Reference no: EM132462443

Part A - Multiple Choice Questions

Q1. All of the following are external events (transactions) except for

a. a department store recognizing losses from shoplifting.

b. a department store running ads in a local newspaper.

c. a department store purchasing merchandise from a clothing manufacturer.

d. a department store selling clothing to customers on credit.

Q2. Which of the following events (transactions) is an internal event for a business entity?

a. An accountant provides services for clients.

b. An accountant purchases computer equipment to maintain business records and prepare legal documents.

c. Periodically, part of the cost of the computer equipment used by an accountant is assigned to depreciation expenses.

d. An accountant receives cash payments from clients who were billed for services.

Q3. All of the following events (transactions) would be identified from standard source documents except for

a. freight charges for merchandise purchased from suppliers.

b. the amount to be paid to settle a lawsuit for discrimination in hiring employees.

c. wages to be paid to hourly employees.

d. commissions earned by sales employees.

Q4. The payment of employee salaries has what effect on the accounting equation?

a. Assets decrease and stockholders' equity decreases

b. Liabilities decrease and stockholders' equity decreases

c. Assets decrease and liabilities increase

d. Assets increase and liabilities decrease

Q5. One effect on the accounting equation when a firm lends money is

a. stockholders' equity decreases.

b. liabilities increase.

c. liabilities decrease.

d. total assets remain the same.

Q6. Which of the following statements best describes the effects of recognizing revenue earned by a business entity?

a. Assets increase only when cash sales are made.

b. Stockholders' equity increases only when credit sales are made.

c. Assets and stockholders' equity increase when either cash or credit sales are made.

d. Assets increase, but stockholders' equity decreases, when either cash or credit sales are made.

Q7. Which of the following transactions does not affect the total assets of Horizon Sailing Corp.?

a. A bill is received for the telephone service used by Horizon Sailing during the past month.

b. Dividends are paid by Horizon Sailing.

c. Customers are billed for sales made on credit by Horizon Sailing.

d. A new computer is purchased on credit by Horizon Sailing.

Q8. Given that Curtain Corp.'s current ratio is 3 to 2, what is the effect of obtaining a patent from the inventor in exchange for shares of stock in Curtain Corp.?

a. The current ratio would increase.

b. The current ratio would decrease.

c. The current ratio would remain the same.

d. Unable to determine.

Q9. If the business has an _________ from a customer, then the customer has an ________ to the business.

a. account receivable; account receivable

b. account payable; account payable

c. account receivable; account payable

d. account payable; account receivable

Q10. An abbreviated version of an account which is useful for analyzing the effects of business transactions is the

a. chart of accounts

b. T account

c. double entry system

d. trial balance

Q11. Debit entries are used to

a. increase asset accounts

b. increase liability accounts

c. decrease expense accounts

d. increase revenue accounts

Q12. Which pair of accounts has the same set of rules for debit and credit entries?

a. Service Revenue and Rent Expense

b. Dividends and Retained Earnings

c. Equipment and Salaries Expense

d. Accounts Receivable and Accounts Payable

Parachute Country Club

Use the selected accounts for Parachute Country Club presented below to answer the following question(s).

CASH		ACCOUNTS RECEIVABLE
8/1 Balance	6,000		8/2	1,800	8/7	900
8/3	500
8/5	400
8/7	900

DEPOSITS RECEIVED IN ADVANCE

(A Liability Account)			SALES
	8/3	500		8/2	1,800
				8/5	400

Q13. Read the information about Parachute Country Club.

Assuming that there are no other transactions, how much was owed to the club by the membership on August 7th?

a. $1,800

b. $ 900

c. $1,300

d. $ 500

Q14. What type of account is increased with a debit but is a decrease to retained earnings?

a. Liability

b. Revenue

c. Asset

d. Expense

Morton & Associates

Use the following five transactions for Morton & Associates, Inc. to answer the question(s).

May 1 Bills are sent to clients for services provided in April in the amount of $800.

May 9 Techno, Inc. delivers office furniture ($1,060) and office supplies ($160) to Morton leaving an invoice for $1,220.

May 15 Payment is made to Techno, Inc. for the furniture and office supplies delivered on May 9.

May 23 A bill for $430 for electricity for the month of April is received and will be paid on its due date in June.

May 31 Salaries of $850 are paid to employees.

Q15. See the transactions to Morton & Associates.

The journal entry to record the May 15 transaction will include a debit of $1,220 to

a. Salaries Expense

b. Prepaid Expenses

c. Salaries Payable

d. Accounts Payable

Q16. See the transactions for Morton & Associates.

Based only on these transactions, what is the total amount of expenses that should appear on the income statement for the month of May?

a. $ 430

b. $ 1,280

c. $ 850

d. $ 1,440

Q17. Which of the following will not cause a trial balance to be out of balance?

a. The balance for an account is incorrectly computed.

b. A debit entry is posted as a credit.

c. A credit entry is posted to the wrong account as a credit.

d. An account is accidentally omitted from the trial balance.

Q18. Why is the use of the U.S. dollar as a unit of measure for financial statement data in the U.S. widely accepted?

a. U.S. dollar remains stable over a long period of time

b. U.S. dollar is universally recognized as a reliable financial measure

c. U.S. dollar is the medium of monetary exchange in the U.S.

d. U.S. dollar is required for financial statement presentation by the FASB and SEC

Q19. During December, Dearborne Inc. purchased $800 of supplies for use in its business. At the end of December, 20% of the supplies were still on hand, but only 75% had been paid. What amounts will appear on the company's balance sheet on December 31?

	Supplies on Hand	Accounts Payable
a.	$ 800	$ 600
b.	$ 160	$ 200
c.	$ 640	$ 200
d.	$ 160	$ 800

Q20. Hensley Painting Company painted four houses in June at $500 each. At the end of June, three homeowners had paid Hensley cash for the jobs. Under the accrual basis, what amounts will be reported on the income statement and the statement of cash flows for June?

	Income Statement	Statement of Cash Flows
a.	$ 2,000	$ 2,000
b.	$ 2,000	$ 1,500
c.	$ 1,500	$ 1,500
d.	$ 500	$ 500

Q21. On August 31, Farrell Corporation signed a one-year contract to provide services to Harris Company for $30,000. Harris will pay for the services on September 1. Using the accrual basis of accounting, when should Farrell Corporation recognize revenue?

a. September 1 of the current year when the cash is received from Harris

b. On August 31 of the next year when all services have been provided.

c. Throughout the year as the revenue is earned

d. At December 31 of the current year, and August 31 of the next year

Q22. Expenses originate from

a. Using an asset or recognizing liabilities

b. Incurring liabilities or providing services to customers

c. Collecting cash from customers

d. Paying off liabilities

Q23. Claxton Corp. purchased equipment at a cost of $320,000 in January, 2010. As of January 1, 2014, depreciation of $160,000 had been recorded on this asset. Depreciation expense for 2014 is $40,000. After the adjustments are recorded and posted at December 31, 2014, what are the balances for the Equipment and Accumulated Depreciation?

	Equipment	Accumulated Depreciation
a.	$ 320,000	$ 200,000
b.	$ 320,000	$ 0
c.	$ 160,000	$ 40,000
d.	$ 120,000	$ 200,000

Q24. Which of the following statements is true concerning assets?

a. Assets represent future economic sacrifices

b. Assets are expired costs

c. Assets become expenses at the time they are paid in cash

d. Assets become expenses when their economic benefits expire

Q25. What effect does "recognizing revenue at the end of the accounting period for rent previously received in advance" have on the accounting equation for an insurance company?

a. Stockholders' equity increases and liabilities increase

b. Assets increase and stockholders' equity increases

c. Assets decrease and liabilities decrease

d. Liabilities decrease and stockholders' equity increases

Q26. Cuisine Company received a 6-month, 6% note for $10,000 from its president on October 1, 2014. The note is due on March 31, 2015. If Cuisine's accounting period ends on December 31, how much interest revenue should Cuisine recognize during 2014 and 2015?

	2014	2015
a.	$ 450	$ 150
b.	$ 600	$ 0
c.	$ 300	$ 300
d.	$ 150	$ 150

Q27. Norys Corp. received an 8-month, 9% note for $100,000 from its agent on October 1, 2014. The note is due on May 30, 2015. If Norys' accounting period ends on December 31, 2014, how much interest revenue should Norys recognize during 2014 and 2015?

	2014	2015
a.	$ 3,750	$ 2,250
b.	$ 2,250	$ 3,750
c.	$ 9,000	$ 0
d.	$ 3,375	$ 5,625

Q28. Starlight Associates, Inc. recorded salary expense of $100,000 in 2014. However, additional salaries of $5,000 had been earned, but not paid or recorded at December 31, 2014. After the adjustments are recorded and posted at December 31, 2014, the balances in the Salaries Expense and Salaries Payable accounts will be

	Salaries Expense	Salaries Payable
a.	$ 105,000	$ 5,000
b.	$ 100,000	$ 0
c.	$ 100,000	$ 5,000
d.	$ 105,000	$ 0

Q29. Gear Shop purchased supplies at a cost of $1,000 during the year. At January 1, the beginning balance in the supplies account was $300. At December 31, supplies on hand are $100. Determine supplies expense for the year.

a. $ 1,300

b. $ 1,100

c. $ 1,200

d. $ 1,400

Q30. Clarke Shop purchased supplies at a cost of $18,000 during 2014. At January 1, 2014, the beginning balance in the supplies account was $1,000. For 2014, supplies expense was $16,000. How much "Supplies" are on hand as of December 31, 2014?

a. $ 1,000

b. $16,000

c. $ 3,000

d. $17,000

Q31. Esquire Industrial plant operates five days per week with a daily payroll of $4,000. Employees are paid every Saturday for the workweek just completed (Monday through Friday). The last day of the month is Wednesday, March 31. What is the effect of the correct adjustment at March 31?

a. Increases stockholders' equity and Wages Payable by $8,000

b. Increases Wages Payable and decreases Cash by $12,000

c. Decreases stockholders' equity and increases Wages Payable by $12,000

d. Increases Wages Payable and increases Wages Expense by $8,000

Q32. Which one of the following adjustments increases net income for the period?

a. Recognition of the amount of supplies used.

b. Recognition of interest on a note receivable.

c. Recognition of wages earned, but not paid to employees.

d. Recognition of rent costs that had been paid to the landlord in advance.

Q33. The asset account, Supplies, has a balance of $700 on January 1. During January, the company purchased $16,000 of supplies on account and the liability was appropriately recorded. A count of supplies at the end of January indicates a balance of $900. Which one of the following is a correct amount to be reported on the company's financial statements for the month ending January 31?

a. Supplies Expense - $15,800

b. Accounts Payable - $15,800

c. Supplies on Hand - $700

d. Supplies Expense - $16,700

Q34. Which of the following adjusting entries involves the cash account?

a. Deferred Revenue

b. Deferred Liability

c. Accrued Asset

d. None of the Above

Q35. Failure to record dividends paid would result in which of the following?

a. Net income being understated

b. An increase in total liabilities

c. Stockholders' equity being overstated

d. Total assets being understated

Q36. Failure to record amounts earned for services provided to customers but not yet paid results in which of the following

a. Net income being overstated

b. No effect on total assets

c. Stockholders' equity being overstated

d. Total assets being understated

Tracy, Inc.

Tracy, Inc. adjusts its books each month but closes its books at the end of the year. The trial balance at July 31 before adjustments is as follows:

	Debit	Credit
Cash	$12,920
Accounts Receivable	9,620
Supplies	1,300
Prepaid Insurance	3,120
Equipment	26,000
Accumulated Depreciation - Equipment		$10,400
Unearned Service Revenue		6,500
Capital Stock		7,190
Retained Earnings		23,400
Dividends	1,560
Service Revenue		16,510
Wages and Salaries Expense	7,800
Utilities Expense	380
Rent Expense	1,300
	$64,000	$64,000

Q37. Refer to the trial balance for Tracy, Inc.

Employees are owed $750 for services since the last payday in July, to be paid the first week in August. The amount to be reported in the July income statement for salaries expense is:

a. $750

b. $8,550

c. $7,050

d. $7,800

Q38. Accumulated Depreciation

a. increases assets.

b. decreases assets.

c. increases liabilities.

d. decreases liabilities.

Q39. Which one of the following is the last step in the accounting cycle?

a. Journalizing business transactions

b. Recording and posting adjustments

c. Closing the accounts

d. Preparing financial statements

Q40. Which one of the following steps in the accounting cycle is optional rather than required?

a. Business transactions are recorded

b. The accounts are closed

c. Adjustments are recorded

d. Work sheets are prepared

Part B - Problems

Problem 1 - Hart Concerts Inc. was organized on May 1, 2014, by two students majoring in education. The two entrepreneurs provided entertainment for children's birthday parties to supplement their college career. The following transactions occurred during the first month of operations:

May 1: Received contribution of $6,000 from each of the two principal owners of the new business in exchange for shares of stock.

May 1: Purchased lighting equipment for $300 on an open account. The company has 30 days to pay for the equipment.

May 5: Registered as a vendor with the city and paid the $25 monthly fee.

May 9: Purchased an event tent to set up at parties for $2,400 cash.

May 10: Purchased $100 in miscellaneous supplies on account. The company has 30 days to pay for the supplies.

May 15: Paid a $75 bill from local printer for advertisement signs.

May 17: Customers paid for services with cash of $1,500.

May 24: Billed the local park district $800 entertainment provided to a summer camp. The park district is to pay one-half of the bill within five working days and the rest within 30 days.

May 29: Received 50% of the amount billed to the park district.

May 30: Customers paid cash for parties of $2,000.

May 30: Paid wages of $300 to a friend who helped over the weekend.

May 31: Paid the balance due on the supplies.

Required -

1. Prepare a table to summarize the preceding transactions as they affect the accounting equation. Use the following format. Identify each transaction with the date.

2. Prepare an income statement for the month ended May 31, 2014.

3. Prepare a classified balance sheet at May 31, 2014.

4. Why do you think the two students decided to incorporate their business rather than operate it as a partnership?

Problem 2 - During the month, services performed for customers on account amounted to $4,500 and collections from customers in payment of their accounts totaled $3,000. At the end of the month, the Accounts Receivable account had a balance of $3,500. What was the Accounts Receivable balance at the beginning of the month? (Show your work using a T account.)

Terry Company

Transactions

May 1 Terry purchased computer equipment for $8,400, paying $1,000 now, and issuing a promissory note for the balance; the note is due in monthly installments of $500 plus interest at 10% on the unpaid balance.

May 8 Terry records service revenue earned: $3,200 from cash customers; $12,000 for customers billed for completed services.

May 22 Common stock is issued for land with a fair value of $35,000.

May 31 An invoice for $1,200 is received from the company's advertising agency for ads which were run on radio and TV during May; the invoice is due in 30 days.

Problem 3 - Refer to the transactions for Terry Company.

Use the transactions incurred by the Terry Corporation to set up T accounts and post each transaction to the T accounts.

Problem 4 - The following unadjusted amount was reported on Rental Entertainment Corporation's accounting records at December 31, 2014:

Unearned Subscription Revenue $ 36,000

A) Identify and analyze the effect on the accounting equation of any adjustment necessary at December 31, 2014, for each of the following transactions:

1) During the year, Rental Entertainment sold 12-month subscriptions for its newly developed Internet service. Half of the subscriptions began October 1, 2014, while the other half began December 1, 2014

2) Rental estimates its income taxes to be 30 percent of its estimated income of $60,000

B) Prepare the current liabilities section of Rental's balance sheet by listing any current liabilities and the related amounts as a result of the adjustments in Part A.