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BAC 111- FUNDAMENTALS OF ACCOUNTING

REVIEWER FOR FINAL DEPARTMENTAL EXAMINATION


1ST SEMESTER; SY 2015-2016
MULTIPLE CHOICES
1. The natural business year
a. is a fiscal year that ends when business activities are at its lowest point.
b. is a calendar year that ends when business activities are at its lowest point.
c. is a fiscal year that ends when business activities are at its highest point.
d. is a calendar year that ends when business activities are at its highest point.
2. The worksheet
a. is an integral part of the accounting cycle
b. eliminates the need to rewrite the financial statements
c. is a working paper that is required
d. is used to summarize account balances and adjustments for the financial statements
3. Which one of the steps below is not aided by the preparation of the work sheet?
a. preparing the adjusted trial balance
b. posting to the general ledger
c. preparing the financial statements
d. preparing the closing entries
4. A work sheet includes columns for
a. adjusting entries
b. closing entries
c. reversing entries
d. adjusting and closing entries
5. When a work sheet is complete, the adjustment columns should have
a. total credits greater than total debits if a net income was earned
b. total debits grater than total credits if a net loss was incurred
c. total debits greater than total credits if a net income was earned
d. total debits equal total credits
6. The proper sequence for the steps in the accounting cycle is a follows
a. analyze and record transactions, post transaction to the ledger, prepare a trial balance, prepare
financial statements, journalize closing entries, analyze adjustment data and prepare adjusting
entries
b. prepare a trial balance, analyze adjustment data, prepare adjusting entries, prepare financial
statements, journalize closing entries and post to the ledger, analyze and record transactions, post
transactions to the ledger

c. analyze and record transactions, post transactions to the ledger, prepare a trial balance, analyze
adjustment data, prepare adjusting entries, prepare financial statements, journalize closing entries
and post to the ledger
d. prepare financial statements, journalize closing entries and post to the ledger, analyze and record
transactions, post transactions to the ledger, prepare a trial balance, analyze adjustment data,
prepare adjusting entries
7. The following are steps to the accounting cycle. Of the following, which step should be done first.
a. Closing entries are journalized and posted to the ledger.
b. Transactions are posted to the ledger.
c. Adjusting entries are journalized and posted to the ledger.
d. Financial statements are prepared.
8. The accounting cycle requires three trial balances be done. In what order should they be prepared?
a. Post-closing, unadjusted, adjusted
b. Unadjusted, post-closing, adjusted
c. Unadjusted, adjusted, post-closing
d. Post-closing, adjusted, unadjusted
9. The primary difference between deferred and accrued expenses is that deferred expenses have
a. been incurred and accrued expenses have not
b. not been incurred and accrued expenses have been incurred
c. been recorded and accrued expenses have not been incurred
d. not been recorded and accrued expenses have been incurred
10. Prior to the adjusting process, accrued expenses have
a. not yet been incurred, paid, or recorded
b. been incurred, not paid, but have been recorded
c. been incurred, not paid, and not recorded
d. been paid but have not yet been incurred
11. Prior to the adjusting process, accrued revenue has
a. been earned and cash received
b. been earned and not recorded as revenue
c. not been earned but recorded as revenue
d. not been recorded as revenue but cash has been received
12. What is the major difference between a periodic and perpetual inventory system?
a. Under the periodic inventory system, the purchase of inventory will be debited to the Purchases
account
b. Under the periodic inventory system, no journal entry is recorded at the time of the sale of
inventory.
c. Under the periodic inventory system, all adjustments such as purchases returns and allowances
and discounts are reconciled at the end of the month.
d. All are correct.

13. Robles Co. sells $1,000 of inventory to Salas Co.for cash. Robles paid $650 for the merchandise. Under a
perpetual inventory system, the following journal entry(ies) would be recorded.
a. Cash 1,000 Dr, Merchandise Inventory 650 Cr
b. Cash 1,000 Dr, Sales 1,000 Cr, Cost of Merchandise Sold 650 Dr, Merchandise Inventory 650 Cr.
c. Cash 1,000 Dr, Sales 1,000 Cr
d. Accounts Receivable 1,000 Dr, Sales 1,000 Cr, Cost of Merchandise Sold 650 Dr, Merchandise
Inventory 650 Cr
.
14. Black Company sold Red Company merchandise on account FOB shipping point, 2/10, net 30, for
$10,000. Black prepaid the $200 shipping charge. Which of the following entries does Black make to
record this sale?
a. Accounts Receivable-Red, debit $10,000; Sales, credit $10,000
b. Accounts Receivable-Red, debit $10,000; Sales, credit $10,000, and
Accounts Receivable-Red, debit $200; Cash, credit $200
c. Accounts Receivable-Red, debit $10,400; Sales, credit $10,400
d. Accounts Receivable-Red, debit $10,000; Sales, credit $10,000, and Cash, debit $200 ; Accounts
Receivable-Red, credit $200;
15. If the effect of the debit portion of an adjusting entry is to increase the balance of an expense account,
which of the following describes the effect of the credit portion of the entry?
a. decreases the balance of an stockholders equity account
b. increases the balance of an liability account
c. increases the balance of an asset account
d. decreases the balance of an expense account
16. If the effect of the credit portion of an adjusting entry is to increase the balance of a liability account, which
of the following describes the effect of the debit portion of the entry?
a. increases the balance of a contra asset account
b. increases the balance of an asset account
c. decreases the balance of an stockholders equity account
d. increases the balance of an expense account
17. Deferred revenue is revenue that is
a. earned and the cash has been received
b. earned but the cash has not been received
c. not earned and the cash has not been received
d. not earned but the cash has been received
18. The cash basis of accounting records revenues and expenses when the cash is exchanged while the
accrual basis of accounting
a. records revenues when they are earned and expenses when they are paid
b. records revenues and expenses when they are incurred.
c. records revenues when cash is received and expenses when they are incurred.
d. records revenues and expenses when the company needs to apply for a loan.

19. The fiscal year selected by companies


a. is the same as the calendar year
b. begins with the first day of the month and ends on the last day of the twelfth month
c. must always begin on January 1.
d. will change each year
20. Which of the accounts below would appear in the Balance Sheet columns of the work sheet?
a. Service Revenue
b. Prepaid Rent
c. Supplies Expense
d. None are correct
21. The difference between the totals of the debit and credit columns of the Adjusted Trial Balance columns
on a work sheet
a. is the amount of net income or loss
b. indicates there is an error on the work sheet
c. is not unusual when preparing the work sheet
d. is the net difference between revenue, expenses, and dividends
22. When is the adjusted trial balance prepared?
a. Before adjusting journal entries are posted
b. After adjusting journal entries are posted.
c. After the adjusting journal entries are journalized
d. Before the adjusting journal entries are journalized.
23. On October 1, the company pays rent for twelve months in advance and debits an asset account. At year
end, the adjusting entry on the work sheet would
a. increase an expense account
b. decrease a liability account
c. increase an asset account
d. decrease an expense account
24. On August 1, a company collects revenue in advance for the next twelve months and credits a liability
account. The adjusting entry at year end on the work sheet would
a. increase a liability account
b. decrease an asset account
c. decrease a revenue account
d. decrease a liability account
25. At the end of the fiscal year, the usual adjusting entry to Prepaid Insurance to record expired insurance
was omitted. Which of the following statements is true?
a. Total assets at the end of the year will be understated.
b. Owner's equity at the end of the year will be understated.
c. Net income for the year will be overstated.
d. Insurance Expense will be overstated.

26. Which of the accounting steps in the accounting process below would be completed last?
a. preparing the adjusted trial balance
b. posting
c. preparing the financial statements
d. journalizing
27. The adjusting entry to adjust supplies was omitted at the end of the year. This would effect the income
statements by having
a. expenses understated and therefore net income overstated
b. revenues understated and therefore net income understated
c. expenses understated and therefore net income understated
d. expenses overstated and therefore net income understated
28. At the end of the fiscal year, the usual adjusting entry for depreciation on equipment was omitted. Which
of the following statements is true?
a. Total assets will be understated at the end of the current year.
b. The balance sheet and income statement will be misstated but the statement of owner's
equity will be correct for the current year.
c. Net income will be overstated for the current year.
d. Total liabilities and total assets will be understated.
29. Which of the following is an example of an accrued expense?
a. Salary owed but not yet paid
b. Fees received but not yet earned
c. Supplies on hand
d. A two-year premium paid on a fire insurance policy
30. Which of the following is not true regarding depreciation?
a. Depreciation allocates the cost of a fixed asset over its estimated life.
b. Depreciation expense reflects the decrease in market value each year.
c. Depreciation is an allocation not a valuation method.
d. Depreciation expense does not measure changes in market value.

31. A fiscal year


a. ordinarily begins on the first day of a month and ends on the last day of the following twelfth month
b. for a business is determined by the federal government
c. always begins on January 1 and ends on December 31 of the same year
d. should end at the height of the business's annual operating cycle
32. Net income appears on the work sheet in the
a. debit column of the Balance Sheet columns
b. debit column of the Adjustments columns
c. debit column of the Income Statement columns
d. credit column of the Income Statement columns
33. A net loss appears on the work sheet in the
a. debit column of the Balance Sheet columns
b. credit column of the Balance Sheet columns
c. debit column of the Income Statement columns
d. credit column of the Adjustments columns
34. In the accounting cycle, the last step is
a. preparing the financial statements
b. journalizing and posting the adjusting entries
c. preparing a post-closing trial balance
d. journalizing and posting the closing entries
35. During the end-of-period processing which of the following best describes the logical order of this process
a. Preparation of adjustments, adjusted trial balance, financial statements
b. Preparation of Income Statement, adjusted trial balance, Balance Sheet
c. Preparation of adjusted trial balance, cross-referencing, journalizing
d. Preparation of adjustments, adjusted trial balance, posting
36. What is the major difference between the Unadjusted Trial Balance and the Adjusted Trial Balance?
a. The Adjusted Trial Balance will show the net income (loss) as an additional account.
b. Both will need to be in balance in order to continue with the end-of-period processing
c. The Adjusted Trial Balance includes the postings of the adjustments for the period in the balance of
the accounts.
d. The Unadjusted Trial Balance will be used to record the adjustments for the period.
37. Once the adjusting entries are posted, the Adjusted Trial Balance will prepared to
a. verify that the debits and credits are in balance.
b. verify that all of the adjustments were posted in the correct accounts.
c. verify that the net income (loss) is correct for the period.
d. verify the correct flow of accounts into the financial statements.
38. When preparing the statement of retained earnings, the beginning retained earnings balance can always
be found
a. in the Income Statement columns of the work sheet
b. in the statement of cash flows

c. in the general ledger


d. in the Balance Sheet columns of the work sheet
39. Accumulated Depreciation appears on the
a. balance sheet in the current assets section
b. balance sheet in the property, plant and equipment section
c. balance sheet in the long-term liabilities section
d. income statement as an operating expense
40. Notes Receivable due in 345 days appear on the
a. balance sheet in the current assets section
b. balance sheet in the fixed assets section
c. balance sheet in the current liabilities section
d. income statement as an expense
41. Unearned Fees appear on the
a. balance sheet in the current assets section
b. balance sheet as a current liability
c. balance sheet in the stockholders equity section
d. income statement as revenue
42. Which one of the fixed asset accounts listed below will not have a related contra asset account?
a. Office Equipment
b. Land
c. Delivery Equipment
d. Building
43. Prepaid insurance is reported on the balance sheet as a
a. current asset
b. fixed asset
c. current liability
d. long-term liability
44. The income statement is prepared from the
a. adjusted trial balance
b. income statement columns of the work sheet
c. either the adjusted trial balance or the income statement columns of the work sheet
d. both the adjusted trial balance and the income statement columns of the work sheet
45. The income statement should be prepared
a. before the statement of retained earnings and balance sheet
b. after the statement of retained earnings and before the balance sheet
c. after the statement of retained earnings and balance sheet
d. after the balance sheet and before the statement of retained earnings
46. The Balance Sheet should be prepared

a.
b.
c.
d.

before the income statement and the statement of retained earnings


before the income statement and after the statement of retained earnings
after the income statement and the statement of retained earnings
after the income statement and before the statement of retained earnings

47. The Income Statement will include the following accounts


a. Revenues less Expenses (ordered largest to smallest amount) with Miscellaneous Expense listed
last
b. Revenues less Expenses (ordered smallest to largest amounts) with Miscellaneous Expense listed
last
c. Revenues less Expenses (ordered in alphabetical order)
d. Revenues less Expenses (order is not important)
48. The classified Balance Sheet will subsection the assets section as follows
a. Current Assets and Other Assets
b. Current Assets and Property, Plant, and Equipment
c. Current Assets and Long-Term Assets
d. Other Assets and Property, Plant and Equipment
49. The classified Balance Sheet will divide its Liabilities Section as the following subsections
a. Current Liabilities and Long-Term Liabilities
b. Current Liabilities and Other Liabilities
c. Other Liabilities and Long-Term Liabilities
d. Present Liabilities and Tomorrows Liabilities
50. Long-term liabilities are those liabilities that
a. will be paid in less than one year
b. are due to paid in 5 to 10 years
c. are due to be paid in more than one year
d. are liabilities owed to the owner and will never be paid
51. Which is the following that is not true about closing entries?
a. There are four closing entries that update the stockholders equity account.
b. After the second closing entry, the income summary account is equal to the net income or (loss) for
the period.
c. All real accounts are closed at the end of the period.
d. By closing nominal accounts at the end of the period to zero, it is possible to isolate next periods
information correctly.
52. The income summary account is also called
a. the closing account
b. the clearing account
c. the nominal account
d. the temporary account
53. After posting the second closing entry to the income summary account, the balance will be equal to

a.
b.
c.
d.

zero.
stockholders equity.
revenues for the period
the net income or (loss) for the period.

54. Which of the following account groups are all considered nominal accounts?
a. Cash, Fees Earned, Unearned Revenues
b. Prepaid Expenses, Unearned Revenues, Fees Earned
c. Capital Stock, Dividends, Income Summary
d. Dividends, Fees Earned, Rent Expense
55. There are four closing entries. The first one is to close ____, the second one is to close ____, the third one
is to close ____, and the last one is to close ____.
a. Revenues, expenses, income summary, dividends account
b. Expenses, assets, income summary, capital stock account
c. Capital stock account, dividends account, income summary, assets
d. Dividends account, income summary, expenses, revenues
56. All of the closing entries will adjust ____ to update that account.
a. the dividends account
b. the retained earnings account
c. the cash account
d. the income summary account
57. Closing entries
a. need not be journalized if adjusting entries are prepared
b. need not be posted if the financial statements are prepared from the work sheet
c. are not needed if adjusting entries are prepared
d. must be journalized and posted
58. Closing entries are dated in the journal as of
a. the date they are actually journalized, although they are generally prepared after the end of the
accounting period
b. the last day of the accounting period, although they are actually journalized after the end of the
accounting period
c. the first day of the accounting period, although they are actually journalized after the end of the
accounting period
d. the first day of the subsequent accounting period
59. Which of the accounts below would be closed by posting a debit to the account?
a. Unearned Revenue
b. Fees Earned
c. Dividends
d. Rent Expense
60. Which of the following accounts should be closed to Income Summary at the end of the fiscal year?
a. Supplies Expense

b. Accumulated Depreciation
c. Prepaid Insurance
d. Unearned Rent
61. Which of the following accounts will not be closed to Income Summary at the end of the fiscal year?
a. Salaries Expense
b. Fees Earned
c. Unearned Rent
d. Depreciation Expense
62. Which of the following accounts will be closed to the retained earnings account at the end of the fiscal
year?
a. Rent Expense
b. Fees Earned
c. Income Summary
d. Depreciation Expense
63. The entry to close the appropriate insurance account at the end of the accounting period is
a. debit Income Summary; credit Prepaid Insurance
b. debit Prepaid Insurance; credit Income Summary
c. debit Insurance Expense; credit Income Summary
d. debit Income Summary; credit Insurance Expense
64. Which of the following accounts ordinarily appears in the post-closing trial balance?
a. Dividends
b. Supplies Expense
c. Fees Earned
d. Unearned Rent
65. Which of the following is not true regarding Depreciation?
a. Depreciation allocates the cost of a fixed asset over its estimated life.
b. Depreciation expense reflects the decrease in market value each year.
c. Depreciation is an allocation not a valuation method.
d. Depreciation expense does not measure changes in market value.
66. Which of the following is an example of an accrued expense?
a. Salary owed but not yet paid
b. Fees received but not yet earned
c. Supplies on hand
d. A two-year premium paid on a fire insurance policy

67. At the end of the fiscal year, the usual adjusting entry to Prepaid Insurance to record expired insurance
was omitted. Which of the following statements is true?
a. Total assets at the end of the year will be understated.
b. Stockholders equity at the end of the year will be understated.
c. Net income for the year will be overstated.
d. Insurance Expense will be overstated.
68. At the end of the fiscal year, the usual adjusting entry for depreciation on equipment was omitted. Which of
the following statements is true?
a. Total assets will be understated at the end of the current year.
b. The balance sheet and income statement will be misstated but the statement of retained earnings
will be correct for the current year.
c. Net income will be overstated for the current year.
d. Total liabilities and total assets will be understated.
69. At the end of the fiscal year, the usual adjusting entry for accrued salaries owed to employees was
omitted. Which of the following statements is true?
a. Salary Expense for the year was understated.
b. The total of the liabilities at the end of the year was overstated.
c. Net income for the year was understated.
d. Stockholders equity at the end of the year was understated.
70. The adjusting entry to adjust supplies was omitted at the end of the year. This would effect the income
statements by having
a. expenses understated and therefore net income overstated
b. revenues understated and therefore net income understated
c. expenses understated and therefore net income understated
d. expenses overstated and therefore net income understated
71. The post-closing trial balance differs from the adjusted trial balance in that it
a. does not take into account closing entries
b. does not take into account adjusting entries
c. does not include balance sheet accounts
d. does not include income statement accounts
72. The stockholders equity is
a. added to assets and the two are equal to liabilities
b. added to liabilities and the two are equal to assets
c. subtracted from liabilities and the net amount is equal to assets
d. subtracted from stockholders equity and the net amount is equal to net income
73. Balance sheet accounts
a. represent amounts accumulated during a specific period of time
b. are called real accounts
c. have zero balances after the closing entries have been posted
d. are equal to assets and liabilities

74. On which financial statement will Income Summary be shown?


a. Statement of retained earnings
b. Balance Sheet
c. Income Statement
d. No financial statement
75. Which of the items below does not appear on the work sheet?
a. adjusting entries
b. the unadjusted trial balance
c. closing entries
d. dividends
76. An indication that the work sheet columns are in balance and the work sheet is completed is
a. the word "Total" is written at the bottom of each pair of columns
b. each pair of columns is double underlined
c. each pair of columns has the totals circled
d. the final figures are written in ink
77. When comparing a retail business to a service business, the financial statement that changes the most is
the
a. Balance Sheet
b. Income Statement
c. Statement of Retained Earnings
d. Statement of Cash Flow
78. When comparing a retail business to a service business, the financial statement that changes the least is
the
a. Balance Sheet
b. Income Statement
c. Statement of Retained Earnings
d. Statement of Cash Flow
79. A company purchases a one-year insurance policy on June 1 for $1,260. The adjusting entry on
December 31 is
a. debit Insurance Expense, $630 and credit Prepaid Insurance, $630.
b. debit Insurance Expense, $525 and credit Prepaid Insurance, $525.
c. debit Insurance Expense, $735, and credit Prepaid Insurance, $735.
d. debit Prepaid Insurance, $630, and credit Cash, $630.
80. What is the proper adjusting entry at April 30, the end of the fiscal year, based on a prepaid insurance
account balance before adjustment, $16,000, and unexpired amounts per analysis of policies, $6,000?
a. debit Insurance Expense, $6,000; credit Prepaid Insurance, $6,000
b. debit Insurance Expense, $16,000; credit Prepaid Insurance, $16,000
c. debit Prepaid Insurance, $10,000; credit Insurance Expense, $10,000
d. debit Insurance Expense, $10,000; credit Prepaid Insurance, $10,000

81. The balance in the prepaid rent account before adjustment at the end of the year is $24,000, which
represents four months' rent paid on December 1. The adjusting entry required on December 31 is
a. debit Rent Expense, $6,000; credit Prepaid Rent, $6,000
b. debit Prepaid Rent, $18,000; credit Rent Expense, $6,000
c. debit Rent Expense, $18,000; credit Prepaid Rent, $6,000
d. debit Prepaid Rent, $6,000; credit Rent Expense, $6,000
82. During the end-of-period processing which of the following best describes the logical order of this process
a. Preparation of adjustments, adjusted trial balance, financial statements
b. Preparation of Income Statement, adjusted trial balance, Balance Sheet
c. Preparation of adjusted trial balance, cross-referencing, journalizing
d. Preparation of adjustments, adjusted trial balance, posting
83. What is the major difference between the Unadjusted Trial Balance and the Adjusted Trial Balance?
a. The Adjusted Trial Balance will show the net income (loss) as an additional account.
b. Both will need to be in balance in order to continue with the end-of-period processing
c. The Adjusted Trial Balance includes the postings of the adjustments for the period in the
balance of the accounts.
d. The Unadjusted Trial Balance will be used to record the adjustments for the period.
84. Which of the following is not true about closing entries?
a. There are four closing entries that update the owners equity account.
b. After the second closing entry, the income summary account is equal to the net income or
(loss) for the period.
c. All real accounts are closed at the end of the period.
d. By closing nominal accounts at the end of the period to zero, it is possible to isolate next
periods information correctly.
85. The balance in the office supplies account on June 1 was $6,300, supplies purchased during June were
$3,100, and the supplies on hand at June 30 were $2,500. The amount to be used for the appropriate
adjusting entry is
a. $3,700
b. $11,900
c. $5,700
d. $6,900
86. The following accounts were taken from the Adjusted Trial Balance columns of the work sheet:
Accumulated Depreciation
$ 2,300
Fees Earned
14,700
Depreciation Expense
1,300
Insurance Expense
200
Prepaid Insurance
4,800
Supplies
900
Supplies Expense
3,800
Net income for the period is
a. $1,400

b. $9,400
c. $14,700
d. $7,100
87. After all of the account balances have been extended to the Balance Sheet columns of the work sheet, the
totals of the debit and credit columns show debits of $36,678 and the credits of $41,101. This indicates
that
a. neither net income or loss can be calculated because it is found on the income statement
b. the company has a net loss of $4,423 for the period
c. the company has a net income of $4,423 for the period
d. The amounts are out of balance and need to be corrected
88. The income statement columns in the worksheet show that debits are equal to $55,800 and credits are
$62,705. What does this information mean to the accountant?
a.
b.
c.
d.

Net income of $6,905


Net loss of $6,905
The accounts are out of balance, indicating an error has been made.
The accounts have not been updated.

89. The following accounts were taken from the Adjusted Trial Balance columns of the work sheet:
Accumulated Depreciation
Fees Earned
Depreciation Expense
Insurance Expense
Prepaid Insurance
Supplies
Supplies Expenses

$ 2,000
15,000
1,000
500
4,500
1,200
3,500

Net income for the period is


a. $2,300
b. $10,000
c. $4,300
d. $5,000
90. A summary of selected ledger accounts appear below for Ted's Auto Services for the 2007 calendar year
end.
12/31

Capital Stock
7,000 1/1
12/31

5,000
17,000

6/30
11/30

Dividends
2,000 12/31
5,000

7,000

12/31
12/31

Income Summary
15,000 12/31
17,000

32,000

Net income for the period is


a. $17,000
b. $22,000
c. $7,000
d. $15,000
91. Red Rock Stone purchased a one-year liability insurance policy on January 1st of this year for $3,600 and
recorded it as a prepaid expense. From the selections of a. through d., select the value that would be
utilized in the closing entry for insurance expense and prepaid insurance during the closing process at the
end of the first fiscal period on January 31st.
a. $3,600.
b. $360.
c. $300.
d. $360.

92. The journal entry to close the Fees Earned, $100, and Rent Revenue, $25, accounts on December 31st
during the closing process would be:
a. Dec 31 Fees Earned
100
Rent Revenue
25
Income Summary
125
b. Dec 31 Income Summary
125
Fees Earned
100
Rent Revenue
25
c. Dec 31 Revenues
125
Income Summary
125
d. Dec 31 Income Summary
125
Revenues
125

Mantle Company
Worksheet
For the Year Ended December 31, 2008
Account Title
Cash
Accounts Receivable
Supplies
Equipment
Accumulated Depr-Equip
Accounts Payable
Wages Payable
Capital Stock
Dividends
Fees Earned
Wages Expense
Rent Expense
Depreciation Expense
Totals
Net Income (Loss)

Adjusted Trial Balance


Debit
Credit
16,000
6,000
2,000
19,000
6,000
10,000
2,000
11,000
1,000
47,000
21,000
6,000
5,000
76,000
76,000

Income Statement
Debit
Credit

Balance Sheet
Debit
Credit
16,000
6,000
2,000
19,000
6,000
10,000
2,000
11,000
1,000

47,000
21,000
6,000
5,000
32,000
15,000
47,000

47,000

44,000

47,000

44,000

93. The journal entry to close revenues would be:


a. debit Income Summary $47,000, credit Fees Earned $47,000
b. debit Retained Earnings $47,000, credit Fees Earned $47,000
c. debit Fees Earned $47,000; credit Income Summary $47,000
d. credit Fees Earned $47,000; credit Capital Stock $47,000
94. Based on the preceding trial balance, the entry to close expenses would be:

29,000
15,000
44,000

a. Wages Expense
$21,000
Rent Expense
6,000
Depreciation Expense 5,000
Income Summary
32,000
b. Expenses
32,000
Income Summary
32,000
c. Wages Expense
$21,000
Rent Expense
6,000
Depreciation Expense 5,000
Retained Earnings 32,000
d. Income Summary
32,000
Wages Expense
$21,000
Rent Expense
6,000
Depreciation Expense 5,000
95. Based on the preceding trial balance, the entry to close income summary would be:
a. debit Income Summary $15,000; credit Retained Earnings $4,000
b. debit Income Summary $47,000; credit Retained Earnings $47,000
c. debit Income Summary $15,000, credit Retained Earnings $15,000
d. debit Retained Earnings $4,000; credit Income Summary $4,000
96. Based on the preceding trial balance, the entry to close the dividends would be:
a. debit Retained Earnings $1,000, credit Dividends $1,000
b. debit Retained Earnings $4,000, credit Dividends $4,000
c. debit Dividends $1,000; credit Retained Earnings $1,000
d. debit Dividends $4,000; credit Retained Earnings $4,000
97. Based on the preceding trial balance, the ending balance in Retained Earnings is:
a. $0
b. $25,000
c. $4,000
d. $1,000
The following is the adjusted trial balance for Steely Company.
Steely Company
Adjusted Trial Balance
For the Year ended December 31, 2008
Cash
Accounts Receivable
Prepaid Expenses
Equipment
Accumulated Depreciation
Accounts Payable
Notes Payable

6,130
2,300
750
13,400
1,200
1,700
5,000

Capital Stock
Dividends
Fees Earned
Wages Expense
Rent Expense
Utilities Expense
Depreciation Expense
Miscellaneous Expense

12,000
870
6,600

Totals

1,450
900
475
150
75
26,500

26,500

98. Determine the net income (loss) for the period.


a. Net Income 26,500
b. Net Loss 870
c. Net Loss 3,550
d. Net Income 3,550
99. Determine the stockholders equity ending balance for the period.
a. $14,680
b. $11,130
c. $15,550
d. $2,680
100.
a.
b.
c.
d.

Determine total assets.


$26,500
$15,380
$21,380
$22,580

a.
b.
c.
d.

Determine the current assets.


$22,580
$9,180
$21,380
$26,500

a.
b.
c.
d.

Determine the total liabilities for the period.


$6,700
$1,700
$5,000
$18,700

101.

102.

103.
The work sheet at the end of September has $4,000 in the Balance Sheet credit column for
Accumulated Depreciation. The work sheet at the end of October has $4,750 in the Balance Sheet credit
column for Accumulated Depreciation. What was the amount of the depreciation expense adjustment for
the month of October?
a. amount can not be determined
b. $4,750

c. $4,000
d. $750
104.
After all of the account balances have been extended to the Balance Sheet columns of the work
sheet, the totals of the debit and credit columns are $25,250 and $21,825, respectively. What is the
amount of net income or net loss for the period?
a. $3,425 net income
b. $25,250 net loss
c. $3,425 net loss
d. $21,825 net income
105.
After all of the account balances have been extended to the Income Statement columns of the
work sheet, the totals of the debit and credit columns are $87,500 and $98,300, respectively. What is the
amount of the net income or net loss for the period?
a. $10,800 net income
b. $10,800 net loss
c. $98,300 net income
d. $87,500 net loss
106.
After totaling all of the columns in the work sheet, the Balance Sheet show debits of $35,678 and
the credits of $39,901. This indicates that
a. neither net income or loss can be calculated because that is found on the income statement
b. the company recorded a net loss of $4,223
c. the company recorded a net income of $4,223
d. The amounts are out of balance and need to be corrected
107.
The column of the income statement show the debits are equal to $56,899 and credits are
$60,333. What do this information mean to the accountant?
a. Net income of $3,434
b. Net loss of $3,434
c. the accounts are out of balance
d. None are correct.
108.
A company, using the periodic inventory system, has merchandise inventory costing $140 on hand
at the beginning of the period. During the period, merchandise costing $400 is purchased. At year-end,
merchandise inventory costing $180 is on hand. The cost of merchandise sold for the year is
a. $720
b. $550
c. $360
d. $140
109.
A company using the periodic inventory system has the following account balances: Merchandise
Inventory at the beginning of the year, $4,000; Transportation-In, $450; Purchases, $12,000; Purchases
Returns and Allowances, $2,300; Purchases Discounts, $220. The cost of merchandise purchased is
equal to
a. $13,930

b. $9,930
c. $9,489
d. $14520
110.

a.
b.
c.
d.

111.

Gross profit is equal to:


sales plus (sales discounts and sales returns and allowances) plus cost of merchandise sold
sales plus sales returns and allowances less sales discounts less cost of merchandise sold
sales plus sales discounts less sales returns and allowances less cost of merchandise sold
sales less (sales discounts and sales returns and allowances) less cost of merchandise sold
Using the following information, what is the amount of cost of merchandise sold?

Purchases
Merchandise inventory
April 1
Sales returns and
allowances
Purchases returns and
allowances
a.
b.
c.
d.
112.

750
1,000

Purchases discounts
Merchandise inventory
April 30
Sales
Transportation In

$800
7,800
57,000
880

25,780
23,270
31,220
24,020

Using the following information, what is the amount of gross profit?


Purchases
$28,000
Purchases discounts
Merchandise inventory
6,500
Merchandise inventory
April 1
April 30
Sales returns and
750
Sales
allowances
Purchases returns and
1,000
Transportation In
allowances
a.
b.
c.
d.

113.

$28,000
6,500

$800
7,800
57,000
880

31,970
30,470
25,780
56,250
Using the following information, what is the amount of net sales?

Purchases
Merchandise inventory
April 1
Sales returns and
allowances

$28,000
6,500
750

Purchases discounts
Merchandise inventory
April 30
Sales

$800
7,800
57,000

Purchases returns and


allowances
a.
b.
c.
d.

1,000

Transportation In

880

25,780
57,000
57,750
56,250

114.
Silver Co. sold merchandise to Bronze Co. on account, $23,000, terms 2/15, net 45. The cost of
the merchandise sold is $18,500. Silver Co. issued a credit memorandum for $2,500 for merchandise
returned that originally cost $1,900. The Bronze Co. paid the invoice within the discount period. What is
amount of net sales from the above transactions?
a. $20,090
b. $20,500
c. $3,490
d. $23,000
115.
by a
a.
b.
c.
d.

Sales to customers who use bank credit cards such as MasterCard and Visa are usually recorded
debit to Bank Credit Card Sales, debit to Credit Card Expense, and a credit to Sales
debit to Cash and a credit to Sales
debit to Cash, credit to Credit Card Expense, and a credit to Sales
debit to Sales, debit to Credit Card Expense, and a credit to Cash

116.
Merchandise subject to terms 1/10, n/30, FOB shipping point, is sold on account to a customer for
$15,000. The seller paid transportation costs of $1,000 and issued a credit memorandum for $5,000 prior
to payment. What is the amount of the cash discount allowable?
a. $160
b. $150
c. $140
d. $100
117.
Merchandise is sold for cash. The selling price of the merchandise is $2,000 and the sale is subject
to a 5% state sales tax. The journal entry to record the sale would include
a. A debit to Cash for $2,000.
b. A credit to Sales for $2,100.
c. A credit to Sales Tax Payable for $100.
d. None of the above.
118.
Apple Co sells merchandise on credit to Zea Co in the amount of $8,000. The invoice is dated on
September 15 with terms of 1/15, net 45. What is the amount of the discount and up to what date must the
invoice be paid in order for the buyer to take advantage of the discount?
a. $160, September 30
b. $160, September 25
c. $80, September 30
d. $80, September 25

119.
Based on the following information, what would be recorded as the cash payment if the invoice is
paid within the discount period?
1.
$5,000 of merchandise inventory was ordered on April 2, 2007
2.
$2,000 of this merchandise was received on April 5, 2007
3.
On April 6, 2007, an invoice dated April 4, 2007, with terms of 2/10, net 30 for $2,150
which included a $150 prepaid freight cost, was received.
4.
On April 10, 2007, $500 of the merchandise was returned to the seller.
a.
b.
c.
d.

$1,470
$1,520
$2,150
$1,620

120.
If the merchandise costs $4,000, insurance in transit costs $200, tariff costs $50, processing the
purchase order by the purchasing department costs $35, and the company receiving dock personnel cost
$15, what is the total cost charged to the merchandise?
a. $4,250
b. $4,285
c. $4,300
d. $4,000

EXERCISES:
ADJUSTING ENTRIES
1. Jacki Lopez started JVL Consulting on January 1, 2011. The following are the account balances at the end
of the first month of business, before adjusting entries were recorded:
Accounts Payable
Accounts Receivable
Cash
Consulting Revenue
Equipment
Jacki Lopez, Capital
Jacki Lopez, Drawing
Prepaid Rent
Supplies
Adjustment data:
Supplies on hand at the end of the month: $300
Unbilled Consulting Revenue: $850
Rent expense for the month: $2,000
Depreciation on equipment: $150

$350
750
4,325
4,925
7,000
15,000
1,400
6,000
800

(a) Prepare the required adjusting entries, adding accounts as needed.


(b) Prepare an Adjusted Trial Balance for JVL Consulting as of January 31, 2011.
ANS:
(a)
Supplies Expense
Supplies

500

Accounts Receivable
Consulting Revenue

850

500

Rent Expense
Prepaid Rent

850

2,000
2,000

Depreciation Expense
Accumulated Depreciation - Equipment

150
150

(b)
JVL Consulting
Adjusted Trial Balance
January 31, 2011
Accounts
Cash
Accounts Receivable
Supplies
Prepaid Rent
Equipment
Accumulated Depreciation- Equipment
Accounts Payable
Jacki Lopez, Capital
Jacki Lopez, Drawing
Consulting Revenue
Depreciation Expense
Rent Expense
Supplies Expense
Totals

Debit Balances
$ 4,325
1,600
300
4,000
7,000

Credit Balances

150
350
15,000

1,400
5,775
150
2,000
500
$21,275

2. Prepare adjusting entries for the following transactions:

$21,275

(a)
(b)
(c)

(d)
(e)

ANS:
(a)
(b)
(c)

(d)

(e)

The beginning balance of the Supplies account was $245. During the month the
company bought additional supplies in the amount of $735. At the end of the month a
physical inventory showed $343 of unused supplies.
The company has a 12% Note Payable in the amount of $17,000 due in 6 months. The
interest expense for the month has not been recorded.
The company has two employees. The manager is paid on the 15th of every month for
work performed during the first half of the month and on the 1st of the following month
for the work performed during the second half of the month. His monthly salary is
$5,500. The other employee is paid $650 for each 5 day work week (Monday - Friday).
The last day of the month fell on Thursday.
The unearned revenue account shows a balance of $46,000. According to the
manager 60% of that amount has been earned.
At the end of the month $5,700 of services had been performed but not yet billed.

Supplies Expense ($245 + $735 - $343)


Supplies

637

Interest Expense ($17,000 x 12%/12)


Interest Payable

170

Wages and Salary Expense


Wages and Salary Payable
(($5,500 /2) + ($650/5 x 4))

3,270

Unearned Revenues
Fees Earned
($46,000 x 60%)
Accounts Receivable
Fees Earned

637
170
3,270
27,600
27,600
5,700

5,700

3. For each of the following, journalize the necessary adjusting entry:


(a)
(b)

(c)

A business pays weekly salaries of $22,000 on Friday for a five-day week ending on
that day. Journalize the necessary adjusting entry at the end of the fiscal period,
assuming that the fiscal period ends (1) on Tuesday, (2) on Wednesday.
The balance in the prepaid insurance account before adjustment at the end of the year
is $18,000. Journalize the adjusting entry required under each of the following
alternatives: (1) the amount of insurance expired during the year is $5,300, (2) the
amount of unexpired insurance applicable to a future period is $2,700.
On July 1 of the current year, a business pays $54,000 to the city for license taxes for
the coming fiscal year. The same business is also required to pay an annual property
tax at the end of the year. The estimated amount of the current year's property tax

(d)

allocable to July is $4,800. (1) Journalize the two adjusting entries required to bring the
accounts affected by the taxes up to date as of July 31. (2) What is the amount of tax
expense for July?
The estimated depreciation on equipment for the year is $32,000.

ANS:
(a) (1) Salary Expense ($22,000/5 x 2)
Salaries Payable

8,800
8,800

(2) Salary Expense ($22,000/5 x 3)


Salaries Payable
(b)

13,200
13,200

(1) Insurance Expense


Prepaid Insurance

5,300
5,300

(2) Insurance Expense ($18,000 - $2,700)


Prepaid Insurance
(c)

15,300
15,300

(1) Taxes Expense ($54,000/12)


Prepaid License Taxes

4,500
4,500

Taxes Expense
Property Taxes Payable

4,800
4,800

(2) $9,300 ($4,500 + $4,800)


(d)

Depreciation Expense

32,000

4. On November 1st, clients of Great Designs Company prepaid $2,800 for services to be provided in the
future at a rate of $70 per hour.
(a) Journalize the receipt of this cash.
(b) As of November 30th, Great Designs shows that 16 hours of services have been provided on this
agreement. Prepare the necessary journal entry to record this.
(c) Determine the total unearned fees in hours and dollars at November 30th.
ANS:
(a) Nov 1

Cash

2,800
Unearned Service Fees

(b) Nov 30

Unearned Service Fees ($70 x 16)


Service Fees

(c) The original prepaid fees -

2,800
1,120

$2,800 / $70 per hour =

1,120
40 hours

November service fees earned


Balance of unearned service fees

1,120
$1,680

16 hours
24 hours

5. Prepare the required entries for the following transactions:


(a)

Austin Company pays daily wages of $645 (Monday - Friday). Paydays are every other
Friday. Prepare the Monday, January 31 adjusting entry assuming that the last payday
was Friday, January 21.

(b)

Prepare the journal entry to record the Austin Company payroll on Friday, February 4.

(c)

Annual depreciation expense on the company fixed assets is $39,600. Prepare the
adjusting entry to recognize depreciation for the month of January.

(d)

The companys Office Supplies account shows a debit balance of $3,755. A count of
office supplies on hand on January 31 shows $635 worth of supplies on hand. Prepare
the January 31 adjusting entry for Office Supplies.

ANS:
(a)
Jan 31

Wages Expense
Wages Payable
Adjusting Entry - Payroll - $645 6 days

3,870
3,870

Monday, January 24 through Friday January 28 - 5 days $645 = $3,225


Monday, January 31- 1 day $645 = $645
Wages Payable for January 24 through January 31 = $3,225 + $645 = $3,870
(b)

(c)

(d)

Feb 4

Jan 31

Jan 31

Wages Expense (4 x $645)


Wages Payable
Cash
Payment of Feb. 4th payroll

2,580
3,870

Depreciation Expense ($39,600/12)


Accumulated Depreciation
January depreciation

3,300

Office Supplies Expense


Office Supplies
January office supplies used

3,120

Account balance
Less supplies on hand
January expense

6,450

3,300

3,120
$3,755
$635
$3,120

COMPLETING THE ACCOUNTING CYCLE


6. The following are all the steps in the accounting cycle. List them in the order in which they should be done.
- Closing entries are journalized and posted to the ledger.
- An unadjusted trial balance is prepared.
- An optional end-of-period spreadsheet (work sheet) is prepared.
- A post-closing trial balance is prepared.
- Adjusting entries are journalized and posted to the ledger.
- Transactions are analyzed and recorded in the journal.
- Adjustment data are assembled and analyzed.
- Financial statements are prepared.
- An adjusted trial balance is prepared.
- Transactions are posted to the ledger.
ANS:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

Transactions are analyzed and recorded in the journal.


Transactions are posted to the ledger.
An unadjusted trial balance is prepared.
Adjustment data are assembled and analyzed.
An optional end-of-period spreadsheet (work sheet) is prepared.
Adjusting entries are journalized and posted to the ledger.
An adjusted trial balance is prepared.
Financial statements are prepared.
Closing entries are journalized and posted to the ledger.
A post-closing trial balance is prepared.

7. Each of the following transactions for Morrison Company requires an adjusting entry, which if omitted, will
overstate or understate assets, liabilities, owners equity, revenues, expenses, or net income. Indicate the
amount and direction of the misstatement that would result if the end of period adjusting entry suggested
by the transaction was omitted. Place your results in the table following the transactions and use (+) for
overstate, (-) for understate, and (NE) for no effect.
1. Morrison purchased supplies on December 1 for $900. On December 31, $700 of supplies were on
hand.
2. Prepaid insurance had a debit balance of $5,400 on December 1, which represented a prepayment for 3
years of insurance.
3. The unearned rent revenue account has a credit balance of $480 on December 1, which represents 3
months rent.
Transaction
1.
2.

Assets

Liabilities

Owners
Equity

Revenues

Expenses

Net Income

3.
ANS:
Transaction

Assets

Liabilities

1.
2.
3.

+200
+150
NE

NE
NE
+160

Owners
Equity
+200
+150
-160

Revenues

Expenses

Net Income

NE
NE
-160

-200
-150
NE

+200
+150
-160

8. Selected ledger accounts appear below for Fulton Surveying Services for 2010.
12/31

12/31
12/31

Fulton, Capital
15,000 1/1
12/31

20,000
45,000

Income Summary
19,000 12/31
45,000

3/31
12/22

Fulton, Drawing
12,000 12/31
3,000

15,000

64,000

Prepare a statement of owner's equity.


ANS:
Fulton Surveying Services
Statement of Owner's Equity
For the Year Ended December 31, 2010
Fulton, Capital, 1/1/2010
Net income
Less withdrawals
Increase in owners equity
Fulton, Capital, 12/31/2010

$20,000
$ 45,000
15,000
30,000
$50,000

9. After all adjustments have been made, but before the accounts have been closed, the following balances
were taken from the ledger of Ramonas Designs:
Accounts Payable
Accounts Receivable
Accumulated Depreciation
Cash
Depreciation Expense
Equipment
Insurance Expense

$ 30,000
64,500
73,325
17,150
13,500
165,000
1,600

Rent Expense
Salary Expense
Salaries Payable
Service Revenue
Supplies
Supplies Expense
Ramona Cross, Capital

$ 31,400
46,000
1,150
191,000
1,500
2,500
99,950

Prepaid Insurance

6,275

Ramona Cross, Drawing

48,000

Journalize the entries to close the appropriate accounts.


ANS:
Service Revenue
Income Summary

191,000
191,000

Income Summary
Depreciation Expense
Insurance Expense
Rent Expense
Salary Expense
Supplies Expense

95,000

Income Summary
Ramona Cross, Capital

96,000

Ramona Cross, Capital


Ramona Cross, Drawing

48,000

13,500
1,600
31,400
46,000
2,500
96,000
48,000

10. The following is the adjusted trial balance for Sandeep Company.
Sandeep Company
Adjusted Trial Balance
December 31, 2010
Cash
Accounts Receivable
Prepaid Expenses
Equipment
Accumulated Depreciation
Accounts Payable
Notes Payable
Rena Sandeep, Capital
Rena Sandeep, Drawing
Fees Earned
Wages Expense
Rent Expense
Utilities Expense
Depreciation Expense
Miscellaneous Expense

8,130
3,300
2,750
10,400
2,200
2,700
1,000
11,200
4,870
36,600

Totals

12,450
4,900
3,475
2,150
1,275
53,700

53,700

Prepare closing entries and the post closing trial balance.


ANS:
Fees Earned
Income Summary

36,600
36,600

Income Summary
Wages Expense
Rent Expense
Utilities Expense
Depreciation Expense
Miscellaneous Expense

24,250

Income Summary
Rena Sandeep, Capital

12,350

Rena Sandeep, Capital


Rena Sandeep, Drawing

4,870

12,450
4,900
3,475
2,150
1,275
12,350

4,870
Sandeep Company
Post Closing Trial Balance
December 31, 2010

Cash
Accounts Receivable
Prepaid Expenses
Equipment
Accumulated Depreciation
Accounts Payable
Notes Payable
Rena Sandeep, Capital
Total

8,130
3,300
2,750
10,400
2,200
2,700
1,000
18,680
$24,580

$24,580

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