablo

Luisi

Cash

$10,350

$28,000

$29,000

Accounts Receivable

13,140

4,600

15,640

Total Quick Assets

$23,490

$32,600

$44,640

Accounts Payable

$18,800

$15,720

$28,490

Salary Payable

20,090

30,000

9,750

Other Payable

550

1,200

4,240

Total Current Liabilities

39440

$46,920

$42,480

Quick Ratio

0.60

0.69

1.05

(2) Rank Order Current Ratio

Quick Ratio

Diablo

2.27 to 1

Luisi

1.05 to 1

Luisi

2.11 to 1

Diablo

0.69 to 1

Z-Mart

1.41 to 1

Z-Mart

0.60 to 1

(3) Both the current and quick ratios for Z-Mart are below the industry standard which would indicate a liquidity problem. Z-Mart's current ratio shows that there is $1.41 for every one dollar of current liability. As a stricter measure, the quick ratio tells us Z-Mart has $0.60 of quick assets to cover each $1.00 of current obligations. 139) Both Chisolm's Collectibles and Bart's Basement have acceptable levels of liquidity. Even though Annie's Attic and Martin's Meubles have acceptable current ratios, their quick ratios indicate a liquidity problem. 140) (1) The purpose of the quick ratio or the acid-test ratio is to measure the ability of a firm to convert assets into cash. The cash is then available to pay current liabilities.(2) Current ratio:

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Cash

$23,000

Accounts Receivable

53,200

Merchandise Inventory

220,000

Prepaid expenses

13,200

Total Current Assets

$309,400

Accounts Payable

$83,000

Salary Payable

12,000

Other Payable

1,500

Total Current Liabilities

$96,500

Current Ratio

3.21

(3) Annie's Attic does not have enough quick assets to be considered liquid. The business has too much money tied up in inventory. Annie's Attic's quick assets can only cover 79 cents for every $1 of its current liabilities. Cash

$23,000

Accounts Receivable

53,200

Total Quick Assets

$76,200

Accounts Payable

$83,000

Salary Payable

12,000

Other Payable

1,500

Total Current Liabilities

96,500

Quick Ratio

0.79

141) Someone other than the accountant should open the mail and separate customer cheques from the accompanying remittance slips. An employee with no access to accounting records deposits cash in bank immediately. Remittance slips go to the staff person who uses them to update customer accounts (post credits to customer sub-ledger account). A third person, such as owner or senior manager, should compare the amount of the posting to customer sub-ledger accounts to bank deposits made. Person who handles cash should not do the bank reconciliation.

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142) The main advantages are convenience and efficiency. Merchants can serve customers more efficiently by offering convenient methods of contactless payment options to them. The need for efficiency at the point of sale is significant because of the huge volumes of transactions now being handled electronically. Security is another advantage. Security is a growing concern given the increase in electronic payments and related increase in fraud. For instance the new Interact Flash card is reported to enhance protection against security issues like skimming, counterfeiting, transaction replay types of fraud, and electronic pickpocketing. Controls can be put in place to limit the risk of other types of losses. For example, most banks and financial institutions require that cardholders enter their PIN if a purchase is answers are correct a certain dollar amount. 143) Section Break 143.1) Jules Company Petty Cash Payments Report Receipts: Office Expenses January 5

Purchase cream and sugar for coffee station

$63.00

January 11

Purchased floral arrangement for front office reception area

95.00

$158.00

Delivery Expense January 18

Marketing proposal sent by express courier to client

36.00

Paid shipping bill for merchandise inventory purchased by Jules

43.00

Transportation-In January 26

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Total Receipts

$237.00

Petty Cash Fund Total

$250.00

Less: Cash Remaining

3.00

Cash required to replenish petty cash fund

$247.00

Cash Over (Short)

($ 10.00)

143.2) Office Expense

158

Delivery Expense

Merchandise Inventory

Cash Over and Short

Cash

247

144) Section Break 144.1) Swingset Company Bank Reconciliation March 31, 2022 Bank statement balance

$16,169.00

Book balance,

$12,010.00

Add: Add: Deposit bankerror

900.00

Note paid by bank

3,583.00

900.00

$15,593.00

17,069.00 Deduct: Outstanding Cheques

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Deduct: 3,431.00

NSF Cheque

$1,783.00

Error

90.00

Cheque printing

37.00

Service Charge

45.00 1,955.00

Adjusted bank balance

3,431.00

_________

$13,638.00 Adjusted book balance

$13,638.00

144.2) Cash Note receivable

3,458

Interest revenue

125

Bank Service Charge Expense

Office Supplies Expense

Accounts receivable, Ferrow and Bell

1,783

Accounts payable

Cash

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3,583

1,955

CHAPTER 8: ALGO MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 1) A company had net sales of $31,000 and accounts receivable of $3,200 for the current period. Its days' sales uncollected equals: (Use 365 days a year.) A) 9.69 days. B) 48.88 days. C) 29.68 days. D) 37.68 days. E) 52.98 days.

The following information is taken from Reagan Company's December 31 balance sheet:

Cash and cash equivalents Accounts receivable

9,419 75,422

Merchandise inventories

65,362

Prepaid expenses

5,100

Accounts payable Notes payable

$ 15,950 91,638

Other current liabilities

10,500

If net sales for the current year were $606,500, the firm's days' sales uncollected for the year is: (Use 365 days a year.) A) 45.4 days B) 65.9 days C) 157.4 days D) 76.0 days E) 39.3 days

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The interest accrued on $4,800 at 7% for 75 days is: (Use 360 days a year.) A) $39. B) $392. C) $70. D) $168. E) $34.

4) A company receives a 10%, 90-day note for $7,500. The total interest due on the maturity date is: (Use 360 days a year.) A) $250.00. B) $375.00. C) $437.50. D) $187.50. E) $750.00.

5) A company borrowed $29,000 by signing a 90-day promissory note at 12%. The total interest due on the maturity date is. (Use 360 days a year.) A) $72.50 B) $435.00 C) $870.00 D) $1,305.00 E) $3,480.00

6) A company borrowed $24,000 by signing a 210-day promissory note at 6%. The total to be paid at maturity of the note is: (Use 360 days a year.) A) $24,840.00 B) $28,254.29 C) $28,534.29 D) $29,374.29 E) $29,554.29

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7) A company factored $54,000 of its accounts receivable and was charged a 3% factoring fee. The journal entry to record this transaction would include a: A) Debit to Cash of $52,380, a debit to Factoring Fee Expense of $1,620, and a credit to Accounts Receivable of $54,000. B) Debit to Cash of $55,620 and a credit to Accounts Receivable of $55,620. C) Debit to Cash of $54,000 and a credit to Accounts Receivable of $54,000. D) Debit to Cash of $54,000 and a credit to Notes Payable of $54,000. E) Debit to Cash of $54,000, a debit to Factoring Fee Expense of $1,620, and credit to Accounts Receivable of $52,380.

8) A company has net sales of $2,254,200 and average accounts receivable, net of $442,000. What is its accounts receivable turnover for the period? A) 0.41 B) 9.20 C) 26.30 D) 81.40 E) 5.10

9) A company had net sales of $590,000, total sales of $740,000, and average accounts receivable, net of $80,500. Its accounts receivable turnover equals: A) 0.80 B) 0.14 C) 0.11 D) 7.33 E) 9.19

10) A company had total sales of $920,000, net sales of $897,000, and an average accounts receivable, net of $115,000. Its accounts receivable turnover equals:

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A) 7.8 B) 71.0 C) 62.8 D) 1.0 E) 8.0

11) Gideon Company uses the allowance method of accounting for uncollectible accounts. On May 3, the Gideon Company wrote off the $2,900 uncollectible account of its customer, A. Hopkins. The entry or entries Gideon makes to record the write off of the account on May 3 is: A) Accounts Receivable—A. Hopkins

2,900

Allowance for Doubtful Accounts

2,900

B) Allowance for Doubtful Accounts

2,900

Bad debts expense

2,900

C) Accounts Receivable—A. Hopkins

2,900

Bad debts expense Cash

2,900 2,900

Accounts Receivable—A. Hopkins

2,900

D) Allowance for Doubtful Accounts

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2,900

Accounts Receivable—A. Hopkins

2,900

E) Cash

2,900

Accounts Receivable—A. Hopkins

2,900

12) On December 31 of the current year, the unadjusted trial balance of a company using the percent of receivables method to estimate bad debt included the following: Accounts Receivable, debit balance of $98,800; Allowance for Doubtful Accounts, credit balance of $1,121. What amount should be debited to Bad Debts Expense, assuming 5% of outstanding accounts receivable at the end of the current year are estimated to be uncollectible? A) $2,927. B) $6,061. C) $4,940. D) $1,121. E) $3,819.

13) At the end of the current year, using the aging of accounts receivable method, management estimated that $21,750 of the accounts receivable balance would be uncollectible. Prior to any year-end adjustments, the Allowance for Doubtful Accounts had a debit balance of $575. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense? A) Bad Debts Expense

21,750

Allowance for Doubtful Accounts

21,750

B) Bad Debts Expense Allowance for Doubtful Accounts

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21,175 21,175

C) Bad Debts Expense

22,325

Allowance for Doubtful Accounts

22,325

D) Accounts Receivable Bad Debts Expense

21,750 575

Sales

22,325

E) Accounts Receivable

22,325

Allowance for Doubtful Accounts

22,325

14) At the end of the current year, using the aging of accounts receivable method, management estimated that $31,750 of the accounts receivable balance would be uncollectible. Prior to any year-end adjustments, the Allowance for Doubtful Accounts had a credit balance of $535. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense? A) Bad Debts Expense

32,285

Allowance for Doubtful Accounts

32,285

B) Bad Debts Expense Allowance for Doubtful Accounts

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31,750 31,750

C) Bad Debts Expense

31,215

Allowance for Doubtful Accounts

31,215

D) Accounts Receivable Bad Debts Expense

31,750 535

Sales

32,285

E) Accounts Receivable

32,285

Allowance for Doubtful Accounts

32,285

15) A company uses the percent of sales method to determine its bad debts expense. At the end of the current year, the company's unadjusted trial balance reported the following selected amounts:

Accounts Receivable Net Sales

$ 345,000 debit 790,000 credit

All sales are made on credit. Based on past experience, the company estimates that 0.6% of net sales are uncollectible. What amount should be debited to Bad Debts Expense when the year-end adjusting entry is prepared?

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A) $4,040 B) $5,440 C) $1,370 D) $4,740 E) $2,770

16) A company uses the percent of sales method to determine its bad debts expense. At the end of the current year, the company's unadjusted trial balance reported the following selected amounts:

Accounts Receivable Net Sales

$ 391,000 debit 960,000 credit

All sales are made on credit. Based on past experience, the company estimates that 0.5% of net sales are uncollectible. What amount should be debited to Bad Debts Expense when the year-end adjusting entry is prepared? A) $1,423 B) $2,083 C) $3,910 D) $4,800 E) $5,230

17) A company uses the percent of sales method to determine its bad debts expense. At the end of the current year, the company's unadjusted trial balance reported the following selected amounts:

Accounts receivable Net Sales

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$ 352,000 debit 797,000 credit

All sales are made on credit. Based on past experience, the company estimates 0.5% of net sales to be uncollectible. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense? A) Debit Bad Debts Expense $2,390; credit Allowance for Doubtful Accounts $2,390. B) Debit Bad Debts Expense $3,355; credit Allowance for Doubtful Accounts $3,355. C) Debit Bad Debts Expense $1,760; credit Allowance for Doubtful Accounts $1,760. D) Debit Bad Debts Expense $3,985; credit Allowance for Doubtful Accounts $3,985. E) Debit Bad Debts Expense $4,615; credit Allowance for Doubtful Accounts $4,615.

18) A company has $105,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts. Experience suggests that 3% of outstanding receivables are uncollectible. The current balance (before adjustments) in the allowance for doubtful accounts is an $950 debit. The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for: A) $3,150 B) $3,122 C) $3,179 D) $2,200 E) $4,100

19) A company has $91,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts. Experience suggests that 5% of outstanding receivables are uncollectible. The current balance (before adjustments) in the allowance for doubtful accounts is an $810 credit. The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for: A) $3,740 B) $4,510 C) $4,591 D) $4,550 E) $5,360

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20) Jasper makes a $90,000, 90-day, 7% cash loan to Clayborn Co. Jasper's entry to record the transaction should be: A) Debit Notes Receivable for $90,000; credit Cash $90,000. B) Debit Accounts Receivable $90,000; credit Notes Receivable $90,000. C) Debit Cash $90,000; credit Notes Receivable for $90,000. D) Debit Notes Payable $90,000; credit Accounts Payable $90,000. E) Debit Notes Receivable $90,000; credit Sales $90,000.

21) Jasper makes a $36,000, 90-day, 9.0% cash loan to Clayborn Co. The amount of interest that Jasper will collect on the loan is: (Use 360 days a year.) A) $3,240. B) $270.00. C) $810.00. D) $36.00. E) $1,620.00.

22) Jasper makes a $47,000, 90-day, 8% cash loan to Clayborn Company. Jasper's entry to record the collection of the note and interest at maturity should be: (Use 360 days a year.) A) Debit Cash for $47,000; credit Notes Receivable $47,000. B) Debit Cash $47,940; credit Interest Revenue $940; credit Notes Receivable $47,000. C) Debit Cash $47,940; credit Notes Receivable for $47,940. D) Debit Notes Payable $47,000; Debit Interest Expense $3,760; credit Cash $50,760. E) Debit Cash $50,760; credit Interest Revenue $3,760, credit Notes Receivable $47,000.

23) Defy Company makes a $67,000, 90-day, 10% cash loan to Ryan Co. The note and interest to be collected at maturity is: (Use 360 days a year.)

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A) $67,000. B) $1,675. C) $68,675. D) $65,325. E) $73,700.

24) The total amount of the note and interest due on the maturity date of a $11,200, 90-day 7%, note receivable is: (Use 360 days a year.) A) $11,984. B) $10,416. C) $11,004. D) $11,396. E) $11,200.

25) Giorgio Italian Market bought $10,400 worth of merchandise from Food Suppliers and signed a 45-day, 7% promissory note for the $10,400. Food Supplier's journal entry to record the sales transaction is: A) Debit Accounts Receivable $10,400; credit Sales $10,400. B) Debit Notes Receivable $10,400; debit Interest Receivable $91; credit Sales $10,491. C) Debit Notes Receivable $10,491; credit Sales $10,491. D) Debit Accounts Receivable $10,491; credit Sales $10,491. E) Debit Notes Receivable $10,400; credit Sales $10,400.

26) Giorgio Italian Market bought $7,200 worth of merchandise from Food Suppliers and signed a 90-day, 8% promissory note for the $7,200. Food Supplier's journal entry to record the collection on the maturity date is: (Use 360 days a year.) A) Debit Cash $7,344; credit Notes Receivable $7,344 B) Debit Notes Receivable $7,200; credit Cash $7,200 C) Debit Cash $7,200; debit Interest Receivable $144; credit Sales $7,344 D) Debit Notes Receivable $7,344; credit Sales $7,344 E) Debit Cash $7,344; credit Interest Revenue $144; credit Notes Receivable $7,200

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27) Jax Recording Studio purchased $8,000 in electronic components from Music World. Jax signed a 60-day, 6% promissory note for $8,000. Music World's journal entry to record the sales transaction is: A) Debit Notes Receivable $8,000; credit Sales $8,000 B) Debit Accounts Receivable $8,000; credit Sales $8,000 C) Debit Notes Receivable $8,080; credit Sales $8,080 D) Debit Notes Receivable $8,000; debit Interest Receivable $80; credit Sales $8,080 E) Debit Accounts Receivable $8,080; credit Sales $8,080

28) Uniform Supply accepted a $16,800, 90-day, 7% note from Tracy Janitorial on October 17. What entry should Uniform Supply make on January 15 of the next year when the note is paid?. (Use 360 days a year.) A) Debit Cash $17,094; credit Interest Revenue $49; credit Interest Receivable $245; credit Notes Receivable $16,800. B) Debit Notes Receivable $16,800; debit Interest Receivable $294; credit Sales $17,094. C) Debit Cash $17,094; credit Interest Revenue $245; credit Interest Receivable $49; credit Notes Receivable $16,800. D) Debit Cash $17,094; credit Interest Revenue $294; credit Notes Receivable $16,800. E) Debit Cash $17,094; credit Notes Receivable $17,094.

29) Uniform Supply accepted a $4,800, 90-day, 12% note from Tracy Janitorial on October 17. If the note is dishonored, but Uniform Supply intends to continue collection efforts, what entry should Uniform Supply make on January 15 of the next year? (Use 360 days a year.) A) Debit Cash $4,944; credit Interest Revenue $24; credit Interest Receivable $120, credit Notes Receivable $4,800. B) Debit Cash $4,944; credit Interest Revenue $120; credit Interest Receivable $24, credit Notes Receivable $4,800. C) Debit Accounts Receivable $4,944; credit Interest Revenue $24; credit Interest Receivable $120, credit Notes Receivable $4,800. D) Debit Notes Receivable $4,800; debit Interest Receivable $144; credit Sales $4,944. E) Debit Cash $4,944; credit Notes Receivable $4,944.

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30) Valley Spa purchased $10,900 in plumbing components from Tubman Co. Valley Spa signed a 60-day, 6% promissory note for $10,900. If the note is dishonored, what is the amount due on the note? (Use 360 days a year.) A) $11,230 B) $10,900 C) $109 D) $11,009 E) $11,150

31) Valley Spa purchased $10,500 in plumbing components from Tubman Co. Valley Spa signed a 60-day, 8% promissory note for $10,500. If the note is dishonored, but Tubman intends to continue collection efforts, what is the journal entry made by Tubman to record the dishonored note? (Use 360 days a year.) A) Debit Accounts Receivable—Valley Spa $10,640; debit Bad Debt Expense $140; credit Notes Receivable $10,500. B) Debit Bad Debt Expense $10,640; credit Accounts Receivable—Valley Spa $10,640. C) Debit Bad Debt Expense $10,500; credit Notes Receivable $10,500. D) Debit Accounts Receivable—Valley Spa $10,500; credit Notes Receivable $10,500. E) Debit Accounts Receivable—Valley Spa $10,640, credit Interest Revenue $140; credit Notes Receivable $10,500.

32) Jervis sells $3,300 of its accounts receivable to Northern Bank in order to obtain necessary cash. Northern Bank charges a 4% factoring fee. What entry should Jervis make to record the transaction? A) Debit Cash $3,168; debit Factoring Fee Expense $132; credit Accounts Receivable $3,300 B) Debit Accounts Receivable $3,168; debit Factoring Fee Expense $132; credit Cash $3,300. C) Debit Cash $3,300; credit Factoring Fee Expense $132; credit Accounts Receivable $3,300 D) Debit Cash $3,168; credit Accounts Receivable $3,168 E) Debit Accounts Receivable $3,300; credit Factoring Fee Expense $132; credit Cash $3,168

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33) Craigmont uses the allowance method to account for uncollectible accounts. Its year-end unadjusted trial balance shows Accounts Receivable of $110,500, allowance for doubtful accounts of $725 (credit) and sales of $955,000. If uncollectible accounts are estimated to be 7% of accounts receivable, what is the amount of the bad debts expense adjusting entry? A) $8,460 B) $7,735 C) $7,010 D) $7,195 E) $7,345

34) Craigmont uses the allowance method to account for uncollectible accounts. Its year-end unadjusted trial balance shows Accounts Receivable of $126,500 and sales of $1,035,000. If uncollectible accounts are estimated to be 0.6% of sales, what is the amount of the bad debts expense adjusting entry? A) $6,210 B) $5,325 C) $7,095 D) $6,335 E) $6,410

35) On July 9, Mifflin Company receives a $9,000, 90-day, 6% note from customer Payton Summers as payment on account. Compute the amount due at maturity for the note and interest.(Use 360 days a year.) A) $8,756 B) $9,135 C) $9,090 D) $9,000 E) $9,102

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36) On July 9, Mifflin Company receives a $9,400, 90-day, 8% note from customer Payton Summers to replace an account receivable. What entry should be made by Mifflin on July 9 to record receipt of the note? A) Debit Notes Receivable $9,588; credit Sales $9,588. B) Debit Notes Receivable $9,400; credit Accounts Receivable—P. Summers $9,400. C) Debit Notes Receivable $9,400; credit Sales $9,400. D) Debit Notes Receivable $9,649; credit Interest Revenue $249; credit Accounts Receivable—P. Summers $9,400. E) Debit Accounts Receivable—P. Summers $9,400; credit Sales $9,400.

37) On July 9, Mifflin Company receives an $8,200, 120-day, 6% note from customer Payton Summers to replace an account receivable. What entry should be made by Mifflin on the maturity date assuming the maker pays in full, and no adjusting entries have been made related to the note? (Use 360 days a year.) A) Debit Notes Receivable $8,200; debit Interest Receivable $164; credit Sales $8,364. B) Debit Cash $8,293; credit Interest Revenue $93; credit Notes Receivable $8,200. C) Debit Cash $8,364; credit Interest Revenue $164; credit Notes Receivable $8,200. D) Debit Cash $8,282; credit Interest Revenue $82; credit Notes Receivable $8,200. E) Debit Cash $8,200; credit Notes Receivable $8,200.

38) On November 19, Nicholson Company receives a $22,800, 60-day, 5% note from a customer to replace an account receivable. What adjusting entry should be made by Nicholson on the December 31 year-end? (Use 360 days a year.) A) Debit Interest Revenue $190; credit Interest Receivable $190. B) Debit Notes Receivable $133; credit Interest Revenue $133. C) Debit Notes Receivable $133; credit Interest Receivable $133. D) Debit Interest Receivable $133; credit Interest Revenue $133. E) Debit Interest Receivable $57; credit Interest Revenue $57.

39) On November 1, Orpheum Company accepted a $11,300, 90-day, 12% note from a customer to replace an account receivable. What entry should be made by Orpheum on the November 1 to record the acceptance of the note?

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A) Debit Notes Receivable $11,300; credit Cash $11,300. B) Debit Notes Receivable $11,300; credit Accounts Receivable $11,300. C) Debit Notes Receivable $11,300; credit Sales $11,300. D) Debit Notes Receivable $11,639; credit Accounts Receivable $11,300; credit Interest Revenue $339. E) Debit Sales $11,300; credit Accounts Receivable $11,300.

40) The unadjusted trial balance at year-end for a company that uses the percent of receivables method to determine its bad debts expense reports the following selected amounts:

Accounts Receivable Allowance for Doubtful Accounts

Net Sales

432,000 Debit 1,380 Debit 2,230,000 Credit

All sales are made on credit. Based on past experience, the company estimates 3.0% of ending accounts receivable to be uncollectible. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense? A) Debit Bad Debts Expense $6,690; credit Allowance for Doubtful Accounts $6,690. B) Debit Bad Debts Expense $16,690; credit Allowance for Doubtful Accounts $16,690. C) Debit Bad Debts Expense $14,340; credit Allowance for Doubtful Accounts $14,340. D) Debit Bad Debts Expense $11,580; credit Allowance for Doubtful Accounts $11,580. E) Debit Bad Debts Expense $12,960; credit Allowance for Doubtful Accounts $12,960.

41) The unadjusted trial balance at year-end for a company that uses the percent of receivables method to determine its bad debts expense reports the following selected amounts:

Accounts receivable Allowance for Doubtful Accounts

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438,000 Debit 1,280 Credit

Net Sales

2,130,000 Credit

All sales are made on credit. Based on past experience, the company estimates 2.0% of ending accounts receivable to be uncollectible. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense? A) Debit Bad Debts Expense $7,480; credit Allowance for Doubtful Accounts $7,480. B) Debit Bad Debts Expense $8,760; credit Allowance for Doubtful Accounts $8,760. C) Debit Bad Debts Expense $10,040; credit Allowance for Doubtful Accounts $10,040. D) Debit Bad Debts Expense $4,260; credit Allowance for Doubtful Accounts $4,260. E) Debit Bad Debts Expense $14,260; credit Allowance for Doubtful Accounts $14,260.

42) The following selected amounts are reported on the year-end unadjusted trial balance report for a company that uses the percent of sales method to determine its bad debts expense.

Accounts receivable Net Sales

425,000 Debit 2,300,000 Credit

All sales are made on credit. Based on past experience, the company estimates 3.0% of sales to be uncollectible. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense? A) Debit Bad Debts Expense $67,550; credit Allowance for Doubtful Accounts $67,550. B) Debit Bad Debts Expense $14,200; credit Allowance for Doubtful Accounts $14,200. C) Debit Bad Debts Expense $70,450; credit Allowance for Doubtful Accounts $70,450. D) Debit Bad Debts Expense $69,000; credit Allowance for Doubtful Accounts $69,000. E) Debit Bad Debts Expense $12,750; credit Allowance for Doubtful Accounts $12,750.

43) On February 1, a customer's account balance of $3,200 was deemed to be uncollectible. What entry should be recorded on February 1 to record the write-off assuming the company uses the allowance method? Version 1

A) Debit Allowance for Doubtful Accounts $3,200; credit Bad Debts Expense $3,200. B) Debit Bad Debts Expense $3,200; credit Accounts Receivable $3,200. C) Debit Bad Debts Expense $3,200; credit Allowance for Doubtful Accounts $3,200. D) Debit Allowance for Doubtful Accounts $3,200; credit Accounts Receivable $3,200. E) Debit Accounts Receivable $3,200; credit Allowance for Doubtful Accounts $3,200.

44) Winkler Company borrows $92,000 and pledges its receivables as security. The journal entry to record this transaction would be: A) Debit Cash of $92,000 and credit Accounts Receivable $92,000. B) Debit Cash of $92,000 and credit Accounts Payable $92,000. C) Debit Notes Receivable $92,000 and credit Accounts Receivable $92,000. D) Debit Cash $92,000 and credit Notes Payable $92,000. E) Debit Accounts Receivable $92,000 and credit Notes Payable $92,000.

45) Mullis Company sold merchandise on account to a customer for $645, terms n/30. The journal entry to record this sale transaction would be: A) Debit Cash of $645 and credit Sales $645. B) Debit Cash of $645 and credit Accounts Receivable $645. C) Debit Accounts Receivable $645 and credit Sales $645. D) Debit Accounts Receivable $645 and credit Cash $645. E) Debit Sales $645 and credit Accounts Receivable $645.

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Answer Key Test name: Chap 08_17ce_Test Bank_Algo 1) D Days' Sales Uncollected Ratio = Accounts Receivable/Net Sales × 365 Days' Sales Uncollected Ratio = ($3,200/$31,000) × 365 = 37.68 days 2) A Days' Sales Uncollected Ratio = Accounts Receivable/Net Sales × 365 Days' Sales Uncollected Ratio = ($75,422/$606,500) × 365 = 45.4 days 3) C $4,800 × 0.07 × 75/360 = $70 4) D $7,500 × 0.10 × 90/360 = $187.50 5) C $29,000 × 0.12 × 90/360 = $870.00 6) A $24,000 + ($24,000 × 0.06 × 210/360) = $24,840.00 7) A $54,000 × 0.03 = $1,620; $54,000 − $1,620 = $52,380 8) E Accounts Receivable Turnover = Net Sales/Average Accounts Receivable, Net Accounts Receivable Turnover = $2,254,200/$442,000 = 5.10 9) D Accounts Receivable Turnover = Net Sales/Average Accounts Receivable, Net Accounts Receivable Turnover = $590,000/$80,500 = 7.33 10) A

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Accounts Receivable Turnover = Net Sales/Average Accounts Receivable, Net Accounts Receivable Turnover = $897,000/$115,000 = 7.8 11) D 12) E Desired balance in allowance account: Current balance in allowance account:

$98,800 × 0.05 = $ 4,940 credit

Required: amount of Bad Debts Expense:

$ 3,819 credit

− 1,121 credit

13) C Desired balance in allowance account: Current balance:

$ 21,750 credit 575 debit

Required: adjustment to allowance

$ 22,325 credit

14) C Desired balance in allowance account: Current balance:

$ 31,750 credit 535 credit

Required: adjustment to allowance

$ 31,215 credit

15) D $790,000 × 0.006 = $4,740 16) D $960,000 × 0.005 = $4,800 17) D Version 1

$797,000 × 0.005 = $3,985 18) E Desired balance in allowance account: Current balance in allowance account: Adjustment to allowance:

$105,000 × 0.03 =

$ 3,150 credit +

950 debit

$ 4,100 credit

19) A Desired balance in allowance account: Current balance in allowance account: Adjustment to allowance:

$91,000 × 0.05 = $ 4,550 credit -810 credit $ 3,740 credit

20) A 21) C $36,000 × 9.0% × 90/360 = $810.00 22) B 23) C $67,000 × 0.10 × 90/360 = $1,675 interest. $67,000 + $1,675 = $68,675 maturity value. 24) D Interest: $11,200 × 0.07 × 90/360 = $196 Maturity value: $11,200 + $196 = $11,396 25) E 26) E

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Interest = $7,200 × 0.08 × 90/360 = $144 Maturity Value = $7,200 + $144 = $7,344 27) A 28) A Interest accrued at December 31: $16,800 × 0.07 × 75/360 = $245 Interest earned during January: $16,800 × 0.07 × 15/360 = $49 29) C Interest accrued at December 31: $4,800 × 0.12 × 75/360 = $120 Interest earned during January: $4,800 × 0.12 × 15/360 = $24 30) D $10,900 × 0.06 × 60/360 = $109 $109 + $10,900 = $11,009 31) E $10,500 × 8% × 60/360 = $140 + $10,500 = $10,640 32) A Factoring fee expense: $3,300 × 0.04 = $132 Cash received: $3,300 − $132 = $3,168 33) C $110,500 × 0.07 = $7,735 − $725 = $7,010 34) A $1,035,000 × 0.006 = $6,210 35) B $9,000 × 0.06 × 90/360 = $135 + $9,000 = $9,135 36) B 37) C $8,200 × 0.06 × 120/360 = $164 + $8,200 = $8,364 38) D $22,800 × 0.05 × 42/360 = $133 39) B 40) C $432,000 × 0.030 = $12,960 + $1,380 = $14,340 Version 1

41) A $438,000 × 0.020 = $8,760 − $1,280 = $7,480 42) D $2,300,000 × 0.03 = $69,000 43) D 44) D 45) C

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CHAPTER 8 TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Accounts receivable arise from credit sales to customers by both retailers and wholesalers. ⊚ ⊚

true false

Credit sales are recorded by crediting account receivable for a specific customer. ⊚ ⊚

true false

3) As long as a company accurately records credit sales information, it is not necessary to have accounts for specific customers. ⊚ ⊚

true false

4) If a customer owes interest on a bill, Accounts Receivable is debited, and Interest Expense is credited. ⊚ ⊚

true false

5) TechCom customer, RDA Electronics paid off an $8,300 balance on its account receivable. TechCom should record the transaction as a debit to Accounts Receivable-RDA Electronics and a credit to Cash. ⊚ ⊚

true false

Quality of receivables refers to the likelihood of collection without loss. ⊚ ⊚

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true false

The use of an allowance for bad debts is required under the materiality principle. ⊚ ⊚

true false

8) The advantage of the allowance method of accounting for bad debts is that it identifies the customers who won't pay their bills. ⊚ ⊚

true false

9) If the allowance method is used, the journal entry to record the reinstatement of an account previously written off in the current period includes a debit to Accounts Receivable and a credit to Bad Debt Expense. ⊚ ⊚

true false

10) The aging of accounts receivable examines each account receivable to estimate the amount that is uncollectible. ⊚ ⊚

11)

true false

Installment accounts receivable is another name for aging accounts receivable. ⊚ ⊚

true false

12) The percentage of sales approach for estimating bad debts is based on the idea that a percent of a company's credit sales for the period are uncollectible. ⊚ ⊚

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true false

13) The accounts receivable approach uses income statement relationships to estimate bad debts. ⊚ ⊚

true false

14) TechCom has $40,000 in outstanding accounts receivable. Past experience suggests that 5% of outstanding receivables are uncollectible. The current balance in the allowance for doubtful accounts is $2,500 debit. The required adjusting journal entry includes a debit to bad debt expense for $4,500. ⊚ ⊚

true false

15) TechCom has sales of $350,000 and estimates that 0.5% of its sales are uncollectible. The amount of bad debt expense to be recorded is $17,500. ⊚ ⊚

true false

16) The direct write-off method of accounting for bad debts records the loss from an uncollectible account receivable at the time it is determined to be uncollectible. ⊚ ⊚

17)

true false

The matching principle requires use of the direct write-off method. ⊚ ⊚

true false

18) Companies must follow both the matching principle and the materiality principle when considering the use of the direct write-off method.

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⊚ ⊚

19)

The direct write-off method satisfies generally accepted accounting principles. ⊚ ⊚

20)

true false

The direct write-off method does not use the allowance for doubtful account. ⊚ ⊚

21)

true false

The materiality principle is justification for using the direct-write-off method. ⊚ ⊚

true false

22) The allowance method complies with the generally accepted accounting principle of matching. ⊚ ⊚

true false

23) Small business owners use the direct write-off method because it is simpler than the allowance method. ⊚ ⊚

24)

true false

Notes receivable do not require a subsidiary ledger. ⊚ ⊚

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true false

25)

Notes receivable are classified as current liabilities. ⊚ ⊚

26)

true false

The maturity date of a note is the day the note is signed. ⊚ ⊚

true false

27) A promissory note is a written promise to pay a specified amount of money either on demand or at a definite future date. ⊚ ⊚

true false

28) The formula for computing interest on a note receivable is principal multiplied by interest rate multiplied by time. ⊚ ⊚

29)

true false

The person that borrows money and signs a promissory note is called the payee. ⊚ ⊚

true false

30) Augusto Diaz borrowed $1,000 and signed a 6-month promissory note at 11% interest. The total amount of interest is $110.00. ⊚ ⊚

true false

31) Phuong Vo borrowed $5,000 and signed a 3-month promissory note at 10%. The total interest on the note is $125.

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⊚ ⊚

true false

32) TechCom received a $1,000, 90-day, 10% note receivable from Danny Outlaw. The journal entry to record the note includes a debit to notes receivable. ⊚ ⊚

true false

33) It is a bad business practice to accept a note receivable in exchange for an overdue account receivable. ⊚ ⊚

34)

A payee of a note usually honours a note and pays it in full. ⊚ ⊚

35)

true false

A maker who dishonours a note does not pay it at maturity. ⊚ ⊚

36)

true false

A dishonoured note receivable is reclassified as an account receivable. ⊚ ⊚

true false

37) The practice of placing dishonoured notes receivable into Accounts Receivable keeps only current notes receivable in the Notes Receivable account. ⊚ ⊚

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true false

38) The matching principle requires that accrued interest on outstanding accounts receivable be recorded at the end of an accounting period. ⊚ ⊚

true false

39) Receivables can be converted to cash by either selling them or using them as security for a loan. ⊚ ⊚

true false

40) A company can raise cash by borrowing money, and then pledging its accounts receivable as security for the loan. ⊚ ⊚

true false

41) Because pledged receivables only serve as collateral for a loan and are not sold, it is not necessary to disclose the pledging. ⊚ ⊚

true false

42) A contingent liability is an obligation to make a future payment if an uncertain future event occurs. ⊚ ⊚

true false

43) When a note is discounted to a bank without recourse, the bank assumes the risk of a bad debt loss and the original payee doesn't have a contingent liability. ⊚ ⊚

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true false

44) TechCom factored $35,000 of its accounts receivable and was charged a 2% factoring fee. The journal entry to record this would include a debit to Cash of $35,000; a debit to Factoring Fee Expense of $700; and a credit to Accounts Receivable of $35,700. ⊚ ⊚

true false

45) Accounts receivable turnover shows how often a company converts its average accounts receivable balance into cash during the period. ⊚ ⊚

true false

46) A high accounts receivable turnover rate in comparison with that of competitors' suggests that the firm should tighten its credit policy. ⊚ ⊚

true false

47) Accounts receivable turnover is calculated by dividing net sales by average accounts receivable. ⊚ ⊚

true false

48) TechCom had net sales of $480,000 and average accounts receivable of $64,000. Its accounts receivable turnover was 7.5. ⊚ ⊚

true false

49) Compaq had net sales of $10,500 million. Its average account receivables were $1,750 million. Its accounts receivable turnover was 6.

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⊚ ⊚

50)

The days' sales uncollected ratio measures a company's ability to manage its debt. ⊚ ⊚

51)

true false

The days' sales uncollected ratio measures the liquidity of receivables. ⊚ ⊚

true false

52) The days' sales uncollected ratio is calculated by dividing accounts receivable by net sales and multiplying the answer by 365. ⊚ ⊚

53)

true false

A company must have less than 30 days' sales uncollected to be adequately liquid. ⊚ ⊚

true false

54) Z-Mart had $12,000 in accounts receivable and $320,000 in net sales for the periodMart's days' sales uncollected was 13.7 days (Rounded to one decimal). ⊚ ⊚

true false

55) Hasbro had $750 million in accounts receivable and $2,900 million in net sales for the period. Its days' sales uncollected were 29.8. ⊚ ⊚

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true false

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 56) Accounts receivable accounts for specific customers are important because they show A) How much each customer purchases B) How much each customer paid C) How much each customer still owes D) The basis for sending bills to customers E) All of the choices are correct

57) Which accounting principle requires reporting expenses in the same period as the sales they helped to produce? A) Materiality B) Going concern C) Matching D) Cost E) Business entity

58)

A credit sale of $2,500 to a customer would result in

A) A credit to the Accounts Receivable account in the general ledger and a credit to the customer's account in the Accounts Receivable Ledger B) A debit to the Accounts Receivable account in the general ledger and a debit to the customer's account in the Accounts Receivable Ledger C) A debit to the Accounts Receivable account in the general ledger and a credit to the customer's account in the Accounts Receivable Ledger D) A credit to the Accounts Receivable account in the general ledger and a debit to the customer's account in the Accounts Receivable Ledger E) A credit to Sales and a credit to the customer's account in the Accounts Receivable Ledger

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59)

Firms maintain their own credit cards A) To earn interest on any balances not paid within a specified period B) To avoid the fees charged by credit card companies such as VISA C) In order to speed up receipt of cash from the sale D) To grant credit to approved customers E) All of the choices are correct

60)

The matching principle requires

A) That bad debt expenses be reported in the same accounting period as the sales they helped generate B) That bad debt expenses be reported in the same accounting period as the sales they helped generate, and requires the use of the allowance method of accounting for bad debts C) The use of the allowance method of accounting for bad debts D) That bad debt expenses be reported in the same accounting period as the sales they helped generate and requires the use of the direct write-off method for bad debts E) The use of the direct write-off method for bad debts

61)

The materiality principle

A) States that an amount can be ignored if its effect on financial statements is unimportant to the user and permits use of the direct write-off method B) Permits use of the direct write-off method C) Prohibits use of the direct write-off method D) States that an amount can be ignored if its effect on financial statements is unimportant to the user E) Both permits and prohibits use of the direct write-off method

62) The accounting principle that requires financial statements to report all contingent liabilities is called

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A) Relevance B) Evaluation C) Full disclosure D) Materiality E) Matching

63) If the balance of the Allowance for Doubtful Accounts account exceeds the amount of a bad debt being written off, the entry to record the write-off against the allowance account results in A) No effect on the expenses of the current period B) A reduction in current assets C) A reduction in owner's equity D) An increase in the expenses of the current period E) A reduction in current liabilities

64) During the current year, TechCom concluded that a customer's $4,400 account receivable was uncollectible and that the account should be written off. What effect will this write-off have on TechCom's current year net income and balance sheet assuming the allowance method is used to account for bad debts? A) No effect on net income or on total assets B) Decrease in net income; no effect on total assets C) Decrease in net income; decrease in total assets D) Increase in net income; no effect on total assets E) No effect on net income; decrease in total assets

65)

The amount of bad debt expense can be estimated by

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A) The percent of sales approach B) The percent of accounts receivable approach C) The aging of accounts receivable approach D) Both the percent of sales approach and the percent of accounts receivable approach E) All of the choices are correct

66) A method of estimating bad debts expense that involves a detailed examination of outstanding accounts and that is usually the most reliable is the A) Direct write-off method B) Income statement method C) Aging of accounts receivable method D) Simplified balance sheet method E) Accounts receivable method

67) An accounting procedure that (1) estimates and reports bad debt expense from credit sales during the period of the sales and (2) reports accounts receivable at the amount of cash inflow that is expected from their collection is the A) Allowance method of accounting for bad debts B) Aging of accounts receivable C) Adjustment method for uncollectible debts D) Direct write-off method of accounting for bad debts E) Cash basis method of accounting for bad debts

68) On December 31 of the current year, TechCom's unadjusted trial balance included the following items: Accounts Receivable, debit balance of $107,250; Allowance for Doubtful Accounts, credit balance of $1,900. What amount should be debited to Bad Debt Expense, assuming 6% of the outstanding accounts receivable as of December 31 of the current year, are estimated to be uncollectible?

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A) $2,835 B) $3,755 C) $4,535 D) $6,435 E) $8,335

69) TechCom ages its accounts receivables to determine the end of the period adjustment for bad debts. At the end of the year, management estimated that $12,750 of the accounts receivable balances would be uncollectible. The Allowance for Doubtful Accounts had a debit balance of $175. What entry should TechCom make at the end of the year, for the estimated bad debts expense? A) Bad Debts Expense

12,750

Allowance for Doubtful Accounts

12,750

B) Bad Debts Expense

12,575

Allowance for Doubtful Accounts

12,575

C) Bad Debts Expense

12,925

Allowance for Doubtful Accounts

12,925

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Accounts Receivable

12,750

Bad Debts Expense

175

Sales

12,925

E) Accounts Receivable

12,925

Allowance for Doubtful Accounts

70)

12,925

A promissory note from a customer A) Is a cash equivalent B) Is an account receivable C) Is a note receivable D) Is a short-term investment E) Is a note payable

71)

The person who signs a note receivable and promises to pay is the A) Maker B) Payee C) Holder D) Receiver E) Owner

72)

A promissory note

A) Is an account receivable B) Is a written promise to pay a specified amount of money at a certain date C) Is a liability to the payee D) Is a written promise to pay a specified amount of money at a certain date and is a liability to the payee E) All of the choices are correct

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73)

The maturity date of a note receivable A) Is the day of the credit sale B) Is the day the note was signed C) Is the day the note is due to be paid D) Is the date of the first payment E) Is the last day of the month

74)

A 90-day note issued on July 10 matures on A) October 7 B) October 8 C) October 9 D) October 10 E) October 11

75)

TechCom receives a 10%, 90-day note for $2,500. The interest on the note is A) $27.77 B) $250.00 C) $58.79 D) $61.64 E) $87.50

76)

When a maker of a note honours a note, A) The note is signed. B) The note is paid off. C) The note is written off. D) The note is notarized. E) The note is cosigned.

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77)

Interest on $8,400 at 7% for 60 days is A) $98 B) $41.42 C) $588 D) $65.25 E) $96.66

78)

The cash to be received at maturity on a $10,000, 8%, 90-day note receivable is A) $197.26 B) $5,126.26 C) $10,000 D) $10,197.26 E) $12,297.26

79) Electron borrowed $75,000 from TechCom by signing a promissory note and pledging $85,000 in accounts receivable as security. TechCom's entry to record the transaction should include a A) Debit to Notes Receivable for $75,000 B) Debit to Accounts Receivable for $75,000 C) Credit to Notes Receivable for $75,000 D) Debit Notes Payable for $75,000 E) Credit to Sales for $75,000

80) The Liccorish Pizza bought $5,000 worth of merchandise from TechCom and signed a 90-day, 10% promissory note for the $5,000. TechCom's journal entry to record the transaction is A) Accounts Receivable

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5,000

Sales

5,000

B) Notes Receivable

5,000

Sales

5,000

C) Accounts Receivable

5,125

Sales

5,125

D) Notes Receivable

5,125

Sales

5,125

E) Notes Receivable

5,000

Interest Receivable

125

Sales

5,125

81) Mix Recording Studios purchased $7,800 in electronic components from TechCom. Mix Recording Studios signed a 60-day, 10% promissory note for $7,800. TechCom's journal entry to record the transaction should be A) Accounts Receivable Sales

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7,800 7,800

B) Accounts Receivable

7,930

Sales

7,930

C) Notes Receivable

7,800

Sales

7,800

D) Notes Receivable

7,930

Sales

7,930

E) Notes Receivable

7,800

Interest Receivable

130

Sales

82)

7,930

Failure by the maker of a promissory note to pay the amount due at maturity is known as A) Protesting a note B) Closing a note C) Dishonouring a note D) Discounting a note E) Depreciating a note

83) Rotel purchased merchandise from TechCom on October 17, 2012. TechCom accepted Rotel's $4,800, 90-day, 10% note as payment. TechCom has a December 31st year end. What entry should TechCom make on January 15, 2023 when the note is honoured? Version 1

A) Cash

4918.36

Interest Earned

118.36

Notes Receivable

4,800

B) Cash

4918.36

Notes Receivable

4918.36

C) Cash

4918.36

Interest Earned

98.63

Interest Receivable

19.73

Notes Receivable

4,800

D) Cash

4918.36

Interest Earned

19.73

Interest Receivable

98.63

Notes Receivable

4,800

E) Cash Interest Earned

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4918.36 118.36

Accounts Receivable

84)

4,800

The buyer who pays cash for accounts receivable is called A) Payor B) Pledgor C) Factor D) Payee E) Pledgee

85)

Pledging receivables A) Allow firms to raise cash B) Allow firms to retain ownership of receivables C) Transfer risk of bad debt to the lender D) Allow firms to raise cash and retain ownership of receivables E) All of the choices are correct.

86)

A contingent liability A) Is another name for a long-term liability B) Only arises when accounts receivable are factored C) Arises when a note receivable is discounted without recourse D) Is an obligation to make a future payment if a certain future event occurs E) Is an obligation to make a future payment if an uncertain future event occurs

87)

A note receivable discounted with recourse is

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A) A contingent liability B) An outright sale of a note receivable to a bank C) Sold to a bank and the bank assumes liability D) A contingent liability and an outright sale of a note receivable to the bank E) An outright sale of a note receivable to a bank and the bank assumes liability

88)

Quality of receivables refers to A) The creditworthiness of the customers B) The speed of collection C) The likelihood of collection D) Sales turnover E) The speed and likelihood of collection

89)

Accounts receivable turnover measures

A) How long it takes to sell inventory on credit B) How often a company converts its average accounts receivable balance into cash during the period C) Measures the relationship of cash sales to credit sales D) How long it takes to sell inventory on credit and how often a company converts its average accounts receivable balance into cash during the period E) How often a company converts its average accounts receivable balance into cash during the period and measures the relationship of cash sales to credit sales

90)

Accounts receivable turnover is calculated by A) Dividing net sales by average accounts receivable B) Dividing net sales by average accounts receivable and multiplying by 365 C) Dividing average accounts receivable by net sales D) Dividing average accounts receivable by net sales and multiplying by 365 E) Dividing net income by average accounts receivable

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91) TechCom has net sales of $435,000 and average accounts receivable of $87,000. What is the accounts receivable turnover for the period? A) 5 B) 73 C) 65 D) 95 E) 105

92) Dell had net sales of $8,739 million and average accounts receivable of $864 million. Its accounts receivable turnover was A) 10.1 B) 9.9 C) 36.1 D) 9.1 E) 12.8

93) Compaq's accounts receivable turnover rate was 5.7 for this year and 5.4 for last year. Dell's turnover rate was 6.8 for this year and 7 for last year. This means that A) Dell has the better turnover rate for both years. B) Compaq has the better turnover rate for both years. C) Dell's turnover rate is improving. D) Compaq's turnover rate is improving. E) Dell has the better turnover rate for both years and Compaq's turnover rate is improving.

94)

The days' sales uncollected ratio

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A) Is used to evaluate the liquidity of receivables B) Is calculated by dividing accounts receivable by sales C) Measures a company's ability to pay its bills on time D) Measures a company's debt to income E) Is calculated by dividing sales by accounts receivable

95)

The days' sales uncollected ratio is used to

A) Measure how many days of sales remain until the end of the year B) Determine the number of days that have passed without collecting on accounts receivable C) Identify the likelihood of collecting sales on account D) Estimate how much time is likely to pass before cash receipts from credit sales equal the current amount of accounts receivable E) Measure the amount of layaway sales for a period

96)

The days' sales uncollected ratio is calculated by A) Dividing accounts receivable by net sales B) Dividing accounts receivable by net sales and multiplying the result by 365 C) Dividing net sales by accounts receivable D) Dividing net sales by accounts receivable and multiplying the result by 365 E) Multiplying net sales by accounts receivable and dividing the result by 365

97)

The days' sales uncollected ratio

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A) Measures how much time is likely to pass before a company receives cash receipts from credit sales equal to the current amount of accounts receivable B) Is used to compare a company to other companies in the same industry C) Is used to compare between current and prior periods D) Is used to compare a company to other companies in the same industry and is used to compare between current and prior periods E) All of these

98) Z-Mart had net sales of $31,500 and accounts receivable of $2,700. To one decimal, ZMart's days' sales uncollected was A) 11.7 B) 23.3 C) 28 D) 31.3 E) 46.6

99) Mattel had net sales of $4,235 million, and accounts receivable of $775 million. Mattel's days' sales uncollected (rounded to one decimal) was A) 298 B) 66.8 C) 75.4 D) 81.8 E) 90.2

100)

The recording of accounts receivable is linked to the

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A) Matching principle B) Revenue recognition principle C) Cost principle D) Materiality principle E) Monetary unit principle

101) The use of the bad debt and allowance accounts is required under which accounting concept? A) The revenue recognition principle B) The matching principle C) The materiality principle D) The monetary unit principle E) Cost principle

102) Which of the following entries would be made to write off an uncollectible account receivable using the direct write-off method? A) Dr. Allowance for doubtful accounts | Cr. Accounts receivable B) Dr. Accounts receivable | Cr. Bad debt expense C) Dr. Bad debt expense | Cr. Accounts receivable D) Dr. Sales | Cr. Accounts receivable E) Dr. Sales | Cr. Allowance for doubtful accounts

103) Cortez Co. had accounts receivable totalling $450,000 and an allowance for doubtful accounts with a balance of $5,000 on June 1, 2022. On June 2 Cortez wrote off $2,400 of uncollectible accounts. The net carrying value of accounts receivable before and after the writeoff was

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104) When is it acceptable to use the direct write-off method to account for uncollectible accounts? A) When the expected bad debts are significant B) When the company pledges its accounts receivables C) When the expected bad debts are not significant D) It is never acceptable to use the direct write-off method under GAAP E) When the company sells its accounts receivables

105)

All the following are characteristics of notes receivable except, notes receivable

A) Are usually evidenced by a more formal agreement called a promissory note B) Generally require the maker to pay interest on the receivable C) Are generally for a longer period than a regular accounts receivable D) Are used by most businesses for very large amounts and are therefore almost always shown separately on the financial statements E) The maker is the person who promises to pay the note at maturity

106) Gomez Management Services Inc. accepts an 18-month, 12%, $5,000 note receivable from a client in settlement of an outstanding accounts receivable on November 1, 2020. The client pays off the note on April 30, 2022. Gomez should recognize interest revenue in 2022 of

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A) $150 B) $200 C) $600 D) $900 E) $100

107) Selected financial statement data for California Ltd, at its December 31 year end is below: 2021

2022

Cash

$32,000

$21,750

Accounts Receivable

$ 247,500

$299,000

Inventory

$2,762,300

$2,668,425

Prepaid expenses

$6,200

$9,875

Total Current Assets

$2,141,500

$1,986,000

Current Liabilities

$3,048,000

$2,999,050

Net Credit Sales

$2,238,000

$2,448,000

Current Assets

California's credit terms are net 30 days. A 2% discount can be taken if the bill is paid within 10 days from the invoice date. In 2021, California collects its accounts receivable A) Within the 30 days, as required by its credit terms B) After the 30-day terms passed C) Within the 10-day discount period D) More information is needed to answer this question E) Within the 20 days, as required by its credit term

108) Base Company purchases $1,400 of merchandise from Case Company on July 10. Case accepts Base's $1,400, 10-day, 12% note as payment and makes the appropriate journal entry for this note on July 10. On July 20, Base dishonours the note. Case is going to use every legitimate means to continue collection efforts for both principal and interest. What entry would Case make on July 20?

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A) Accounts Receivable

$1,404.60

Interest Revenue

4.60

Notes Receivable

1,400

B) Accounts Receivable

$1,400

Sales

1,400

C) Accounts Receivable

$1,400

Notes Receivable

1,400

D) Accounts Receivable

$1,404.60

Interest Revenue

4.60

Sales

1,400

E) Notes Receivable Accounts Receivable

$1,400 1,400

109) The accounts receivable turnover and days sales outstanding for Food Haven Inc. is 11 times for 2021. The days sales outstanding for Food Truck Inc. is 50 days for 2021. Which of the following is correct as it relates to the liquidity for Food Haven and Food Truck?

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A) Food Truck collects its receivables more quickly than Food Haven. B) Food Haven collects its receivables more quickly than Food Truck C) Both Food Haven and Food Truck have the same days sales outstanding D) Food Truck has a higher accounts receivable turnover ratio than Food Haven E) The accounts receivable turnover ratios for Food Haven and Food Truck are the same

110) Okanagan Tree Services Inc. accepts a 90-day, 6%, $10,000 note receivable from a customer in settlement of an outstanding accounts receivable on December 16, 2021. The customer pays off the note on its maturity date. How much should Okanagan recognize as interest revenue at December 31, 2021? A) $147.95 B) $24.66 C) $600 D) $0 E) $50.96

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 111) Describe accounts receivable and how they are recorded into the accounting system.

112) Joy Co. uses the allowance method of accounting for bad debts. Their Allowance for Doubtful Accounts has a year-end credit balance, prior to adjustment, of $700. The bad debts are estimated at 3% of $600,000, the net credit sales. Prepare the year end adjusting journal entry for bad debt expense.

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113) Triple Mint Gum Co. uses the allowance method of accounting for bad debts. Their Allowance for Doubtful Accounts account has a year-end debit balance, prior to adjustment, of $500. The bad debts are estimated at 5% of $200,000, the year-end accounts receivable. Prepare the year end adjusting journal entry for bad debt expense.

114) Explain the difference between estimating the amount of uncollectible accounts using the approaches based on percent of sales and accounts receivable.

115) Copper Company had a January 1, current year, balance in Allowance for Doubtful Accounts of $8,000 credit. The following events required journal entries during the current year: Apr. 15

Gida Good's account receivable of $4,700 was deemed uncollectible.

July 1

Christopher Claw paid the full amount of his previously written-off account receivable. The receivable of $5,300 had been written off last year.

Dec. 31

Bad debt expense was estimated to be 2.0% of credit sales for the year, which were $1,475,000.

What amount of allowance for doubtful accounts should appear in the December 31, current year, balance sheet?

116)

On December 31 of the current year, Quick Draw Corporation had the following:

Total sales for the current year of: $880,000, including $120,000 in cash sales.

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Accounts receivable balance at Dec. 31 of the current year:

$200,000.00

Bad debts written off during the current year:

$2,800.00

Credit balance of Allowance for Doubtful Accounts at January 1 of the current year:

$2,300.00

Prepare any adjusting entries required to record bad debts expense for the current year, assuming Quick Draw estimates bad debts will be: (a) About 1.5% of credit sales. (b) About 5% of accounts receivable.

117) Fife Company has the following account balances at December 31 of the current year: Accounts Receivable $44,000 and Allowance for Doubtful Accounts $600 (credit balance). Fife uses the aging of accounts receivable to estimate bad debts. The following aging schedule reflects the situation at year-end: Schedule of Accounts Receivable by Age Customer’s Name

Total

Not yet 1-30 days past due due

31-60 days past due

61-90 days past due

Over 90 days past due

S. Milken

12,000

5,000

3,000

2,000

1,000

F. Filip

7,000

1,000

2,000

1,000

800

2,200

J. Riley

14,000

8,000

3,000

2,000

100

900

R. Cash

3,000

2,000

1,000

L. Faraday

8,000

1,000

7,000

Totals

44,000

17,000

16,000

5,000

1,900

4,100

10%

25%

40%

Percent Uncollectible

(1) Calculate the amount of the Allowance for Doubtful Accounts that should appear on the December 31, current year, balance sheet. (2) Prepare the journal entry to record bad debts expense for the current year.

118)

Wasson Corp had the following items in its unadjusted trial balance at December 31:

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Debit

Credit

Cash sales

$77,000

Credit sales

130,000

Accounts receivable

$56,000

Allowance for doubtful accounts

500

Prepare the adjusting entry to estimate bad debts under each of the following independent situations. (Show all work.) (1) Bad debts are estimated to be 5% of credit sales. (2) An analysis shows that 6% of outstanding accounts receivable will not be collected.

119) S & R Company uses the aging of accounts receivable approach to estimate bad debt expense. On December 31, an analysis of accounts receivable revealed the following: Schedule of Accounts Receivable by Age December 31, 2022 Accounts Receivable

Age of Accounts Receivable

Expected Percentage Uncollectible

140,000

Not yet due

0.75%

60,000

1-30 days past due

19,000

31-60 days past due

10%

5,000

61-90 days past due

60%

7,000

Over 90 days past due

90%

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Allowance for doubtful accounts

Required: (a) Calculate the amount of allowance for doubtful accounts that should be reported on the balance sheet at December 31, 2022. (b) Calculate the amount of bad debts expense that should be reported on the 2022 income statement, assuming that the balance of Allowance for Doubtful Accounts on January 1 was $44,000 (credit balance) and accounts receivable written off during the year totaled $49,200. (c) Present the appropriate general journal entry to record bad debts expense on December 31, 2022. (d) Show how accounts receivable will appear on the balance sheet at December 31, 2022.

120) Each December 31, Charity Company ages its accounts receivable to determine the amount of its adjustment for bad debts. At the end of this year, management estimated that $56,900 of the accounts receivable balance would be uncollectible. The Allowance for Doubtful Accounts account had a credit balance of $4,200. Prepare the adjusting journal entry that Charity Company should make on December 31 of the current year, to estimate bad debts expense.

121) Filler Company uses the allowance method to account for bad debts. In the first year of operations (2021), Filler sold $640,000 of merchandise on credit, including a $3,500 sale to Bubba Long. On December 31, 2021, it provided an addition to its allowance for doubtful accounts equal to 1.8% of its credit sales. On June 1, 2022, Filler wrote off as uncollectible the $3,500 account of Bubba Long; and on December 25, 2022 Bubba Long unexpectedly paid his account in full. Prepare the journal entries that Filler Company should make: (a) On December 31, 2021, to increase the allowance for doubtful accounts. (b) On June 1, 2022, to write off the bad debt. (c) On December 25, 2022, to record the unexpected collection from Bubba Long.

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122)

Explain how the materiality principle can be used to justify the direct write-off method.

123) Capilano Company has a July 31 year-end. You have been provided with the following information for the year just ended: 1. Total sales revenue for the year was $930,000. 2. Cash sales represent 20% of total sales. 3. The accounts receivable balance at the beginning of the year was $102,000. The accounts receivable balance at the end of the year was $162,000. 4. A review of the outstanding accounts receivable at the end of the year indicates that $8,100 should be written off. 5. The industry uses the allowance approach based on 4% of accounts receivable or 1% of credit sales. Prepare the necessary adjusting entry to record the bad debts expense assuming that Capilano Company uses the direct write-off approach.

124) Define a note receivable and describe how to calculate the interest due on a note receivable.

125) Calculate the amount of interest that would be owed on a $10,000, 90-day, 5% note receivable.

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126)

If a 90-day note receivable is dated June 12, what is the due date of the note?

127)

If a 60-day note receivable is dated September 22, what is the due date of the note?

128) Stricker Company accepted a $20,000, 6%, 90-day note dated May 16, from Johnson Corp. as an extension on its past-due account. Prepare the necessary general journal entries in Stricker Company's books on May 16 and August 14 (maturity date), for each of the following independent assumptions:(a) Note was held until maturity and collected on time.(b) Note was dishonoured. Amount of note and interest were written off as uncollectible. (Stricker uses the allowance method of accounting for bad debts.)

129)

Explain how to record the receipt of a note receivable.

130)

Explain the difference between honouring and dishonouring a note receivable.

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131) What purposes are served when a business charges a dishonoured note back to the account of its maker?

132) Landscaping Supplies and Tools is anticipating cash shortages and may not be able pay its suppliers on time. The general manager would like to know ways in which some of its accounts receivable outstanding and notes receivables can be converted into cash before maturity. What will you tell the general manager?

133) On June 18, 2022, Woods Co. received from one of its customers, Webb Co., a 90 day, 11%, $6,000 note receivable, in exchange for contract services provided. Woods Co. has a March 31 year end. Webb Co. honoured the note at maturity. Prepare the entries for the issuance and the maturity of the note.

134) On October 12, 2022, Golf Co. received from one of its customers, Ping Co., a $30,500, 8% 90 day note receivable in granting a time extension on Ping's past due account receivable. Golf Co. has a December 31 year end. Ping Co. honoured the note at maturity. Prepare the entries for the issuance of the note, the end of year interest adjustment and the collection of the note at maturity.

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135) The following series of transactions occurred during and 2021 when Jenna Corp. sold merchandise To Rachel Lee. Jenna Corp’s annual accounting period ends on December 31. Assume 28 days in the Month of February. 1-Oct-20

Sold $42,000 of merchandise (cost $35,000) to Rachel Lee, terms 1/15, n/45.

15-Nov-20

Rachel indicated she won’t be able to pay the account until early next year. She agrees to change the account to a 120 day. 10% note receivable.

31-Dec-20

Prepared the adjusting entry to record accrued interest.

16-Mar-21

Jenna receives a cheque from Rachel Lee for the maturity value of the note.

22-Mar-21

Jenna receives notification that Rachel Lee’s cheque is being returned for nonsufficient funds.

31-Dec-21

Jenna decides to write off Rachel Lee’s account as uncollectible. Jenna uses the Allowance method of accounting for bad debts.

Prepare Jenna Corp.'s journal entries to record the above transactions.

136) Prepare general journal entries for the following transactions of Laurier Company, who use the perpetual inventory system: Apr.

May

Sold $12,500 of merchandise (Cost $10,500) to flight Co., receiving a 10%, 120-day note.

Wrote off $2,000 owed by FCB Co. as worthless. (The allowance method of accounting for bad debts is used.)

Received a $10,800, 10%, 30-day note receivable from Cruise Co. as an extension of credit.

Issued a $7,000, 9%, 60 day note to Auggie Co. for cash.

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Note received on April 30 was collected.

June 30

Auggie Co. honoured May 1st note.

Accrued interest on outstanding notes.

July 15 FCB Co. paid $1,000 of the amount written off on April 15 above. Laurier does not expect to receive any further payments.

137)

Kader Company had the following balances on January 1, 2022: Allowance for doubtful accounts

$ 2,600

Notes receivable

56,000

Prepare general journal entries for the following transactions of Kader Company: Mar. 21

Discounted a $10,000, 9%, 120-day note dated March 1, received from Creed Corp, at the bank at 12%.

Apr. 25

Sold $4,500 of merchandise to Finn Corp., receiving a 10%, 60- day note receivable.

May 10

Wrote off $1,800 account owed by Friller as worthless.

June 24

Note signed by Finn Corp. on April 25 was dishonoured.

29 Dec. 31

Received a memo from the bank that the note discounted on March 21 was collected Uncollectible accounts receivable were estimated to be $3,200.

138) How are the direct write-off and allowance methods applied to accounting for uncollectible receivables?

139)

Explain why the allowance method satisfies the matching principle.

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140) Identify the accounting principle involved in deciding between the allowance method and the direct write-off method. Indicate which principle is associated with each method.

141)

How can a company convert its receivables to cash?

142) Annie's Attic sold $80,000 in accounts receivable to First Bank and incurred a 2% factor fee. Prepare the journal entry to record the sale.

143) Discuss the purpose of the accounts receivable turnover ratio and explain how it is calculated.

144)

What is the purpose of the days' sales uncollected ratio?

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145) Hasbro had net sales of $7,875 and average accounts receivable of $1,350. To one decimal, Hasbro's accounts receivable turnover ratio was:

146) TechCom had net sales of $315,000 and average accounts receivable of $75,600. Its competitor, ZCom, had net sales of $299,000 and average accounts receivable of $81,350. Calculate the accounts receivable turnover ratio for both companies. Which company is doing a better job of managing its accounts receivable (all other things assumed to be equal)?

147)

The following information is from the financial statements of Exquisite Ensembles: YR 3

YR 2

YR 1

Net sales

$1,260,000

$1,020,000

$850,000

Accounts receivable (Dec 31)

92,800

88,000

84,200

Calculate Exquisite Ensembles' accounts receivable turnover ratio for YR 2 and YR 3. Compare the two results and give a possible explanation for any significant change.

148) In October, Z-Mart had $475,000 in net credit sales and $75,000 in accounts receivable. Calculate the days' sales uncollected for October.

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149) In April, Hasbro had $3,875 million in sales and $990 million in accounts receivable. For the same period, Mattel had $4,595 million in sales and $834 million in accounts receivable. Calculate the days' sales uncollected for both companies. Which company appears to be doing a better job in managing collection of its receivables (all other things assumed to be equal)?

150) Outdoors Unlimited had net sales for YR 1 of $285,000 and $575,000 for YR 2. The year-end balances of accounts receivable were $49,000 for YR 1 and $85,000 for YR 2. Calculate the days' sales uncollected at the end of each year (to the nearest day) and describe any changes in the apparent liquidity of the company's receivables.

SECTION BREAK. Answer all the part questions. 151) On December 31, Burrell, Inc.'s books showed accounts receivable of $385,600; sales revenue of $1,480,000 (70% were on credit); and Allowance for Doubtful Accounts of $1,600 (credit balance).

151.1) Calculate and prepare journal entries to record the estimate for bad debts, assuming: (1) Ten percent of the accounts receivable balance is assumed to be uncollectible. (2) Bad debts expense is estimated to be 2% of credit sales.

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151.2)

Assume bad debts are estimated and recorded as 2% of credit sales.

(1) Show how Accounts Receivable and Allowance for Doubtful Accounts would appear on the balance sheet. (2) Present the entry to write off a $1,800 account. (3) Show how Accounts Receivable and Allowance for Doubtful Accounts would appear on a balance sheet immediately after writing off the account in (2) above.

152) Peter Corporation reported the following account balances for 2018. Peter has a January to December fiscal year: Accounts Receivable at Jan 1, 2018 (debit)

$40,000

Allowance for Doubtful Accounts at Jan 1, 2018 (credit)

$6,000

Total credit sales during 2018

$200,000

Total collections on accounts receivable during 2018

$180,000

Uncollectible accounts written off during 2018

$10,000

Peter Corporation estimates that 2% of credit sales should be used to allow for bad debts.

152.1) Assuming that Peter Corporation has a December 31 year-end, prepare the adjusting entry at December 31, 2021 for doubtful accounts.

152.2) Prepare a partial balance sheet at December 31, 2021 for the accounts receivable section only, showing the accounts receivable at gross, the allowance for doubtful accounts and accounts receivable at net.

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152.3) Assume that at March 14, 2021, it was determined that a balance of $7,000 needed to be written off as uncollectible. Provide the journal entry for the write-off.

152.4) Refer to part (c). Assume that $2,000 of the amount written off was subsequently collected on October 28, 2021. Prepare the required entry (ies) on October 28, 2021.

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Answer Key Test name: Chap 08_17ce_Test Bank 1) TRUE 2) FALSE 3) FALSE 4) FALSE 5) FALSE 6) TRUE 7) FALSE 8) FALSE 9) FALSE 10) TRUE 11) FALSE 12) TRUE 13) FALSE 14) TRUE 15) FALSE 16) TRUE 17) FALSE 18) FALSE 19) FALSE 20) TRUE 21) TRUE 22) TRUE 23) TRUE 24) TRUE 25) FALSE 26) FALSE Version 1

27) TRUE 28) TRUE 29) FALSE 30) FALSE 31) TRUE 32) TRUE 33) FALSE 34) FALSE 35) TRUE 36) TRUE 37) TRUE 38) FALSE 39) TRUE 40) TRUE 41) FALSE 42) TRUE 43) TRUE 44) FALSE 45) TRUE 46) FALSE 47) TRUE 48) TRUE 49) TRUE 50) FALSE 51) TRUE 52) TRUE 53) FALSE 54) TRUE 55) FALSE 56) E Version 1

57) C 58) B 59) E 60) B 61) A 62) C 63) A 64) A 65) E 66) C 67) A 68) C 69) C 70) C 71) A 72) B 73) C 74) B 75) D 76) B 77) E 78) D 79) A 80) B 81) C 82) C 83) D 84) C 85) D 86) E Version 1

87) A 88) C 89) B 90) A 91) A 92) A 93) E 94) A 95) D 96) B 97) E 98) D 99) B 100) B 101) B 102) C 103) B 104) C 105) D 106) B 107) B 108) A 109) B 110) B 111) Accounts receivable arise from sales to customers on credit. They may be from either direct credit sales or credit card sales. Accounts receivable are recorded into a subsidiary ledger which separately lists amounts owed by individual customers. 112)

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Dec-31

Bad debt expense

21,000.00

Allowance for doubtful accounts (700,000 × .03)

21,000.00

113) Dec-31

Bad debt expense

10,500.00

Allowance for doubtful accounts (200,000 × .05) + 800

10,500.00

114) The percent of sales approach emphasizes the income statement relationship between bad debts and sales. It is based on the matching principle and assumes that bad debts are incurred at the time of sale. The accounts receivable approaches emphasize the balance sheet relationship between accounts receivable and the Allowance for Doubtful Accounts. The accounts receivable method uses a percentage relationship with accounts receivable. The aging of accounts receivable method estimates the actual amount of uncollectible accounts receivable. 115) $8,000 - $4,700 + $5,300 + ($1,475,000 × 0.02) =$38,100 116) Dec-31

Bad debt expense

11,400.00

Allowance for doubtful accounts

11,400.00

(880,000-120,000) × .015 Dec-31

Bad debt expense

10,500.00

Allowance for doubtful accounts

10,500.00

(200,000 × 0.05) + (2,800 – 2,300)

117) (1) Schedule of Accounts Receivable by Age Customer’s Name

Version 1

Total

Not yet due

1-30 days past due

31-60 days past due

61-90 days past due

Over 90 days past due

S. Milken

12,000

5,000

3,000

2,000

1,000

F. Filip

7,000

1,000

2,000

1,000

800

2,200

J. Riley

14,000

8,000

3,000

2,000

100

900

R. Cash

3,000

2,000

1,000

L. Faraday

8,000

1,000

7,000

Totals

44,000

17,000

16,000

5,000

1,900

4,100

10%

25%

40%

340

800

500

475

1,640

Percent Uncollectible Estimated Uncollectible Accounts

3,755

(2) Dec-31

Bad debt expense

3,155

Allowance for doubtful accounts (3,755 - 600)

3,155

118) Dec-31

Bad debt expense

6,500

Allowance for doubtful accounts (130,000 × 0.05) Dec-31

6,500

Bad debt expense

2,860

Allowance for doubtful accounts (56,000 × 0.06) - 500

2,860

119) (a) Schedule of Accounts Receivable by Age December 31, 2022 Accounts Receivable

Age of Accounts Receivable

Expected Percentage Uncollectible

Allowance for doubtful accounts

140,000

Not yet due

0.75%

1,050

60,000

1-30 days past due

2,400

19,000

31-60 days past due

10%

1,900

5,000

61-90 days past due

60%

3,000

Version 1

7,000

Over 90 days past due

Totals

231,000

90%

6,300 14,650

(b) Allowance for doubtful accounts 44,000 49,200 19,850 14,650

19,850

Allowance for doubtful accounts

19,850

(d) Current Assets Accounts Receivable

$231,000

Less: Allowance for doubtful accounts

14,650

$216,350

or Currents assets Accounts receivable (net of estimated 14,650 uncollectible accounts)

$216,350

120)

Version 1

Dec-31

Bad debt expense

52,700

Allowance for doubtful accounts (56,900 – 4,200)

52,700

121) (a)

December 31, 2021

Bad debt expense

11,520

Allowance for doubtful accounts

11,520

(640,000 × 1.8%) (b)

June 1, 2022

Allowance for doubtful accounts

3,500

Accounts Receivable, Bubba Long (c)

December 25, 2022

Accounts Receivable, Bubba Long

3,500 3,500

Allowance for doubtful accounts Cash

3,500 3,500

Accounts Receivable, Bubba Long

3,500

122) Materiality allows other principles to be ignored if the resulting effect on the financial statements would not impact the decisions of users. Materiality will allow the direct write-off approach if there is a very small difference in bad debts expense and accounts receivable as measured by the direct write-off approach when compared to the allowance approach. 123) Bad debts expense Accounts Receivable

Version 1

8,100 8,100

124) A note receivable is a promissory note. It is a written promise to pay a specified amount of money either on demand or at a definite future date. Interest on a note receivable that matures in less than one year is calculated by multiplying the amount borrowed (principal) times the interest rate times the period of the note divided by 365 days. 125) $123.29 ($10,000 × 5% × 90/365) 126) September 10 127) November 21 128) (a)

May-16

Notes Receivable

20,000.00

Accounts Receivable, Johnson Corp Aug-14

Cash

20,000.00 20,295.89

Notes Receivable

20,000.00

Interest Earned

295.89

(20,000 × 6% × 90/365) (b)

May-16

Notes Receivable

20,000.00

Accounts Receivable, Johnson Corp Aug-14

Aug-14

Accounts Receivable, Johnson Corp

20,295.89

Notes Receivable

20,000.00

Interest Earned

295.89

Allowance for doubtful accounts Accounts Receivable, Johnson Corp

Version 1

20,000.00

20,295.89 20,295.89

129) A note is recorded by entering the total amount borrowed (principal) as a debit to Notes Receivable and as a credit to the account representing the asset or service exchanged for the note. 130) When a note is honoured, the maker of the note pays off the note in full at maturity date. When a note is dishonoured, the maker defaults, and does not pay off the note. 131) First, it removes the amount of the note from the Notes Receivable account and records the dishonoured note in the maker's accounts receivable account. Second, and most important, if the maker of the dishonoured note applies for credit in the future, their account will show all past dealings, including the dishonoured note. Third, restoring the account also reminds the company to continue collection efforts for both principal and interest. 132) I would tell the general manager that there are normally three ways to convert receivables to cash before maturity. First, the company can sell accounts receivable to a factor; a factoring fee will be charged. Second, the company can borrow money by signing a note payable that is secured by pledging the accounts receivable. Third, notes receivable can be discounted at a bank. 133) Notes Receivable

6,000.00

Accounts Receivable, Webb Co. Cash

6,000.00 6,162.74

Notes Receivable

6,000.00

Interest Earned (6,000 × 11% × 90/365)

162.74

134) Version 1

Oct-12

Notes Receivable

30,500.00

Accounts Receivable, Ping Co. Dec-31

Interest Receivable

30,500.00 534.79

Interest Earned

534.79

(30,500 × 8% × 80/365) Jan-20

Cash

31,101.64

Notes Receivable

30,500.00

Interest Receivable

534.79

Interest Earned

66.85

(30,500 × 8% × 10/365)

135) 1-Oct-20

Accounts Receivable- Rachel Lee

42,000.00

Sales Cost of Goods Sold

42,000.00 35,000.00

Merchandise Inventory 15-Nov-20

Notes Receivable- Rachel Lee

35,000.00 42,000.00

Accounts Receivable- Rachel Lee 31-Dec-20

Interest Receivable

42,000.00 517.81

Interest Earned

517.81

($42,000 × .10% × 45/365) 16-Mar-21

Version 1

Cash

43,380.82

Notes Receivable- Rachel Lee

42,000.00

Interest Receivable

517.81

Interest Earned

863.01

($42,000 × .10% × 75/365) 22-Mar-21

Accounts Receivable- Rachel Lee

43,380.82

Cash 31-Dec-21

Allowance For Doubtful Accounts

43,380.82 43,380.82

Accounts Receivable- Rachel Lee

43,380.82

136) Apr.

Notes Receivable- Flight Co.

12,500.00

Sales Cost of Goods Sold

12,500.00 10,500.00

Merchandise Inventory 15

Allowance For Doubtful Accounts

10,500.00 2,000.00

Accounts Receivable- FCB Co.

Notes Receivable- Cruise Co.

2,000.00

10,800.00

Accounts Receivable- Cruise Co. May

Notes Receivable- Auggie Co.

10,800.00 7,000.00

Cash 30

Cash

7,000.00 10,888.77

Interest Earned

88.77

Notes Receivable- Cruise Co.

10,888.77

(10,800 × 10% × 30/365) June

Version 1

Cash

7,103.56

Interest Earned

103.56

Notes Receivable- Auggie Co.

7,000.00

(7,000 × 0.09 × 60/365) 30

Interest Receivable

308.22

Interest Earned

308.22

(12,500 × 0.10 × 90/365) July

Accounts Receivable- FCB Co.

1,000.00

Allowance For Doubtful Accounts Cash

1,000.00 1,000.00

Accounts Receivable- FCB Co.

1,000.00

137) Mar

Cash

9,957.39

Interest Expense*

42.61

Notes Receivable Apr

Notes Receivable

10,000.00 4,500.00

Sales May

Allowance For Doubtful Accounts

4,500.00 1,800.00

Accounts Receivable- Friller June

Dec

Accounts Receivable-Finn Corp.

4,573.97

Notes Receivable

4,500.00

Interest Earned

73.97

No entry required

Bad Debt Expense

Version 1

1,800.00

2,400.00

Allowance for Doubtful Accounts

2,400.00

($3,200-($2,600-$1,800)) *Maturity value

10,295.89

Discount (10,295.89 × 12% × 100/365

338.50

Proceeds

9,957.39

Face value

10,000.00

Interest expense

42.61

138) The direct write-off method charges Bad Debt Expense when individual accounts receivable are determined to be uncollectible. Under the allowance method, estimated bad debt expense is recorded at the end of each accounting period by debiting Bad Debt Expense and crediting Allowance for Doubtful Accounts. Individual uncollectible accounts are later written off with a debit to Allowance for Doubtful Accounts. 139) The allowance method recognizes the bad debts expense in the same period in which the related credit sales were recognized. In this way it accomplishes the required matching of expenses with the revenue in the period in which the revenue was recognized. 140) The materiality principle is used to justify the direct write-off method. If the amount of receivables that become uncollectible is not significant given the company's other financial statement items, it is acceptable to us the direct write-off method. However, the allowance method is the only method that satisfies the matching principle; the direct write-off method does not. The direct write-off method records expenses when an account is identified as uncollectible, which is normally not in the period in which the revenue was recorded.

Version 1

141) A company's receivables are normally converted to cash as the customers pay off their accounts. However, there are three options available to a company that wishes to convert its receivables before they are due. First a company can sell the receivables to a factor. Second, a company can use its receivables as collateral for a loan. Third, a company can discount the receivables to a bank. 142) Cash

78,400

Factoring Fee

1,600

Expense Accounts Receivable

80,000

143) The accounts receivable turnover ratio is used to measure how often, on average, receivables are recognized and collected during an accounting period. Analysts use the ratio to measure both the quality and liquidity of accounts receivable. Quality refers to the likelihood of collection without loss. Liquidity refers to the speed of collections. The accounts receivable turnover ratio is calculated by dividing net sales by average accounts receivable for an accounting period. 144) The days' sales uncollected ratio is a liquidity measure. It is used to estimate how much time is likely to pass before a firm receives cash from net credit sales equal to the current amount of accounts receivable. The measure is also valuable for analysis in comparing ratios from other companies in the same industry and as a means to compare current with prior years' performance. 145) 5.8 146) TechCom = 4.2, ZCom = 3.7. TechCom has a higher turnover; therefore it is doing a better job of managing its receivables than ZCom. Version 1

147) YR 2 accounts receivable turnover: 1,020,000

= 11.84

[(88,000 + 84,200)/2]

YR 3 accounts receivable turnover: 1,260,000

= 13.94

[(92,800 + 88,000)/2]

Exquisite Ensembles has turned over its accounts receivable 2 more times in YR 3 than in YR 2. This may indicate that the company has tightened its credit policy or has improved its collection efforts. 148) 57.6 days 149) Hasbro = 93.3 days; Mattel = 66.2 days. Mattel appears to be doing a better job. 150) YR 1 = 63 days; YR 2 = 54 days. The decrease of 9 days means that Outdoors Unlimited appears to have improved its management of receivables and has increased its liquidity. 151) Section Break 151.1) Dec-31

Bad debt expense

36,960.00

Allowance for doubtful accounts (385,600 × .010) – 1,600 Dec-31

Bad debt expense Allowance for doubtful accounts (1,480,000 × 0.70) × .02

36,960.00 20,720.00 20,720.00

151.2)

Version 1

Dec-31 Bad debt expense

20,720.00

Allowance for doubtful accounts

20,720.00

(1,480,000 × 0.70) × .02 (1) Current Assets Accounts Receivable

$385,600

Less: Allowance for doubtful accounts

20,720

$364,880

or Currents assets Accounts receivable (net of estimated 20,720 uncollectible accounts)

$364,880

(2) Allowance for doubtful accounts

1,800

Accounts receivable

1,800

(3) Current Assets Accounts Receivable

$383,800

Less: Allowance for doubtful accounts

18,920

$364,880

or Currents assets Accounts receivable (net of estimated 18,920 uncollectible accounts)

$364,880

152) Section Break 152.1) .02 × $200,000 = $4,000 Bad Debt Expense Allowance for Doubtful Accounts

Version 1

4,000 4,000

152.2) Peter Corporation Balance Sheet (Partial) At Dec 31, 2021 Current Assets: Accounts Receivable

$50,000

Less Allowance for Doubtful Accounts

-----

Accounts Receivable at net

$50,000

152.3) Allowance for Doubtful Accounts

7,000

Accounts Receivable

7,000

152.4) Accounts Receivable

2,000

Allowance for Doubtful Accounts Cash Accounts Receivable

Version 1

2,000 2,000 2,000

CHAPTER 9: ALGO MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 1) A machine originally had an estimated useful life of 9 years, but after 4 complete years, it was decided that the original estimate of useful life should have been 16 years. At that point the remaining cost to be depreciated should be allocated over the remaining: A) 5 years. B) 9 years. C) 11 years. D) 12 years. E) 16 years.

2) When originally purchased, a vehicle costing $24,480 had an estimated useful life of 8 years and an estimated salvage value of $2,400. After 4 years of straight-line depreciation, the asset's total estimated useful life was revised from 8 years to 6 years and there was no change in the estimated salvage value. The depreciation expense in year 5 equals: A) $2,760.00. B) $5,688.00. C) $11,040.00. D) $5,520.00. E) $2,928.00.

3) A company used straight-line depreciation for an item of equipment that cost $19,300, had a salvage value of $5,200 and a six-year useful life. After depreciating the asset for three complete years, the salvage value was reduced to $1,930 but its total useful life remained the same. Determine the amount of depreciation to be charged against the equipment during each of the remaining years of its useful life: A) $5,200. B) $4,680. C) $3,440. D) $1,410. E) $7,523.

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4) Beckman Enterprises purchased a depreciable asset on October 1, Year 1 at a cost of $172,000. The asset is expected to have a salvage value of $16,800 at the end of its five-year useful life. If the asset is depreciated on the double-declining-balance method, the asset's book value on December 31, Year 2 will be: A) $37,152 B) $50,868 C) $92,880 D) $33,912 E) $154,800

5) Peavey Enterprises purchased a depreciable asset for $32,000 on April 1, Year 1. The asset will be depreciated using the straight-line method over its four-year useful life. Assuming the asset's salvage value is $4,000, what will be the amount of accumulated depreciation on this asset on December 31, Year 3? A) $23,333 B) $5,833 C) $28,000 D) $19,250 E) $7,000

6) Peavey Enterprises purchased a depreciable asset for $31,000 on April 1, Year 1. The asset will be depreciated using the straight-line method over its four-year useful life. Assuming the asset's salvage value is $3,800, Peavey Enterprises should recognize depreciation expense in Year 2 in the amount of: A) $5,666.67 B) $6,800.00 C) $27,200.00 D) $26,066.67 E) $7,750.00

The following information is available on a depreciable asset:

Version 1

Purchase date

January 1, Year 1

Purchase price

$88,000

Salvage value

$10,000

Useful life

10 years

Depreciation method

straight-line

The asset's book value is $72,400 on January 1, Year 3. On that date, management determines that the asset's salvage value should be $5,000 rather than the original estimate of $10,000. Based on this information, the amount of depreciation expense the company should recognize during Year 3 would be: A) $9,050.00 B) $8,425.00 C) $7,240.00 D) $7,800.00 E) $6,740.00

8) Merchant Company purchased land for a building site. The costs associated with the property were:

Purchase price Real estate commissions

180,000 15,500

Legal fees

1,300

Expenses of clearing the land

2,500

What is the total recorded cost of the land? A) $199,300 B) $195,500 C) $183,300 D) $180,000 E) $196,800

Version 1

9) A company purchased property for $100,000. The property included a building, a parking lot, and land. The building was appraised at $56,500; the land at $49,400, and the parking lot at $19,100. Land should be recorded in the accounting records with an allocated cost of: A) $100,000. B) $49,400. C) $45,520. D) $39,520. E) $0.

10) A company purchased a delivery van for $15,500 with a salvage value of $2,300 on October 1, Year 1. It has an estimated useful life of 4 years. Using the straight-line method, how much depreciation expense should the company recognize on December 31, Year 1? A) $3,875. B) $1,292. C) $825. D) $69. E) $3,300.

11) Marlow Company purchased a point of sale system on January 1 for $7,000. This system has a useful life of 5 years and a salvage value of $1,200. What would be the depreciation expense for the second year of its useful life using the double-declining-balance method? A) $1,680. B) $1,616. C) $1,160. D) $2,320. E) $2,800.

12) A company purchased a weaving machine for $231,450. The machine has a useful life of 8 years and a salvage value of $12,500. It is estimated that the machine could produce 755,000 bolts of woven fabric over its useful life. In the first year, 107,500 bolts were produced. In the second year, production increased to 111,500 units. Using the units-of-production method, what is the amount of depreciation expense that should be recorded for the second year? Version 1

A) $34,181. B) $31,175. C) $32,335. D) $63,510. E) $32,955.

13) An asset's book value is $19,100 on December 31, Year 5. Assuming the asset is sold on December 31, Year 5 for $13,900, the company should record: A) A gain on sale of $5,200. B) A loss on sale of $12,950. C) Neither a gain nor a loss is recognized on this transaction. D) A loss on sale of $5,200. E) A gain on sale of $12,950.

14) An asset's book value is $21,600 on January 1, Year 6. The asset is being depreciated $300 per month using the straight-line method. Assuming the asset is sold on July 1, Year 7 for $14,200, the company should record: A) Neither a gain or loss is recognized on this type of transaction. B) A gain on sale of $2,000. C) A loss on sale of $1,000. D) A gain on sale of $1,000. E) A loss on sale of $2,000.

15) A company sold equipment that originally cost $350,000 for $210,000 cash. The accumulated depreciation on the equipment was $140,000. The company should recognize a: A) $140,000 loss. B) $70,000 loss. C) $210,000 gain. D) $0 gain or loss. E) $70,000 gain.

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16) A company discarded a computer system originally purchased for $8,350. The accumulated depreciation was $6,850. The company should recognize a (an): A) $0 gain or loss. B) $1,500 loss. C) $1,500 gain. D) $8,350 gain. E) $6,850 loss.

17) A company sold a tractor that originally cost $133,000 for $28,000 cash. The accumulated depreciation on the tractor was $67,200. The company should recognize: A) A loss of $37,800. B) A gain of $37,800. C) A loss of $28,000. D) A gain of $65,800. E) A gain of $28,000.

18) A company purchased a tract of land for its natural resources at a cost of $2,074,000. It expects to mine 2,200,000 tons of ore from this land. The salvage value of the land is expected to be $270,000. The depletion expense per ton of ore is: A) $7.681. B) $0.943. C) $0.820. D) $8.148. E) $1.065.

19) A company's old machine that cost $43,000 and had accumulated depreciation of $32,700 was traded in on a new machine having an estimated 20-year life with an invoice price of $53,300. The company also paid $45,700 cash, along with its old machine to acquire the new machine. If this transaction has commercial substance, the new machine should be recorded at:

Version 1

A) $56,000. B) $43,000. C) $10,300. D) $50,600. E) $53,300.

20) Hunter Sailing Company exchanged an old sailboat for a new one. The old sailboat had a cost of $300,000 and accumulated depreciation of $120,000. The new sailboat had an invoice price of $326,000. Hunter received a trade in allowance of $192,000 on the old sailboat, which meant the company paid $134,000 in addition to the old sailboat to acquire the new sailboat. If this transaction has commercial substance, what amount of gain or loss should be recorded on this exchange? A) $192,000 gain B) $0 gain or loss C) $12,000 gain D) $12,000 loss E) $180,000 loss

21) Cliff Company traded in an old truck for a new one. The old truck had a cost of $89,000 and accumulated depreciation of $71,200. The new truck had an invoice price of $139,000. Huffington was given a $14,240 trade-in allowance on the old truck, which meant they paid $124,760 in addition to the old truck to acquire the new truck. If this transaction has commercial substance, what is the recorded value of the new truck? A) $17,800 B) $89,000 C) $124,760 D) $139,000 E) $142,560

22) A company bought a new $74,000 heating system. The company paid $69,600 cash and was given a trade-in of $4,400 on an old heating system. The old system had an original cost of $67,300 and accumulated depreciation of $60,200. If the transaction has commercial substance, the company should record the new heating system at: Version 1

A) $4,400. B) $7,100. C) $69,600. D) $74,000. E) $76,700.

23) A company purchased equipment valued at $190,000. It traded in old equipment for a $108,000 trade-in allowance and the company paid $82,000 cash with the trade-in. The old equipment cost $170,000 and had accumulated depreciation of $68,000. This transaction has commercial substance. What is the recorded value of the new equipment? A) $102,000. B) $108,000. C) $82,000. D) $184,000. E) $190,000.

24) Granite Company purchased a machine costing $130,680. Granite paid freight charges of $3,200. The machine requires special mounting and wiring connections costing $11,200. When installing the machine, $2,700 in damages occurred. Compute the cost recorded for this machine. A) $130,680. B) $145,080. C) $151,600. D) $144,580. E) $145,280.

25) Wickland Company installs a manufacturing machine in its production facility at the beginning of the year at a cost of $101,000. The machine's useful life is estimated to be 10 years, or 340,000 units of product, with a $9,000 salvage value. During its second year, the machine produces 27,200 units of product. Determine the machines' second year depreciation under the straight-line method.

Version 1

A) $7,360. B) $9,200. C) $10,100. D) $8,080. E) $11,000.

26) Wickland Company installs a manufacturing machine in its production facility at the beginning of the year at a cost of $82,000. The machine's useful life is estimated to be 10 years, or 260,000 units of product, with a $8,000 salvage value. During its second year, the machine produces 20,800 units of product. Determine the machines' second year depreciation under the units-of-production method. (Do not round intermediate calculations.) A) $5,920. B) $7,400. C) $8,200. D) $6,560. E) $9,000.

27) Phoenix Agency leases office space. On January 3, Phoenix incurs $98,400 to improve the leased office space. These improvements are expected to yield benefits for 10 years. Phoenix has 8 years remaining on its lease. Compute the amount of amortization expense that should be recorded the first year related to the improvements. A) $19,100. B) $9,840. C) $6,800. D) $16,640. E) $12,300.

28) Crestfield leases office space. On January 3, the company incurs $15,000 to improve the leased office space. These improvements are expected to yield benefits for 10 years. Crestfield has 5 years remaining on its lease. What journal entry would be needed to record the expense for the first year related to the improvements?

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A) Debit Amortization Expense—Leasehold Improvements $1,500; credit Accumulated Amortization—Leasehold Improvements $1,500. B) Debit Depletion Expense $3,000; credit Accumulated Depletion $3,000. C) Debit Depreciation Expense $1,500; credit Accumulated Depreciation $1,500. D) Debit Depletion Expense $15,000; credit Accumulated Depletion $15,000. E) Debit Amortization Expense—Leasehold Improvements $3,000; credit Accumulated Amortization—Leasehold Improvements $3,000.

29) Nike owns equipment that cost $101,900 with accumulated depreciation of $69,600. Nike asks $37,100 for the equipment but sells the equipment for $34,400. Compute the amount of gain or loss on the sale. A) $2,700 gain. B) $2,100 gain. C) $2,100 loss. D) $4,800 loss. E) $4,800 gain.

30) Gaston owns equipment that cost $27,500 with accumulated depreciation of $13,750. Gaston sells the equipment for $12,400. Which of the following would not be part of the journal entry to record the disposal of the equipment? A) Debit Accumulated Depreciation $13,750. B) Credit Equipment $27,500. C) Debit Loss on Disposal of Equipment $1,350. D) Credit Gain on Disposal of Equipment $1,350. E) Debit Cash $12,400.

31) Riverboat Adventures pays $480,000 plus $19,000 in closing costs to purchase real estate. The real estate consists of land appraised at $102,000, a building appraised at $204,000, and land improvements appraised at $204,000. Compute the cost that should be allocated to the building.

Version 1

A) $199,600. B) $192,000. C) $204,000. D) $281,200. E) $122,400.

32) Mohr Company purchases a machine at the beginning of the year at a cost of $37,000. The machine is depreciated using the straight-line method. The machine’s useful life is estimated to be 8 years with a $6,000 salvage value. Depreciation expense in year 2 is: A) $4,625. B) $3,875. C) $9,250. D) $31,000. E) $0.

33) Mohr Company purchases a machine at the beginning of the year at a cost of $44,000. The machine is depreciated using the straight-line method. The machine’s useful life is estimated to be 8 years with a $5,000 salvage value. The book value of the machine at the end of year 2 is: A) $4,875. B) $9,750. C) $29,250. D) $34,250. E) $39,000.

34) Mohr Company purchases a machine at the beginning of the year at a cost of $38,000. The machine is depreciated using the double-declining-balance method. The machine’s useful life is estimated to be 5 years with a $7,000 salvage value. Depreciation expense in year 2 is:

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A) $7,600. B) $12,400. C) $15,200. D) $9,120. E) $22,800.

35) Mohr Company purchases a machine at the beginning of the year at a cost of $35,000. The machine is depreciated using the double-declining-balance method. The machine’s useful life is estimated to be 5 years with a $4,000 salvage value. The machine’s book value at the end of year 2 is: A) $18,600. B) $9,400. C) $14,000. D) $12,600. E) $21,000.

36) Mohr Company purchases a machine at the beginning of the year at a cost of $35,000. The machine is depreciated using the units-of-production method. The company estimates it will use the machine for 5 years, during which time it anticipates producing 62,000 units. The machine is estimated to have a $4,000 salvage value. The company produces 10,100 units in year 1 and 7,100 units in year 2. Depreciation expense in year 2 is: A) $4,000. B) $6,200. C) $14,000. D) $3,550. E) $21,000.

37) Martin Company purchases a machine at the beginning of the year at a cost of $79,000. The machine is depreciated using the straight-line method. The machine’s useful life is estimated to be 4 years with a $7,000 salvage value. Depreciation expense in year 4 is:

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A) $19,750. B) $18,000. C) $72,000. D) $79,000. E) $0.

38) Martin Company purchases a machine at the beginning of the year at a cost of $64,000. The machine is depreciated using the straight-line method. The machine’s useful life is estimated to be 5 years with a $2,000 salvage value. The book value of the machine at the end of year 5 is: A) $12,400. B) $62,000. C) $25,600. D) $2,000. E) $0.

39) Martin Company purchases a machine at the beginning of the year at a cost of $150,000. The machine is depreciated using the double-declining-balance method. The machine’s useful life is estimated to be 4 years with a $12,500 salvage value. Depreciation expense in year 4 is: A) $34,375. B) $9,375. C) $75,000. D) $6,250. E) $12,500.

40) Martin Company purchases a machine at the beginning of the year at a cost of $115,000. The machine is depreciated using the double-declining-balance method. The machine’s useful life is estimated to be 4 years with a $9,500 salvage value. The machine’s book value at the end of year 3 is:

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A) $57,500. B) $86,250. C) $100,625. D) $14,375. E) $13,156.

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Answer Key Test name: Chap 09_17ce_Test Bank_Algo 1) D 16 year revised life − 4 years depreciated = 12 years remaining 2) D Accumulated Depreciation through the end of year 4: (Cost of Asset − Salvage Value)/Estimated Useful Life × Years Elapsed ($24,480 − $2,400)/8 × 4 = $11,040 Depreciation in Year 5 = (Cost of Asset − Accumulated Depreciation − Salvage Value)/Remaining Estimated Useful Life ($24,480 − $11,040 − $2,400)/2 = $5,520 3) C Accumulated Depreciation through the end of year 3: (Cost of Asset − Salvage Value)/Estimated Useful Life × Years Elapsed ($19,300 − $5,200)/6 × 3 = $7,050 Depreciation, years 4 through 6 = (Cost of Asset - Accumulated Depreciation - Salvage Value)/Remaining Estimated Useful Life ($19,300 − $7,050 − $1,930)/3 = $3,440 4) C Period Year 1 Year 2

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BOY BV 172,000 154,800

DB Rate 40% 40%

Depreciation Expense $68,800 × 3/12 = $17,200 61,920

EOY BV $154,800 92,880

Accordingly, the asset's book value at the end of Year 2 would be $92,880. BOY BV = Beginning of Year Book Value DB Rate = Declining Balance Rate of Depreciation (1/5 × 2) EOY BV = End of Year Book Value 5) D Year 1 Year 2 Year 3 Accumulated

[($32,000 − $4,000)/4] × 9/12 = ($32,000 − 4,000)/4 =

$5,250 $7,000 $7,000 $19,250

6) B Depreciation Expense = (Cost − Salvage Value)/Estimated Useful Life Depreciation Expense = ($31,000 − $3,800)/4 = $6,800 7) B [(Year 3 book value − revised salvage value)/useful life] = Year 3 depreciation [($72,400 − $5,000)/8)] = $8,425.00. 8) A Total cost = $180,000 + $15,500 + $1,300 + $2,500 = $199,300 9) D $100,000 × $49,400/($56,500 + $49,400 + $19,100) = $39,520 10) C Depreciation Expense = (Cost − Salvage Value)/Est Useful Life × Length of Ownership Depreciation Expense = ($15,500 − $2,300)/4 × 3/12; Depreciation Expense = $825 Version 1

11) A Depreciation Expense = Beginning of Year Book Value × Double Straight-line Rate Depreciation Expense = $7,000 × (2 × 20%) = $2,800 (Year 1, depreciation) Depreciation Expense = Beginning of Year Book Value × Double Straight-line Rate Depreciation Expense = ($7,000 − $2,800) × (2 × 20%) = $1,680 (Year 2, depreciation) 12) C Depreciation Expense = [(Cost − Salvage Value)/Estimated Useful Life (in units)] × Units Produced Depreciation per unit = ($231,450 − $12,500)/755,000 units = $.29 per unit Depreciation Expense = $.29 × 111,500 = $32,335 13) D Selling price $13,900 − $19,100 Book value = $5,200 Loss. 14) E If the asset's book value is $21,600 on January 1, Year 6 and is being depreciated $300 per month, $5,400 (18 × $300) of additional depreciation expense would be recognized by July 1, Year 7. Thus, the asset's book value on that date would be $16,200. If the asset is sold for $14,200, a loss on sale of $2,000 should be recognized. 15) D Cost of equipment

Accumulated depreciation Book value

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350,000 (140,000 )

210,000

Cash received Gain or Loss on sale

(210,000 ) $

16) B Cost of computer system

Accumulated depreciation Book value

(6,850 ) $

Cash received Loss on disposal

8,350

1,500 (0 )

1,500

17) A Cost of tractor

$ 133,000

Accumulated depreciation Book value

(67,200 ) $

Cash received Loss

65,800 28,000

37,800

18) C Depletion Expense per ton = (Cost − Salvage Value)/Estimated Useful Life (in tons) Depletion Expense per ton = ($2,074,000 − $270,000)/2,200,000 tons = $0.820/ton 19) E Version 1

Market value of new machine Cost of old machine

$ 53,300 $

Accumulated depreciation Book value of old machine Plus cash paid in exchange

43,000 (32,700 )

10,300 45,700

Loss on exchange

56,000 $ (2,700 )

Machine (new)

53,300

Loss on disposal

2,700

Accumulated depreciation (old)

32,700

Machine (old)

43,000

Cash

45,700

20) C Market value of new sailboat Book value of old sailboat ($300,000 – $120,000) Cash Gain

326,000

$ 180,000 134,000

(314,000 ) $

12,000

21) D

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Market value of new truck Book value of the old truck ($89,000 − $71,200)

$ 139,000 $

Cash

17,800 124,760

Loss

142,560 $

3,560

As the transaction has commercial substance and there is a loss on the exchange, the new asset is recorded at its market value:

Truck (new)

139,000

Loss on exchange

3,560

Accumulated depreciation (old)

71,200

Truck (old)

89,000

Cash

124,760

22) D Market value of new system Cost of old system

$ 74,000 $

Accumulated depreciation Book value of old system Plus cash paid in exchange

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67,300 (60,200 )

7,100 69,600

76,700

Loss on exchange

$ (2,700 )

Since the transaction has commercial substance, the loss on exchange is recognized and the new system should be recorded at its $74,000 price.

Equipment (new)

74,000

Loss on exchange

2,700

Accumulated depreciation (old)

60,200

Equipment (old)

67,300

Cash

69,600

23) E Market value of new equipment Cost of old machine Accumulated depreciation Book Value of the old equipment Plus cash paid in exchange Gain on exchange

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$ 190,000 $ 170,000 (68,000 ) $ 102,000 82,000

184,000 $

6,000

Since the transaction has commercial substance, the $6,000 gain is recognized and the new machine is recorded at its market value of $190,000.

Equipment (new)

190,000

Accumulated depreciation (old)

68,000

Equipment (old)

170,000

Gain on exchange

6,000

Cash

82,000

24) B Cost of Machine = 130,680 + $3,200 + $11,200 = $145,080 25) B Depreciation Expense = (Cost − Salvage Value)/Estimated Useful Life Depreciation Expense = ($101,000 − $9,000)/10 = $9,200 26) A Depreciation Expense = [(Cost − Salvage Value)/Estimated Useful Life (in units)] × Production of Units Depreciation Expense = [($82,000 − $8,000)/260,000] × 20,800 = $5,920 27) E Amortization Expense = Cost/Lesser of Estimated Useful Life or Remaining Lease Length Amortization Expense = $98,400/8 = $12,300 28) E

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Amortization Expense = Cost/Lesser of Estimated Useful Life or Remaining Length of Lease Amortization Expense = $15,000/5 = $3,000 29) B Gain/Loss on Sale = Cash Received − Book Value Gain/Loss on Sale = $34,400 − ($101,900 − $69,600); Gain of $2,100 30) D Gain/Loss on Sale = Cash Received − Book Value Gain/Loss on Sale = $12,400 − ($27,500 − $13,750); Loss of $1,350

Cash

$ 12,400

Accumulated Depreciation

13,750

Loss on Sale

1,350

Equipment

$ 27,500

31) A Percent Allocated to Building = $204,000/($204,000 + $102,000 + $204,000) = 0.40 Cost Allocated to Building = ($480,000 + $19,000) × 0.40 = $199,600 32) B Depreciation Expense = (Cost − Salvage Value)/Estimated Useful Life Depreciation Expense = ($37,000 − $6,000)/8 = $3,875 33) D Depreciation Expense = (Cost − Salvage Value)/Estimated Useful Life Depreciation Expense = ($44,000 − $5,000)/8 = $4,875 per year Book value at end of year 2 = Cost − Accumulated Depreciation Book value at end of year 2 = $44,000 − ($4,875 × 2) = $34,250 Version 1

34) D Depreciation Expense = Beginning of Year Book Value × Double Straight-line Rate Depreciation Expense = $38,000 × (2 × 20%) = $15,200 (Depreciation Expense, year 1) Depreciation Expense = Beginning of Year Book Value × Double Straight-line Rate Depreciation Expense = ($38,000 − $15,200) × (2 × 20%) = $9,120 (Depreciation Expense, year 2) 35) D Depreciation Expense = Beginning of Year Book Value × Double Straight-line Rate Depreciation Expense = $35,000 × (2 × 20%) = $14,000 (Depreciation Expense, year 1) Depreciation Expense = Beginning of Year Book Value × Double Straight-line Rate Depreciation Expense = ($35,000 − $14,000) × (2 × 20%) = $8,400 (Depreciation Expense, year 2) Book value at end of year 2 = Cost − Accumulated Depreciation Book value at end of year 2 = $35,000 − ($14,000 + $8,400) = $12,600 36) D Depreciation Expense = (Cost − Salvage Value)/Estimated Useful Life (units) Depreciation Expense = ($35,000 − $4,000)/62,000 = $0.50 per unit Depreciation Expense = $0.50 per unit × 7,100 units = $3,550 37) B Depreciation Expense = (Cost − Salvage Value)/Estimated Useful Life Depreciation Expense = ($79,000 − $7,000)/4 = $18,000 Version 1

38) D Depreciation Expense = (Cost − Salvage Value)/Estimated Useful Life Depreciation Expense = ($64,000 − $2,000)/5 = $12,400 per year Book value at end of year 5 = Cost − Accumulated Depreciation Book value at end of year 5 = $64,000 − ($12,400 × 5) = $2,000 39) D Depreciation Expense = Beginning of Year Book Value × Double Straight-line Rate Depreciation Expense = $150,000 × (2 × 25%) = $75,000 (Depreciation Expense, year 1) Depreciation Expense = Beginning of Year Book Value × Double Straight-line Rate Depreciation Expense = ($150,000 − $75,000) × (2 × 25%) = $37,500 (Depreciation Expense, year 2) Depreciation Expense = Beginning of Year Book Value × Double Straight-line Rate Depreciation Expense = ($150,000 − $112,500) × (2 × 25%) = $18,750 (Depreciation Expense, year 3) Depreciation Expense = Beginning of Year Book Value × Double Straight-line Rate Depreciation Expense = ($150,000 − $131,250) × (2 × 25%) = $9,375, but this would reduce the book value to less than salvage. Therefore, depreciation expense in year 4 is limited to $6,250. (Book value at the beginning of the year, $18,750, minus the $12,500 salvage.) 40) D

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Depreciation Expense = Beginning of Year Book Value × Double Straight-line Rate Depreciation Expense = $115,000 × (2 × 25%) = $57,500 (Depreciation Expense, year 1) Depreciation Expense = Beginning of Year Book Value × Double Straight-line Rate Depreciation Expense = ($115,000 − $57,500) × (2 × 25%) = $28,750 (Deprec. Exp, year 2) Depreciation Expense = Beginning of Year Book Value × Double Straight-line Rate Depreciation Expense = ($115,000 − $86,250) × (2 × 25%) = $14,375 (Deprec. Exp, year 3) Book Value at end of year 3 = Cost minus Accumulated Depreciation Book Value at end of year 3 = $115,000 − ($57,500 + $28,750 + $14,375) Book Value at end of year 3 = $14,375

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CHAPTER 9 TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Property, plant and equipment are assets held for sale. ⊚ ⊚

true false

2) Non-current assets can be divided into two groups including tangible and intangible assets. These assets are generally used in operations of a business and have useful lives extending over more than one accounting period. ⊚ ⊚

true false

3) Land purchased as a building site is a tangible asset called property, plant and equipment and is classified under the "Long-term Investments" section on the balance sheet. ⊚ ⊚

true false

4) The cost of an asset includes all normal and reasonable expenditures necessary to get the asset in place and ready for its intended use. ⊚ ⊚

true false

If a machine is damaged during unpacking, the repairs are added to its cost. ⊚ ⊚

true false

6) To be charged to and reported as part of the cost of property, plant and equipment, an expenditure must be normal, reasonable, and necessary in preparing the asset for its intended use. ⊚ ⊚

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true false

7) The purchase of real estate that includes land, building, and land improvements is called a lump-sum purchase. ⊚ ⊚

true false

8) Any expenditures for legal fees, surveying, and accrued property taxes should not be included in the cost of land. ⊚ ⊚

true false

9) Revenue expenditures are additional costs of property, plant and equipment that provide material benefits extending beyond the current period. ⊚ ⊚

10)

Revenue expenditures are expenditures to keep assets in normal operating condition. ⊚ ⊚

11)

true false

Capital expenditures are also called balance sheet expenditures. ⊚ ⊚

true false

12) SportsWorld spent $17,000 to remodel its store. This cost will be recognized with a debit to Store Building. ⊚ ⊚

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true false

13) Treating small-dollar-amount capital expenditures as revenue expenditures is likely to mislead users of financial statements. ⊚ ⊚

true false

14) The cost principle requires that an asset be recorded at the cash or cash equivalent amount given in exchange. ⊚ ⊚

true false

15) Subsequent expenditures are purchases made after the acquisition of equipment to operate, maintain, repair, and improve it. ⊚ ⊚

true false

16) Because land has unlimited life, it is not subject to depreciation. Therefore, items that increase the usefulness of the land such as parking lots are also not depreciated. ⊚ ⊚

true false

17) Depreciation is the process of allocating the cost of a tangible asset in a rational and systematic manner over the asset's estimated useful life. ⊚ ⊚

18)

true false

Residual value is an estimate of an asset's value at the end of its useful life. ⊚ ⊚

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true false

19) Inadequacy refers to the condition where the capacity of a property, plant and equipment item is too small to meet the company's productive demands. ⊚ ⊚

20)

Depreciation should always be recorded as soon as an asset is purchased. ⊚ ⊚

21)

true false

Depreciation measures the decline in market value of an asset. ⊚ ⊚

true false

22) On the balance sheet, it is not necessary to report both the cost and the accumulated depreciation of an asset. ⊚ ⊚

true false

23) Accumulated depreciation represents funds set aside to buy new assets when the assets currently owned are replaced. ⊚ ⊚

true false

24) The full disclosure principle allows us to record an asset costing $50 as a revenue expenditure ⊚ ⊚

true false

25) Regardless of the method of depreciation, total depreciation expense will be the same over an asset's useful life.

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⊚ ⊚

true false

26) Financial accounting and tax accounting require the same recordkeeping; therefore, there should be no difference in results between the two accounting systems. ⊚ ⊚

true false

27) Companies are required to use the straight-line depreciation method for tax purposes because this method yields the lowest depreciation expense and results in the highest payment of tax. ⊚ ⊚

true false

28) The Income Tax Act requires that companies use a declining-balance method for calculating the maximum capital cost allowance that may be claimed in any period ⊚ ⊚

29)

The most frequently used method of depreciation is the straight-line method. ⊚ ⊚

30)

true false

The cost of an asset plus its accumulated depreciation equals the asset's book value. ⊚ ⊚

true false

31) The units of production method of depreciation charges a varying amount of expense for each period of an asset's useful life depending on its usage.

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⊚ ⊚

true false

32) An accelerated depreciation method yields smaller depreciation expense in the early years of an asset's life and larger charges in later years. ⊚ ⊚

true false

33) The double-declining balance method is applied by (1) calculating the asset's straight-line depreciation rate, (2) doubling it, (3) subtracting residual value from cost, and (4) multiplying the rate times the cost. ⊚ ⊚

true false

34) SportsWorld purchased store equipment for $65,000. The equipment has an estimated residual value of $6,000. With an estimated useful life of 10 years, the annual depreciation using the straight-line method will be $3,900 per year. ⊚ ⊚

true false

35) A company is required to purchase all assets at the beginning of an accounting period so that a full year's worth of depreciation can be taken. ⊚ ⊚

true false

36) Machinery having a four-year useful life and a residual value of $5,000 was acquired for $65,000 cash on June 28. Using the nearest whole month method, the company would recognize $11,250 for depreciation expense at the end of the first year, December 31. ⊚ ⊚

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true false

37) A depreciable asset that is purchased on March 18 would be depreciated for nine months of the first year, if the fiscal year ends on December 31 using nearest whole month method. ⊚ ⊚

true false

38) The half year rule is the partial-year depreciation method that calculates depreciation by determining if the asset was used for more than half of the month. ⊚ ⊚

true false

39) Because depreciation is based on predictions of residual value and useful life, depreciation is an estimate. ⊚ ⊚

true false

40) Machinery after two years' worth of depreciation has an opening book value of $6,400. At the beginning of the third year, the predicted number of years remaining in its useful life changes from three years to four years and its estimated residual value changes from the original $1,000 to $400. The revised annual depreciation using the straight-line method is $1,500. ⊚ ⊚

true false

41) An asset that cost $5,000 has a current book value of $2,000. A revision of the useful life of the asset estimated that the asset has a remaining useful life of four years and a residual value of $400. Using the straight-line method, the revised depreciation will be $500 per year. ⊚ ⊚

true false

42) When the cost of the asset changes because of a subsequent capital expenditure, revised depreciation for current and future periods must be calculated and adjusted.

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⊚ ⊚

true false

43) Depreciation amounts can be revised because of changes in the estimates for residual value, useful life or because of subsequent revenue expenditures. ⊚ ⊚

true false

44) An asset with a current book value of $5,000 has a current market value of $2,000. The company should recognize an impairment loss of $3,000. ⊚ ⊚

true false

45) If the book value of a property, plant and equipment item is less than the amount to be recovered through the asset's use or sale, the difference is an impairment loss and the asset is described as impaired. ⊚ ⊚

true false

46) Impairment can result from a variety of situations that include a significant decline in an asset's market value or a major adverse effect caused by technological, economic, or legal factors. ⊚ ⊚

47)

true false

Impairment losses must be assessed by companies on an annual basis. ⊚ ⊚

true false

48) The gain or loss from disposal of property, plant and equipment is the difference between an asset's book value and the value received. Version 1

⊚ ⊚

true false

49) Property, plant and equipment can be disposed of by discarding, sale, or exchange of the asset. ⊚ ⊚

true false

50) The first step in accounting for the disposal of property, plant and equipment is calculating the gain or loss on disposal. ⊚ ⊚

true false

51) Equipment costing $14,000 with accumulated depreciation of $10,000 was sold for $3,000. The company should recognize a $1,000 loss on disposal of the equipment. ⊚ ⊚

true false

52) At the time a plant asset is being discarded or sold, it is necessary to update the accumulated depreciation of the plant asset to the date of disposal. ⊚ ⊚

true false

53) When accumulated depreciation equals the asset's cost, the asset is fully depreciated. The entry to record the removal of the asset is called exchanging the equipment. ⊚ ⊚

true false

54) When assigning values to an exchange of assets you should use the fair value of the asset given up.

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⊚ ⊚

true false

55) When assigning values to an exchange of assets you should always use the fair value of the asset received. ⊚ ⊚

true false

56) A patent is an exclusive right granted to its owner to manufacture and sell a patented machine or device, or to use a process, for a specified period of time. ⊚ ⊚

true false

57) Intangible assets should be amortized over their anticipated legal, regulatory, contractual, competitive or economic life. ⊚ ⊚

true false

58) Amortization is the process of allocating the cost of intangibles over their estimated useful life. ⊚ ⊚

true false

59) Drilling rights are legal permissions to extract natural resources from the earth and are treated as intangible assets. ⊚ ⊚

true false

60) Intangible assets provide rights, privileges, and competitive advantages to the owner, are used in operations, and have no physical substance and can be amortized

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⊚ ⊚

true false

61) A copyright gives its owner the exclusive right to publish and sell a musical, literary, or artistic work during the life of the creator plus 20 years. ⊚ ⊚

true false

62) The cost of developing, maintaining, or enhancing the value of a trademark is capitalized, or added to the value of the asset when incurred. ⊚ ⊚

63)

true false

Goodwill is an intangible asset. ⊚ ⊚

true false

64) Goodwill is not depreciated or amortized but is instead decreased only if its value has been determined by management to be impaired. ⊚ ⊚

65)

Goodwill is depreciated over its useful life as estimated by the business's management. ⊚ ⊚

66)

true false

Goodwill is written down to its fair value if the fair value is less than its carrying value. ⊚ ⊚

Version 1

true false

67) The impairment of goodwill appears directly on the statement of changes in equity and not on the income statement. ⊚ ⊚

true false

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 68) On January 1 of this year, SportsWorld purchased a new cash register for $5,400. This register has a useful life of 10 years and a residual value of $400. Using the double-decliningbalance method, how much depreciation expense should SportsWorld recognize for next year? A) $500 B) $540 C) $1,000 D) $864 E) $1,080

69) SportsWorld purchased equipment costing $10,000. The equipment has a residual value of $1,000, and an estimated useful life of 5 years or 36,000 shoes. Actual units produced during the year were 7,000 units. Calculate the annual depreciation using the straight line method. A) $1,800 B) $4,000 C) $1,450 D) $2,000 E) $1,750

70) On October 1 of this year, SportsWorld purchased a delivery van for $23,000 with a residual value of $3,000. The van has an estimated useful life of 5 years. Using straight-line depreciation and the half-year rule, how much depreciation expense should SportsWorld recognize on December 31 of this year?

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A) $4,600 B) $1,333 C) $1,465 D) $2,000 E) $4,000

71) SportsWorld uses the straight-line depreciation for a piece of equipment that cost $12,000. The asset had a trade-in value of $2,000, and a five-year service life. At the end of the third year, the trade-in value was revised to $1,200 and the useful life increased to a total of 6 years. Calculate the amount of depreciation expense for each of the remaining years of the asset's useful life. A) $1,000 B) $1,467 C) $1,800 D) $1,600 E) $2,160

72) JoyCo acquired equipment on April 1, 2022, at a cost of $90,000 and with an estimated useful life of 10 years. The machine has a residual value of $10,000. JoyCo uses the doubledeclining-balance method of depreciation. How much depreciation should be recorded by JoyCo for the year ended December 31, 2022? A) $8,000 B) $9,000 C) $10,000 D) $13,500 E) $12,000

73) SportsWorld bought a new display case for $12,000 and was given a trade-in of $2,000 on an old display case. The old case had an original cost of $7,000 and an accumulated depreciation of $4,000 to the date of trade-in. SportsWorld should record the new display case at:

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A) $10,000 B) $10,500 C) $11,500 D) $11,700 E) $12,000

74) At the end of the year, SportsWorld completed an asset impairment test and noted that a piece of equipment, with a book value of 12,000, has a recoverable value of $2,000. Calculate the amount of impairment loss on the equipment. A) $2,000 B) $2,160 C) $14,800 D) $12,800 E) $10,000

75) SportsWorld purchased property for a building site. The costs associated with the property were: Purchase Price

$175,000

Real Estate Commissions

$15,000

Legal Fees

$800

Expense of clearing land

$2,000

Expense to remove old building

$1,000

What portion of these costs should be allocated to the cost of the land and what portion should be allocated to the cost of the new building? A) $150,000 to Land; $18,800 to Building B) $190,000 to Land; $3,800 to Building C) $190,800 to Land; $3,000 to Building D) $192,800 to Land; $1,000 to Building E) $193,800 to Land; $0 to Building

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76) SportsWorld uses straight-line depreciation for a piece of equipment that cost $12,000. The asset had a salvage value of $2,000, and a five-year service life. At the end of the first year, an impairment loss of $2,000 was recognized on the asset. Calculate the amount of depreciation expense for each of the remaining years of the asset's useful life. A) $1,500 B) $1,600 C) $2,500 D) $1,800 E) $2,000

77) Sports Med sold an X-ray machine that originally cost $100,000 for $60,000. The accumulated depreciation on the machine to the date of sale was $40,000. On this sale, Sports Med should recognize: A) $0 gain or loss B) $20,000 gain C) $25,000 gain D) $40,000 loss E) $60,000 gain

78) Creek Construction purchased a machine for $26,000. It traded in an old machine and received a $4,200 trade-in allowance. The old machine costs $24,000 and had an accumulated depreciation of $16,000 to the date of trade-in. At what value should the new asset be recorded? A) $21,800 B) $24,000 C) $26,000 D) $29,800 E) $30,200

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79) SportsWorld purchased a machine for $190,000. The machine has a useful life of 8 years and a residual value of $10,000. SportsWorld estimates that the machine could produce 750,000 units of product over its useful life. In the first year, 95,000 units were produced. In the second year, production increased to 111,000 units. Using the units-of-production method, what is the amount of depreciation that should be recorded for the second year? A) $26,640 B) $22,800 C) $28,000 D) $36,000 E) $49,440

80) SportsWorld purchased property for $100,000. The property included a building, parking lot, and land. The building was appraised at $65,000; the land at $40,000; and the parking lot at $10,000. To the nearest dollar, the value of the land to be recorded in the books should be A) $56,522 B) $40,000 C) $34,783 D) $36,364 E) $48,696

81) A machine costs $40,000 and had an accumulated depreciation of $30,000. It was traded in on a new machine, which had an estimated 20-year life and a cash price of $50,000. If a $7,000 trade-in allowance was received on the old machine, the new machine should be valued at A) $10,000 B) $40,000 C) $47,000 D) $50,000 E) $53,000

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82) When originally purchased, a vehicle had a cost of $23,000, with an estimated residual value of $1,500. The estimated useful life is 8 years. After 4 years of straight-line depreciation, the estimated useful life was revised from 8 to 6 years, but with zero residual value. The depreciation expense in year 5 should be A) $5,543.75 B) $2.687.50 C) $6,125.00 D) $10,750.00 E) $2,856.25

83) SportsWorld discarded a display case it had purchased for $8,000. $7,200 in accumulated depreciation had been recorded to the date of sale. SportsWorld should recognize a gain or loss on disposal of A) $0 B) $800 loss C) $800 gain D) $8,000 loss E) $7,200 loss

84) On April 3, 2022, Rainbow Studios purchased a patent for $56,000. Its remaining legal life is 7 years. Rainbow Studios estimates that the patent will be useful for another 4 years. The correct adjusting entry to record amortization of the patent on December 31, 2022 is A) Amortization Expense, Patent

14,000

Accumulated Amortization, Patent

14,000

B) Amortization Expense, Patent

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8,000

Accumulated Amortization, Patent

8,000

C) Amortization Expense, Patent

10,500

Accumulated Amortization, Patent

10,500

D) Amortization Expense, Patent

6,000

Accumulated Amortization, Patent

6,000

E) Patent Accumulated Amortization, Patent

10,500 10,500

85) A machine originally had an estimated service life of 5 years, and after 3 years, it was decided that the original estimate should have been for 10 years. The remaining cost to be depreciated should be allocated over the next A) 2 years B) 5 years C) 6 years D) 7 years E) 10 years

86)

A change in accounting estimate is

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A) Reflected only in current and future financial statements B) Reflected in current and future financial statements and also requires modification of past statements C) A change in a calculated amount used in the financial statements resulting from new information or subsequent developments and from better insight or improved judgment D) Reflected in both current and future financial statements, and a change in a calculated amount is used in the financial statements resulting from new information or subsequent developments and from better insight or improved judgment E) None of the choices are correct

87) Creek Construction owned a bulldozer which was destroyed by fire. The bulldozer originally cost $38,000. The accumulated depreciation recorded to the date of loss was $20,000. The proceeds from the insurance company were $20,000. Creek Construction should recognize A) A loss of $2,000 B) An expense of $2,000 C) A loss of $38,000 D) A gain of $20,000 E) A gain of $2,000

88)

A main accounting issue for property, plant and equipment is A) The cost of property, plant and equipment B) Testing property, plant and equipment for impairment C) Accounting for repairs and improvements to property, plant and equipment D) Disposal of property, plant and equipment E) All of the choices are correct

89) If the book value (or carrying amount) of a PPE item is greater than the amount to be recovered through the asset's use or sale, the asset is said to be

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A) Exchanged B) Declined C) Accumulated D) Improved E) Impaired

90)

Inadequacy refers to

A) The condition where the capacity of a property, plant and equipment asset is too small to meet the company's productive demands B) An asset that is worn out C) An asset that is no longer useful D) The same as obsolescence E) All of these

91)

Residual value is A) The same as an asset's service life B) The cost of an asset minus its accumulated depreciation C) An estimate of the asset's value at the end of its useful life D) Another name for market value E) All of the choices are correct

92)

Once the estimated depreciation for an asset is calculated

A) It cannot be changed due to the historical cost principle B) It may be revised based on new information C) Any changes are accumulated and recognized when the asset is sold D) The estimate itself cannot be changed, however, new information should be disclosed in financial statement footnotes E) It may be revised based on new information and any changes are accumulated and recognized when the asset is sold

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93)

Subsequent capital expenditures A) Are expenditures making a property, plant and equipment asset more efficient B) Are often called improvements C) Are added to the cost of the asset D) Often extend an asset's useful life E) All of the choices are correct

94)

Natural resources A) Include trees, mineral deposits, and oil and gas fields B) Are consumed when used C) Are long-term assets D) Can be amortized. E) All of the choices are correct

95)

Property, plant and equipment include A) Land B) Land improvements C) Buildings D) Machinery and equipment E) All of the choices are correct

96)

Intangible assets

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A) Are rights, privileges, and competitive advantages to the owner, used in operations, having no physical substance B) Include patents, leaseholds, and land improvements C) Can be amortized D) Are rights, privileges, and competitive advantages to the owner, used in operations, having no physical substance and can be amortized E) All of the choices are correct

97) Additional subsequent expenditures that result in future economic benefits and can be reliably measured should be treated as a(n) A) Revenue expenditure B) Asset expenditure C) Capital expenditure D) Contributed capital expenditure E) Balance sheet expenditure

98)

Factor(s) that might limit an intangible asset's useful life include A) Legal B) Regulatory C) Contractual D) Economic E) All of the choices are correct

99)

The cost of land can include A) Purchase price B) Back property taxes C) Costs of removing existing buildings D) Real estate commissions E) All of the choices are correct

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100) Each year goodwill is examined to see if its value has been impaired. If the value has been impaired goodwill will A) Increase B) Not change C) Decrease D) Be amortized E) Be depreciated

101)

The formula for calculating straight-line depreciation is A) Depreciable cost divided by the useful life in years B) Cost plus residual value divided by the useful life in years C) Depreciable cost divided by useful life in units D) Cost divided by useful life in years E) Cost divided by useful life in units

102)

Ordinary repairs A) Are expenditures to keep an asset in normal operating condition B) Do not extend an asset's useful life C) Do not materially increase the asset's life or productive capabilities D) Maintain an asset E) All of these

103)

The straight-line method and the double-declining-balance method of depreciation

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A) Produce the same total depreciation over an asset's useful life B) Allocate an asset's cost in a systematic and rational manner C) Do not produce the same book value each year D) Are both acceptable for GAAP E) All of the choices are correct

104)

The appropriate way to amortize goodwill is A) Straight-line over a maximum of 40 years B) Straight-line over a maximum of 20 years C) Double-declining-balance over a period not to exceed 20 years D) Over the estimated useful life of the goodwill E) Goodwill is not amortized or depreciated

105)

Legal permissions for the extraction of oil and gas from the earth are known as A) Trademarks B) Patents C) Drilling rights D) Copyrights E) Leaseholds

106)

An asset can be disposed of by A) Discarding B) Selling C) Exchanging D) Donating it to charity E) All of these

107)

Revenue expenditures

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A) Are additional costs related to property, plant and equipment that do not materially increase the asset's life B) Are balance sheet expenditures C) Extend the asset's useful life D) Benefit future periods E) Are debited to asset accounts

108)

Depreciation is usually recorded A) From the beginning of the accounting year in which an asset is purchased B) From the actual date of purchase C) From the first of the month nearest the actual purchase date D) From the end of the month nearest the actual purchase date E) By any of the above methods

109)

Land improvements are A) Assets that increase the usefulness of land, but that have a limited useful life B) Assets that increase the usefulness of land, and like land are not depreciated C) Included in the land account D) Expensed in the period incurred E) Never depreciated

110)

Which of the following statements is true with respect to intangible assets?

A) Goodwill is an intangible asset that is amortized and tested for impairment. B) Intangible assets are amortized over a period of 50 years. C) Intangible assets should be evaluated each year to determine if there has been any impairment in their value. D) Intangible assets are expensed to income in the year they are acquired. E) An intangible asset is recorded at market value when the asset is acquired.

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111)

A patent

A) Gives the owner the exclusive right to publish and sell a musical or literary work during the life of the creator plus 50 years B) Is an exclusive right granted to its owner to manufacture and sell a machine or device, or to use a process, for 20 years C) Is an exclusive right granted to its owner to manufacture and sell a machine or device, or to use a process, for 50 years D) The amount by which the value of a company exceeds the fair market value of a company's net assets if purchased separately E) Gives the owner the exclusive right to publish and sell a musical or literary work during the life of the creator plus 20 years

112)

A copyright

113)

Capital cost allowance A) Is the income tax act equivalent of depreciation B) Is acceptable for financial reporting C) Is not required for tax reporting D) Is not used in Canada E) All of these

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114)

Depreciation A) Measures the decline in market value of an asset B) Measures physical deterioration of an asset C) Is the process of allocating to expense the cost of property, plant and equipment D) Is a cause of obsolescence E) All of these

115) SportsWorld paid $140,000 for a property. The property included land appraised at $67,500, land improvements appraised at $25,000, and a building appraised at $55,500. What should be the allocation of costs in the accounting records (round calculations to 3 decimals)? A) Land $62,000; land improvements, $23,000; building, $45,000 B) Land $62,000; land improvements, $23,800; building, $46,200 C) Land $63,840; land improvements, $23,660; building, $52,500 D) Land $79,500; land improvements, $32,600; building, $47,700 E) Land $87,500; land improvements; $35,000; building; $52,500

116)

Property, plant and equipment are

A) Tangible assets used in the operation of a business having a useful life of more than one accounting period B) Current assets C) Long-term investments D) Intangible assets used in the operations of a business having a useful life of more than one accounting period E) Tangible assets used in the operation of business having a useful life of less than one accounting period

117)

Treating low-cost asset purchases as expenses is allowed by which principle?

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A) Cost B) Prudence C) Materiality D) Matching E) Timeliness

118)

The useful life of a property, plant and equipment asset is A) The length of time it is productively used in a company's operations B) Another term for its residual value C) Measured by its potential inadequacy D) Is impossible to estimate E) All of the choices are correct

119)

Property, plant and equipment are A) Current assets B) Used in business operations C) Natural resources D) Long-term investments E) Never depreciated

120)

The original cost of an asset minus accumulated depreciation is called A) Historical cost B) Book value C) Present value D) Current value E) Replacement cost

121)

Obsolescence

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A) Occurs when an asset is at the end of its useful life B) Refers to a condition where a property, plant and equipment asset is no longer useful in producing goods and services C) Refers to a condition where the capacity of a property, plant and equipment asset is too small to meet the company's productive demands D) Is the same as inadequacy E) None of the choices are correct

122)

A leasehold A) Is a short-term rental agreement B) Is not an intangible asset C) Refers to the rights granted to the lessee by the lessor in a lease D) Is initially recorded as rent expense E) Is an investment

123) A method that allocates an equal portion of the total depreciation for a property, plant and equipment asset to each accounting period during its useful life is called A) Accelerated depreciation B) Double-declining-balance depreciation C) Straight-line depreciation D) Units-of-production depreciation E) Capital cost allowance

124) A method that allocates an equal portion of the total depreciation for a property, plant and equipment asset to each unit produced is called

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A) Accelerated depreciation B) Double-declining-balance depreciation C) Straight-line depreciation D) Units-of-production depreciation E) Capital cost allowance

125) A depreciation method in which a property, plant and equipment asset's depreciation expense for the period is determined by applying a constant depreciation rate each year to the asset's beginning book value is called A) Book value depreciation B) Double-declining-balance depreciation C) Straight-line depreciation D) Units-of-production depreciation E) Capital cost allowance

126) A depreciation method that produces larger depreciation charges during the early years of an asset's life and smaller charges in the later years is A) Accelerated depreciation B) Book value depreciation C) Straight-line depreciation D) Units-of-production depreciation E) Capital cost allowance

127) CamCo Ltd. leased a floor space in a new office building. Rent will cost $10,000 per month for a ten-year lease, but some renovations are needed and will be paid by CamCo to customize the space. The renovations include installing walls to create a new office and boardroom (cost $8,000), new flooring (cost $5,800), painting (cost $1,500) and updated wiring to accommodate computer servers (cost $8,700). How should these costs be handled for accounting purposes by CamCo?

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A) Painting costs should be charged to rent expense and the other costs should be capitalized to leasehold improvements B) They should all be capitalized as leasehold improvements C) They should all be charged to rent expense D) They should be capitalized as development costs E) Painting costs should be capitalized to leasehold improvements and other costs should be charged to rent expense

128)

Intangible assets do not include A) Patents B) Copyrights C) Trademarks D) Goodwill E) Leaseholds

129)

The relevant factor(s) in calculating depreciation is(are) A) Cost B) Residual value C) Useful life D) Both cost and useful life E) All of these

130) August Co. bought land for a warehouse for $70,000. This land contains an old garage that is removed at a cost of $5,000. Closing costs include legal fees of $1,000 and brokerage fees of $ 2,000. The cost of the land will be

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A) $70,000 B) $78,000 C) $75,000 D) $76,000 E) $73,000

131) June Co. bought land for a retail store for $80,000. This land contains an old structure that is removed at a cost of $10,000. June Co. spends $10,000 for a parking lot and $3,000 for fencing around the property. Which of the following is correct? A) The cost of the land is $90,000 and the cost of the land improvements is $13,000 B) The cost of the land is $80,000 and the cost of the land improvements is $13,000. C) The cost of the land is $80,000 and the cost of the land improvements is $23,000 D) The cost of the land is $80,000 and the cost of the land improvements is $10,000 E) The cost of the land is $90,000 and the cost of the land improvements is $10,000

132) July Enterprises purchased equipment on March 1, 2022, for $75,000. The company also paid the following amounts: $500 for freight charges; $2,100 to train employees to use the new equipment; and $2,800 for testing and installation. The equipment will be depreciated on a straight-line basis over 10 years. At December 31, 2022, July will have depreciation expense for the equipment in the amount of A) $7,830 B) $6,525 C) $8,040 D) $6,700 E) $6,250

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SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 133) High Quality Company's president would like to set up an amount of goodwill on its balance sheet as an intangible asset for 2022. The president believes that this internally created goodwill in the amount of $1,500,000 is justified as the company has been in business for over five years and has excellent competitive advantages including superior products, skilled workforce and customer loyalty. What will you tell the president?

134) Deep Mining Company estimates that there will be 250,000 tons of available iron ore to be mined in a mineral deposit purchased for $1,100,000. Salvage value is expected to be $100,000. If 90,000 tons are mined and sold in 2022, what is total depletion charge for the year?

135)

Discuss the four issues in accounting for property, plant and equipment.

136) Explain the difference between revenue and capital expenditures and how they are recorded in the accounting system.

137) Mandy Manufacturing purchased a machine on August 1, 2021, and it was installed and ready to run on January 1, 2022. The following costs were incurred in the purchase and installation of the machine. Invoice Price

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$1,400,000 33

Freight costs

8,000

Purchase discount

3,000

Installation costs

68,000

Electrical and power connections

33,000

Repairs to correct damage incurred during uncrating

13,000

Adjustments costs

46,000

Spare parts for future use

26,000

Provincial sales tax

84,000

Fines incurred during the transport and uploading of the machine

100

Cost of special foundation for the machine

7,000

Calculate the depreciable cost of the machine.

138) Primadonna Company paid $870,000 plus $10,000 in legal costs for a parcel of real estate. This included land appraised at $450,000; land improvements appraised at $170,000; and a building appraised at $380,000. The plan is to use the building as a manufacturing plant. Determine the amounts that should be debited to: (a) Land

$ __________

(b) Land Improvements

$ __________

139) Prepare journal entries to record the following transactions of Salem Sales Co. during the current year: Mar 1 Purchased a truck for $60,000 with a 6 year useful life and a $10,000 residual value. Salem also paid 7% provincial sales tax, a $500 annual truck license, $4,000 to paint the truck and $2,300 for spare parts. All payments were in cash. Mar 12

Purchased a garage from a neighbouring business with a $60,000 note payable. The seller’s book value for the garage was $57,000 and the garage was appraised at $68,000. The estimated useful life is 12 years. Salem also paid a $4,000 cash for real estate commission.

June 5

Paid $750 to replace garage windows broken during a hail storm.

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Aug 23

Purchase used office equipment for $13,500 plus provincial sales tax of $945 terms 2/10, n 30 from Great West Office Supplies. As well, Salem paid freight of $300 and reconditioning cost of $850 on credit. Estimated useful life of 4 years and a residual value of $1,000.

Sept 12

Paid for office equipment purchased on August 23’d.

Oct 5

Purchased store equipment for $28,000 plus $1,960 in provincial sales tax. As well, Salem paid $1,750 for repairs incurred from an accident during installation. $5,200 for a special base for the equipment and $3,700 of supplies to be used for regular preventive maintenance. Estimated useful life is 9 years and residual value is $1,300.

140) Shady Lanes installed automatic sprinkler systems. The electrical work for the installation was $24,000. The invoice price of the sprinkler equipment was $280,000. Additional costs were $5,000 for delivery and $800 for insurance during transportation. During installation a sprinkler line was punctured and was replaced for $200. What is the cost of the sprinkler equipment?

141) Timing Investments purchased land with a building for a total cost of $6,000,000 ($500,000 paid in cash and the balance on a long-term note). The appraised cost of the land and building were $3,510,000 and $1,890,000, respectively. Calculate the costs to be allocated to the land and the building and prepare the appropriate journal entry to record the acquisition.

142) Honey Crisp Co needed a new building, and found a suitable piece of land which had an old building on it. Honey Crisp made an agreement to buy the land and the building for $860,000 cash. The old building was demolished to make way for the new building. The following is information regarding the demolishing of the old building and construction of the new one: Cost of construction of new building, including $600,000 for a parking lot

5,260,000

Demolition of old building

150,000

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Proceeds from salvage materials

20,000

Prepare a single journal entry to record the above cost (assume paid cash).

143) Prime Co paid $200,000 to purchase a piece of land on which to build a new building. Additional costs incurred were: Real estate broker’s commissions

$10,800

Legal fees of purchasing the real estate

1,400

Landscaping expenses

6,000

Expense to demolish old house located on land

1,500

Proceeds from selling materials salvaged from old house

900

What dollar amount of the above costs should be allocated to Land and what amount should be allocated to the new Building?

144) ACS Company made the following expenditures in connection with the construction of its new cross fit facility: Architect’s fees

9,000

Cash paid for land and old building

140,000

Removal of old building

20,000

Survey to site the new building

(8,000)

Legal fees for title search

1,000

Excavation for construction of basement

2,500

Machinery purchased

72,000

Storage charges on machinery because building was not ready when machinery was delivered

600

Freight on machinery purchased

2,000

Hauling charges to deliver machinery from storage to new building

800

Construction costs of new building

615,000

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Landscaping

7,050

Installation of machinery

9,000

Prepare a schedule showing the amounts to be recorded as Land, Building, and Machinery and Equipment and Expenses.

145)

How is the cost principle applied to property, plant and equipment?

146) RoboCop Company paid $31,400 for a machine that was expected to last 5 years and have a residual value of $5,000. During the third year of the machine's life, $3,700 was paid for replacement parts that were expected to increase the machine's productivity by 20% each year. Prepare the general journal entry to record this transaction.

147) RoboCop Company paid $31,400 for a machine that was expected to last 5 years and have a residual value of $5,000. During the fourth year of the machine's life, $5,400 was paid for repairs that were expected to increase the service life of the machine from 5 to 7 years. Prepare the general journal entry to record this transaction.

148)

Xeno Co. incurred the following transactions concerning its machinery:

Jan 1, 2021

Purchased a machine for $60,000 cash, and also paid $3,000 cash to have it installed. Estimated useful life is 10 years and residual value is $3,000. Straight line depreciation is used.

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Jan 1, 2022

The machine’s useful life was changed from 10 years to 9.

Jan 8, 2023

Paid $3,800 to replace a motor in the machine. This was considered a major overhaul.

Xeno Co uses the calendar year as its fiscal year. Prepare the journal entry to record depreciation expense for 2021, 2022 and 2023. Round all values to the nearest dollar.

149) On January 1, 2019, Friar Company purchased a machine for $180,000 that was expected to last 6 years and have a residual value of $16,000. On January 4, 2022, Friar Company paid $25,000 for improvements to the machine, which increased the total estimated useful life from 6 to 10 years and increased the residual value to $19,500. Friar uses straight-line depreciation. (1) What account should be debited in the journal entry to record the $25,000 improvements? (2) What amount of depreciation expense should be recorded for 2022?

150)

Explain depreciation and the elements affecting its calculation.

151) Compare the three different depreciation methods: straight-line, units of production, and double-declining balance.

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152) Explain how each of the following depreciation methods is calculated: straight-line, units-of-production, and double-declining-balance.

153) Chervinski Industries recently paid $560,000 to buy a building that has an estimated useful life of 40 years and a residual value of $116,000. Calculate the depreciation expense for the third year after acquisition using double-declining-balance depreciation. Assume a full year of depreciation in the first year.

154) Dersch Co. purchased a machine on January 1, 2019, for $2,500,000. Using the table below, calculate the annual depreciation expense for each year of the machine's life (estimated at 5 years or 50,000 hours with a residual value of $150,000). During the machine's life, it was used 15,000; 14,000; 10,000; 9,000; and 6,000 hours.

155) Twilight Manufacturing's property, plant and equipment records reveal the following information: Equipment

Cost

Residual Value

Purchase Date

Depreciation Method

Estimated Useful Life

Units Produced in 2014

(1)

60,000

12,000

December 1, 2019

Straight Line

5 years

2,000

(2)

70,000

8,000

October 18, 2020

Units of Production

50,000 units

5,000

(3)

130,000

June 12, 2020

Double Declining Balance

10 years

6,000

(4)

100,000

10,000

May 3, 2020

Straight Line

8 Years

8,000

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Calculate the depreciation expense for each equipment item for the year ended December 31, 2020, using the nearest whole month method.

156) Voltarin Co purchased a machine for $625,000 on November 2, 2022. The company expects the machine to last for 10 years or 50,000 hours of operation, with an estimated residual value of $15,000. During 2022 the computer was operated for 3,000 hours, while in 2023 it was operated for 2,600 hours. Calculate the depreciation expense for the computer for 2022 and 2023 using the following depreciation methods: (a) Straight-line (b) Double-declining-balance (c) Units-of-production

157) On January 1, 2022 a machine costing $330,000 with a 4-year service life and an estimated $3,000 residual value was purchased. It was also estimated that the machine would produce 50,000 units during its life. The actual units produced during its first 2 years of operation were 9,000 and 10,000 respectively. Calculate the amount of depreciation expense for the 2022 and 2023 under each of the following assumptions: (a) Straight-line. (b) Double-declining-balance. (c) Units-of-production.

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158) Fisherman Company purchased a light truck on October 1, 2022 at a cost of $72,000. The truck is expected to last six years and have a residual value of $5,200. Fisherman Company uses the calendar year as their fiscal year, and the nearest whole month method for depreciation. (a) What is the depreciation expense for 2022, assuming the straight-line method is used? (b) What is the depreciation expense for 2023, assuming the double-declining-balance method at twice the straight-line rate is used?

159) A new machine is expected to produce 60,000 units of product during its 5-year life. The machine cost $180,000 and is estimated to have a $20,000 residual value. If the machine produces 7,200 units of product during its first year, what is the depreciation for the year calculated by the units-of-production method (round rate to 2 decimals)?

160) A new machine is expected to produce 40,000 units of product during its 5-year life. The machine cost $180,000 and is estimated to have a $20,000 residual value. If depreciation on the machine is calculated by the double-declining-balance method, what is the depreciation for the first year?

161) A new machine is expected to produce 40,000 units of product during its 5-year life. The machine cost $38,000 and is estimated to have a $6,000 residual value. What is the first year's depreciation on the machine calculated by the straight-line method?

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162) On January 1, 2022, Swooper Corp acquired and placed in service a plane at a cost of $10,000,000. The plane's service life and residual value were estimated at 5 years and $1,500,000, respectively. Assume the company earns $3,200,000 each year before depreciation and taxes. Calculate depreciation for 2020-2024, assuming the following alternative depreciation methods are used. (a) The straight-line method of depreciation. (b) The double declining balance method of depreciation.

163) On July 1, 2022, Suntera Corp. purchased and placed in service a machine with a cost of $460,000. Suntera estimated the service life to be 5 years or 30,000 units of output, with an estimated residual value of $6,000. During 2020, 2,600 units were produced. (a) The straight-line method of depreciation (b) The units-of-production method of depreciation

164) On July 1, 2022, Delta Company purchased and placed in service a machine with a cost of $460,000. Delta estimated the service life to be 6 years or 60,000 units of output, with an estimated residual value of $80,000. During 2022, 15,000 units were produced. Prepare the necessary December 31, 2022, adjusting journal entry to record depreciation for 2020 assuming Delta uses the double-declining-balance method to the nearest whole month. Round all calculations to 4 decimals.

165) On September 30, 2022, Sarina Industries acquired and placed in service a machine that cost $950,000. It was estimated that the machine has a service life of five years and a residual value of $77,566. Using the double-declining-balance method of depreciation, prepare a schedule showing the depreciation amounts for the years 222 through 2027 (use the nearest whole month method and round answers to the nearest dollar). Sarina closes its books on December 31 of every year. Version 1

166)

Ad Hock had the following property, plant and equipment purchases during 2022:

(1) On April 4, equipment costing $250,000 with a 5-year service life and an estimated $40,000 residual value was purchased. (2) On October 4, a machine costing $330,000 with a 5-year service life and an estimated $50,000 residual value was purchased. Assuming Ad Hock has a December 31 year end, prepare the necessary adjusting journal entries at December 31, 2022 to record depreciation under the following depreciation methods (using the nearest whole month method): (a) Straight-line (b) Double-declining-balance

167) On January 1, 2022, Boone Company purchased a machine for $75,000 that had a 6-year life and a residual value of $6,000. After 3 years of use, on January 1, 2025, Boone Company paid $7,500 to improve the efficiency of the machine. The effect of the expenditure was to increase the productivity of the machine without increasing its remaining useful life or changing its residual value. Boone uses straight-line depreciation. (1) What account should be debited in recording the $7,500 expenditure? (2) What amount of depreciation expense should be reported for 2025?

168) Explain (1) depreciation for partial years and (2) revision of depreciation when estimates change.

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169) A machine was purchased for $37,000 and depreciated for 5 years on a straight-line basis under the assumption it would have a 10-year life and a $1,000 residual value. At the beginning of the machine's sixth year, it was recognized that it had 3 years of remaining life left, instead of five, and that at the end of the 3 years its residual value would be $1,600. What should the annual depreciation be for the machine's remaining years?

170) On January 1, 2022, Bailey Company purchased a machine for $106,000 that was expected to last five years and has a residual value of $6,000. At the beginning of 2025, Bailey decided that the machine's estimated useful life should be revised to a total of 6 years instead of 5. Also, the residual value was now estimated to be $5,500. Straight-line depreciation was used. Calculate the depreciation expense for 2025.

171) Wildway Company purchased a heating system on January 2, 2010, for $425,000. The system had an estimated useful life of 15 years, with no residual value. On January 2, 2022, the company completed a complete renovation of the system at a cost of $43,000 cash, and now expects the system to last 5 years beyond the original estimate. The company uses the straightline method of depreciation.Required: a) Prepare the journal entry on January 2, 2022 for the renovation of the heating system b) Calculate the revised annual depreciation expense after the system renovation and prepare the entry to record the depreciation expense on December 31, 2022.

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172) FNT Company purchased land and a building on January 1, 2023, at a cost of $950,000. The land was appraised at $150,000 and the building at $900,000. FNT renovated the building from January 1 to March 31, 2023, at a cost of $125,000. It also paid the local government an assessment of $55,000 to have a sidewalk and improved sewer system put into place. The new building opened on April 1, 2023, with a customer reception that cost JMT $7,000. FNT estimates the building will be used for 25 years and will use the straight-line method to depreciate the asset Required: Prepare all journal entries relating to the land, building, and related activities, for JMT's January 1 to December 31, 2023, fiscal year. Round the final answer to the nearest dollar.

173) At December 31, 2022, Great Coast Coffee Company's adjusted trial balance shows an espresso machine with a book value of $22,000. As part of the year end procedures GCC completed the asset impairment test on the machine and noted that the recoverable value of the machine was $6,000. Record the impairment loss on the asset.

174) Gold Grain Construction (GGC) exchanged a three-year-old excavator for a new excavator that had a list price of $73,000, which was its fair value. The old excavator originally cost $85,000 and has accumulated depreciation of $45,000 to the date of exchange. In addition to the $45,000 trade-in given for the old excavator, GGC paid $8,000 cash to complete the deal. Record the asset exchange.

175) Headstrom Industries (HI) exchanged a three-year-old truck for a new truck that had a list price of $50,000, which was its fair value. The old truck originally cost $65,000 and has accumulated depreciation of $25,000 to the date of exchange. In addition to the $45,000 trade-in given for the old truck, HI paid $8,000 cash to complete the deal. Record the asset exchange.

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176) Discuss the accounting procedures involved for asset disposal through discarding, selling, or exchanging an asset.

177) Game Company's computer was destroyed by fire. The computer originally cost $6,000, and accumulated depreciation to the date of the fire was $1,900. The company received $2,000 from an insurance policy that covered the computer and will use that money to help pay for a new computer. Prepare the general journal entry to record the loss of the computer and the receipt of cash from the insurance company.

178) Vroom Company sold for $60,000 a machine that originally cost $100,000. The accumulated depreciation on this machine to date of sale was $47,000. What was Vroom Company's gain or loss on this sale?

179) Aye Company's computer was destroyed by fire. The computer originally cost $5,000, and accumulated depreciation to the date of the fire was $900. The company received $2,000 from an insurance policy that covered the computer and will use that money to help pay for a new computer. Prepare the general journal entry to record the loss of the computer and the receipt of cash from the insurance company.

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180) The $60,000 original cost of a machine is recorded in an account called Old Machine. After $45,000 of depreciation was recorded, the machine was traded in on a new machine with a cash price of $85,000. A $10,500 trade-in allowance was received on the old machine and the balance was paid in cash. This transaction has commercial substance. Prepare the general journal entry to record the trade; the cost of the new machine should be debited to a New Machine account.

181) Robertson Company exchanged a used machine for a new machine. The old machine cost $80,000, and the new one had a cash price of $95,000. Robertson had recorded a total of $75,000 depreciation on the old machine and was allowed a $4,500 trade-in allowance. This transaction has commercial substance. What gain or loss should be recorded on the exchange?

182) Wilkins Company exchanged its old computer for a newer model. The Old Computer was purchased for $22,000, with related accumulated depreciation of $15,500 to the date of the exchange. The new computer had a cash price of $30,200, and Wilkins Company was given a $7,500 trade-in allowance. This transaction has commercial substance. Prepare the general journal entry to record the exchange, recording the new computer in an account called New Computer.

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183) On January 2, 2020, Mullins Company purchased a delivery truck for $45,000 cash. The truck had an estimated useful life of seven years and an estimated residual value of $3,000. Straight-line depreciation was used. Assuming the transactions have commercial substance, prepare the journal entries to record the disposition of the truck on September 1, 2024, under each of the following assumptions: (a) The truck and $55,000 cash were exchanged for equipment that had a fair value of $70,000. Assume the appropriate depreciation expense entry was made on August 31, 2024 just prior to the disposition of the old delivery truck. (b) The truck and $40,000 cash were exchanged for a new delivery truck that had a fair value of $70,000. Assume the appropriate depreciation expense entry was made on August 31, 2024 just prior to the disposition of the old delivery truck.

184) On April 1, 2022, Hogan Industries scrapped a machine that cost $10,000 and had accumulated depreciation through December 31, 2019, of $10,000. Prepare the journal entry to record the disposal of the machine.

185) On April 1, 2023, Lockhart Company discarded equipment that cost $80,000, had a useful life of 5 years, a residual value of $14,000, and, under straight-line depreciation, accumulated depreciation as of December 31, 2022 of $26,400. (a) Prepare the journal entry to record depreciation up to the date of disposal of the equipment. (b) Prepare the journal entry to record the disposal of the equipment.

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186) On April 1, 2022, Sagan Realty disposed of an automobile that had cost $50,000 on January 1, 2020. The automobile had a residual value of $8,000, and a useful life of 5 years. The accounting records showed accumulated depreciation for this asset of $16,800 at December 31, 2021. The asset was discarded after an accident, and $11,500 was received from an insurance claim. Prepare the journal entry to record the disposal of the automobile.

187) On April 1, 2022, Thunderbird Co sold a piece of equipment that had cost $35,000 on January 1, 2013. The equipment had a residual value of $5,000, a useful life 10 years, and double-declining-balance depreciation at twice the straight-line rate was used. On December 31, 2021, accumulated depreciation was $20,664. The asset was sold for $14,200. Prepare the journal entry to record depreciation up to the date of disposal of the equipment, and the journal entry to record the disposal of the equipment.

188) During 2022, Melanie's Emporium exchanged an old truck costing $18,000 with accumulated depreciation of $13,000 to the date of exchange for a new truck. The new truck had a cash price of $30,000 and Melanie received a $6,000 trade-in allowance on the old truck. This transaction has commercial substance. Prepare the journal entry to record the exchange.

189) During 2022, Storey Company acquired a new computer with a cash price of $12,800 by exchanging an old one on which Storey received a $1,500 trade-in. The old computer had cost $9,000 and its accumulated depreciation to the date of exchange was $5,500. This transaction has commercial substance. Prepare the journal entry to record the exchange.

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190) Upside Down Company purchased new office equipment for $4,300, by trading in old equipment with a cost of $2,000 and accumulated depreciation to the date of trade of $1,900. Upside Down received a $50 trade-in allowance for the old equipment. This transaction has commercial substance. Prepare the journal entry to record the transaction.

191) On April 1, Fog Company traded an old machine that originally cost $32,000 and had been depreciated $24,000 to date, for a new machine that had a cash price of $40,000. Assuming that this transaction has commercial substance, (1) Prepare the journal entry to record the exchange under the assumption that a $5,000 trade-in allowance was received and the balance was paid in cash. (2) Prepare the journal entry to record the exchange under the assumption that instead of a $5,000 trade-in allowance, a $12,500 trade-in allowance was received and the balance was paid in cash.

192) Natsuko Company traded an old forklift for a new forklift, receiving a $10,500 trade-in allowance and paying the remaining $37,200 in cash. The old forklift cost $39,000, and straightline depreciation of $27,200 had been recorded to the date of trade under the assumption it would last 5 years and have a $5,000 residual value. At the date of trade, the fair value of the old forklift is $11,000, however the fair value of the new forklift is not known.(1) What was the book value of the old forklift?(2) At what amount should the new forklift be recorded?

193) Hertzog Company purchased and installed a machine on January 1, 2019, at a total cost of $72,000. Straight-line depreciation was calculated based on the assumption of a five-year life and no residual value. The machine was disposed of on July 31, 2022. Assuming the machine was sold for $22,000, prepare the general journal entry to record the disposal

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194) Hertzog Company purchased and installed a machine on January 1, 2019, at a total cost of $72,000. Straight-line depreciation was calculated based on the assumption of a five-year life and no residual value. The machine was disposed of on July 31, 2022. Assuming the machine was sold for $15,000, prepare the general journal entry to record the disposal.

195) Hertzog Company purchased and installed a machine on January 1, 2019, at a total cost of $72,000. Straight-line depreciation was calculated based on the assumption of a five-year life and no residual value. The machine was disposed of on July 31, 2022. Assuming the machine was totally destroyed in a fire and the insurance company settled the claim for $18,000 cash, prepare the general journal entry to record the disposal.

196) Danner Co. purchased a computer on January 1, 2021, for $1,600,000. The straight-line method of depreciation was used, based on an expected life of 6 years and a residual value of $130,000. Prepare the journal entries to record depreciation for the first 6 months of 2023 and the sale of the computer on July 1, 2023, for $1,000,000.

197)

Discuss accounting for an impairment of property, plant and equipment.

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198) Matador & Company was preparing the annual financial statements and, as part of its year-end procedures, prepared the following schedule based on adjusted values at March 31, 2023: Asset

Cost

Accumulated Depreciation

Recoverable Amount

Furniture

$25,000

$20,000

$15,000

Computer

$2,000

$1,000

Land

$105,000

$125,000

Machine

$90,000

$25,000

$45,000

Record the entry for any impairment loss assuming that Matador & Company recorded no impairment losses in previous years.

199) Matador & Company was preparing the annual financial statements and, as part of its year-end procedures, prepared the following schedule based on adjusted values at March 31, 2023: Asset

Cost

Accumulated Depreciation

Recoverable Amount

Residual Value

Depreciation Method

Remaining Life

Furniture

$25,000

$20,000

$10,000

$500

Straight Line

3 years

Computer

$2,000

$1,000

$500

Double Declining

5 years

Land

$105,000

$90,000

N/A

Unlimited

Machine

$90,000

$25,000

$35,000

$5,000 Straight Line

3 years

Record the entry for any impairment loss assuming that Matador & Company recorded no impairment losses in previous years. Record the entry for depreciation on each of the assets at March 31, 2023. Assume there was no change in residual or useful lives regardless of impairment losses.

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200)

Discuss accounting for intangible assets.

201) On January 4, 2022, SportsWorld purchased a patent for $35,000 with a useful life of 10 years. Prepare the journal entry to amortize the patent for the calendar year 2023.

202) Hawaii Kai purchased a leasehold property for $8,500,000. The leasehold expires in 15 years. Prepare the journal entry to record the first year's depreciation expense.

203) GenX Music purchased a music distributor's collection of songs for $1,423,000. The copyrights are expected to last another 34 years. Prepare the journal entry to record the amortization expense for the first year.

204) Explain what could cause the impairment of goodwill. How often should goodwill be tested to see if it is impaired?

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205)

The following information is available for a piece of A Company's machinery: Machine:

Component

Date of Purchase

Depreciation Method

Cost

Electronic Controller

April 1/22

Straight-line

$ 5,000

5 years

$750

Motor

April 1/22

Units of Production

100,000

10,000

50,000 hours

2,700

$105,000

Est. Est. Life Accum. Dep. at Dec. Residual 31, 2021, Year-End

$3,450

On November 1, 2022, the electronic controller was replaced with a new one costing $8,000 purchased for cash. The new controller had an estimated residual value of $1,000 and an estimated useful life of 5 years. During 2022 the machinery was used for 3,200 hours from January 1 to October 31 and 650 hours from November 1 to December 31. Required: Record depreciation on machinery and the controller replacement for 2022. Round depreciation amounts to the nearest dollar.

SECTION BREAK. Answer all the part questions. 206) On January 1, 2023, PetraCo ordered a new machine to help increase production for one of its most popular products. The machine had an invoice price of $30,000 and PetraCo was required to pay shipping ($1,200) and insurance during shipping ($300) by boat from British Columbia to Toronto. The machine arrived on January 5, 2023 and was installed at a cost of $800 and calibrated and tested for a cost of $200. On February 1, 2023 it was put into operation. PetraCo's fiscal year runs from January to December. Round all final answers to the nearest dollar.

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206.1) Prepare a journal entry (or entries) to record all costs associated with the new machine

206.2) The machine was expected to last 10 years with a salvage value of $2,500. Prepare the journal entry to record depreciation for 2023 using the double-declining balance method of depreciation.

206.3) Petra Co. sold the machine on July 1, 2024 for $19,000. Prepare all journal entries required by HRO in 2024 relating to the machine and its disposal.

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Answer Key Test name: Chap 09_17ce_Test Bank 1) FALSE 2) TRUE 3) FALSE 4) TRUE 5) FALSE 6) TRUE 7) TRUE 8) FALSE 9) FALSE 10) TRUE 11) TRUE 12) TRUE 13) FALSE 14) TRUE 15) TRUE 16) FALSE 17) TRUE 18) TRUE 19) TRUE 20) FALSE 21) FALSE 22) FALSE 23) FALSE 24) FALSE 25) TRUE 26) FALSE Version 1

27) FALSE 28) TRUE 29) TRUE 30) FALSE 31) TRUE 32) FALSE 33) FALSE 34) FALSE 35) FALSE 36) FALSE 37) FALSE 38) FALSE 39) TRUE 40) TRUE 41) FALSE 42) TRUE 43) FALSE 44) TRUE 45) FALSE 46) TRUE 47) TRUE 48) TRUE 49) TRUE 50) FALSE 51) TRUE 52) TRUE 53) FALSE 54) TRUE 55) FALSE 56) TRUE Version 1

57) TRUE 58) TRUE 59) TRUE 60) TRUE 61) FALSE 62) FALSE 63) TRUE 64) TRUE 65) FALSE 66) TRUE 67) FALSE 68) D 69) A 70) D 71) D 72) D 73) E 74) E 75) E 76) A 77) A 78) C 79) A 80) C 81) D 82) C 83) B 84) C 85) D 86) D Version 1

87) E 88) E 89) E 90) A 91) C 92) B 93) E 94) E 95) E 96) D 97) C 98) E 99) E 100) C 101) A 102) E 103) E 104) E 105) C 106) E 107) A 108) C 109) A 110) C 111) B 112) A 113) A 114) C 115) C 116) A Version 1

117) C 118) A 119) B 120) B 121) B 122) C 123) C 124) D 125) B 126) A 127) B 128) D 129) E 130) B 131) A 132) B 133) I would tell the president that goodwill is recognized only when a company acquires another business. Goodwill arises as a result of a business acquisition and reflects the amount paid for a business that exceeds the fair market value of the company's net assets. Internally created goodwill is not recorded in the financial statements, due to the high level of difficulty in determining true value. To do so could lead to abuse and values arrived at would lack objectivity. The amount paid by the acquirer on the acquisition date provides objective evidence that goodwill exists and sets a value to be recognized. 134) Depletion charge per ton = $1,000,000 / $250,000 = $4 per ton. Total depletion charge for 2022 = 90,000 x 4 = $$360,000

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135) Property, plant and equipment are tangible assets used in the operations of a company and have a useful life of more than one accounting period. The four main accounting issues include (1) calculating their costs (2) allocating their costs to the periods they benefit (3) accounting for subsequent expenditures such as repairs and improvements, and (4) recording their disposal. 136) Revenue expenditures such as repairs expire in the current accounting period. They are debited to expense and are thus matched with current revenues. Capital expenditures such as subsequent capital expenditures benefit future periods. They are debited to asset accounts and are matched with future periods through depreciation expense. Immaterial long-term expenditures are treated as current period expenses (materiality principle). 137) Invoice Price

1,400,000

Freight costs

8,000

Purchase discount

(2,500)

Installation costs

68,000

Electrical and power connections

33,000

Adjustments costs

46,000

Provincial sales tax

84,000

Cost of special foundation for the machine

7,000

Total

$1,643,500

NOTE ALL OTHER ITEMS WOULD BE EXPENSED

138) Appraised Cost

Percent Total

Apportioned Cost

(a)

Land

450,000

45%(450,000/1,000,000)

396,000

(b)

Land Improvements

170,000

17%(170,000/1,000,000)

149,600

(c)

Building

380,000

38%(380,000/1,000,000)

334,400

Total

1,000,000

100%

880,000

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139) Mar-01

Trucks

78,900

Spare Parts Inventory

2,300

Licence Expense

500

Cash

81,700

$70,000 + (70,000 × 7%) + 3,000=$78,900 May-12

Jun-05

Garage

64,000

Notes Payable

60,000

Cash

4,000

Repairs and Maintenance Expense

750

Cash Aug-23

Office Equipment

750 15,595

Accounts Payable

15,595

$13,500 + 945 + 300 + 850 = $15,595 Sep-12

Accounts Payable

15,595

Cash Oct-05

15,595

Store Equipment

35,160

Repairs and Maintenance Expense

1,750

Supplies

3,700

Cash

40,610

$28,000 + 1,960 + 5,200 = $35,160

140) $24,000 + 280,000 + 5,000 + 800 = $309,800 141) Version 1

Appraised Cost

Percent Total

Apportioned Cost

Land

3,510,000

65%(3,510,000/5,400,000)

3,900,000

Building

1,890,000

35%(1,890,000/5,400,000)

2,100,000

Total

5,400,000

100%

6,000,000

Land

3,900,000

Building

2,100,000

Cash

500,000

Notes Payable

5,500,000

142) Land **

990,000

Building *

4,660,000

Land Improvements

600,000

Cash

6,250,000

* 5,260,000 – 600,000 ** 860,000 + 150,000 – 20,000

143) $200,000 + $10,800 + $1,400 + $6,000 + $1,500 - $900 = $218,800 to Land; $-0- to the new Building account. 144) Land Architect’s fees

9,000

Cash paid for land and old building

140,000

Removal of old building

20,000

Survey to site the new building

(8,000)

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Building Machinery and Expense Equipment

Legal fees for title search

1,000

Excavation for construction of basement

2,500

Machinery purchased

72,000

Storage charges on machinery because building was not ready when machinery was delivered

600

Freight on machinery purchased

2,000

Hauling charges to deliver machinery from storage to new building

800

Construction costs of new building Landscaping

615,000 7,050

Installation of machinery

9,000 160,050

626,500

83,000

1,400

145) Property, plant and equipment should be recorded at cost when acquired. Cost includes all normal and reasonable expenditures necessary to get the asset in place and ready for its intended use. The cost of a lump-sum purchase is allocated among its individual assets based on their relative market values. 146) Machinery

3,700

Cash

3,700

147) Machinery

5,400

Cash

5,400

148) Dec 31,2021

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Depreciation Expense, Machine

6,000

Accumulated Depreciation, Machine

6,000

($63,000 - 3,000)/10 years Dec 31, 2022

Depreciation Expense, Machine

6,375

Accumulated Depreciation, Machine

6,375

(60,000 - 6,000 - 3,000)/8 years Dec 31, 2023

Depreciation Expense, Machine Accumulated Depreciation, Machine

6,918 6,918

($60,000 - 6,000 - 6,375 - 3,000 + 3,800)/7 years

149) (1)

Machinery

(2)

($180,000 - (3 × (180,000 -16,000)/6) + $25,000 =

123,000.00

($123,000 - 19,500)/7 =

14,785.71

150) Depreciation is the process of allocating to expense the cost of property, plant and equipment over the accounting periods benefiting from the use of the assets. Three factors determine depreciation: cost, residual value, and useful life. 151) The amount of depreciation expense per period is usually different for different methods. Yet total depreciation expense is the same for all methods. The straight-line method results in the same amount of depreciation for each accounting period. The units-of-production method results in depreciation expense that increases or decreases with the amount of asset usage. The double-declining-balance method is an accelerated method and yields more depreciation expense in the first years of ownership and less in later years than straight-line depreciation.

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152) Straight-line depreciation is calculated by subtracting residual value from the cost of a property, plant and equipment item and dividing the result by the useful life in years. The resulting amount is the annual depreciation expense for the asset. Units-of-production depreciation is calculated by subtracting residual value from the cost of a property, plant and equipment item and dividing the result by the estimated number of units to be produced. The resulting amount is the depreciation expense per unit. That amount is multiplied by the number of units used during each accounting period in order to determine the total amount of depreciation expense for the period. The double-declining-balance method uses twice the straight-line percent times the beginning book value of the asset. The resulting amount is the annual depreciation expense. 153) Annual rate is 2/40 × 100 = 5% Year Annual Depreciation Calculation Annual Depreciation Expense Remaining Book Value 1

560,000 × 0.05

28,000

532,000

532,000 × 0.05

26,600

505,400

505,400 × 0.05

25,270

480,130

154) (a)

(b)

(c)

Year

Straight Line

Units of Production

Declining Balance

2019

$470,000

$705,000

$1,000,000

2020

470,000

658,000

600,000

2021

470,000

360,000

2022

470,000

423,000

216,000

2023

470,000

54,000

44,400

Totals

$2,350,000

$2,310,000

$2,220,400

(a) ($2,500,000 - 150,000)/5 years = 470,000 (b) Rate = ($2,500,000 - 150,000)/50,000 hours = $47/hour Year Annual Depreciation Calculation Annual Depreciation Expense Remaining Book Value

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2019

15,000 hrs × $47/hr

705,000

1,795,000

2020

14,000 hrs × $47/hr

658,000

1,137,000

2021

10,000 hrs × $47/hr

470,000

667,000

2022

9,000 hrs × $47/hr

423,000

244,000

2023

6,000 hrs × $47/hr

MAX 94,000

150,000

2,500,000 × 0.40

1,000,000

1,500,000

2020

1,500,000 × 0.40

600,000

900,000

2021

900,000 × 0.40

360,000

540,000

2022

540,000 × 0.40

216,000

324,000

2023

324,000 × 0.40

MIN = 174,000

150,000

155) Equipment (1)

(60,000 – 12,000)/5 years =

9,600

(2)

(70,000 – 8,000)/50,000 × 5,000 units =

6,200

(3)

2/10 × 130,000 × 7/12 =

15,167

(4)

(100,000 – 10,000)/8 years × 8/12 =

7,500

156) (a) Straight line ($625,000 - 15,000)/10 years = $61,000 (b) Double Declining Rate is 2/10 = 20% Year Annual Depreciation Calculation Annual Depreciation Expense Remaining Book Value 2022

625,000 × 0.20

125,000

500,000

2023

500,000 × 0.20

100,000

400,000

(c) Units of production ($625,000 - 15,000)/50,000 hours = $12.20/hour Year Annual Depreciation Calculation Annual Depreciation Expense Remaining Book Value 2022

3,000 hrs × $12.20/hr

36,600

588,400

2023

2,600 hrs × $12.20/hr

31,720

556,680

157) (a) ($330,000 - 3,000)/4 years = $81,750 (b) Double Declining Rate is 2/4 = 50% Year Annual Depreciation Calculation Annual Depreciation Expense Remaining Book Value

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2022

330,000 × 0.50

165,000

2023

165,000 × 0.50

82,500

(c) ($330,000 - 3,000)/50,000 units = $6.54/unit Year Annual Depreciation Calculation Annual Depreciation Expense Remaining Book Value 2022

9,000 hrs × $6.54/unit

58,860

271,140

2023

10,000 hrs × $6.54/unit

65,400

205,740

158) (a) ($72,000 - 5,200)/6 years × 3/12 = $2,783.33 (b) Double Declining Rate is 2/6 = 33.33% Year Annual Depreciation Calculation Annual Depreciation Expense Remaining Book Value 2022

72,000 × 0.3333 × 3/12

5,999

66,001

2023

66,001 × 0.3333

21,998

44,003

159) Rate is ($180,000 - 20,000)/60,000units = $2.67/unit $2.67/unit × 7,200 units = $19,224 depreciation for the first year 160) 2/5 × 100 = 40% $180,000 × 40% = $72,000 depreciation for the first year 161) ($38,000 - 6,000)/5 years = $6,400 162) (a) ($10,000,000 - 1,500,000)/5 years = 1,700,000 (b) Double Declining Rate is 2/5 = 40% Year Annual Depreciation Calculation Annual Depreciation Expense Remaining Book Value 2022

10,000,000 × 0.40

4,000,000

6,000,000

2023

6,000,000 × 0.40

2,400,000

3,600,000

2024

3,600,000 × 0.40

1,440,000

2,160,000

2025

2,160,000 × 0.40

Max = 660,000

1,500,000

2026

MAX 0

1,500,000

163) (a) ($460,000 – 6,000)/5 years × 6/12 = 45,400 Dec 31, 2022 Depreciation Expense, Machine Accumulated Depreciation, Machine

Version 1

45,400 45,400

(b) ($460,000 – 6,000)/30,000 units = $15.13/unit 2,600 units × $15.13/unit = 39,338 Dec 31, 2022 Depreciation Expense, Machine

39,338

Accumulated Depreciation, Machine

39,338

164) Dec 31, 2022 Depreciation Expense, Machine

76,659

Accumulated Depreciation, Machine

76,659

($460,000) × 0.3333 × 6/12 = 76,659

165) Rate = 2/5 × 100 = 40% Year Annual Depreciation Calculation Annual Depreciation Expense Remaining Book Value 2022

950,000 × 0.40 × 3/12

95,000

855,000

2023

855,000 × 0.40

342,000

513,000

2024

513,000 × 0.40

205,200

307,800

2025

307,800 × 0.40

123,120

184,680

2026

184,680 × 0.40

73,872

110,808

2027

110,808 × 0.40

33,242 max.

77,566

166) (a) ($250,000 – 40,000)/5 years × 9/12 = 31,500 Dec 31, 2022 Depreciation Expense, Equipment

31,500

Accumulated Depreciation, Equipment

31,500

($330,000 – 50,000)/5 year × 3/12 = 14,000 Dec 31, 2022 Depreciation Expense, Machine Accumulated Depreciation, Machine

14,000 14,000

(b) Rate is 2/5 × 100 = 40% 250,000 × .40 × 9/12 = 75,000

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Dec 31, 2022 Depreciation Expense, Equipment

75,000

Accumulated Depreciation, Equipment

75,000

Rate is 2/5 × 100 = 40% 330,000 × .40 × 3/12 = 33,000 Dec 31, 2022 Depreciation Expense, Machine

33,000

Accumulated Depreciation, Machine

33,000

167) (1) Machinery (2) ($75,000 - [(75,000 - 6,000)/6 × 3] + $7,500) = $48,000 (NBV at Jan 1/22)($48,000 - 6,000)/3 = $14,000 168) (1) Partial years' depreciation is often required because assets are bought and sold throughout the year. Depreciation for assets owned for less than one year can be based on the number of months owned during the year (nearest whole month method) or the half-year convention may be used.(2). Depreciation is revised when changes in estimates such as residual value and useful life occur. For example, if the useful life of a property, plant and equipment item changes, the remaining cost to be depreciated is spread over the remaining revised useful life of the asset. 169) ($37,000 - $1,000)/10 =

$3,600

$3,600 × 5 =

$18,000

$37,000 - $18,000 =

$19,000

($19,000 - $1,600)/3 =

$5,800

170) ($106,000 - $6,000)/5 = $20,000 (annual depreciation) $106,000 (3 × $20,000) = $46,000 (NBV at Jan 1/23) ($46,000 - $5,500)/3 = $13,500 171)

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(a) Jan 2, 2022

Heating System

43,000

Cash

43,000

(b) Dec 31, 2022

Depreciation Expense, Heating 16,000 System Accumulated Depreciation, Heating System

16,00

Accumulated Depreciation 2010-2022 = 425,000/15 years × 12 years = 340,000 At January 2, 2022, book value is 85,000 + 43,000 = 128,000 New annual depreciation 128,000/(3 years + 5 years) = 16,000 (15 years - 12 years + 5 years) = 8 years remaining

172) Jan 1, 2023 - purchase: Land

135,714

Building

814,286

Cash

950,000

Costs subsequent to purchase: Land

55,000

Building

125,000

Promotion Expense

7,000

Cash

187,000

December 31, 2023 - depreciation:

Version 1

Depreciation Expense

28,179

Accumulated depreciation

28,179

173) Dec 31 Impairment Loss

16,000

Machine (22,000 – 6,000)

16,000

174) Equipment (new)

73,000

Accumulated depreciation, equipment (old)

45,000

Equipment (old)

85,000

Cash

8,000

Gain on asset exchange*

25,000

* Gain = Fair Value of new excavator- assets given up Gain = 73,000 (list price) – 40,000 (book value of old excavator) - 8,000 (cash)

175) Truck (new)

50,000

Accumulated depreciation, Truck (old)

25,000

Truck (old)

65,000

Cash

8,000

Gain on asset exchange*

2,000

* Gain = Fair Value of truck- assets given up Gain = 50,000 (list price) – 40,000 (book value of old truck) - 8,000 (cash)

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176) When an asset is disposed of through discarding or selling, the depreciation must first be brought up to date. Then the cost of the asset and its related accumulated depreciation are removed from the books, along with recording any cash involved in the transaction and any gain or loss from the disposal. When a new asset is purchased by trading in an old asset, assuming the transaction has commercial substance, depreciation to date is recorded, the cost of the old asset and its related accumulated depreciation are removed from the books, the new asset is recorded at its fair value, and any cash paid or received and any gain or loss on disposal is recognized. 177) Cash

2,000

Accumulated Depreciation, Computer

1,900

Loss from fire

2,100

Computer

6,000

178) Machine Book Value $100,000 - 47,000 = $53,000 Cash Received = $60,000 Gain on Sale = $7,000 179) Cash

2,000

Accumulated Depreciation, Computer

900

Loss from fire

2,100

Computer

5,000

180) New machine

Version 1

85,000

Accumulated Depreciation, Old machine

45,000

Loss on Asset Exchange

4,500

Old machine

60,000

Cash

74,500

181) Cost

80,000

Accumulated Depreciation

75,000

Book Value

5,000

Less trade in allowance

4,500

Loss

500

182) New machine

30,200

Accumulated Depreciation, Old computer

15,500

Old computer

22,000

Cash ($30,200 - $7,500)

22,700

Gain on Asset Exchange

1,000

183) (a) Sept 1

(b) Sept 1

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New Delivery Truck

70,000

Accumulated Depreciation, Old Truck

28,000

Loss on Exchange

2,000

Old Delivery Truck

45,000

Cash

55,000

New Delivery Truck

70,000

Accumulated Depreciation, Old Truck

28,000

Gain on Exchange

13,000

Old Delivery Truck

45,000

Cash

40,000

Accumulated Depreciation: (45,000 - 3,000)/7 × 4 yrs 8 mths

184) 01-Apr

Accumulated Depreciation, Machine

10,000

Machine

10,000

185) (a) ($80,000 – 14,000)/5 years × 3/12 = 3,300 April 1, 2023 Depreciation Expense, Equipment

3,300

Accumulated Depreciation, Equipment

3,300

(b) April 1, 2023 Accumulated Depreciation, Equipment

29,700

Loss on Disposal of Equipment

50,300

Equipment

80,000

186) April 1, 2022 Accumulated Depreciation, Automobile

18,900

Cash

11,500

Loss on Disposal of Automobile

19,600

Automobile

50,000

Depreciation Expense = (50,000 – 8,000)/5 = $8,400/year 2020

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8,400

2021

8,400

2022

2,100

Total

18,900

(8,400 × 3/12)

187) Apr-01 Depreciation Expense

716.80

Accumulated Depreciation, Equip.

716.80

($35,000 - $20,664) × 0.2 × 3/12 = $716.80 1 Accumulated Depreciation, Equip

21,380.80

Cash

14,200.00

Equipment

35,000.00

Gain on Sale of Equipment

580.80

188) Truck (new)

30,000

Accumulated Depreciation, Truck (old)

13,000

Truck (old)

18,000

Cash (30,000 - 6,000)

24,000

Gain on Asset Exchange

1,000

189) Computer (new)

12,800

Accumulated Depreciation, Computer (old)

5,500

Loss on Asset Exchange

2,000

Computer (old)

Version 1

9,000

Cash (12,800 - 1,500)

11,300

190) Office Equipment (new)

4,300

Accumulated Depreciation, Office Equipment

1,900

Loss on Asset Exchange

Office Equipment (old)

2,000

Cash

4,250

191) (1) Apr-01 Machinery

40,000

Accumulated Depreciation, Machinery

24,000

Loss on Asset Exchange

3,000

Machinery

32,000

Cash ($40,000-$5,000)

35,000

(2) Apr-01 Machinery

40,000

Accumulated Depreciation, Machinery

24,000

Gain on Asset Exchange

4,500

Machinery

32,000

Cash ($40,000-$12,500)

27,500

192) (1) $39,000 - $27,200 = $11,800 (2) $11,000 + 37,200 = 48,200(fair value of old asset plus cash paid) 193) Version 1

Jul-31 Cash

22,000

Accumulated Depreciation, Machinery

50,400

Gain on Disposal of Equipment

400

Machinery

72,000

$72,000/5 × 3.5 years = $50,400

194) Jul-31 Cash

15,000

Loss on Disposal of Equipment

6,600

Accumulated Depreciation, Machinery

50,400

Machinery

72,000

$72,000/5 × 3.5 years = $50,400

195) Jul-31 Cash

18,000

Loss From Fire

3,600

Accumulated Depreciation, Machinery

50,400

Machinery

72,000

196) Jul-01 Depreciation Expense*

122,500

Accumulated Depreciation, Computer 1 Cash

1,000,000

Accumulated depreciation, Computer **

612,500

Computer Equipment

Version 1

122,500

1,600,000

Gain on Disposal of Equipment ***

12,500

*(($1,600,000-$130,000)/6) × 1/2 **(($1,600,000-$130,000)/6) × 2.5 years = $612,500 *** Original Cost

$1,600,000

Accumulated depreciation

612,500

Book Value

$987,500

Sales Price

1,000,000

Gain

$12,500

197) If the book value or carrying amount of a PPE item is greater than the amount to be recovered through the asset's use or sale, the difference is an impairment loss and the asset is described as impaired. To account for the impairment of an asset a company must record a debit to impairment loss and a credit to the impaired asset. When a loss is recorded, revised depreciation must be calculated and recorded in future periods because of the decrease in the carrying amount of the asset caused by the impairment loss. 198) Asset

Cost

Accumulated Depreciation

Book Value

Recoverable Amount

Impairment Loss

Furniture

$25,000

$20,000

$5,000

$15,000

Computer

$2,000

$1,000

Land

$105,000

$125,000

Machine

$90,000

$25,000

$65,000

$45,000

$20,000

Impairment Loss 21,000 Computer

1,000

Machine

20,000

199) 1. Asset

Version 1

Cost

Accumulated Depreciation

Recoverable Amount

Book value

Impairment Loss

Furniture

$25,000

$20,000

$10,000

$5,000

Computer

$2,000

$1,000

$500

$1,000

$500

Land

$105,000

$90,000

$105,000

$15,000

Machine

$90,000

$25,000

$35,000

$65,000

$30,000

Mar-31 Impairment Loss 45,500 Computer

500

Land

15,000

Machine

30,000

2. Asset

Cost

Accumulated Impairment Adjusted Residual Depreciation Remaining Depreciation Loss Book Value Method Life Value after loss

Furniture

$25,000

$20,000

$5,000

$500

Straight Line

3 years

Computer

$2,000

$1,000

$500

Double Declining

5 years

Land

$105,000

$15,000

$90,000

N/A

Unlimited

Machine

$90,000

$25,000

$30,000

$35,000

$5,000

Straight Line

3 years

Asset Depreciation Expense Furniture ($5,000$500)/3 years = $1,500 Computer 2/5 × 500 = $200 Land N/A Machine ($35,000$5,000)/3 years = $10,000

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Mar-31 Depreciation expense, Furniture

$1,500

Depreciation expense, Computer

200

Depreciation expense, Machine

10,000

Accumulated Depreciation, Furniture

$1,500

Accumulated Depreciation, Computer

200

Accumulated Depreciation, Machine

10,000

200) Intangible assets are recorded at acquisition cost and are debited to asset accounts. Allocation of the cost of an intangible asset to expense is done by using the straight-line method and is called amortization. Theoretically, a contra account should be used for the accumulated amortization (as with tangible property, plant and equipment and accumulated depreciation), but a credit directly to the asset account is also done in practice. 201) Amortization Expense, Patent (35,000/10)

3,500

Accumulated Amortization, Patent

3,500

202) Rent Expense Leasehold

566,667 566,667

203) Version 1

Amortization Expense, Copyrights

41,853

Accumulated Amortization, Copyrights

41,853

$1,423,000/34 = 41,853 rounded 204) Goodwill could be impaired by an ongoing past or potential cash flow losses or negative changes in variables supporting original calculations of goodwill. Testing for impairment should be done at least annually. 205) Step 1: Update depreciation on the machinery to October 31, 2022: Using original rates of depreciation: October 31, 2022: Depreciation expense, Machinery

6,593

Accumulated Depreciation, Machinery

6,593

5,000/5 * 10/12 = $833 (100,000-10,000)/50,000 * 3,200 = $5,760 $833 + $5,760 = $6,593 Step 2: Record the capital expenditure and remove the old controller being replaced: November 1, 2022: Machinery (new controller)

8,000

Accumulated depreciation, machinery (750 + 833)

1,583

Loss on Disposal of Machinery

3,417

Version 1

Machinery (old controller)

5,000

Cash

8,000

Step 3: record depreciation from November 1 - December 31, 2022 December 31, 2022: Depreciation expense, Machinery

1,403

Accumulated Depreciation, Machinery

1,403

$233 + $1,170 = $1,403 206) Section Break 206.1) Machine

32,500

Cash

32,500

206.2) Depreciation expense

5,958

Accumulated depreciation

5,958

206.3) Depreciation to July 1, 2024 date of sale Depreciation expense

2,654

Accumulated depreciation

2,654

Sale on July 1, 2024: Cash

19,000

Accumulated depreciation

8,612

Loss on disposal of machine

4,888 Machine

Version 1

32,500