Kieso15e Testbank ch03

CHAPTER 3
THE ACCOUNTING INFORMATION SYSTEM

IFRS questions are available at te en! o" tis #a$ter%
TRUE&FA'SE
Ans(er No% )es#ri$tion
F 1. Recording transactions.
T 2. Nominal accounts.
F 3. Real (permanent) accounts.
F 4. Internal event example.
F 5. ia!ilit" and stoc#$olders% e&uit" accounts.
F '. (e!its and credits.
F ). *teps in accounting c"cle.
T +. ,urpose o- trial !alance.
T .. /eneral 0ournal.
F 11. ,osting and trial !alance.
T 11. 2d0usting entries -or prepa"ments.
T 12. 3xample o- accrued expense.
F 13. 4oo# value o- deprecia!le assets.
T 14. Reporting ending retained earnings.
F 15. ,ost5closing trial !alance.
F 1'. ,osting closing entries.
T 1). 6losing entries and Income *ummar".
F 71+. 2ccrual !asis accounting.
F 71.. ,urpose o- reversing entries.
F 721. 2d0usted trial !alance.
MU'TIP'E CHOICE*Con#e$tual
d 21. ,urpose o- an accounting s"stem.
d 22. (e-inition o- posting.
d 23. ,urpose o- an accounting s"stem.
d 24. 4oo# o- original entr".
d 25. ,urpose o- trial !alance.
d 2'. Identi-ication o- a real account.
! 2). Identi-ication o- a temporar" account.
a 2+. Temporar" accounts.
c 2.. (ou!le5entr" accounting s"stem.
c 31. (ou!le5entr" s"stem.
a 31. 3--ect on stoc#$olders% e&uit".
a 32. Transaction anal"sis.
a 33. 2ccounting e&uation.
! 34. 2ccounting process vs. accounting c"cle.
Test +an, "or Inter-e!iate A##ountin./ Fi"teent E!ition
d 35. 2ccounting c"cle steps.
d 3'. 6riteria -or recording events.
d 3). Identi-ication o- a recorda!le event.
c 3+. Identi-ication o- internal events.
d 3.. 3xternal events.
d 41. imitations o- trial !alance.
a 41. /eneral 0ournal.
! 42. 8ournal entr".
c 43. 8ournal entr".
d 44. 8ournal entr".
d 45. Im!alance in a trial !alance.
d 4'. ,urpose o- unad0usted trial !alance.
! 4). Format o- ad0usting entr".
! 4+. 3xample o- accrued expense.
d 4.. 2ccrual5!asis o- accounting.
c 51. 2ccrued expense ad0usting entr".
a 51. 3--ect o- not recording accrued expense.
! 52. (escription o- a de-erral.
d 53. 3--ect o- not recording accrued revenue.
a 54. 3--ect o- not recording depreciation expense.
a 55. Timing o- ad0ustments.
a 5'. ,repaid expense.
a 5). 3xpiration o- prepaid expenses.
! 5+. 3--ect o- depreciation entr".
a 5.. 9nearned revenue relations$ips.
a '1. 6omputation o- interest expense -or ad0usting entr".
d '1. ,urpose o- ad0usting entries.
c '2. :atc$ing principle.
a '3. ,repaid items.
d '4. 2ccrued items.
c '5. (e-inition o- unearned revenue.
d ''. (e-inition o- accrued expense.
c '). 2d0usting entr" -or accrued expense.
d '+. Factors to consider in estimating depreciation.
d '.. 2d0usting entries.
d )1. 3--ect o- ad0usting entries.
! )1. ,repaid expense and t$e matc$ing principle.
c )2. 2ccrued revenue and t$e matc$ing principle.
! )3. 9nearned revenue and t$e matc$ing principle.
! )4. 2d0usted trial !alance.
c )5. 6losing process.
c )'. ,urpose o- closing entries.
d )). 6as$ collections vs. revenue recogni;ed.
d 7)+. 6as$5!asis revenue.
c 7).. 6onvert cas$ receipts to service revenue.
c 7+1. 6onvert cas$ paid -or operating expenses.
c 7+1. ,urpose o- reversing entries.
d 7+2. Identi-ication o- reversing entries.
d 7+3. Identi-ication o- reversing entries.
! 7+4. 2d0usting entries reversed.
d 7+5. Reporting inventor" on a <or#s$eet.
3 0 1
T$e 2ccounting In-ormation *"stem
MU'TIP'E CHOICE*Co-$utational
c +'. 3--ect o- transactions on o<ners% e&uit".
c +). 3--ect o- transactions on o<ners% e&uit".
c ++. 9nearned rent ad0ustment.
c +.. 9nearned rent ad0ustment.
d .1. (etermine ad0usting entr".
c .1. 2d0usting entr" -or !ad de!ts.
! .2. 2d0usting entr" -or !ad de!ts.
c .3. 2d0usting entr" -or interest receiva!le.
c .4. *u!se&uent period entr" -or interest.
d 7.5. 9se o- reversing entr".
d .'. 2d0usting entr" -or unearned rent.
! .). 2d0usting entr" -or supplies.
d .+. 3--ect o- closing entries.
! 7... 6alculate cas$ received -or interest.
! 7111. 6alculate cas$ paid -or salaries.
d 7111. 6alculate cas$ paid -or insurance.
c 7112. 6alculate insurance expense.
c 7113. 6alculate interest revenue.
c 7114. 6alculate salar" expense.
d 7115. 2d0usting entr" -or supplies.
c 711'. Reversing entries.
! 711). 9nearned rent ad0ustment.
a 711+. (etermine ad0usting entr".
d 711.. (etermine ad0usting entr".
MU'TIP'E CHOICE*CPA A!a$te!
c 111. (etermine accrued interest pa"a!le.
! 111. (etermine !alance o- unearned revenues.
a 112. 6alculate su!scriptions revenue.
c 113. (etermine interest receiva!le.
! 114. 6alculate !alance o- accrued pa"a!le.
! 115. 6alculate accrued salaries.
a 11'. 6alculate ro"alt" revenue.
d 11). 6alculate de-erred revenue.
! 711+. (i--erence !et<een cas$5!asis and accrual met$od.
c 711.. (etermine cas$5!asis revenue.
! 7121. (etermine accrual5!asis revenue.
a 7121. 6alculate cost o- goods sold.
7T$is topic is dealt <it$ in an 2ppendix to t$e c$apter.
3 0 3
+RIEF E2ERCISES
Ite- )es#ri$tion
4335122 (e-initions.
4335123 Terminolog".
4335124 2ccrued and de-erred items.

E2ERCISES
335125 2d0usting entries.
33512' 2d0usting entries.
33512) Financial statements.
733512+ 6as$5!asis vs. accrual5!asis accounting.
733512. 2ccrual !asis.
7335131 2ccrual !asis.
7335131 2ccrual !asis.
7335132 6as$ !asis.
PRO+'EMS
Ite- )es#ri$tion
,35133 2d0usting entries and account classi-ications.
,35134 2d0usting entries.
,35135 2d0usting and closing entries.
7,3513' 6as$ to accrual accounting.
7,3513) 2ccrual accounting.
7,3513+ 2ccrual accounting.
7,3513. 3ig$t5column <or# s$eet.
CHAPTER 'EARNING O+3ECTI4ES
1. 9nderstand !asic accounting terminolog".
2. 3xplain dou!le5entr" rules.
3. Identi-" steps in t$e accounting c"cle.
4. Record transactions in 0ournals= post to ledger accounts= and prepare a trial !alance.
5. 3xplain t$e reasons -or preparing ad0usting entries and identi-" ma0or t"pes o- ad0usting
entries.
'. ,repare -inancial statements -rom t$e ad0usted trial !alance.
). ,repare closing entries.
+. ,repare -inancial statements -or a merc$andising compan".
7.. (i--erentiate t$e cas$ !asis o- accounting -rom t$e accrual !asis o- accounting.
3 0 5
711. Identi-" ad0usting entries t$at ma" !e reversed.
711. ,repare a 115column <or#s$eet.
12. 6ompare t$e accounting in-ormation s"stems under /22, and IFR*.
3 0 6
SUMMARY OF 'EARNING O+3ECTI4ES +Y 7UESTIONS
Item Type Item Type Item Type Item Type Item Type Item Type Item Type
'earnin. Ob8e#tive 9
1. TF 3. TF 21. :6 23. :6 25. :6 2). :6 123. 43
2. TF 4. TF 22. :6 24. :6 2'. :6 2+. :6
5. TF 2.. :6 31. :6 33. :6
'. TF 31. :6 32. :6 34. :6
). TF 35. :6 3'. :6 3). :6 3+. :6 3.. :6
+. TF 11. TF 41. :6 42. :6 44. :6 4'. :6 +). :6
.. TF 25. :6 41. :6 43. :6 45. :6 +'. :6
11. TF 54. :6 '4. :6 )4. :6 11). :6 11). :6
12. TF 55. :6 '5. :6 ++. :6 11+. :6 122. 43
13. TF 5'. :6 ''. :6 +.. :6 11.. :6 123. 43
4). :6 5). :6 '). :6 .1. :6 111. :6 124. 43
4+. :6 5+. :6 '+. :6 .1. :6 111. :6 125. 3
4.. :6 5.. :6 '.. :6 .2. :6 112. :6 12'. 3
51. :6 '1. :6 )1. :6 .3. :6 113. :6 133. ,
51. :6 '1. :6 )1. :6 .4. :6 114. :6 134. ,
52. :6 '2. :6 )2. :6 .'. :6 115. :6 135. ,
53. :6 '3. :6 )3. :6 .). :6 11'. :6
'earnin. Ob8e#tive :
14. TF )4. :6 12). 3
'earnin. Ob8e#tive ;
15. TF 1'. TF )5. :6 )'. :6 .+. :6 135. ,
'earnin. Ob8e#tive <
1). TF
'earnin. Ob8e#tive =>
1+. TF +1. :6 112. :6 11.. :6 12.. 3 13'. ,
)). :6 ... :6 113. :6 121. :6 131. 3 13). ,
)+. :6 111. :6 114. :6 121. :6 131. 3 13+. ,
).. :6 111. :6 11+. :6 12+. 3 132. 3
'earnin. Ob8e#tive =9?
1.. TF +2. :6 +4. :6 115. :6 11+. :6 12'. 3
+1. :6 +3. :6 .5. :6 11'. :6 11.. :c
'earnin. Ob8e#tive =99
21. TF +5. :6 13.. ,
'earnin. Ob8e#tive 91 @ IFRS 7uestions
1. TF 2. TF 3. :6 4. :6 5. :6 '. :6 ). :6
3 0 :
+. *2 .. *2
Note> TF ? True@False 3 ? 3xercise 43? 4rie- 3xercise
:6 ? :ultiple 6$oice , ? ,ro!lem *2 ? *$ort 2ns<er
TRUE&FA'SE
1. 2 ledger is <$ere a compan" -irst records transactions and ot$er selected events.
2. Nominal (temporar") accounts are revenue= expense= and dividend accounts and are
periodicall" closed.
3. Real (permanent) accounts are revenue= expense= and dividend accounts and are
periodicall" closed.
4. 2n example o- an internal event <ould !e a -lood t$at destro"ed a portion o- a
compan"As inventor".
5. 2ll lia!ilit" accounts and stoc#$olders% e&uit" accounts are increased on t$e credit side
and decreased on t$e de!it side.
'. In general= de!its re-er to increases in account !alances= and credits re-er to decreases.
). T$e -irst step in t$e accounting c"cle is t$e 0ournali;ing o- transactions and selected
ot$er events.
+. Bne purpose o- a trial !alance is to prove t$at de!its and credits are e&ual in t$e
general ledger.
.. 2 general 0ournal c$ronologicall" lists transactions and ot$er events= expressed in terms
o- de!its and credits to accounts.
11. I- a compan" -ails to post one o- its 0ournal entries to its general ledger= t$e trial !alance
<ill not s$o< an e&ual amount o- de!it and credit !alance accounts.
11. 2d0usting entries -or prepa"ments record t$e portion o- t$e prepa"ment t$at represents
t$e expense incurred or t$e revenue recogni;ed in t$e current accounting period.
12. 2n ad0ustment -or <ages expense= earned !ut unpaid at "ear end= is an example o- an
accrued expense.
13. T$e !oo# value o- an" deprecia!le asset is t$e di--erence !et<een its cost and its
salvage value.
14. T$e ending retained earnings !alance is reported on !ot$ t$e retained earnings
statement and t$e !alance s$eet.
15. T$e post5closing trial !alance consists o- asset= lia!ilit"= o<nersA e&uit"= revenue and
expense accounts.
3 0 ;
1'. It is not necessar" to post t$e closing entries to t$e ledger accounts !ecause ne<
revenue and expense accounts <ill !e opened in t$e su!se&uent accounting period.
1). Total stoc#$olders% e&uit" consists o- common stoc# and t$e earnings retained in t$e
!usiness.
71+. T$e accrual5!asis o- accounting recogni;es revenue <$en t$e per-ormance o!ligation is
satis-ied and expenses <$en cas$ is paid.
71.. Reversing entries are made at t$e end o- t$e accounting c"cle to correct errors in t$e
original recording o- transactions.
721. 2n ad0usted trial !alance t$at s$o<s e&ual de!it and credit columnar totals proves t$e
accurac" o- t$e ad0usting entries.
True & False Ans(ers * Con#e$tual
Ite- Ans% Ite- Ans% Ite- Ans% Ite- Ans% Ite- Ans%
1. F 5. F .. T 13. F 1). T
2. T '. F 11. F 14. T 71+. F
3. F ). F 11. T 15. F 71.. F
4. F +. T 12. T 1'. F 721. F
MU'TIP'E CHOICE*Con#e$tual
21. Factors t$at s$ape an accounting in-ormation s"stem include t$e
a. nature o- t$e !usiness.
!. si;e o- t$e -irm.
c. volume o- data to !e $andled.
d. 2ll o- t$ese ans<er c$oices are correct.
22. T$e process o- trans-erring -igures -rom t$e !oo# o- original entr" to t$e ledger accounts is
called
a. ad0usting.
!. !alancing.
c. ledgering.
d. posting.
23. (e!it al(aAs means
a. t$e rig$t side o- an account.
!. an increase.
c. a decrease.
d. None o- t$ese ans<er c$oices are correct.
24. 2n accounting record into <$ic$ t$e essential -acts and -igures in connection <it$ all
transactions are -irst recorded is called t$e
a. ledger.
3 0 <
!. account.
c. trial !alance.
3 0 >
25. 2 trial !alance
a. proves t$at de!its and credits are e&ual in t$e ledger.
!. supplies a listing o- open accounts and t$eir !alances t$at are used in preparing
-inancial statements.
c. is normall" prepared t$ree times in t$e accounting c"cle.
2'. C$ic$ o- t$e -ollo<ing is a real (permanent) accountD
a. /ood<ill
!. *ervice Revenue
c. 2ccounts Receiva!le
d. 4ot$ /ood<ill and 2ccounts Receiva!le
2). C$ic$ o- t$e -ollo<ing is a nominal (temporar") accountD
a. 9nearned *ervice Revenue
!. *alaries and Cages 3xpense
c. Inventor"
d. Retained 3arnings
2+. Nominal accounts are also called
a. temporar" accounts.
!. permanent accounts.
c. real accounts.
2.. T$e dou!le5entr" accounting s"stem means
a. 3ac$ transaction is recorded <it$ t<o 0ournal entries.
!. 3ac$ item is recorded in a 0ournal entr"= t$en in a general ledger account.
c. T$e dual e--ect o- eac$ transaction is recorded <it$ a de!it and a credit.
31. C$en a corporation pa"s a note pa"a!le and interest=
a. t$e account notes pa"a!le <ill !e increased.
!. t$e account interest expense <ill !e decreased.
c. t$e" <ill de!it notes pa"a!le and interest expense.
d. t$e" <ill de!it cas$.
31. *toc#$olders% e&uit" is not a--ected !" all
a. cas$ receipts.
!. dividends.
c. revenues.
d. expenses.
32. T$e de!it and credit anal"sis o- a transaction normall" ta#es place
a. !e-ore an entr" is recorded in a 0ournal.
!. <$en t$e entr" is posted to t$e ledger.
c. <$en t$e trial !alance is prepared.
d. at t$e end o- t$e accounting c"cle.
3 0 9?
33. T$e accounting e&uation must remain in !alance
a. t$roug$out eac$ step in t$e accounting c"cle.
!. onl" <$en 0ournal entries are recorded.
c. onl" at t$e time t$e trial !alance is prepared.
d. onl" <$en -ormal -inancial statements are prepared.
34. T$e di--erence !et<een t$e accounting process and t$e accounting c"cle is
a. t$e accounting process results in t$e preparation o- -inancial statements= <$ereas t$e
accounting c"cle is concerned <it$ recording !usiness transactions.
!. t$e accounting c"cle represents t$e steps ta#en to accomplis$ t$e accounting
process.
c. t$e accounting process represents t$e steps ta#en to accomplis$ t$e accounting
c"cle.
d. merel" semantic= !ecause !ot$ concepts re-er to t$e same t$ing.
35. 2n optional step in t$e accounting c"cle is t$e preparation o-
a. ad0usting entries.
!. closing entries.
c. a statement o- cas$ -lo<s.
d. a post5closing trial !alance.
3'. C$ic$ o- t$e -ollo<ing criteria must !e met !e-ore an event or item s$ould !e recorded -or
accounting purposesD
a. T$e event or item can !e measured o!0ectivel" in -inancial terms.
!. T$e event or item is relevant and relia!le.
c. T$e event or item is an element.
d. 2ll o- t$ese must !e met.
3). C$ic$ o- t$e -ollo<ing is a recorda!le event or itemD
a. 6$anges in managerial polic"
!. T$e value o- $uman resources
c. 6$anges in personnel
3+. C$ic$ o- t$e -ollo<ing is not an internal eventD
a. (epreciation
!. 9sing ra< materials in t$e production process
c. (ividend declaration and su!se&uent pa"ment
d. 2ll o- t$ese are internal transactions.
3.. 3xternal events do not include
a. interaction !et<een an entit" and its environment.
!. a c$ange in t$e price o- a good or service t$at an entit" !u"s or sells.
c. improvement in tec$nolog" !" a competitor.
d. using !uildings and mac$iner" in operations.
41. 2 trial !alance ma" prove t$at de!its and credits are e&ual= !ut
a. an amount could !e entered in t$e <rong account.
!. a transaction could $ave !een entered t<ice.
c. a transaction could $ave !een omitted.
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41. 2 general 0ournal
a. c$ronologicall" lists transactions and ot$er events= expressed in terms o- de!its and
credits.
!. contains one record -or eac$ o- t$e asset= lia!ilit"= stoc#$olders% e&uit"= revenue= and
expense accounts.
c. lists all t$e increases and decreases in eac$ account in one place.
d. contains onl" ad0usting entries.
42. 2 0ournal entr" to record t$e sale o- inventor" on account <ill include a
a. de!it to Inventor".
!. de!it to 2ccounts Receiva!le.
c. de!it to *ales Revenue.
d. credit to 6ost o- /oods *old.
43. 2 0ournal entr" to record a pa"ment on account <ill include a
a. de!it to 2ccounts Receiva!le.
!. credit to 2ccounts Receiva!le.
c. de!it to 2ccounts ,a"a!le.
d. credit to 2ccounts ,a"a!le.
44. 2 0ournal entr" to record a receipt o- rent in advance <ill include a
a. de!it to Rent Revenue.
!. credit to Rent Revenue.
c. credit to 6as$.
d. credit to 9nearned Revenue.
45. C$ic$ o- t$e -ollo<ing errors <ill cause an im!alance in t$e trial !alanceD
a. Bmission o- a transaction in t$e 0ournal.
!. ,osting an entire 0ournal entr" t<ice to t$e ledger.
c. ,osting a credit o- E)21 to 2ccounts ,a"a!le as a credit o- E)21 to 2ccounts
Receiva!le.
d. isting t$e !alance o- an account <it$ a de!it !alance in t$e credit column o- t$e trial
!alance.
*
4'. C$ic$ o- t$e -ollo<ing is not a principal purpose o- an unad0usted trial !alanceD
a. It proves t$at de!its and credits o- e&ual amounts are in t$e ledger.
!. It is t$e !asis -or an" ad0ustments to t$e account !alances.
c. It supplies a listing o- open accounts and t$eir !alances.
d. It proves t$at de!its and credits <ere properl" entered in t$e ledger accounts.
*
4). 2n ad0usting entr" s$ould never include
a. a de!it to an expense account and a credit to a lia!ilit" account.
!. a de!it to an expense account and a credit to a revenue account.
c. a de!it to a lia!ilit" account and a credit to revenue account.
d. a de!it to a revenue account and a credit to a lia!ilit" account.
4+. C$ic$ o- t$e -ollo<ing is an example o- an accrued expenseD
a. B--ice supplies purc$ased at t$e !eginning o- t$e "ear and de!ited to an expense
account.
!. ,ropert" taxes incurred during t$e "ear= to !e paid in t$e -irst &uarter o- t$e
su!se&uent "ear.
c. (epreciation expense
d. Rent recogni;ed during t$e period= to !e received at t$e end o- t$e "ear
3 0 91
,
4.. C$ic$ o- t$e -ollo<ing statements is true a!out t$e accrual !asis o- accountingD
a. T$e timing o- cas$ receipts and dis!ursements is emp$asi;ed.
!. 2 minimal amount o- record #eeping is re&uired in accrual !asis accounting compared
to cas$ !asis.
c. T$is met$od is used less -re&uentl" !" !usinesses t$an t$e cas$ met$od o-
accounting.
d. Revenues are recogni;ed in t$e period t$e per-ormance o!ligation is satis-ied=
regardless o- t$e time period t$e cas$ is received.
,
51. 2n ad0usting entr" to record an accrued expense involves a de!it to a(an)
a. expense account and a credit to a prepaid account.
!. expense account and a credit to 6as$.
c. expense account and a credit to a lia!ilit" account.
d. lia!ilit" account and a credit to an expense account.
,
51. T$e -ailure to properl" record an ad0usting entr" to accrue an expense <ill result in an
a. understatement o- expenses and an understatement o- lia!ilities.
!. understatement o- expenses and an overstatement o- lia!ilities.
c. understatement o- expenses and an overstatement o- assets.
d. overstatement o- expenses and an understatement o- assets.
,
52. C$ic$ o- t$e -ollo<ing properl" descri!es a de-erralD
a. 6as$ is received a-ter revenue is recogni;ed.
!. 6as$ is received !e-ore revenue is recogni;ed.
c. 6as$ is paid a-ter expense is incurred.
d. 6as$ is paid in t$e same time period t$at an expense is incurred.
,
53. T$e -ailure to properl" record an ad0usting entr" to accrue a revenue item <ill result in an
a. understatement o- revenues and an understatement o- lia!ilities.
!. overstatement o- revenues and an overstatement o- lia!ilities.
c. overstatement o- revenues and an overstatement o- assets.
d. understatement o- revenues and an understatement o- assets.
,
54. T$e omission o- t$e ad0usting entr" to record depreciation expense <ill result in an
a. overstatement o- assets and an overstatement o- o<nersA e&uit".
!. understatement o- assets and an understatement o- o<nerAs e&uit".
c. overstatement o- assets and an overstatement o- lia!ilities.
d. overstatement o- lia!ilities and an understatement o- o<nersA e&uit".
55. 2d0ustments are o-ten prepared
a. a-ter t$e !alance s$eet date= !ut dated as o- t$e !alance s$eet date.
!. a-ter t$e !alance s$eet date= and dated a-ter t$e !alance s$eet date.
c. !e-ore t$e !alance s$eet date= and dated !e-ore t$e !alance s$eet date.
d. !e-ore t$e !alance s$eet date= and dated a-ter t$e !alance s$eet date.
5'. 2t t$e time a compan" prepa"s a cost
a. it de!its an asset account to s$o< t$e service or !ene-it it <ill receive in t$e -uture.
!. it de!its an expense account to matc$ t$e expense against revenues recogni;ed.
c. its credits a lia!ilit" account to s$o< t$e o!ligation to pa" -or t$e service in t$e -uture.
d. it credits an asset account and de!its an expense account.
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5). Fo< do t$ese prepaid expenses expireD
Rent Supplies
a. Cit$ t$e passage o- time T$roug$ use and consumption
!. Cit$ t$e passage o- time Cit$ t$e passage o- time
c. T$roug$ use and consumption T$roug$ use and consumption
d. T$roug$ use and consumption Cit$ t$e passage o- time
5+. Recording t$e ad0usting entr" -or depreciation $as t$e same e--ect as recording t$e
ad0usting entr" -or
a. an unearned revenue.
!. a prepaid expense.
c. an accrued revenue.
d. an accrued expense.
5.. 9nearned revenue on t$e !oo#s o- one compan" is li#el" to !e
a. a prepaid expense on t$e !oo#s o- t$e compan" t$at made t$e advance pa"ment.
!. an unearned revenue on t$e !oo#s o- t$e compan" t$at made t$e advance pa"ment.
c. an accrued expense on t$e !oo#s o- t$e compan" t$at made t$e advance pa"ment.
d. an accrued revenue on t$e !oo#s o- t$e compan" t$at made t$e advance pa"ment.
'1. To compute interest expense on a note -or an ad0usting entr"= t$e -ormula is (principal G
annual rate G a -raction). T$e numerator and denominator o- t$e -raction are>
Numerator Denominator
a. engt$ o- time note $as !een outstanding 12 mont$s
!. Total lengt$ o- note 12 mont$s
c. engt$ o- time until note matures Total lengt$ o- note
d. engt$ o- time note $as !een outstanding Total lengt$ o- note
'1. 2d0usting entries are necessar" to
1. o!tain a proper matc$ing o- revenue and expense.
2. ac$ieve an accurate statement o- assets and e&uities.
3. ad0ust assets and lia!ilities to t$eir -air mar#et value.
a. 1
!. 2
c. 3
d. 1 and 2
'2. C$" are certain costs o- doing !usiness capitali;ed <$en incurred and t$en depreciated
or amorti;ed over su!se&uent accounting c"clesD
a. To reduce t$e -ederal income tax lia!ilit"
!. To aid management in cas$5-lo< anal"sis
c. To matc$ t$e costs o- production <it$ revenues as recogni;ed
d. To ad$ere to t$e accounting constraint o- conservatism
'3. C$en an expense is paid in cas$ !e-ore it is used= it is called a(n)
a. prepaid expense.
!. accrued expense.
c. estimated expense.
d. cas$ expense.
3 0 95
'4. C$en revenue or expense $as !een recogni;ed or incurred !ut not "et collected or paid= it
is normall" called a(n) HHHHHHHHHHHH revenue or expense.
a. de-erred
!. ad0usted
c. estimated
'5. C$en a revenue is collected and recorded in advance= it is normall" accounted -or as a(n)
HHHHHHHHHHH revenue.
a. accrued
!. prepaid
c. unearned
d. cas$
''. 2n accrued expense can !est !e descri!ed as an amount
a. paid and currentl" matc$ed <it$ earnings.
!. paid and not currentl" matc$ed <it$ earnings.
c. not paid and not currentl" matc$ed <it$ earnings.
d. not paid and currentl" matc$ed <it$ earnings.
'). (uring an accounting period= i- an expense $as !een incurred and consumed !ut not "et
paid -or or recorded= t$en t$e end5o-5period ad0usting entr" <ould involve
a. a lia!ilit" account and an asset account.
!. an asset or contra asset account and an expense account.
c. a lia!ilit" account and an expense account.
d. a receiva!le account and a revenue account.
'+. C$ic$ o- t$e -ollo<ing must !e considered in estimating depreciation on an asset -or an
accounting periodD
a. T$e original cost o- t$e asset
!. Its use-ul li-e
c. T$e decline o- its -air value
d. 4ot$ t$e original cost o- t$e asset and its use-ul li-e.
'.. C$ic$ o- t$e -ollo<ing <ould not !e a correct -orm -or an ad0usting entr"D
a. 2 de!it to a revenue and a credit to a lia!ilit"
!. 2 de!it to an expense and a credit to a lia!ilit"
c. 2 de!it to a lia!ilit" and a credit to a revenue
d. 2 de!it to an asset and a credit to a lia!ilit"
)1. Iear5end net assets <ould !e overstated and current expenses <ould !e understated as
a result o- -ailure to record <$ic$ o- t$e -ollo<ing ad0usting entriesD
a. 3xpiration o- prepaid insurance
!. (epreciation o- -ixed assets
c. 9se o- supplies
)1. 2 prepaid expense can !est !e descri!ed as an amount
a. paid and currentl" matc$ed <it$ revenues.
!. paid and not currentl" matc$ed <it$ revenues.
c. not paid and currentl" matc$ed <it$ revenues.
d. not paid and not currentl" matc$ed <it$ revenues.
3 0 96
)2. 2n accrued revenue can !est !e descri!ed as an amount
a. collected and currentl" matc$ed <it$ expenses.
!. collected and not currentl" matc$ed <it$ expenses.
c. not collected and currentl" matc$ed <it$ expenses.
d. not collected and not currentl" matc$ed <it$ expenses.
)3. 2n unearned revenue can !est !e descri!ed as an amount
a. collected and currentl" matc$ed <it$ expenses.
!. collected and not currentl" matc$ed <it$ expenses.
c. not collected and currentl" matc$ed <it$ expenses.
d. not collected and not currentl" matc$ed <it$ expenses.
)4. 2n ad0usted trial !alance
a. is prepared a-ter t$e -inancial statements are completed.
!. proves t$e e&ualit" o- t$e de!it !alances and credit !alances o- ledger accounts a-ter
all ad0ustments $ave !een made.
c. is a re&uired -inancial statement under generall" accepted accounting principles.
d. cannot !e used to prepare -inancial statements.
)5. C$ic$ t"pe o- account is al<a"s de!ited during t$e closing processD
a. (ividends
!. 3xpense
c. Revenue
d. Retained earnings
*
)'. C$ic$ o- t$e -ollo<ing statements !est descri!es t$e purpose o- closing entriesD
a. To -aciliate posting and ta#ing a trial !alance.
!. To determine t$e amount o- net income or net loss -or t$e -ollo<ing period.
c. To reduce t$e !alances o- revenue and expense accounts to ;ero so t$at t$e" ma" !e
used to accumulate t$e revenues and expenses o- t$e next period.
d. To complete t$e record o- various transactions t$at <ere started in a prior period.
,
)). I- ending accounts receiva!le exceeds t$e !eginning accounts receiva!le
a. cas$ collections during t$e period exceed t$e amount o- revenue recogni;ed.
!. net income -or t$e period is less t$an t$e amount o- cas$5!asis income.
c. no cas$ <as collected during t$e period.
d. cas$ collections during t$e "ear are less t$an t$e amount o- revenue recogni;ed.
7)+. 9nder t$e cas$5!asis o- accounting= revenues are recorded
a. <$en t$e" are recogni;ed and reali;ed.
!. <$en t$e" are recogni;ed and reali;a!le.
c. <$en t$e" are recogni;ed.
d. <$en t$e" are reali;ed.
7).. C$en converting -rom cas$5!asis to accrual5!asis accounting= <$ic$ o- t$e -ollo<ing
ad0ustments s$ould !e made to cas$ receipts -rom customers to determine accrual5!asis
service revenueD
a. *u!tract ending accounts receiva!le.
!. *u!tract !eginning unearned service revenue.
c. 2dd ending accounts receiva!le.
d. 2dd cas$ sales.
3 0 9:
7+1. C$en converting -rom cas$5!asis to accrual5!asis accounting= <$ic$ o- t$e -ollo<ing
ad0ustments s$ould !e made to cas$ paid -or operating expenses to determine accrual5
!asis operating expensesD
a. 2dd !eginning accrued lia!ilities.
!. *u!tract !eginning prepaid expense.
c. *u!tract ending prepaid expense.
d. *u!tract interest expense.
7+1. Reversing entries are
1. normall" prepared -or prepaid= accrued= and estimated items.
2. necessar" to ac$ieve a proper matc$ing o- revenue and expense.
3. use-ul in simpli-"ing t$e recording o- transactions in t$e next accounting
period.
a. 1
!. 2
c. 3
d. 1 and 2
7+2. 2d0usting entries t$at s$ould !e reversed include t$ose -or prepaid or unearned items t$at
a. create an asset or a lia!ilit" account.
!. <ere originall" entered in a revenue or expense account.
c. <ere originall" entered in an asset or lia!ilit" account.
d. create an asset or a lia!ilit" account and <ere originall" entered in a revenue or
expense account.
7+3. 2d0usting entries t$at s$ould !e reversed include
a. all accrued revenues.
!. all accrued expenses.
c. t$ose t$at de!it an asset or credit a lia!ilit".
*
7+4. 2 reversing entr" s$ould never !e made -or an ad0usting entr" t$at
a. accrues unrecorded revenue.
!. ad0usts expired costs -rom an asset account to an expense account.
c. accrues unrecorded expenses.
d. ad0usts unexpired costs -rom an expense account to an asset account.
*
7+5. T$e <or#s$eet -or *$ar#o 6o. consisted o- -ive pairs o- de!it and credit columns. T$e
dollar amount o- one item appeared in !ot$ t$e credit column o- t$e income statement
section and t$e de!it column o- t$e !alance s$eet section. T$at item is
a. net income -or t$e period.
!. !eginning inventor".
c. cost o- goods sold.
d. net loss -or t$e period.
3 0 9;
Multi$le Coi#e Ans(ers*Con#e$tual
Ite- Ans% Ite- Ans% Ite- Ans% Ite- Ans% Ite- Ans% Ite- Ans%
21. d 32. a 43. c 54. a '5. c )'. c
22. d 33. a 44. d 55. a ''. d )). d
23. d 34. ! 45. d 5'. a '). c 7)+. d
24. d 35. d 4'. d 5). a '+. d 7).. c
25. d 3'. d 4). ! 5+. ! '.. d 7+1. c
2'. d 3). d 4+. ! 5.. a )1. d 7+1. c
2). ! 3+. c 4.. d '1. a )1. ! 7+2. d
2+. a 3.. d 51. c '1. d )2. c 7+3. d
2.. c 41. d 51. a '2. c )3. ! 7+4. !
31. c 41. a 52. ! '3. a )4. ! 7+5. d
31. a 42. ! 53. d '4. d )5. c
*olutions to t$ose :ultiple 6$oice &uestions -or <$ic$ t$e ans<er is Jnone o- t$ese.K
23. le-t or le-t5side.
24. 0ournal.
3). :an" ans<ers are possi!le.
'4. accrued.
MU'TIP'E CHOICE*Co-$utational
+'. :aso 6ompan" recorded 0ournal entries -or t$e issuance o- common stoc# -or E1'1=111=
t$e pa"ment o- E52=111 on accounts pa"a!le= and t$e pa"ment o- salaries expense o-
E+4=111. C$at net e--ect do t$ese entries $ave on o<ners% e&uit"D
a. Increase o- E1'1=111.
!. Increase o- E11+=111.
c. Increase o- E)'=111.
d. Increase o- E24=111.
+). :une 6ompan" recorded 0ournal entries -or t$e declaration o- E151=111 o- dividends= t$e
E.'=111 increase in accounts receiva!le -or services rendered= and t$e purc$ase o-
e&uipment -or E'3=111. C$at net e--ect do t$ese entries $ave on o<ners% e&uit"D
a. (ecrease o- E213=111.
!. (ecrease o- E11)=111.
c. (ecrease o- E54=111.
d. Increase o- E33=111.
++. ,app" 6orporation received cas$ o- E24=111 on *eptem!er 1= 2114 -or one "ear%s rent in
advance and recorded t$e transaction <it$ a credit to 9nearned Rent Revenue. T$e
(ecem!er 31= 2114 ad0usting entr" is
a. de!it Rent Revenue and credit 9nearned Rent Revenue= E+=111.
!. de!it Rent Revenue and credit 9nearned Rent Revenue= E1'=111.
c. de!it 9nearned Rent Revenue and credit Rent Revenue= E+=111.
d. de!it 6as$ and credit 9nearned Rent Revenue= E1'=111.
3 0 9<
+.. ,anda 6orporation paid cas$ o- E'1=111 on 8une 1= 2114 -or one "ear%s rent in advance
and recorded t$e transaction <it$ a de!it to ,repaid Rent. T$e (ecem!er 31= 2114
ad0usting entr" is
a. de!it ,repaid Rent and credit Rent 3xpense= E25=111.
!. de!it ,repaid Rent and credit Rent 3xpense= E35=111.
c. de!it Rent 3xpense and credit ,repaid Rent= E35=111.
d. de!it ,repaid Rent and credit 6as$= E25=111.
.1. Tate 6ompan" purc$ased e&uipment on Novem!er 1= 2114 and gave a 35mont$= .L note
<it$ a -ace value o- E'1=111. T$e (ecem!er 31= 2114 ad0usting entr" is
a. de!it Interest 3xpense and credit Interest ,a"a!le= E5=411.
!. de!it Interest 3xpense and credit Interest ,a"a!le= E1=351.
c. de!it Interest 3xpense and credit 6as$= E.11.
d. de!it Interest 3xpense and credit Interest ,a"a!le= E.11.
.1. 4ro<n 6ompan"As account !alances at (ecem!er 31= 2114 -or 2ccounts Receiva!le and
t$e related 2llo<ance -or (ou!t-ul 2ccounts are E.21=111 de!it and E1=411 credit=
respectivel". From an aging o- accounts receiva!le= it is estimated t$at E23=111 o- t$e
(ecem!er 31 receiva!les <ill !e uncollecti!le. T$e necessar" ad0usting entr" <ould
include a credit to t$e allo<ance account -or
a. E23=111.
!. E24=411.
c. E21='11.
d. E1=411.
.2. 6$en 6ompan"As account !alances at (ecem!er 31= 2114 -or 2ccounts Receiva!le and
t$e 2llo<ance -or (ou!t-ul 2ccounts are E4+1=111 de!it and E.11 credit. *ales during
2114 <ere E1='51=111. It is estimated t$at 1L o- sales <ill !e uncollecti!le. T$e ad0usting
entr" <ould include a credit to t$e allo<ance account -or
a. E1)=411.
!. E1'=511.
c. E15='11.
d. E4=+11.
.3. *tarr 6orporation loaned E451=111 to anot$er corporation on (ecem!er 1= 2114 and
received a 35mont$= +L interest5!earing note <it$ a -ace value o- E451=111. C$at
ad0usting entr" s$ould *tarr ma#e on (ecem!er 31= 2114D
a. (e!it Interest Receiva!le and credit Interest Revenue= E.=111.
!. (e!it 6as$ and credit Interest Revenue= E3=111.
c. (e!it Interest Receiva!le and credit Interest Revenue= E3=111.
d. (e!it 6as$ and credit Interest Receiva!le= E.=111.
.4. 2 compan" receives interest on a E)1=111= +L= 55"ear note receiva!le eac$ 2pril 1. 2t
(ecem!er 31= 2114= t$e -ollo<ing ad0usting entr" <as made to accrue interest receiva!le>
Interest Receiva!le ............................................................. 4=211
Interest Revenue ..................................................... 4=211
3 0 9>
2ssuming t$at t$e compan" does not use reversing entries= <$at entr" s$ould !e made
on 2pril 1= 2115 <$en t$e annual interest pa"ment is receivedD
a. 6as$ ................................................................................... 1=411
!. 6as$ ................................................................................... 4=211
Interest Receiva!le ................................................. 4=211
c. 6as$ ................................................................................... 5='11
d. 6as$ ................................................................................... 5='11
Interest Revenue ..................................................... 5='11
7.5. 2 compan" receives interest on a E)1=111= +L= 55"ear note receiva!le eac$ 2pril 1. 2t
(ecem!er 31= 2114= t$e -ollo<ing ad0usting entr" <as made to accrue interest receiva!le>
Interest Receiva!le ............................................................. 4=211
2ssuming t$at t$e compan" !oes use reversing entries= <$at entr" s$ould !e made on
2pril 1= 2115 <$en t$e annual interest pa"ment is receivedD
a. 6as$ ................................................................................... 1=411
!. 6as$ ................................................................................... 4=211
c. 6as$ .................................................................................. 5='11
d. 6as$ ................................................................................... 5='11
Interest Revenue...................................................... 5='11
.'. :urp$" 6ompan" su!let a portion o- its <are$ouse -or -ive "ears at an annual rental o-
E'1=111= !eginning on :a" 1= 2114. T$e tenant= *$eri 6$arter= paid one "earAs rent in
advance= <$ic$ :urp$" recorded as a credit to 9nearned Rent Revenue. :urp$" reports
on a calendar5"ear !asis. T$e ad0ustment on (ecem!er 31= 2114 -or :urp$" s$ould !e
a. No entr"
!. 9nearned Rent Revenue .................................................... 21=111
Rent Revenue ......................................................... 21=111
c. Rent Revenue ..................................................................... 21=111
9nearned Rent Revenue ......................................... 21=111
d. 9nearned Rent Revenue .................................................... 41=111
Revenue Revenue................................................... 41=111
.). (uring t$e -irst "ear o- Cil#inson 6o.As operations= all purc$ases <ere recorded as assets.
*upplies in t$e amount o- E25=+11 <ere purc$ased. 2ctual "ear5end supplies amounted to
E5='11. T$e ad0usting entr" -or store supplies <ill
a. increase net income !" E21=211.
!. increase expenses !" E21=211.
c. decrease supplies !" E5='11.
d. de!it 2ccounts ,a"a!le -or E5='11.
3 0 1?
.+. 4ig5:out$ Frog 6orporation $ad revenues o- E311=111= expenses o- E211=111= and
dividends o- E45=111. C$en Income *ummar" is closed to Retained 3arnings= t$e amount
o- t$e de!it or credit to Retained 3arnings is a
a. de!it o- E55=111.
!. de!it o- E111=111.
c. credit o- E55=111.
d. credit o- E111=111.
7... T$e income statement o- (olan 6orporation -or 2114 included t$e -ollo<ing items>
Interest revenue E121=111
*alaries and <ages expense 1+1=111
Insurance expense 1+=211
T$e -ollo<ing !alances $ave !een excerpted -rom (olan 6orporationAs !alance s$eets>
(ecem!er 31= 2114 (ecem!er 31= 2113
Interest receiva!le E1+=211 E15=111
*alaries and <ages pa"a!le 1)=+11 +=411
,repaid insurance 2=211 3=111
T$e cas$ received -or interest during 2114 <as
a. E112=+11.
!. E11)=+11.
c. E121=111.
d. E124=211.
7111. T$e income statement o- (olan 6orporation -or 2114 included t$e -ollo<ing items>
(ecem!er 31= 2114 (ecem!er 31= 2113
T$e cas$ paid -or salaries and <ages during 2114 <as
a. E1+.=411.
!. E1)1='11.
c. E1)1='11.
d. E1.)=+11.
7111. T$e income statement o- (olan 6orporation -or 2114 included t$e -ollo<ing items>
3 0 19
(ecem!er 31= 2114 (ecem!er 31= 2113
T$e cas$ paid -or insurance premiums during 2114 <as
a. E1'=111.
!. E15=211.
c. E1.=111.
d. E1)=411.
7112. Blsen 6ompan" paid or collected during 2114 t$e -ollo<ing items>
Insurance premiums paid E 25=+11
Interest collected '2=+11
*alaries paid 2'1=411
T$e -ollo<ing !alances $ave !een excerpted -rom BlsenAs !alance s$eets>
(ecem!er 31= 2114 (ecem!er 31= 2113
,repaid insurance E 2=411 E 3=111
Interest receiva!le )=411 5=+11
*alaries and <ages pa"a!le 24='11 21=211
T$e insurance expense on t$e income statement -or 2114 <as
a. E21=411.
!. E25=211.
c. E2'=411.
d. E31=211.
*alaries paid 2'1=411
(ecem!er 31= 2114 (ecem!er 31= 2113
T$e interest revenue on t$e income statement -or 2114 <as
a. E4.='11.
!. E'1=211.
c. E'4=411.
d. E)'=111.
3 0 11
*alaries and <ages paid 2'1=411
(ecem!er 31= 2114 (ecem!er 31= 2113
*alaries and <ages expense on t$e income statement -or 2114 <as
a. E214='11.
!. E25)=111.
c. E2'3=+11.
d. E31'=211.
7115. T$e *upplies account $ad a !alance at t$e !eginning o- "ear 3 o- E+=111 (!e-ore t$e
reversing entr"). ,a"ments -or purc$ases o- supplies during "ear 3 amounted to E51=111
and <ere recorded as expense. 2 p$"sical count at t$e end o- "ear 3 revealed supplies
costing E11=511 <ere on $and. Reversing entries are used !" t$is compan". T$e re&uired
ad0usting entr" at t$e end o- "ear 3 <ill include a de!it to>
a. *upplies 3xpense -or E3=511.
!. *upplies -or E3=511.
c. *upplies 3xpense -or E4'=511.
d. *upplies -or E11=511.
711'. 2t t$e end o- 2114= (re< 6ompan" made -our ad0usting entries -or t$e -ollo<ing items>
1. (epreciation expense= E25=111.
2. 3xpired insurance= E2=211 (originall" recorded as prepaid insurance.)
3. Interest pa"a!le= E'=111.
4. Rent receiva!le= E11=111.
In t$e normal situation= to -acilitate su!se&uent entries= t$e ad0usting entr" or entries t$at
ma" !e reversed is (are)
a. 3ntr" No. 3 onl".
!. 3ntr" No. 4 onl".
c. 3ntr" No. 3 and No. 4.
d. 3ntr" No. 2= No. 3 and No. 4.
711). /arcia 6orporation received cas$ o- E3'=111 on 2ugust 1= 2114 -or one "earAs rent in
advance and recorded t$e transaction <it$ a credit to Rent Revenue. T$e (ecem!er 31=
2114 ad0usting entr" is
a. de!it Rent Revenue and credit 9nearned Rent Revenue= E15=111.
!. de!it Rent Revenue and credit 9nearned Rent Revenue= E21=111.
c. de!it 9nearned Rent Revenue and credit Rent Revenue= E15=111.
d. de!it 6as$ and credit 9nearned Rent Revenue= E21=111.
3 0 13
711+. ope; 6ompan" received E14=411 on 2pril 1= 2114 -or one "earAs rent in advance and
recorded t$e transaction <it$ a credit to a nominal account. T$e (ecem!er 31= 2114
ad0usting entr" is
a. de!it Rent Revenue and credit 9nearned Rent Revenue= E3='11.
!. de!it Rent Revenue and credit 9nearned Rent Revenue= E11=+11.
c. de!it 9nearned Rent Revenue and credit Rent Revenue= E3='11.
d. de!it 9nearned Rent Revenue and credit Rent Revenue= E11=+11.
711.. /i!son 6ompan" paid E12=111 on 8une 1= 2114 -or a t<o5"ear insurance polic" and
recorded t$e entire amount as Insurance 3xpense. T$e (ecem!er 31= 2114 ad0usting
entr" is
a. de!it Insurance 3xpense and credit ,repaid Insurance= E3=511.
!. de!it Insurance 3xpense and credit ,repaid Insurance= E+=511.
c. de!it ,repaid Insurance and credit Insurance 3xpense= E3=511
d. de!it ,repaid Insurance and credit Insurance 3xpense= E+=511.
Multi$le Coi#e Ans(ers*Co-$utational
Ite- Ans% Ite- Ans% Ite- Ans% Ite- Ans
%
Ite- Ans
%
Ite- Ans%
+'. c .1. d .4. c .+. d 7112. c 711'. c
+). c .1. c .5. d 7... ! 7113. c 711). !
++. c .2. ! .'. d 7111. ! 7114. c 711+. a
+.. c .3. c .). ! 7111. d 7115. d 711.. d
MU'TIP'E CHOICE*CPA A!a$te!
111. Bn *eptem!er 1= 2114= o<e 6o. issued a note pa"a!le to National 4an# in t$e amount
o- E.11=111= !earing interest at .L= and pa"a!le in t$ree e&ual annual principal pa"ments
o- E311=111. Bn t$is date= t$e !an#As prime rate <as +L. T$e -irst pa"ment -or interest
and principal <as made on *eptem!er 1= 2115. 2t (ecem!er 31= 2115= o<e s$ould
record accrued interest pa"a!le o-
a. E2)=111.
!. E24=111.
c. E1+=111.
d. E1'=111.
111. 3aton 6o. sells ma0or $ouse$old appliance service contracts -or cas$. T$e service
contracts are -or a one5"ear= t<o5"ear= or t$ree5"ear period. 6as$ receipts -rom contracts
are credited to 9nearned *ervice Revenue. T$is account $ad a !alance o- E3=+11=111 at
(ecem!er 31= 2114 !e-ore "ear5end ad0ustment. *ervice contract costs are c$arged as
incurred to t$e *ervice 6ontract 3xpense account= <$ic$ $ad a !alance o- E.11=111 at
(ecem!er 31= 2114.
*ervice contracts still outstanding at (ecem!er 31= 2114 expire as -ollo<s>
(uring 2115 E.'1=111
(uring 211' 1=141=111
(uring 211) )11=111
3 0 15
C$at amount s$ould !e reported as 9nearned *ervice Revenue in 3atonAs (ecem!er 31=
2114 !alance s$eetD
a. E2=.11=111.
!. E2=+11=111.
c. E1=.11=111.
d. E1=111=111.
112. In Novem!er and (ecem!er 2114= ane 6o.= a ne<l" organi;ed maga;ine pu!lis$er=
received E'1=111 -or 1=111 t$ree5"ear su!scriptions at E21 per "ear= starting <it$ t$e
8anuar" 2115 issue. ane included t$e entire E'1=111 in its 2114 income tax return. C$at
amount s$ould ane report in its 2114 income statement -or su!scriptions revenueD
a. E1.
!. E3=333.
c. E21=111.
d. E'1=111.
113. Bn 8une 1= 2114= Nott 6orp. loaned Forn E+11=111 on a 12L note= pa"a!le in -ive annual
installments o- E1'1=111 !eginning 8anuar" 2= 2115. In connection <it$ t$is loan= Forn
<as re&uired to deposit E5=111 in a noninterest5!earing escro< account. T$e amount $eld
in escro< is to !e returned to Forn a-ter all principal and interest pa"ments $ave !een
made. Interest on t$e note is pa"a!le on t$e -irst da" o- eac$ mont$ !eginning 8ul" 1=
2114. Forn made timel" pa"ments t$roug$ Novem!er 1= 2114. Bn 8anuar" 2= 2115= Nott
received pa"ment o- t$e -irst principal installment plus all interest due. 2t (ecem!er 31=
2114= NottAs interest receiva!le on t$e loan to Forn s$ould !e
a. E1.
!. E+=111.
c. E1'=111.
d. E24=111.
114. Included in 2llen 6orp.As !alance s$eet at 8une 31= 2113 is a 11L= E3=111=111 note
pa"a!le. T$e note is dated Bcto!er 1= 2113 and is pa"a!le in t$ree e&ual annual
pa"ments o- E1=511=111 plus interest. T$e -irst interest and principal pa"ment <as made
on Bcto!er 1= 2114. In 2llenAs 8une 31= 2115 !alance s$eet= <$at amount s$ould !e
reported as accrued interest pa"a!le -or t$is noteD
a. E33)=511.
!. E225=111.
c. E112=511.
d. E)5=111.
115. 6ola< 6o. pa"s all salaried emplo"ees on a !i<ee#l" !asis. Bvertime pa"= $o<ever= is
paid in t$e next !i<ee#l" period. 6ola< accrues salaries expense onl" at its (ecem!er 31
"ear end. (ata relating to salaries earned in (ecem!er 2114 are as -ollo<s>
ast pa"roll <as paid on 12@2'@14= -or t$e 25<ee# period ended 12@2'@14.
Bvertime pa" earned in t$e 25<ee# period ended 12@2'@14 <as E21=111.
Remaining <or# da"s in 2114 <ere (ecem!er 2.= 31= 31= on <$ic$ da"s t$ere <as no
overtime.
T$e recurring !i<ee#l" salaries total E3'1=111.
3 0 16
2ssuming a -ive5da" <or#<ee#= 6ola< s$ould record a lia!ilit" at (ecem!er 31= 2114 -or
accrued salaries o-
a. E11+=111.
!. E12+=111.
c. E21'=111.
d. E23'=111.
11'. Tolan 6orp.As trademar# <as licensed to 3dd" 6o. -or ro"alties o- 15L o- sales o- t$e
trademar#ed items. Ro"alties are pa"a!le semiannuall" on :arc$ 15 -or sales in 8ul"
t$roug$ (ecem!er o- t$e prior "ear= and on *eptem!er 15 -or sales in 8anuar" t$roug$
8une o- t$e same "ear. Tolan received t$e -ollo<ing ro"alties -rom 3dd">
:arc$ 15 *eptem!er 15
2113 E5=111 E)=511
2114 '=111 .=511
3dd" estimated t$at sales o- t$e trademar#ed items <ould total E31=111 -or 8ul" t$roug$
(ecem!er 2114. In TolanAs 2114 income statement= t$e ro"alt" revenue s$ould !e
a. E14=111.
!. E15=511.
c. E21=111.
d. E21=511.
11). 2t (ecem!er 31= 2114= *ue%s 4outi&ue $ad 1=111 gi-t certi-icates outstanding= <$ic$ $ad
!een sold to customers during 2114 -or E'1 eac$. *ue%s operates on a gross pro-it o- '1L
o- its sales. C$at amount o- revenue pertaining to t$e 1=111 outstanding gi-t certi-icates
s$ould !e de-erred at (ecem!er 31= 2114D
a. E1.
!. E24=111.
c. E3'=111.
d. E'1=111.
711+. 6ompared to t$e accrual !asis o- accounting= t$e cas$ !asis o- accounting overstates
income !" t$e net increase during t$e accounting period o- t$e
2ccounts Receiva!le 2ccrued 3xpenses ,a"a!le
a. No No
!. No Ies
c. Ies No
d. Ies Ies
711.. /regg 6orp. reported revenue o- E1=451=111 in its accrual !asis income statement -or t$e
"ear ended 8une 31= 2115. 2dditional in-ormation <as as -ollo<s>
2ccounts receiva!le 8une 31= 2114 E411=111
2ccounts receiva!le 8une 31= 2115 531=111
9ncollecti!le accounts <ritten o-- during t$e -iscal "ear 15=111
9nder t$e cas$ !asis= /regg s$ould report revenue o-
a. E1=135=111.
!. E1=151=111.
c. E1=315=111.
d. E1=335=111.
3 0 1:
7121. 8im Iount= :.(.= #eeps $is accounting records on t$e cas$ !asis. (uring 2115= (r. Iount
collected E351=111 -rom $is patients. 2t (ecem!er 31= 2114= (r. Iount $ad accounts
receiva!le o- E41=111. 2t (ecem!er 31= 2115= (r. Iount $ad accounts receiva!le o-
E)1=111 and unearned revenue o- E11=111. Bn t$e accrual !asis= $o< muc$ <as (r.
IountAs patient service revenue -or 2115D
a. E311=111.
!. E3)1=111.
c. E3+1=111.
d. E3.1=111.
7121. T$e -ollo<ing in-ormation is availa!le -or 2ce 6ompan" -or 2114>
(is!ursements -or purc$ases E1=3'1=111
Increase in trade accounts pa"a!le 111=111
(ecrease in merc$andise inventor" 41=111
6ost o- goods sold -or 2114 <as
a. E1=511=111.
!. E1=421=111.
c. E1=311=111.
d. E1=221=111.
Multi$le Coi#e Ans(ers*CPA A!a$te!
Ite- Ans% Ite- Ans% Ite- Ans% Ite- Ans% Ite- Ans
%
Ite- Ans%
111. c 112. a 114. ! 11'. a 711+. ! 7121. !
111. ! 113. c 115. ! 11). d 711.. c 7121. a
3 0 1;
)ERI4ATIONS * Co-$utational
No% Ans(er )erivation
+'. c E1'1=111 5 E+4=111 ? E)'=111.
+). c E151=111 5 E.'=111 ? E54=111.
++. c E24=111 x 4@12 ? E+=111.
+.. c E'1=111 x )@12 ? E35=111.
.1. d 2@12 x .L x E'1=111 ? E.11.
.1. c E23=111 M E1=411 ? E21='11.
.2. ! E1='51=111 x 1L ? E1'=511.
.3. c 1@12 x +L x E451=111 ? E3=111.
.4. c E)1=111 x +L ? E5='11N E5='11 5 E4=211 ? E1=411 int. rev.
7.5. d E)1=111 x +L ? E5='11
.'. d E'1=111 x +@12 ? E41=111.
.). ! E25=+11 M E5='11 ? E21=211.
.+. d E311=111 5 E211=111 ? E111=111.
7... ! E15=111 O E121=111 5 E1+=211 ? E11)=+11.
7111. ! E+=411 O E1+1=111 5 E1)=+11 ? E1)1='11.
7111. d E1+=211 M E3=111 O E2=211 ? E1)=411.
7112. c E25=+11 O E'11 ? E2'=411.
7113. c E'2=+11 M E5=+11 O E)=411 ? E'4=411.
7114. c E2'1=411 M E21=211 O E24='11 ? E2'3=+11.
7115. d E11=511 O E+=111 M E+=111 ? E11=511.
711'. c
711). ! )@12 x E3'=111 ? E21=111.
711+. a 3@12 x E14=411 ? E3='11.
711.. d 1)@24 x E12=111 ? E+=511.
3 0 1<
)ERI4ATIONS * CPA A!a$te!
No% Ans(er )erivation
111. c (E.11=111 M E311=111) G .L G 4@12 ? E1+=111.
111. ! E.'1=111 O E1=141=111 O E)11=111 ? E2=+11=111.
112. a E1= none o- t$e E'1=111 is recogni;ed.
113. c E+11=111 G 12L G 2@12 ? E1'=111.
114. ! E3=111=111 G .@12 G 11L ? E225=111.
115. ! E21=111 O (E3'1=111 P 11 G 3) ? E12+=111.
11'. a E.=511 O (E31=111 G 15L) ? E14=111.
11). d 1=111 G E'1 ? E'1=111.
711+. ! 6onceptual.
711.. c E1=451=111 O E411=111 M E531=111 M E15=111 ? E1=315=111.
7121. ! E351=111 M E41=111 O E)1=111 M E11=111 ? E3)1=111.
7121. a E1=3'1=111 O E111=111 O E41=111 ? E1=511=111.
+RIEF E2ERCISES
+E% 30911Q(e-initions.
,rovide clear= concise ans<ers -or t$e -ollo<ing.
1. C$at is t$e accrual5!asis o- accountingD
2. C$at is an accrued expenseD
3. C$at is accrued revenueD
4. C$at is a prepaid expenseD
5. C$at is unearned revenueD
7'. *tate t$e rule t$at indicates <$ic$ ad0usting entries -or prepaid and unearned items s$ould !e
reversed.
3 0 1>
Solution 30911
1. T$e accrual !asis o- accounting recogni;es revenue <$en t$e per-ormance o!ligation is
satis-ied and recogni;es expenses in t$e period incurred.
2. 2n accrued expense is an expense <$ic$ is incurred !ut not paid in cas$ or recorded.
3. 2n accrued revenue is a revenue <$ic$ is recogni;ed !ut not "et received in cas$ or
recorded.
4. 2 prepaid expense is an expense paid in cas$ and recorded as an asset !e-ore it is used.
5. 9nearned revenues are t$e revenues received in cas$ and recorded as lia!ilities !e-ore t$e"
are recogni;ed.
7'. 2d0usting entries t$at create an asset or a lia!ilit" account s$ould !e reversed. T$is <ould
include prepaid and unearned items originall" recorded in a revenue or expense account.
+E% 30913QTerminolog".
In t$e space provided at t$e rig$t= <rite t$e <ord or p$rase t$at is de-ined or indicated.
1. Revenue and expense accounts. 1. HHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHH
2. 2n optional step in t$e accounting 2. HHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHH
c"cle.
3. 2 revenue collected= !ut not recogni;ed.3. HHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHH
4. 2 revenue recogni;ed= !ut not collected.4. HHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHH
5. 2sset= lia!ilit"= and e&uit" accounts. 5. HHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHH
'. 2n expense paid= !ut not incurred. '. HHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHH
). 2n expense incurred= !ut not paid. ). HHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHH
Solution 30913
1. Nominal (temporar") accounts. 5. Real (permanent) accounts.
2. Reversing entries. '. ,repaid expense.
3. 9nearned revenue. ). 2ccrued expense.
4. 2ccrued revenue.
+E% 30915Q2ccrued items and de-erred (unearned or prepaid) items.
/enerall" accepted accounting principles re&uire t$e use o- accruals and de-errals in t$e
determination o- income. Fo< is income determined under t$e accrual5!asis o- accountingD
Include in "our ans<er <$at constitutes an accrued item and a de-erred (prepaid) item= and give
appropriate examples o- eac$.
3 0 3?
Solution 30915
2ccrual accounting recogni;es and reports t$e e--ects o- transactions and ot$er events in t$e time
periods to <$ic$ t$e" relate rat$er t$an onl" <$en cas$ is received or paid. 2ccrual accounting
attempts to matc$ revenues and t$e expenses associated <it$ t$ose revenues in order to
determine net income -or an accounting period.
2n accrued item is an item o- revenue or expense t$at $as !een recogni;ed or incurred during
t$e period= !ut $as not "et !een collected or paid in cas$. 2n example o- an accrued revenue is
rent -or t$e last mont$ o- an accounting period t$at $as !een recogni;ed !" a landlord !ut not "et
paid !" t$e tenant. 2n example o- an accrued expense is salaries incurred -or t$e last <ee# o- an
accounting period t$at are not pa"a!le until t$e su!se&uent accounting period.
2 de-erred (unearned or prepaid) item is an item o- revenue or expense t$at $as !een received or
paid in cas$= !ut $as not "et !een recogni;ed or consumed. 2n example o- a de-erred revenue is
unearned su!scription revenue collected in advance o- !eing recogni;ed. 2n example o- a
de-erred expense is an insurance premium paid at t$e end o- an accounting period <$ic$ <ill
provide insurance coverage -or t$e -irst six mont$s o- t$e su!se&uent period.
E2ERCISES
EB% 30916Q2d0usting entries.
,resent= in 0ournal -orm= t$e ad0ustments t$at <ould !e made on 8ul" 31= 2115= t$e end o- t$e
-iscal "ear= -or eac$ o- t$e -ollo<ing.
1. T$e supplies inventor" on 2ugust 1= 2114 <as E.=351. *upplies costing E22=151 <ere
ac&uired during t$e "ear and c$arged to t$e supplies inventor". 2 count on 8ul" 31= 2115
indicated supplies on $and o- E+=+11.
2. Bn 2pril 31= a ten5mont$= 'L note -or E31=111 <as received -rom a customer.
73. Bn :a" 1= E12=111 <as collected as rent -or one "ear and a nominal account <as credited.
Solution 30916
1. *upplies 3xpense .................................................................... 22='.1
*upplies ........................................................................ 22='.1
2. Interest Receiva!le .................................................................. 451
Interest Revenue ........................................................... 451
73. Rent Revenue .......................................................................... .=111
9nearned Rent Revenue .............................................. .=111
3 0 39
EB% 3091:Q2d0usting entries.
Reed 6o. <is$es to enter receipts and pa"ments in suc$ a manner t$at ad0ustments at t$e end o-
t$e period <ill not re&uire reversing entries at t$e !eginning o- t$e next period. Record t$e
-ollo<ing transactions in t$e indicated manner and give t$e ad0usting entr" on (ecem!er 31=
2114. (T<o entries -or eac$ part.)
1. 2n insurance polic" -or t<o "ears <as ac&uired on 2pril 1= 2114 -or E1+=111.
2. Rent o- E12=111 -or six mont$s -or a portion o- t$e !uilding <as received on Novem!er 1=
2114.
Solution 3091:
1. ,repaid Insurance .................................................................... 1+=111
6as$ ............................................................................. 1+=111
Insurance 3xpense ................................................................... '=)51
,repaid Insurance ......................................................... '=)51
2. 6as$ ....................................................................................... 12=111
9nearned Rent Revenue............................................... 12=111
9nearned Rent Revenue........................................................... 4=111
Rent Revenue ............................................................... 4=111
EB% 3091;
T$e ad0usted trial !alance o- R"an Financial ,lanners appears !elo<. 9sing t$e in-ormation -rom
t$e ad0usted trial !alance= "ou are to prepare -or t$e mont$ ending (ecem!er 31>
1. an income statement.
2. a retained earnings statement.
3. a !alance s$eet.
RI2N FIN2N6I2 ,2NN3R*
2d0usted Trial 4alance
(ecem!er 31= 2114
(e!it 6redit
6as$ ............................................................................................... E 2=.11
2ccounts Receiva!le....................................................................... 2=211
*upplies.......................................................................................... 1=+11
3&uipment ....................................................................................... 1'=111
2ccumulated (epreciationQ3&uipment.......................................... E 4=111
2ccounts ,a"a!le............................................................................ 3=311
9nearned *ervice Revenue............................................................ 5=111
6ommon *toc#................................................................................ 11=111
Retained 3arnings........................................................................... 4=411
(ividends........................................................................................ 2=111
*ervice Revenue............................................................................. 4=211
*upplies 3xpense............................................................................ '11
(epreciation 3xpense..................................................................... 2=511
Rent 3xpense.................................................................................. 2=.11 HHHHHH
E31=.11 E31=.11
3 0 31
Solution 3091; (21 min)
1. RI2N FIN2N6I2 ,2NN3R*
Income *tatement
For t$e :ont$ 3nded (ecem!er 31= 2114
Revenues
*ervice revenue......................................................................... E 4=211
3xpenses
Rent expense............................................................................ E2=.11
(epreciation expense................................................................ 2=511
*upplies expense...................................................................... '11
Total expenses........................................................................ '=111
Net loss........................................................................................... E(1=+11)
Retained 3arnings *tatement
For t$e :ont$ 3nded (ecem!er 31= 2114
Retained earnings= (ecem!er 1...................................................... E 4=411
ess> Net loss.................................................................................. E1=+11
(ividends............................................................................... 2=111 3=+11
Retained earnings= (ecem!er 31.................................................... E '11
4alance *$eet
(ecem!er 31= 2114
2ssets
6as$................................................................................................ E 2=.11
2ccounts receiva!le........................................................................ 2=211
*upplies ....................................................................................... 1=+11
3&uipment ................................................................................... E1'=111
ess> 2ccumulated depreciationQe&uipment.................................. 4=111 12=111
Total assets.............................................................................. E1+=.11
ia!ilities and *toc#$olders% 3&uit"
ia!ilities
2ccounts pa"a!le...................................................................... E 3=311
9nearned service revenue......................................................... 5=111
Total lia!ilities................................................................. E +=311
*toc#$olders% 3&uit"
6ommon stoc#........................................................................... 11=111
Retained earnings..................................................................... '11 11='11
Total lia!ilities and stoc#$olders% e&uit"......................... E1+=.11
3 0 33
=EB% 3091<Q6as$ !asis vs. accrual !asis o- accounting.
6ontrast t$e cas$ !asis o- accounting <it$ t$e accrual !asis o- accounting.
=Solution 3091<
T$e essential di--erence !et<een t$e cas$ !asis and t$e accrual !asis o- accounting relates to
t$e timing o- t$e recognition o- revenues and expenses. 9nder t$e cas$ !asis o- accounting= t$e
e--ects o- transactions and ot$er events are recogni;ed and reported onl" <$en cas$ is received
or paid. 9nder t$e accrual !asis o- accounting= t$ese e--ects are recogni;ed and reported in t$e
time periods to <$ic$ t$e" relate= regardless o- t$e time o- t$e receipt or pa"ment o- cas$.
4ecause no attempt is made under t$e cas$ !asis o- accounting to matc$ revenues and t$e
expenses associated <it$ t$ose revenues= cas$ !asis -inancial statements are not in accordance
<it$ generall" accepted accounting principles.
=EB% 3091>Q2ccrual !asis.
*ales salaries paid during 2114 <ere E+5=111. 2dvances to salesmen <ere E1=111 on 8anuar" 1=
2114= and E+11 on (ecem!er 31= 2114. *ales salaries accrued <ere E1=3'1 on 8anuar" 1= 2114=
and E1=++1 on (ecem!er 31= 2114. *$o< t$e computation o- sales salaries on an accrual !asis
-or 2114.
=Solution 3091>
E+5=111 O E1=111 M E+11 M E1=3'1 O E1=++1 ? E+5=+21.
=EB% 3093?Q2ccrual !asis.
T$e records -or Todd Inc. s$o<ed t$e -ollo<ing -or 2114>
8an. 1 (ec. 31
2ccrued expenses E1=311 E2=151
,repaid expenses )21 +)1
6as$ paid during t$e "ear -or expenses= E42=511
*$o< t$e computation o- t$e amount o- expense t$at s$ould !e reported on t$e income
statement.
=Solution 3093?
E42=511 M E1=311 O E2=151 O E)21 M E+)1 ? E43=211.
3 0 35
=EB% 30939Q2ccrual !asis.
T$e records -or Rile" 6ompan" s$o<ed t$e -ollo<ing -or 2114>
8an. 1 (ec. 31
9nearned revenue E1=111 E2=1'1
2ccrued revenue 1=2'1 .21
6as$ collected during t$e "ear -or revenue= E'5=111
*$o< t$e computation o- t$e amount o- revenue t$at s$ould !e reported on t$e income
statement.
=Solution 30939
E'5=111 O E1=111 M E2=1'1 M E1=2'1 O E.21 ? E'3='11.
=EB% 30931Q6as$ !asis.
Revenue on t$e income statement <as E125=+11. 2ccounts receiva!le <ere E3=511 on 8anuar" 1
and E3=541 on (ecem!er 31. 9nearned revenue <as E1=151 on 8anuar" 1 and E1=')1 on
(ecem!er 31.
*$o< t$e computation o- revenue -or t$e "ear on a cas$ !asis.
=Solution 30931
E125=+11 O E3=511 M E3=541 M E1=151 O E1=')1 ? E12'=3+1.
PRO+'EMS
Pr% 30933Q2d0usting entries and account classi-ication.
*elected amounts -rom Trent 6ompan"As trial !alance o- 12@31@14 appear !elo<>
1. 2ccounts ,a"a!le E 1'1=111
2. 2ccounts Receiva!le 151=111
3. 2ccumulated (epreciationQ3&uipment 211=111
4. 2llo<ance -or (ou!t-ul 2ccounts 21=111
5. 4onds ,a"a!le 511=111
'. 6as$ 151=111
). 6ommon *toc# '1=111
+. 3&uipment .'1=111
.. ,repaid Insurance 31=111
11. Interest 3xpense 11=111
11. Inventor" 311=111
12. Notes ,a"a!le (due '@1@15) 211=111
13. ,repaid Rent 211=111
14. Retained 3arnings +1+=111
15. *alaries and Cages 3xpense 32+=111
(2ll o- t$e a!ove accounts $ave t$eir standard or normal de!it or credit !alance.)
3 0 36
,art 2. ,repare ad0usting 0ournal entries at "ear end= (ecem!er 31= 2114= !ased on t$e
-ollo<ing supplemental in-ormation.
a. T$e e&uipment $as a use-ul li-e o- 15 "ears <it$ no salvage value. (*traig$t5line met$od !eing
used.)
!. Interest accrued on t$e !onds pa"a!le is E15=111 as o- 12@31@14.
c. ,repaid insurance at 12@31@14 is E25=111.
d. T$e rent pa"ment o- E1+1=111 covered t$e six mont$s -rom Novem!er 31= 2114 t$roug$ :a"
31= 2115.
e. *alaries and <ages earned !ut unpaid at 12@31@14= E22=111.
,art 4. Indicate t$e proper !alance s$eet classi-ication o- eac$ o- t$e 15 num!ered accounts
in t$e 12@31@14 trial !alance before adjustments !" placing appropriate num!ers a-ter
eac$ o- t$e -ollo<ing classi-ications. I- t$e account title <ould appear on t$e income
statement= do not put t$e num!er in an" o- t$e classi-ications.
a. 6urrent assets
!. ,ropert"= plant= and e&uipment
c. 6urrent lia!ilities
d. ong5term lia!ilities
e. *toc#$oldersA e&uit"
Solution 30933
,art 2.
a. (epreciation 3xpense (E.'1=111 M 1) 15 .................................... '4=111
2ccumulated (epreciationQ3&uipment ............................. '4=111
!. Interest 3xpense ............................................................................ 15=111
Interest ,a"a!le .................................................................. 15=111
c. Insurance 3xpense ......................................................................... 5=111
,repaid Insurance (E31=111 5 E25=111) .............................. 5=111
d. Rent 3xpense (E211=111 ').......................................................... 35=111
,repaid Rent ....................................................................... 35=111
e. *alaries and Cages 3xpense ......................................................... 22=111
*alaries and Cages ,a"a!le .............................................. 22=111
,art 4.
a. 6urrent assetsQ2= 4= '= .= 11= 13
!. ,ropert"= plant= and e&uipmentQ3= +
c. 6urrent lia!ilitiesQ1= 12
d. ong5term lia!ilitiesQ5
e. *toc#$oldersA e&uit"Q)= 14
3 0 3:
Pr% 30935Q2d0usting entries.
(ata relating to t$e !alances o- various accounts a--ected !" ad0usting or closing entries appear
!elo<. (T$e entries <$ic$ caused t$e c$anges in t$e !alances are not given.) Iou are as#ed to
suppl" t$e missing 0ournal entries <$ic$ <ould logicall" account -or t$e c$anges in t$e account
!alances.
1. Interest receiva!le at 1@1@14 <as E1=111. (uring 2114 cas$ received -rom de!tors -or interest
on outstanding notes receiva!le amounted to E5=111. T$e 2114 income statement s$o<ed
interest revenue in t$e amount o- E'=411. Iou are to provide t$e missing ad0usting entr" t$at
must $ave !een made= assuming reversing entries are not made.
2. 9nearned rent at 1@1@14 <as E5=311 and at 12@31@14 <as E+=111. T$e records indicate cas$
receipts -rom rental sources during 2114 amounted to E55=111= all o- <$ic$ <as credited to
t$e 9nearned Rent Revenue account. Iou are to prepare t$e missing ad0usting entr".
3. 2ccumulated depreciationQe&uipment at 1@1@14 <as E231=111. 2t 12@31@14 t$e !alance o-
t$e account <as E2+1=111. (uring 2114= one piece o- e&uipment <as sold. T$e e&uipment
$ad an original cost o- E41=111 and <as 3@4 depreciated <$en sold. Iou are to prepare t$e
missing ad0usting entr".
4. 2llo<ance -or dou!t-ul accounts on 1@1@14 <as E51=111. T$e !alance in t$e allo<ance
account on 12@31@14 a-ter ma#ing t$e annual ad0usting entr" <as E'5=111 and during 2114
!ad de!ts <ritten o-- amounted to E31=111. Iou are to provide t$e missing ad0usting entr".
5. ,repaid rent at 1@1@14 <as E2.=111. (uring 2114 rent pa"ments o- E121=111 <ere made and
c$arged to Srent expense.S T$e 2114 income statement s$o<s as a general expense t$e item
Srent expenseS in t$e amount o- E145=111. Iou are to prepare t$e missing ad0usting entr" t$at
must $ave !een made= assuming reversing entries are not made.
'. Retained earnings at 1@1@14 <as E131=111 and at 12@31@14 it <as E211=111. (uring 2114=
cas$ dividends o- E51=111 <ere paid and a stoc# dividend o- E41=111 <as issued. 4ot$
dividends <ere properl" c$arged to retained earnings. Iou are to provide t$e missing closing
entr".
Solution 30935
1. Interest Receiva!le ................................................................... 2=411
Interest Revenue ........................................................... 2=411
Interest revenue per !oo#s E'=411
Interest revenue received related to 2114
(E5=111 M E1=111) 4=111
Interest accrued E2=411
2. 9nearned Rent Revenue .......................................................... 52=311
Rent Revenue ............................................................... 52=311
6as$ receipts E55=111
4eginning !alance 5=311
3nding !alance (+=111)
Rent revenue E52=311
3 0 3;
Solution 30935 (cont.)
3. (epreciation 3xpense .............................................................. +1=111
2ccumulated (epreciationQ3&uipment ........................ +1=111
3nding !alance E2+1=111
(i--erence 51=111
Crite5o-- at time o- sale 3@4 G E41=111 31=111
E +1=111
4. 4ad (e!t 3xpense .................................................................... 45=111
2llo<ance -or (ou!t-ul 2ccounts ................................... 45=111
3nding !alance E'5=111
(i--erence 15=111
Critten o-- 31=111
E45=111
5. Rent 3xpense ........................................................................... 25=111
,repaid Rent ................................................................. 25=111
Rent expense E145=111
ess cas$ paid 121=111
Reduction in prepaid rent account E 25=111
'. Income *ummar" ..................................................................... 1)1=111
Retained 3arnings ........................................................ 1)1=111
3nding !alance E211=111
4eginning !alance (131=111)
(i--erence +1=111
6as$ dividends E51=111
*toc# dividends 41=111 .1=111
E1)1=111
Pr% 30936Q2d0usting and closing entries.
T$e -ollo<ing trial !alance <as ta#en -rom t$e !oo#s o- Fis# 6orporation on (ecem!er 31= 2114.
2ccount (e!it 6redit
6as$ E .=111
2ccounts Receiva!le 41=111
Notes Receiva!le 11=111
2llo<ance -or (ou!t-ul 2ccounts E 1=+11
Inventor" 44=111
,repaid Insurance 4=+11
3&uipment 111=111
2ccumulated (epreciation553&uip. 15=111
2ccounts ,a"a!le 11=+11
6ommon *toc# 44=111
Retained 3arnings 55=111
*ales Revenue 2+1=111
6ost o- /oods *old 12'=111
*alaries and Cages 3xpense 51=111
Rent 3xpense 12=+11
Totals E41'='11 E41'='11
3 0 3<
Pr% 30936 (cont.)
2t "ear end= t$e -ollo<ing items $ave not "et !een recorded.
a. Insurance expired during t$e "ear= E2=111.
!. 3stimated !ad de!ts= 1L o- gross sales.
c. (epreciation on e&uipment= 11L per "ear on original cost.
d. Interest at 5L is receiva!le on t$e note -or one -ull "ear.
7e. Rent paid in advance at (ecem!er 31= E5=411 (originall" c$arged to expense).
-. 2ccrued salaries and <ages at (ecem!er 31= E5=+11.
Instru#tions
(a) ,repare t$e necessar" ad0usting entries.
(!) ,repare t$e necessar" closing entries.
Solution 30936
(a) 2d0usting 3ntries
a. Insurance 3xpense ................................................................ 2=111
,repaid Insurance ......................................................... 2=111
!. 4ad (e!t 3xpense ................................................................. 2=+11
2llo<ance -or (ou!t-ul 2ccounts ................................... 2=+11
c. (epreciation 3xpense ............................................................ 11=111
2ccumulated (epreciation553&uip. ................................ 11=111
d. Interest Receiva!le ................................................................ 511
Interest Revenue ........................................................... 511
7e. ,repaid Rent .......................................................................... 5=411
Rent 3xpense ............................................................... 5=411
-. *alaries and Cages 3xpense ................................................ 5=+11
*alaries and Cages ,a"a!le ........................................ 5=+11
(!) 6losing 3ntries
*ales ............................................................................................ 2+1=111
Interest Revenue ........................................................................... 511
Income *ummar" ................................................................ 2+1=511
Income *ummar" .......................................................................... 215=111
*alaries and Cages 3xpense ............................................. 55=+11
Rent 3xpense ..................................................................... )=411
(epreciation 3xpense ......................................................... 11=111
4ad (e!t 3xpense .............................................................. 2=+11
Insurance 3xpense ............................................................. 2=111
6ost o- /oods *old ............................................................. 12'=111
Income *ummar" .......................................................................... )5=511
Retained 3arnings .............................................................. )5=511
3 0 3>
=Pr% 3093:Q6as$ to accrual accounting.
T$e -ollo<ing in-ormation is availa!le -or Renn 6orporationAs -irst "ear o- operations>
,a"ment -or merc$andise purc$ases E335=111
3nding merc$andise inventor" 135=111
2ccounts pa"a!le (!alance at end o- "ear) '1=111
6ollections -rom customers 2+1=111
T$e !alance in accounts pa"a!le relates onl" to merc$andise purc$ases. 2ll merc$andise items
<ere mar#ed to sell at 35L a!ove cost. C$at s$ould !e t$e ending !alance in accounts
receiva!le= assuming all accounts are deemed collecti!leD
=Solution 3093:
*ince t$is is t$e -irst "ear o- operations and t$ere <ere E2+1=111 o- accounts receiva!le
collected= one must compute total sales to determine t$e ending !alance in accounts receiva!le.
6ost o- goods sold is E2'1=111 assuming t$e accounts pa"a!le are -or inventor" (t$e E335=111
constitutes onl" pa"ments made -or purc$ases). *ince t$e mar#up is 35L on cost= t$e sales are
E351=111 (E2'1=111 G 135L). *ales o- E351=111 less collections o- E2+1=111 results in an ending
accounts receiva!le !alance o- E)1=111 as calculated !elo<.
6as$ purc$ases E335=111
2@, !alance '1=111
Total purc$ases 3.5=111
3nding inventor" 135=111
6ost o- goods sold 2'1=111
G 135L
*ales 351=111
ess collections 2+1=111
3nding 2@R E)1=111
=Pr% 3093;Q2ccrual accounting.
Iates 6ompan"As records provide t$e -ollo<ing in-ormation concerning certain account !alances
and c$anges in t$ese account !alances during t$e current "ear. Transaction in-ormation is
missing -rom eac$ item !elo<.
Instru#tions
,repare t$e entry to record t$e missing in-ormation -or eac$ account. (6onsider eac$ inde5
pendentl".)
1. 2ccounts Receiva!le> 8an. 1= !alance E41=111= (ec. 31= !alance E55=111= uncollecti!le
accounts <ritten o-- during t$e "ear= E'=111N accounts receiva!le collected during t$e "ear=
E13.=111. ,repare t$e entr" to record sales revenue.
2. 2llo<ance -or (ou!t-ul 2ccounts> 8an. 1= !alance E4=111= (ec. 31= !alance E)=511=
uncollecti!le accounts <ritten o-- during t$e "ear= E21=111. ,repare t$e entr" to record !ad
de!t expense.
3. 2ccounts ,a"a!le> 8an. 1= !alance E25=111= (ec. 31= !alance E54=111= purc$ases on account
-or t$e "ear= E121=111. ,repare t$e entr" to record pa"ments on account.
4. Interest Receiva!le> 8an. 1 accrued= E3=111= (ec. 31 accrued= E2=111= recogni;ed -or t$e
"ear= E35=111. ,repare t$e entr" to record cas$ interest received.
3 0 5?
=Solution 3093;
1. 3nding !alance E 55=111 3nding !alance E 55=111
ess> 4eginning !alance 41=111 ,lus> Rec. collected 13.=111
(i--erence 14=111 Crite5o--s '=111
9ncollecti!le accounts '=111 BR 211=111
Receiva!les collected 13.=111 ess> 4eginning !alance 41=111
*ales revenue -or period E15.=111 *ales revenue -or period E15.=111
2ccounts Receiva!le ...................................................................... 15.=111
*ales Revenue.................................................................... 15.=111
2. 3nding !alance E )=511 3nding !alance E )=511
ess> 4eginning !alance 4=111 ,lus> Crite5o-- 21=111
(i--erence 3=511 BR 2)=511
Crite5o-- 21=111 ess> 4eginning !alance 4=111
2d0usting entr" E23=511 2d0usting entr" E23=511
4ad (e!t 3xpense ......................................................................... 23=511
2llo<ance -or (ou!t-ul 2ccounts ......................................... 23=511
3. 3nding !alance E 54=111 4eginning !alance E 25=111
ess> 4eginning !alance 25=111 ,lus> ,urc$ases 121=111
(i--erence 2.=111 BR 145=111
,urc$ases 121=111 ess> 3nding !alance 54=111
,a"ments E .1=111 ,a"ments E .1=111
2ccounts ,a"a!le............................................................................ .1=111
6as$ ................................................................................... .1=111
4. Revenue Recogni;ed E35=111 4eginning !alance E 3=111
ess> (ec. 31 accrual (2=111) ,lus> Revenue recogni;ed 35=111
,lus> 8an. 1 accrual 3=111 BR 3+=111
6as$ received E35=.11 ess> 3nding !alance 2=111
6as$ received E35=.11
6as$............................................................................................... 35=.11
Interest Receiva!le............................................................. 35=.11
(T$is entr" assumes t$at t$e E35=111 interest recogni;ed
<as -irst recorded as a receiva!le.)
3 0 59
=Pr% 3093<Q2ccrual !asis.
/rier T 2ssociates maintains its records on t$e cas$ !asis. Iou $ave !een engaged to convert its
cas$ !asis income statement to t$e accrual !asis. T$e cas$ !asis income statement= along <it$
additional in-ormation= -ollo<s>
/rier T 2ssociates
Income *tatement (6as$ 4asis)
For t$e Iear 3nded (ecem!er 31= 2114
6as$ receipts -rom customers E451=111
6as$ pa"ments>
*alaries and <ages E1)1=111
Income taxes '5=111
Insurance 41=111
Interest 25=111 311=111
Net income E151=111
2dditional in-ormation>
4alances at 12@31
2114 2113
2ccounts receiva!le E51=111 E31=111
*alaries and <ages pa"a!le 11=111 21=111
Income taxes pa"a!le 24=111 1.=111
,repaid insurance +=111 4=111
2ccumulated depreciation .5=111 )5=111
Interest pa"a!le 3=111 .=111
No plant assets <ere sold during 2114.
=Solution 3093<
/rier T 2ssociates
Income *tatement (2ccrual 4asis)
Revenue (E451=111 O E51=111 M E31=111) E4)1=111
3xpenses
*alaries and <ages (E1)1=111 O E11=111 M E21=111) E1'1=111
Income taxes (E'5=111 O E24=111 M E1.=111) )1=111
Insurance (E41=111 O E4=111 M E+=111) 3'=111
(epreciation (E.5=111 M E)5=111) 21=111
Interest (E25=111 O E3=111 M E.=111) 1.=111
Total expenses 315=111
Net Income E1'5=111
3 0 51
=Pr% 3093>Q3ig$t5column <or# s$eet.
T$e trial !alance o- Cinsor 6orporation is reproduced on t$e -ollo<ing page. T$e in-ormation
!elo< is relevant to t$e preparation o- ad0usting entries needed to !ot$ properl" matc$ revenues
and expenses -or t$e period and re-lect t$e proper !alances in t$e real and nominal accounts.
Instru#tions
2s t$e accountant -or Cinsor 6orporation= "ou are to prepare ad0usting entries !ased on t$e
-ollo<ing data= entering t$e ad0ustments on t$e <or# s$eet and completing t$e additional columns
<it$ respect to t$e income statement and !alance s$eet. 6are-ull" #e" "our ad0ustments and
la!el all items. ((ue to time constraints= an ad0usted trial !alance is not re&uired.) Round all
computations to t$e nearest dollar.
(a) Cinsor determined t$at one percent o- sales <ill !ecome uncollecti!le.
(!) (epreciation is computed using t$e straig$t5line met$od= <it$ an eig$t5"ear li-e and E1=111
salvage value.
(c) *alesmen are paid commissions o- 15L o- sales. 6ommissions on sales -or (ecem!er $ave
not !een paid.
(d) T$e note <as issued on Bcto!er 1= !earing interest at +L= due Fe!. 1= 2115.
(e) 2 p$"sical inventor" o- supplies indicated E341 o- supplies currentl" in stoc#.
(-) ,rovisions o- a lease contract speci-" pa"ments must !e made one mont$ in advance= <it$
mont$l" pa"ments at E+11@mo. T$is provision $as !een complied <it$ as o- (ec. 31= 2114.
Cinsor 6orporation
Cor# *$eet
Trial Balance Adjustments Income Statement Balance Sheet
Accounts Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 12,400
Equit In!est. 4,0"0
Accounts #ec. $0,000
Allo%. &or D. A. 420
In!entor 1',(00
Su))lies 1,040
Equi)ment '",000
Accum. De)r.*Equi). +,"00
Accounts ,aa-le 4,400
.otes ,aa-le 10,000
Common Stoc/ 40,000
#et. Earnin0s 2+,'+0
Sales #e!enue $40,000
Cost o& 1oods Sold 2$","20
*alaries and
Cages E2). 20,(00
Sales Comm. E2). $+,000
#ent E2)ense 3,200
4isc. E2)ense 2,200
Totals 4$4,010 4$4,010
3 0 53
Solution 3093>
Cinsor 6orporation
Cor# *$eet
Trial Balance Adjustments Income Statement Balance Sheet
Accounts Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 12,400 12,400
Equit In!est. 4,0"0 4,0"0
Accounts #ec. $0,000 $0,000
Allo%. &or D. A. 420 5a6 $,400 $,(20
In!entor 1',(00 1',(00
Su))lies 1,040 5e6 300 $40
Equi)ment '",000 '",000
Accum. De)r.*Eq. +,"00 5-6 (,000 13,"00
Accounts ,aa-le 4,400 4,400
.otes ,aa-le 10,000 10,000
Common Stoc/ 40,000 40,000
#et. Earnin0s 2+,'+0 2+,'+0
Sales #e!enue $40,000 $40,000
Cost o& 1oods Sold 2$","20 2$","20
*alaries and
Cages E2). 20,(00 20,(00
Sales Comm. E2). $+,000 5c6 12,000 "1,000
#ent E2)ense 3,200 5&6 (00 ',400
4isc. E2)ense 2,200 2,200
Totals 4$4,010 4$4,010
Bad De-t E2). 5a6 $,400 $,400
De)r. E2). 5-6 (,000 (,000
Sales Com. E2) ,a. 5c6 12,000 12,000
Interest E2)ense 5d6 200 200
Interest ,aa-le 5d6 200 200
Su))lies E2)ense 5e6 300 300
,re)aid #ent 5&6 (00 (00
Totals 2",100 2",100 $2(,220 $40,000 12+,$+0 113,'10
.et Income 11,3(0 11,3(0
Totals $40,000 $40,000 12+,$+0 12+,$+0

2d0usting entries and explanations
(a) 4ad (e!t 3xpense (E341=111 x 1L) .............................................. 3=411
2llo<ance -or (ou!t-ul 2ccounts ......................................... 3=411
(!) (epreciation 3xpense .................................................................... +=111
2ccumulated (epreciationQ3&uipment ............................. +=111
(E'5=111 M E1=111 is E'4=111. Bne5eig$t$ o- E'4=111 is
E+=111.)
3 0 55
Solution 3093> (cont.)
(c) *ales 6ommission 3xpense ........................................................... 12=111
*ales 6ommission 3xpense ,a"a!le ................................. 12=111
(15L o- sales is 15L G E341=111= <$ic$ is E51=111. T$e
!alance in t$e *ales 6ommission 3xpense account is E3.=111
!e-ore ad0ustment= indicating t$at E12=111 o- commissions
are accrued !ut unpaid.)
(d) Interest 3xpense ............................................................................ 211
Interest ,a"a!le .................................................................. 211
(E11=111 G .1+ G 3@12 ? E211)
(e) *upplies 3xpense ........................................................................... )11
*upplies .............................................................................. )11
(T$e !alance o- E1=141 in t$e *upplies account !e-ore
ad0ustment less t$e correct ending !alance o- E341 is
E)11.)
(-) ,repaid Rent .................................................................................. +11
Rent 3xpense ..................................................................... +11
(*ince t$e trial !alance contains no account -or prepaid
rent= t$e E+11 lease pa"ment $as apparentl" !een
de!ited to Rent 3xpense. 2n account must !e set up -or
t$e ,repaid Rent.)
3 0 56
IFRS 7UESTIONS
True & False
1. 2s rules -or accounting -or speci-ic events sometimes di--er across countries= t$e dou!le5entr"
accounting s"stem is di--icult to implement as t$e !asis o- <orld<ide accounting s"stem.
2. I2*4 is <or#ing to esta!lis$ $ig$5&ualit" auditing and assurance &ualit" standards t$roug$out
t$e <orld.
Ans(ers to True & False questionsC
1. False
2. False
Multi$le Coi#eC
3. Icon International= a so-t<are compan"= incorporated on 8anuar" 1= 2113 is planning to
convert to IFR*. T$e compan" decided to present its -irst IFR* statements -or t$e "ear ended
(ecem!er 31= 2115. C$at is t$e transition date o- Icon InternationalD
a. 8anuar" 1= 2113
!. 8anuar" 1= 2115
c. (ecem!er 31= 2115
d. (ecem!er 31= 2113
4. Icon International= a so-t<are compan"= incorporated on 8anuar" 1= 2113 is planning to
convert to IFR*. T$e compan" decided to present its -irst IFR* statements -or t$e "ear ended
(ecem!er 31= 2115. C$at is t$e reporting date o- Icon InternationalD
a. 8anuar" 1= 2113
!. 8anuar" 1= 2115
c. (ecem!er 31= 2115
d. (ecem!er 31= 2113
5. C$ic$ o- t$e -ollo<ing is a reason -or recasting prior -inancial statements !ased on IFR*D
a. To increase t$e mar#et value o- a compan"%s s$ares
!. To report a $ig$ income -or attracting investors
c. To report a lo< taxa!le income reducing t$e tax lia!ilit"
d. To provide -inancial statement users <it$ compara!le in-ormation
'. IFR* 1 re&uires in-ormation in a compan"%s -irst IFR* statement to>
a. !e same as in /22, statement.
!. !e transparent.
c. !e as lengt$" as possi!le.
d. provide a suita!le ending point.
). C$ic$ o- t$e -ollo<ing is t$e -irst step to !e ta#en !" a compan" deciding to convert to IFR*D
a. ,reparing an opening !alance s$eet at t$e date o- transition
!. Identi-"ing t$e timing o- -irst IFR* statement
c. *electing accounting principles t$at compl" <it$ IFR*
d. Implementing accounting principles retrospectivel"
3 0 5:
Ans(ers to Multi$le Coi#eC
3. !
4. c
5. d
'. !
). !
Sort Ans(erC
+. 2re all international companies su!0ect to t$e same internal control standardsD 3xplain.
1. No= all international companies are not su!0ect to t$e same internal control standards. 2ll
pu!lic companies t$at list t$eir securitites on 9.*. stoc# exc$anges are su!0ect to t$e
internal control testing and assurance provisions o- t$e *ar!anes5Bxle" 2ct. International
companies t$at list t$eir securities on non59.*. exc$anges are not su!0ect to t$ese rules
and t$ere is de!ate as to <$et$er t$e" s$ould $ave to compl".
.. C$at are some o- t$e conse&uences o- international di--erences in internal control standardsD
2. T$ere is concern t$at t$e cost o- compl"ing <it$ $ig$er internal control provisions is
ma#ing 9.*. mar#ets -e<er competitive as a place to list securities. T$is in turn could give
9.*. investors less investment opportunties. Bn t$e ot$er $and= some argue t$at t$e
en$anced internal control re&uirements in t$e 9.*. increase t$e perceived relia!ilit" o-
companies% -inancial statements and $elps reduce t$eir cost o- capital. Furt$ermore= t$e
decline in pu!lic listings in t$e 9.*. is more li#el" due to ot$er -actors= suc$ as gro<t$ in
non59.*. mar#ets and general glo!ali;ation. T$us= t$e 0ur" is still out on t$e net
cost@!ene-it o- *ar!anes5Bxle" and its impact on international competitiveness.
3 0 5;

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CHAPTER 3

THE ACCOUNTING INFORMATION SYSTEM

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