Reference no: EM13978599

Problem A - I - Multiple Choice (20 points)
Circle the one best answer.

1. A private organization which establishes broad accounting principles as well as specific accounting rules is the
a. Securities and Exchange Commission.
b. Internal Revenue Service.
c. Financial Accounting Standards Board.
d. Corporate Board of Directors.

2. An increase in an expense
a. increases revenues.
b. increases assets.
c. decreases liabilities.
d. decreases stockholders' equity.

3. A company with total stockholders' equity of $85,000 paid a $10,000 business debt. As a result of this transaction, total stockholders' equity
a. did not change.
b. increased by $10,000.
c. decreased by $10,000.
d. increased to $95,000.

4. The right side of an account is always
a. the debit side.
b. the credit side.
c. the balance of that account.
d. carried forward to the next accounting period.

5. Posting is the process of
a. preparing a chart of accounts.
b. adding a column of figures.
c. transferring journal entries to ledger accounts.
d. recording entries in a journal.

6. The purpose of recording depreciation on productive assets is to
a. reflect the decline in the market value of the assets each period.
b. reduce income when the company has an exceptionally profitable year.
c. be in conformity with the monetary recognition principle.
d. allocate the original cost of productive assets to expense over its useful life.

7. Logan Company debited Prepaid Insurance for $1,080 on July 1, 2013,for a one-year fire insurance policy. If the company prepares monthly financial statements, failure to make an adjusting entry on July 31 for the amount of insurance that has expired would cause
a. assets to be overstated by $1,080 and expenses to be understated by $1,080.
b. expenses to be overstated by $90 and assets to be understated by $90.
c. assets to be overstated by $90and expenses to be understated by $90.
d. expenses to be overstated by $1,080 and assets to be understated by $1,080.

8. Which one of the following accounts is not closed at the end of an accounting period?
a. Retained Earnings account
b. Dividends account
c. Service Revenue account
d. Insurance Expense account

9. The second set of debit and credit columns on a worksheet is generally used for
a. closing entries.
b. the trial balance.
c. the balance sheet figures.
d. the adjustments.

10. Gross profit is calculated by subtracting
a. total expenses from total revenues.
b. cost of goods sold from net sales.
c. cost of goods sold from total revenues.
d. operating expenses from net sales.

 

Problem A - II - Matching (10 points)
Match the items below by entering the appropriate letter in the space.

1. Partnership

2. Liabilities

3. Revenues

4. General ledger

5. Expense recognition principle

6. Unearned service revenue

7. Income summary

8. Intangible assets

9. Freight-out

10. Sales returns and allowances

A.   A liability created when cash is received in advance of performing a service for a customer.

 

B.   Freight costs incurred by the seller.

 

C.  Noncurrent resources that do not have a physical substance.

 

D.  An economic entity which is not a separate legal entity.

 

E.   A contra-revenue account.

 

F.   The matching of efforts (expenses) with accomplishments (revenues).

 

G.  Creditors’ claims on total assets.

 

H.  A temporary account used in closing revenue and expense accounts.

 

I.    Contains all asset, liability, and stockholders’ equity accounts.

 

J.   Gross increases in stockholders’ equity resulting from business activities entered into for the purpose of earning income.

Problem A - III - Adjusting Entries (15 points)

The following information for Wilson Company is available on June 30, 2013, the end of a monthly accounting period. You are to prepare the necessary adjusting journal entries for Wilson Company for the month of June for each situation given. Appropriate adjusting entries had been recorded in previous months. You may omit journal entry explanations.

1. Wilson Company purchased a 2-year insurance policy on February 1, 2013 and debited Prepaid Insurance for $4,800.

2. On January 1, 2013, a tenant in an apartment building owned by Wilson Company paid $4,200which represents six months' rent in advance. The amount received was credited to the Unearned Rent account.

3. On June 1, 2013, the balance in the Supplies account was $200. During June, office supplies costing $580 were purchased. A physical count of office supplies at June 30 revealed that there was $140 still on hand.

4. On March 31, 2013, Wilson Company purchased a truck for $54,000. It is estimated that the annual depreciation will be $9,000.

5. Wilson Company has two employees who earn $100 and $120 per day, respectively. They are paid each Friday for a five-day workweek that begins each Monday. Assume June 30 is a Wednesday in 2013.

 

Problem A - IV - Closing Entries (10 points)

The end of the period account balances after adjustments of Dixon Cleaners and Laundry are as follows:

Account Balances
(After Adjustments)

Cash $ 9,000
Supplies 3,500
Prepaid Rent 3,600
Equipment 128,000
Accumulated Depreciation-Equipment 20,000
Accounts Payable 8,500
Common Stock 60,000
Retained Earnings 46,400
Dividends 7,000
ServiceRevenue 26,000
Supplies Expense 5,000
Depreciation Expense 3,000
Rent Expense 900
Salaries and Wages Expense 3,400
Utilities Expense 500

Instructions
Prepare the end of the period closing entries for Dixon Cleaners and Laundry. You may omit journal entry explanations.

Problem A - V - Journal Entries (18 points)
Prepare the necessary general journal entries for the month of October for RolenCompany for each situation given below. Rolen uses a perpetual inventory system.

Oct. 5 Paid cash of $12,000 for operating expenses that were incurred and properly recorded in the previous period.

Oct. 8 Purchased merchandise for $25,000 on account. Credit terms: 2/10, n/30; Freight term: FOB Shipping Point.

Oct. 10 Paid freight bill of $470 for merchandise purchased on October 8.

Oct. 12 Borrowed $10,000 from Admire Bank signing an 8%, 3-month note.

Oct. 15 Paid for merchandise purchased on October 8. The company takes all discounts to which it is entitled.

Oct. 20 Sold merchandise for $16,000 to Tom Green on account. The cost of the merchandise sold was $10,000. Credit terms: 2/10, n/30.

Oct. 22 Purchased a 2-year insurance policy for $2,400 cash.

Oct. 25 Credited Tom Green's account for $1,000 for merchandise returned by him from the sale on October 20. The cost of the merchandise returned was $625.

Oct. 29 Purchased equipment for $18,000 paying $5,000 in cash and signing a 3-month, 9% note for the remainder.

 

Problem A - VI - Multiple-Step Income Statement (15 points)
Below is a partial listing of the adjusted account balances ofLarson Department Store at year-end on December 31, 2013.

Accounts Receivable $ 19,000
Cost of Goods Sold 245,000
Selling Expenses (includes depreciation) 35,000
Interest Expense 1,000
Accumulated Depreciation-Buildings 10,000
Sales Discounts 22,000
Inventory 45,000
Administrative Expenses (includes depreciation) 30,000
Sales Revenue 350,000
Accounts Payable 14,000
Interest Revenue 800

Instructions
Using whatever data you believe appropriate, prepare a multiple-step income statement for Larson Department Store for the year ended December 31, 2013.

Problem A - VII - Correcting Entries (12 points)
The following errors were made in journalizing and posting transactions in May in the Silas Company.

1. A $600 payment for repairs incurred on account and properly recorded in April was debited to Maintenance and Repairs Expense $600 and credited to Cash $600.

2. A collection of $6,000 on account from a customer was recorded as a debit to Cash $600 and a credit to Accounts Receivable $600.

3. A bill for $930 for new office equipment was debited to Supplies $390 and credited to Accounts Payable $390.

4. The receipt of $800 from a customer for future service was recorded as a debit to Accounts Receivable $800 and a credit to Service Revenue $800.

Instructions

Prepare the correcting entries at May 31 assuming the incorrect entry is not reversed. (Omit explanations.)