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2 CHAPTER A Review of the Accounting Cycle MULTIPLE CHOICE QUESTIONS Theory/Definitional Questions 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 Characteristics of an accrual accounting system Business transactions and owners equity Prepaid expenses Adjusting entries for prepaid expenses Definition of chart of accounts Criteria for recording an event Accounts affected by adjusting entries Items reportable in financial records Definition of deferred revenue account Timing of transaction analysis Uses of the trial balance Source documents Steps in the accounting cycle Correcting journal entry errors Definition of an accrued expense Errors detected by preparation of a trial balance Definition of a prepaid asset The effect of understating ending inventory Format for adjusting entries Steps in the accounting cycle Income statement contents Time period for accrued interest Adjusting entries for deferred revenue Allowance for bad debts--a contra account Periodic inventory--recording purchase of inventory on credit Balance sheet contents End-of-period adjusting entries Failure to record depreciation expense Perpetual inventory--recording purchase of inventory for cash Sales journal used for credit sales Check register substitute for cash disbursements journal 23 24 Chapter 2 A Review of the Accounting Cycle Computational Questions 32 Sales journal used for credit sales 33 Computation of services rendered on account 34 Computation using the accounting equation 35 Computation for adjusting entries 36 Adjusting entries for prepaid expenses 37 Adjusting entry for interest expense/interest payable 38 Revenue recognition on subscription sales 39 Computation for adjusting entries 40 Trial balance errors 41 Computation of cash received 42 Computation of cash paid 43 Computation of unearned subscription revenue accounts 44 Computation for adjusting entries 45 Computation for adjusting entries 46 Adjusting entry for prepaid insurance/insurance expense 47 Computation of insurance expense 48 Use of special journals 49 Adjusting entry for unearned revenue/earned revenue 50 Computation of interest revenue 51 Computation of interest payable 52 Computation using the accounting equation 53 Use of the work sheet 54 Computation using the accounting equation 55 Computation of unearned revenues 56 Adjusting entry for doubtful accounts expense/allowance for doubtful accounts 57 Computation of interest payable 58 Adjusting entry for doubtful accounts expense/allowance for doubtful accounts 59 Use of a sales journal 60 Computation using the accounting equation 61 Use of cash receipts journal 62 Effect of computers on accounting 63 Sequence of steps in the accounting cycle 64 Accrual vs. cash-basis of accounting 65 Nature of the cash-basis of accounting 66 Nature of the cash-basis of accounting Test Bank, Intermediate Accounting , 14th ed. 25 PROBLEMS 1 2 3 4 5 6 7 8 9 10 11 12 Preparation of adjusting and reversing entries Preparation of adjusting and reversing entries Preparation of adjusting entries for inventory account Preparation of adjusting and reversing entries Preparation of original entries and adjusting entries Recording transactions into a general journal Identification of underlying event given journal entry Computation of cash flows given financial statement information Computation of dividend given balance sheet and income statement information Computation of total equity given beginning balances and transactions Preparation of an 8-column work sheet and adjusting, closing, and reversing entries Preparation of adjusting and closing entries from a trial balance MULTIPLE CHOICE QUESTIONS b LO2 1. In an accrual accounting system a. all accounts have normal debit balances. b. a debit entry is recorded on the left-hand side of an account. c. liabilities, owner's capital, and dividends all have normal credit balances. d. revenues are recorded only when cash is received. 2. A common business transaction that would not affect the amount of owners equity is a. signing a note payable to purchase equipment. b. payment of property taxes. c. billing of customers for services rendered. d. payment of dividends. 3. Failure to record the expired amount of prepaid rent expense would not a. understate expense. b. overstate net income. c. overstate owners equity. d. understate liabilities. a LO2 d LO3 26 d LO3 Chapter 2 A Review of the Accounting Cycle 4. On June 30, a company paid $3,600 for insurance premiums for the current year and debited the amount to Prepaid Insurance. At December 31, the bookkeeper forgot to record the amount expired. The omission has the following effect on the financial statements prepared December 31: a. overstates owners equity. b. overstates assets. c. understates net income. d. both (a) and (b). 5. A chart of accounts is a. a subsidiary ledger. b. a listing of all account titles. c. a general ledger. d. a general journal. 6. Which of the following criteria must be met before an event should be recorded for accounting purposes? a. The event must be an arms-length transaction. b. The event must be repeatable in a future period. c. The event must be measurable in financial terms. d. The event must be disclosed in the reported footnotes. 7. Adjusting entries normally involve a. real accounts only. b. nominal accounts only. c. real and nominal accounts. d. liability accounts only. 8. Which of the following is an item that is reportable in the financial records of an enterprise? a. The value of goodwill earned through business operations. b. The value of human resources. c. Changes in personnel. d. Changes in inventory costing methods. 9. The balance in a deferred revenue account represents an amount that is Earned Collected a. Yes Yes b. Yes No c. No Yes d. No No b LO2 c LO2 c LO3 d LO1 c LO3 Test Bank, Intermediate Accounting , 14th ed. 27 b LO2 10. The debit and credit analysis of a transaction normally takes place a. when the entry is posted to a subsidiary ledger. b. when the entry is recorded in a journal. c. when the trial balance is prepared. d. when the financial statements are prepared. 11. A trial balance is useful because it indicates that a. owners equity is correct. b. net income is correct. c. all entries were made correctly. d. total debits equal total credits. 12. Which of the following would typically be considered a source document? a. Chart of accounts. b. General ledger. c. General journal. d. Invoice received from seller. 13. Which of the following is not among the first five steps in the accounting cycle? a. Record transactions in journals. b. Record closing entries. c. Adjust the general ledger accounts. d. Post entries to general ledger accounts. 14. A routine collection on a customer's account was recorded and posted as a debit to Cash and a credit to Sales Revenue. The journal entry to correct this error would be a. a debit to Sales Revenue and a credit to Accounts Receivable. b. a debit to Sales Revenue and a credit to Unearned Revenue. c. a debit to Cash and a credit to Accounts Receivable. d. a debit to Accounts Receivable and a credit to Sales Revenue. 15. An accrued expense can be described as an amount a. paid and matched with earnings for the current period. b. paid and not matched with earnings for the current period. c. not paid and not matched with earnings for the current period. d. not paid and matched with earnings for the current period. d LO3 d LO2 b LO1 a LO2 d LO3 28 d LO3 Chapter 2 A Review of the Accounting Cycle 16. Which of the following errors will be detected when a trial balance is properly prepared? a. An amount that was entered in the wrong account b. A transaction that was entered twice c. A transaction that had been omitted d. None of the above 17. The premium on a two-year insurance policy expiring on June 30, 2003, was paid in total on July 1, 2001. The original payment was debited to the insurance expense account. The appropriate journal entry has been recorded on December 31, 2001. The balance in the prepaid asset account on December 31, 2001, should be a. the same as the original payment. b. higher than if the original payment had been initially debited to an asset account. c. lower than if the original payment had been initially debited to an asset account. d. the same as it would have been if the original payment had been initially debited to an asset account. 18. If an inventory account is understated at year end, the effect will be to a. overstate the net purchases. b. overstate the gross margin. c. overstate the cost of goods available for sale. d. overstate the cost of goods sold. 19. An adjusting entry will not take the format of which one of the following entries? a. A debit to an expense account and a credit to an asset account. b. A debit to an expense account and a credit to a revenue account. c. A debit to an asset account and a credit to a revenue account. d. A debit to a liability account and a credit to a revenue account. 20. The last step in the accounting cycle is to a. prepare a post-closing trial balance. b. journalize and post closing entries c. prepare financial statements. d. journalize and post adjusting entries. d LO3 d LO3 b LO3 a LO1 Test Bank, Intermediate Accounting , 14th ed. 29 d LO2 21. Which of the following is not presented in an income statement? a. Revenues. b. Expenses. c. Net Income. d. Dividends. 22. On March 1, 2000, Forest Co. borrowed cash and signed a 36-month, interest-bearing note on which both the principal and interest are payable on February 28, 2003. At December 31, 2001, the liability for accrued interest should be a. 10 months interest. b. 22 months interest. c. 34 months interest. d. 36 months interest. 23. An example of an adjusting entry involving a deferred revenue is a. Cash................................................................. xxx Unearned Rental Revenue........................ b. Rental Revenue............................................... xxx Cash........................................................... c. Unearned Rental Revenue.............................. xxx Rental Revenue.......................................... d. Accounts Receivable....................................... xxx Sales........................................................... 24. The allowance for doubtful accounts is an example of a(n) a. expense account. b. contra account. c. adjunct account. d. control account. 25. Iowa Cattle Company uses a periodic inventory system. Iowa purchased cattle from Big D Ranch at a cost of $27,000 on credit. The entry to record the receipt of the cattle would be a. Purchases........................................................ 27,000 Accounts Payable....................................... 27,000 b. Inventory.......................................................... 27,000 Accounts Payable....................................... 27,000 c. Purchases........................................................ 27,000 Cash........................................................... 27,000 d. Inventory.......................................................... 27,000 Cash........................................................... 27,000 26. Which of the following is presented in a balance sheet? b LO3 c LO3 xxx xxx xxx xxx b LO2 a LO2 a 30 LO2 a. b. c. d. Prepaid Expenses. Revenues. Net Income. Gains. Chapter 2 A Review of the Accounting Cycle b LO3 27. If an expense has been incurred but not yet recorded, then the end-of-period adjusting entry would involve a. a liability account and an asset account. b. a liability account and an expense account. c. an asset and an expense account. d. a receivable account and a revenue account. 28. Failure to record depreciation expense at the end of an accounting period results in a. understated income. b. understated assets. c. overstated expenses. d. overstated assets. 29. Iowa Cattle Company uses a perpetual inventory system. Iowa purchased cattle from Big D Ranch at a cost of $19,500, payable at time of delivery. The entry to record the delivery would be a. Purchases........................................................ 19,500 Accounts Payable....................................... 19,500 b. Inventory.......................................................... 19,500 Accounts Payable....................................... 19,500 c. Purchases........................................................ 19,500 Cash........................................................... 19,500 d. Inventory.......................................................... 19,500 Cash........................................................... 19,500 30. Credit sales would normally be recorded in the a. voucher register. b. sales journal. c. general journal. d. cash receipts journal. d LO3 d LO2 b LO6 Test Bank, Intermediate Accounting , 14th ed. 31 a LO6 31. A check register may be used in lieu of a a. cash disbursements journal. b. purchases journal. c. cash receipts journal. d. sales journal. 32. If a company uses a subsidiary ledger for accounts receivable, a credit sale must be recorded in the subsidiary ledger and in the a. general ledger. b. sales journal. c. cash receipts journal. d. check register. 33. Beginning and ending Accounts Receivable balances were $28,000 and $24,000, respectively. If collections from clients during the period were $80,000, then total services rendered on account were apparently a. $76,000. b. $84,000. c. $104,000. d. $108,000. 34. For a given year, beginning and ending total liabilities were $8,400 and $10,000, respectively. At year-end, owners equity was $26,000 and total assets were $2,000 larger than at the beginning of the year. If new capital stock issued exceeded dividends by $2,400, net income (loss) for the year was apparently a. ($2,800). b. ($2,000). c. $400. d. $2,800. 35. The Supplies on Hand account balance at the beginning of the period was $6,600. Supplies totaling $12,825 were purchased during the period and debited to Supplies on Hand. A physical count shows $3,825 of Supplies on Hand at the end of the period. The proper journal entry at the end of the period a. debits Supplies on Hand and credits Supplies Expense for $9,000. b. debits Supplies Expense and credits Supplies on Hand for $12,825. c. debits Supplies on Hand and credits Supplies Expense for $15,600. d. debits Supplies Expense and credits Supplies on Hand for $15,600. b LO6 a LO2 b LO2 d LO3 32 d LO3 Chapter 2 A Review of the Accounting Cycle 36. Arid Company paid $1,704 on June 1, 2001, for a two-year insurance policy and recorded the entire amount as Insurance Expense. The December 31, 2001, adjusting entry is a. debit Prepaid Insurance and credit Insurance Expense, $497. b. debit Insurance Expense and credit Prepaid Insurance, $497. c. debit Insurance Expense and credit Prepaid Insurance, $1,207. d. debit Prepaid Insurance and credit Insurance Expense, $1,207. 37. Moon Company purchased equipment on November 1, 2001, by giving its supplier a 12-month, 9 percent note with a face value of $48,000. The December 31, 2001, adjusting entry is a. debit Interest Expense and credit Cash, $720. b. debit Interest Expense and credit Interest Payable, $720. c. debit Interest Expense and credit Interest Payable, $1,080. d. debit Interest Expense and credit Interest Payable, $4,320. 38. In November and December 2001, Bee Company, a newly organized newspaper publisher, received $72,000 for 1,000 three-year subscriptions at $24 per year, starting with the January 2, 2002, issue of the newspaper. How much should Bee report in its 2001 income statement for subscription revenue? a. $0 b. $12,000 c. $24,000 d. $72,000 39. On December 31 of the current year, Holmgren Company's bookkeeper made an entry debiting Supplies Expense and crediting Supplies on Hand for $12,600. The Supplies on Hand account had a $15,300 debit balance on January 1. The December 31 balance sheet showed Supplies on Hand of $11,400. Only one purchase of supplies was made during the month, on account. The entry for that purchase was a. debit Supplies on Hand, $8,700 and credit Cash, $8,700. b. debit Supplies Expense, $8,700 and credit Accounts Payable, $8,700. c. debit Supplies on Hand, $8,700 and credit Accounts Payable, $8,700. d. debit Supplies on Hand, $16,500 and credit Accounts Payable, $16,500. b LO3 a LO3 c LO2 Test Bank, Intermediate Accounting , 14th ed. 33 d LO3 40. The following errors were made in preparing a trial balance: the $1,350 balance of Inventory was omitted; the $450 balance of Prepaid Insurance was listed as a credit; and the $300 balance of Salaries Expense was listed as Utilities Expense. The debit and credit totals of the trial balance would differ by a. $1,350. b. $1,800. c. $2,100. d. $2,250. 41. Crescent Corporation's interest revenue for 2001 was $13,100. Accrued interest receivable on December 31, 2001, was $2,275 and $1,875 on December 31, 2000. The cash received for interest during 2001 was a. $1,350. b. $10,825. c. $12,700. d. $13,100. 42. Sky Corporation's salaries expense for 2001 was $136,000. Accrued salaries payable on December 31, 2001, was $17,800 and $8,400 on December 31, 2000. The cash paid for salaries during 1999 was a. $126,600. b. $127,600. c. $145,400. d. $153,800. 43. Winston Company sells magazine subscriptions for one- to three-year periods. Cash receipts from subscribers are credited to Magazine Subscriptions Collected in Advance, and this account had a balance of $9,600,000 at December 31, 2001, before year-end adjustment. Outstanding subscriptions at December 31, 2001, expire as follows: During 2002...................................................................... $2,600,000 During 2003...................................................................... 3,200,000 During 2004...................................................................... 1,800,000 In its December 31, 2001, balance sheet, what amount should Winston report as the balance for magazine subscriptions collected in advance? a. $2,000,000 b. $3,800,000 c. $7,600,000 d. $9,600,000 c LO2 a LO2 c LO3 34 a LO3 Chapter 2 A Review of the Accounting Cycle 44. L. Lane received $12,000 from a tenant on December 1 for four months' rent of an office. This rent was for December, January, February, and March. If Lane debited Cash and credited Unearned Rental Income for $12,000 on December 1, what necessary adjustment would be made on December 31? a. Unearned Rental Income.............................. 3,000 Rental Income......................................... 3,000 b. Rental Income............................................... 3,000 Unearned Rental Income........................ 3,000 c. Unearned Rental Income.............................. 9,000 Rental Income......................................... 9,000 d. Rental Income............................................... 9,000 Unearned Rental Income........................ 9,000 45. Ingle Company paid $12,960 for a four-year insurance policy on September 1 and recorded the $12,960 as a debit to Prepaid Insurance and a credit to Cash. What adjusting entry should Ingle make on December 31, the end of the accounting period? a. Prepaid Insurance......................................... 810 Insurance Expense.................................. 810 b. Insurance Expense....................................... 1,080 Prepaid Insurance................................... 1,080 c. Insurance Expense....................................... 3,240 Prepaid Insurance................................... 3,240 d. Prepaid Insurance......................................... 11,880 Insurance Expense.................................. 11,880 46. Bannister Inc.s fiscal year ended on November 30, 2001. The balance in the prepaid insurance account as of November 30, 2001, was $35,200 (before adjustment) and consisted of the following policies: Policy Number 279248 694421 800616 Date of Purchase 7/1/2001 12/1/1999 4/1/2000 Date of Expiration 6/30/2002 11/30/2001 3/31/2002 Balance in Account $14,400 9,600 11,200 $35,200 b LO3 a LO3 Test Bank, Intermediate Accounting , 14th ed. 35 The adjusting entry required on November 30, 2001, would be a. Insurance Expense.......................................... 24,000 Prepaid Insurance...................................... b. Insurance Expense.......................................... 9,600 Prepaid Insurance...................................... c. Insurance Expense.......................................... 11,200 Prepaid Insurance...................................... d. Insurance Expense.......................................... 16,400 Prepaid Insurance...................................... c LO3 24,000 9,600 11,200 16,400 47. Kite Company paid $24,900 in insurance premiums during 2001. Kite showed $3,600 in prepaid insurance on its December 31, 2001, balance sheet and $4,500 on December 31, 2000. The insurance expense on the income statement for 2001 was a. $16,800. b. $24,000. c. $25,800. d. $33,000. 48. Which of the following pairs of transactions and special journals is properly matched? Transaction Journal a. Collect cash on account. Sales Journal b. Pay voucher for purchase of Voucher Register merchandise on account. c. Prepare adjusting entries. General Journal d. Sell merchandise for cash. Sales Journal 49. Thompson Company sublet a portion of its office space for ten years at an annual rental of $36,000, beginning on May 1. The tenant is required to pay one years rent in advance, which Thompson recorded as a credit to Rental Income. Thompson reports on a calendar-year basis. The adjustment on December 31 of the first year should be a. Rental Income.................................................. 12,000 Unearned Rental Income........................... 12,000 b. Rental Income.................................................. 24,000 Unearned Rental Income........................... 24,000 c. Unearned Rental Income................................ 12,000 Rental Income............................................ 12,000 d. Unearned Rental Income................................ 24,000 Rental Income............................................ 24,000 c LO6 a LO3 36 b LO3 Chapter 2 A Review of the Accounting Cycle 50. Sky Company collected $12,350 in interest during 2001. Sky showed $1,850 in interest receivable on its December 31, 2001, balance sheet and $5,300 on December 31, 2000. The interest revenue on the income statement for 2001 was a. $3,450. b. $8,900. c. $12,350. d. $14,200. 51. On September 1, 2000, Star Corp. issued a note payable to Federal Bank in the amount of $450,000. The note had an interest rate of 12 percent and called for three equal annual principal payments of $150,000. The first payment for interest and principal was made on September 1, 2001. At December 31, 2001, Star should record accrued interest payable of a. $11,000. b. $12,000. c. $16,500. d. $18,000. 52. The following balances have been excerpted from Edwards balance sheets: Prepaid Insurance Interest Receivable Salaries Payable December 31, 2001 $ 6,000 3,700 61,500 December 31, 2000 $ 7,500 14,500 53,000 b LO3 c LO3 Edwards Company paid or collected during 2001 the following items: Insurance premiums paid $ 41,500 Interest collected 123,500 Salaries paid 481,000 The insurance expense on the income statement for 2001 was a. $28,000. b. $40,000. c. $43,000. d. $55,000. Test Bank, Intermediate Accounting , 14th ed. 37 d LO3 53. The work sheet of PSI Company shows Income Tax Expense of $9,000 and Income Tax Payable of $9,000 in the Adjustments columns. What will be the ultimate disposition of these items on the work sheet? a. Income Tax Expense will appear as a debit of $9,000 and Income Tax Payable as credit in the Balance Sheet columns. b. Income Tax Expense will appear as a debit of $9,000 and Income Tax Payable as credit in the Income Statement columns. c. Income Tax Expense will appear as a debit of $9,000 in the Balance Sheet columns and Income Tax Payable as credit in the Income Statement columns. d. Income Tax Expense will appear as a debit of $9,000 in the Income Statement columns and Income Tax Payable as credit in the Balance Sheet columns. 54. The following balances have been excerpted from Edwards balance sheets: Prepaid Insurance Interest Receivable Salaries Payable December 31, 2001 $6,000 3,700 61,500 December 31, 2000 $ 7,500 14,500 53,000 b LO3 Edwards Company paid or collected during 2001 the following items: Insurance premiums paid $ 41,500 Interest collected 123,500 Salaries paid 481,000 The interest revenue on the income statement for 2001 was a. $90,500. b. $112,700. c. $117,500. d. $156,500. 38 c 55. LO3 Chapter 2 A Review of the Accounting Cycle Chips-n-Bits Company sells service contracts for personal computers. The service contracts are for a one-year, two-year, or three-year period. All sales are for cash and all receipts are credited to Unearned Service Contract Revenues. This account had a balance of $144,000 at December 31, 2000, before year-end adjustment. Service contract costs are charged as incurred to the Service Contract Expense account, which had a balance of $36,000 at December 31, 2000. Service contracts still outstanding at December 31, 2000, expire as follows: During 2001..................................................... $30,000 During 2002..................................................... 45,000 During 2003..................................................... 20,000 What amount should be reported as unearned service contract revenues in Chips-n-Bits December 31, 2000, balance sheet? a. $49,000 b. $59,000 c. $95,000 d. $108,000 a 56. LO3 Teller Inc. reported an allowance for doubtful accounts of $30,000 (credit) at December 31, 2001, before performing an aging of accounts receivable. As a result of the aging, Teller Inc. determined that an estimated $52,000 of the December 31, 2001, accounts receivable would prove uncollectible. The adjusting entry required at December 31, 2001, would be a. Doubtful Accounts Expense............................ 22,000 Allowance for Doubtful Accounts............... 22,000 b. Allowance for Doubtful Accounts..................... 22,000 Accounts Receivable.................................. 22,000 c. Doubtful Accounts Expense............................ 52,000 Allowance for Doubtful Accounts............... 52,000 d. Allowance for Doubtful Accounts..................... 52,000 Doubtful Accounts Expense....................... 52,000 Test Bank, Intermediate Accounting , 14th ed. 39 c LO3 57. Comet Corporation's liability account balances at June 30, 2001, included a 10 percent note payable. The note is dated October 1, 1999, and carried an original principal amount of $600,000. The note is payable in three equal annual payments of $200,000 plus interest. The first interest and principal payment was made on October 1, 2000. In Comet's June 30, 2001, balance sheet, what amount should be reported as Interest Payable for this note? a. $10,000 b. $15,000 c. $30,000 d. $45,000 58. Scott Co. reported an allowance for doubtful accounts of $28,000 (credit) at December 31, 2001, before performing an aging of accounts receivable. As a result of the aging, Scott determined that an estimated $20,000 of the December 31, 2001, accounts receivable would prove uncollectible. The adjusting entry required at December 31, 2001, would be a. Doubtful Accounts Expense............................ 20,000 Allowance for Doubtful Accounts............... 20,000 b. Doubtful Accounts Expense............................ 20,000 Accounts Receivable.................................. 20,000 c. Allowance for Doubtful Accounts..................... 8,000 Doubtful Accounts Expense....................... 8,000 d. Doubtful Accounts Expense............................ 8,000 Allowance for Doubtful Accounts............... 8,000 59. Which of the following statements is not true? a. A sales journal normally would have a cash debit column. b. A sales journal generally records credit sales only. c. Posting from the sales journal to the accounts receivable subsidiary ledger should occur frequently. d. Each entry in the sale journal records the same information found in the traditional debit-credit format. c LO3 a LO6 40 c LO2 Chapter 2 A Review of the Accounting Cycle 60. The following balances have been excerpted from Edwards balance sheets: December 31, 2001 December 31, 2000 Prepaid Insurance $ 6,000 $ 7,500 Interest Receivable 3,700 14,500 Salaries Payable 61,500 53,000 Edwards Company paid or collected during 2001 the following items: Insurance premiums paid $ 41,500 Interest collected 123,500 Salaries paid 481,000 The salary expense on the income statement for 2001 was a. $366,500. b. $472,500. c. $489,500. d. $595,500. d LO6 61. Which of the following statements is true? a. The cash receipts journal generally has only one credit column. b. The cash payments journal generally has only one debit column. c. A cash receipts journal records only one type of transaction. d. The total of the Sundry Accounts column as a single amount is not posted to the general ledger. 62. The use of computers in processing accounting data a. eliminates the need for accountants. b. eliminates the double entry system as a basis for analyzing transactions. c. eliminates the need for financial reporting standards such as those promulgated by the FASB. d. may result in the elimination of document trails used to verify accounting records. d LO5 Test Bank, Intermediate Accounting , 14th ed. 41 c LO1 63. The basic financial statements are listed below: (1) (2) (3) (4) Balance sheet Statement of retained earnings Income statement Statement of cash flows In which of the following sequences does the accountant ordinarily prepare the statements? a. 1, 4, 3, 2. b. 2, 1, 3, 4. c. 3, 2, 1, 4. d. 3, 2, 4, 1. b LO4 64. Which of the following regarding accrual versus cash-basis accounting is true? a. The FASB believes that the cash basis is appropriate for some smaller companies, especially those in the service industry. b. The cash basis is less useful in predicting the timing and amounts of future cash flows of an enterprise. c. Application of the cash basis results in an income statement reporting revenues and expenses. d. The cash basis requires a complete set of double-entry records. 65. Under the cash basis of accounting a. revenues are recorded when they are earned. b. accounts receivable would appear on the balance sheet. c. depreciation of assets having an economic life of more than one year is recognized. d. the matching principle is ignored. 66. Total net income over the life of an enterprise is a. higher under the cash basis than under the accrual basis. b. lower under the cash basis than under the accrual basis. c. the same under the cash basis as under the accrual basis. d. not susceptible to measurement. d LO4 c LO4 PROBLEMS Problem 1 The records of Jerick Corp. show the following information: (a) Purchased a three-year insurance policy for $7,200 on September 1, 2001, and recorded the premium payment in the asset account. (b) Borrowed $60,000 on a 1-year, 12% note on July 1, 2001. Interest is payable at maturity. (c) Collected $8,400 on October 1, 2001, to cover six months rent paid in advance, and recorded the receipt in a liability account. (d) The Allowance for Doubtful Accounts shows an unadjusted balance of $300 (debit) as of December 31, 2001. Based on an aging of receivables, it is determined that the balance in the allowance account should be $1,775 at December 31, 2001. (e) Machinery purchased on January 1, 2001, for $300,000 is to be depreciated at the rate of 20 percent per year. Prepare journal entries to adjust the books of Jerick Corp. at December 31, 2001. Solution 1 LO3 (a) Insurance Expense............................................. 800 Prepaid Insurance......................................... 800 (b) Interest Expense................................................ 3,600 Interest Payable............................................ 3,600 (c) Unearned Rental Income................................... 4,200 Rental Income............................................... 4,200 (d) Doubtful Accounts Expense............................... 2,075 Allowance for Doubtful Accounts.................. 2,075 (e) Depreciation Expense--Machinery..................... 60,000 Accumulated Depreciation--Machinery........ 60,000 Problem 2 The information listed below was obtained from the accounting records of Cahill Company as of June 30, 2001. (a) Payments to vendors of $1,700 were made for purchases on account during the year and were not recorded. (b) On June 28, 2001, Cahill received $5,400 in advance for services to be performed in July 2001. The $5,400 was credited to Sales Revenue. (c) Building and land were purchased in 1994 for $780,000. The buildings fair market value was $650,000 at the time of purchase. The building is being depreciated over a 25-year life using the straight-line method, and assuming no salvage value. (d) On May 1, 2001, $120,000 was loaned to a shareholder on a 6-month note with interest at an annual rate of 8 percent. Interest is due at maturity. (e) Accrued salaries and wages are $2,740 at June 30, 2001. (f) The office supplies account has a balance of $3,170. An inventory of supplies revealed a total of $1,550. Prepare journal entries to adjust the books of Company Cahill at June 30, 2001. Solution 2 LO3 (a) Accounts Payable............................................... Cash.............................................................. (b) Sales Revenue................................................... Unearned Sales Revenue............................. (c) Depreciation Expense--Building......................... Accumulated Depreciation--Building............ (d) Interest Receivable............................................. Interest Revenue........................................... (e) Salaries and Wages Expense............................ Salaries and Wages Payable........................ (f) Office Supplies Expense.................................... Office Supplies.............................................. 1,700 1,700 5,400 5,400 26,000 26,000 1,600 1,600 2,740 2,740 1,620 1,620 Problem 3 Caddis Co. had these unadjusted account balances on December 31, 2001: Inventory, January 1, 2001......................................................... Purchases................................................................................... Freight-In..................................................................................... Purchase Discounts.................................................................... Purchase Returns and Allowance.............................................. $188,250 142,700 12,880 2,140 26,710 Assuming that the ending inventory is $97,900, prepare the entry to adjust the inventory accounts. Solution 3 LO3 Purchase Discounts.................................................... 2,140 Purchase Returns and Allowances............................ 26,710 Cost of Goods Sold.................................................... 217,080 Purchases........................................................... Freight-In............................................................ Inventory............................................................. 142,700 12,880 90,350 Problem 4 The following account balances pertain to the Henryville Manufacturing Co. at September 30, 2001 (before adjusting entries). Debit Credit Accounts Receivable.................................................. $ 40,000 Allowance for Doubtful Accounts................................ $ 2,500 Inventory..................................................................... 99,700 Prepaid Insurance...................................................... 2,400 Equipment................................................................... 300,000 Accumulated Depreciation......................................... 125,000 Notes Payable............................................................ 48,000 Unearned Revenue.................................................... 72,000 Additional information: (a) (b) (c) The controller and the credit manager agreed that, based on an aging of year-end accounts receivable, the allowance for doubtful accounts should be increased to $4,300. The credit manager determined that a customer account with a balance of $850 was uncollectible (without regard to the information in (a) above). The $48,000 note payable is dated August 13, 2001, and bears interest at 12 percent per annum. The note and interest are payable at maturity on November 13, 2001. (Assume a 365-day year and round to the nearest dollar.) The prepaid insurance balance arose from the payment of an annual premium on January 1, 2001. The company maintains a perpetual inventory system. The inventory at September 30, 2001, was $102,600 as determined by physical count. The equipment is being depreciated over a 20-year estimated useful life. The unearned revenue represents an amount received for a long-term equipment rental to the Northcrest Tool & Die Co. The cash ($72,000) was received on April 26, 2001, and represents prepayment of a 1-year rental beginning May 1, 2001. (d) (e) (f) (g) Prepare adjusting entries to Henryville Co.s accounts at September 30, 2001. Each entry should be made in general journal format. Identify each entry by using the letter of the paragraph containing the additional information for the entry. Solution 4 LO3 (a) Doubtful Accounts Expense............................... Allowance for Doubtful Accounts.................. (b) Allowance for Doubtful Accounts....................... Accounts Receivable.................................... (c) Interest Expense ($48,000 x 12% x 48/365).............. Interest Payable............................................ (d) Insurance Expense ($200 x 9 months).................... Prepaid Insurance......................................... (e) Inventory ($102,600 - $99,700)................................. Cost of Goods Sold....................................... (f) Depreciation Expense--Equipment.................... Accumulated Depreciation--Equipment........ (g) Unearned Revenue ($72,000 x 5/12)...................... Rental Revenue............................................ 1,800 1,800 850 850 757 757 1,800 1,800 2,900 2,900 15,000 15,000 30,000 30,000 Problem 5 Schroeder Co. had the following transactions pertaining to the fiscal year ended October 31, 2001. June 15, 2001, paid an annual casualty insurance premium of $5,400 for a policy beginning July 1, 2001. October 1, 2001, received advance payment of $6,930 from a customer for a 9month equipment rental. Provide the appropriate journal entries to record the preceding transactions. Adjust the accounts at year-end assuming that no entries have been made between the transaction date and year-end and assuming that: (1) transactions were originally recorded in asset and liability accounts. (2) transactions were originally recorded in revenue and expense accounts. Solution 5 LO2, LO3 (1) Insurance: 2001 June 15 Oct. 31 Prepaid Insurance................................. Cash................................................ Insurance Expense ($5,400 x 4/12)........... Prepaid Insurance........................... 5,400 5,400 1,800 1,800 6,930 Equipment rental: Oct. 1 Cash...................................................... Oct. 31 (2) Insurance: 2001 June 15 Oct. 31 Unearned Rent Revenue................ Unearned Rent Revenue ($6,930 x 1/9)... Rent Revenue................................. 6,930 770 770 Insurance Expense............................... Cash................................................ Prepaid Insurance ($5,400 x 8/12)............ Insurance Expense.......................... 5,400 5,400 3,600 3,600 6,930 6,930 6,160 6,160 Equipment rental: Oct. 1 Cash...................................................... Rent Revenue................................. Oct. 31 Rent Revenue ($6,930 x 8/9).................... Unearned Rent Revenue................ Problem 6 Record the following transactions and events of Royal Wulff Company in general journal form. If the item does not require a journal entry, write no entry. (a) Sold merchandise costing $4,500 for $1,000 cash and $7,000 on open account. A perpetual inventory system is used. (b) Purchased land and building for $100,000 cash and a $300,000 mortgage. The land was recently appraised at $60,000 and the building at $340,000. (c) Received payment on account, $12,000. (d) Estimated that utilities expense for the coming six months will total $7,600. (e) Declared a cash dividend totaling $13,500. The dividend will be paid in six weeks. Solution 6 LO2 (a) Cash...................................................................... 1,000 Accounts Receivable............................................. 7,000 Sales............................................................. Cost of Goods Sold.............................................. 4,500 Inventory....................................................... (b) Land...................................................................... 60,000 Building.................................................................. 340,000 Cash.............................................................. Mortgage Payable......................................... (c) Cash...................................................................... 12,000 Accounts Receivable.................................... (d) No entry (e) Dividends (or Retained Earnings)......................... 13,500 Dividends Payable........................................ 8,000 4,500 100,000 300,000 12,000 13,500 Problem 7 For each of the journal entries below, write a description of the underlying event. Assume that for prepaid expenses original debits are made to an expense account. (a) (b) (c) (d) (e) Allowance for Doubtful Accounts.......................... Accounts Receivable.................................... Interest Expense................................................... Notes Payable....................................................... Cash.............................................................. Cash...................................................................... Unearned Revenue....................................... Supplies on Hand.................................................. Supplies Expense......................................... Cash...................................................................... Accounts Receivable.................................... xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx Solution 7 LO2 (a) Write-off of an uncollectible account. (b) Cash payment on a note payable. Part of the payment is for principal and part is for interest. (c) Received cash in advance for products or services not yet delivered. (d) Adjusting entry to record supplies on hand. (e) Received customer payment on account. Problem 8 The following data come from a comparison of the balance sheets of Brassie Company as of December 31, 2001, and December 31, 2000: Accounts Receivable............................................. increase $7,600 Inventory .............................................................. decrease 4,500 Accounts Payable................................................. increase 2,400 (all accounts payable relate to inventory purchases) Prepaid Insurance................................................. decrease 1,350 Wages Payable..................................................... decrease 670 The following data come from Brassies 2001 income statement: Sales........................................................................................... Cost of Goods Sold..................................................................... Insurance Expense..................................................................... Wages Expense.......................................................................... During 2001: (a) How much cash was collected from customers? (b) How much cash was paid for inventory purchases? (c) How much cash was paid for insurance? (d) How much cash was paid for wages? Solution LO2 (a) (b) (c) (d) 8 $200,000 - $7,600 = $192,400 $110,000 - $4,500 - $2,400 = $103,100 $25,000 - $1,350 = $23,650 $40,000 + $670 = $40,670 $200,000 110,000 25,000 40,000 Problem 9 Pheasant Tail Companys total equity increased by $32,000 during 2001. New stockholder investment during the year totaled $65,000. Total revenues during the year were $500,000 and total expenses were $460,000. Cash on hand decreased by $7,500 during the year. What amount of dividends did Pheasant Tail declare during 2001? Solution 9 LO2 Increase in total equity during 2001.................................................... $ 32,000 New stockholder investment............................................................... 65,000 Decrease in retained earnings during 2001....................................... $ (33,000) Net income ($500,000 - $460,000)............................................................. 40,000 Difference = Dividends declared during 2001.................................... $ 73,000 Problem 10 The trial balance and transaction descriptions below are for Coachman Company: Coachman Company Trial Balance February 1, 2001 Cash.............................................................................. Accounts Receivable..................................................... Inventory........................................................................ Equipment..................................................................... Accumulated Depreciation............................................ Accounts Payable.......................................................... Mortgage Payable......................................................... Common Stock.............................................................. Retained Earnings......................................................... Debit $ 250 320 495 1,200 Credit $2,265 $ 245 185 900 300 635 $2,265 Summary transactions for February: (a) Collected $100 on open account (b) Purchased $130 inventory for $20 cash and the remainder on open account. (c) Bought new equipment costing $200 for $50 cash, with the remainder due on a mortgage payable. (d) Paid $85 on open account. (e) Recorded depreciation expense of $35. (f) Sold goods costing $90 for $30 cash and $120 on open account. What is Coachmans total equity at the end of February? Solution 10 LO2 Begin (e) (f) 35 90 (f) 150 660 Total equity = Retained Earnings $660 + Common Stock $300 = $960. Problem 11 Account balances taken from the ledger of Middler Company on December 31, 2001, are as follows: Accounts Payable.................................................................. Accounts Receivable............................................................. $119,000 139,200 635 Advertising Expense.............................................................. Accumulated Depreciation--Buildings................................... Allowance for Doubtful Accounts.......................................... Buildings................................................................................ Capital Stock, $10 par........................................................... Cash...................................................................................... Dividends............................................................................... Freight-In............................................................................... Insurance Expense................................................................ Interest Expense.................................................................... Interest Revenue................................................................... Inventory, December 31, 2000.............................................. Land....................................................................................... Long-Term Investments........................................................ Mortgage Payable................................................................. Notes Payable--Short-Term.................................................. Office Expense...................................................................... Purchases.............................................................................. Purchase Discounts............................................................... Retained Earnings, December 31, 2000............................... Sales...................................................................................... Sales Discounts..................................................................... Sales Returns........................................................................ Selling Expense..................................................................... Supplies Expense.................................................................. Real Estate and Payroll Taxes.............................................. 12,000 31,500 2,550 315,000 450,000 45,750 12,000 10,500 2,100 5,295 1,335 104,850 78,000 12,150 43,500 24,000 28,800 521,130 12,150 13,695 745,000 24,750 14,400 94,050 3,450 19,305 Adjustments on December 31, 2001, are required as follows: (a) The inventory on hand is $135,915. (b) The allowance for doubtful accounts is to be increased to a balance of $6,250. (c) Buildings are depreciated at the rate of 5 percent per year. (d) Accrued selling expenses are $6,075. (e) There are supplies of $1,050 on hand. (f) Prepaid insurance at December 31, 2001, totals $1,290. (g) Accrued interest on long-term investments is $360. (h) Accrued real estate and payroll taxes are $1,170. (i) Accrued interest on the mortgage is $240. (j) Income tax is estimated to be 30 percent of the income before income tax (round to nearest dollar). (1) (2) Prepare an eight-column work sheet. Prepare adjusting and closing entries. Solution 11 LO2, LO3 (1) Middler Company Work Sheet For Year Ended December 31, 2001 Trial Balance Debit Credit 45,750 139,200 2,550 104,850 (a) (g) (f) (e) 12,150 78,000 315,000 31,500 119,000 Adjustment Debit Credit (b) 31,065 360 1,290 1,050 3,700 Cash........................................... Accounts Receivable................. Allowance for Doubtful Accounts Inventory.................................... Interest Receivable.................... Prepaid Insurance...................... Supplies on Hand....................... Long-Term Investments............. Land........................................... Buildings..................................... Accumulated Depreciation-Buildings............................... Accounts Payable...................... Selling Expense Payable........... Real Estate and Payroll Taxes Payable...................... Interest Payable......................... Income Taxes Payable (0.30 x $29,535)........................ Notes Payable--Short-Term....... Mortgage Payable...................... Capital Stock, $10 par............... Retained Earnings, Dec. 31, 2000 Dividends................................... Sales.......................................... Sales Discounts......................... Sales Returns............................ Interest Revenue....................... Purchases.................................. Purchase Discounts................... Freight-In.................................... Cost of Goods Sold.................... Real Estate and Payroll Taxes Expense..................... Selling Expense......................... Supplies Expense...................... Doubtful Accounts Expense....... Depreciation Expense--Buildings Income Tax Expense................. Advertising Expense.................. (c) (d) (h) (i) (j) 15,750 6,075 1,170 240 8,861 24,000 43,500 450,000 13,695 12,000 745,000 24,750 14,400 1,335 521,130 12,150 (a) 10,500 (a) 488,415 19,305 94,050 3,450 (h) (d) (b) (c) (j) 12,000 1,170 6,075 (e) 3,700 15,750 8,861 1,050 12,150 (a) 10,500 (g) 360 (a) 521,130 Insurance Expense.................... Interest Expense........................ Office Expense........................... 2,100 5,295 28,800 1,442,730 (f) (i) 1,442,730 240 570,126 1,290 570,126 Middler Company Work Sheet For Year Ended December 31, 2001 Income Statement Debit Credit Cash.............................................. Accounts Receivable.................... Allowance for Doubtful Accounts.. Inventory....................................... Interest Receivable....................... Prepaid Insurance........................ Supplies on Hand......................... Long-Term Investments............... Land.............................................. Buildings....................................... Accumulated Depreciation-Buildings.................................. Accounts Payable......................... Selling Expense Payable.............. Real Estate and Payroll Taxes Payable........................ Interest Payable............................ Income Taxes Payable (.30 x $29,535)............................ Notes Payable--Short-Term......... Mortgage Payable........................ Capital Stock, $10 par.................. Retained Earnings, Dec. 31, 2000 Dividends...................................... Sales............................................. Sales Discounts............................ 24,750 Sales Returns............................... 14,400 Interest Revenue.......................... Purchases..................................... Purchase Discounts...................... Freight-In...................................... Cost of Goods Sold...................... 488,415 Real Estate and Payroll Balance Sheet Debit Credit 45,750 139,200 6,250 135,915 360 1,290 1,050 12,150 78,000 315,000 47,250 119,000 6,075 1,170 240 8,861 24,000 43,500 450,000 13,695 12,000 745,000 1,695 Taxes Expense....................... 20,475 Selling Expense............................ 100,125 Supplies Expense......................... 2,400 Doubtful Accounts Expense......... 3,700 Depreciation Expense--Buildings. 15,750 Income Tax Expense.................... 8,861 Advertising Expense..................... 12,000 Insurance Expense....................... 810 Interest Expense........................... 5,535 Office Expense............................. 28,800 726,021 Net Income................................... 20,674 746,695 (2) (a) 746,695 746,695 740,715 740,715 720,041 20,674 740,715 (b) (c) (d) (e) (f) (g) (h) (i) (j) Adjusting Entries Inventory....................................................... Purchase Discounts...................................... Cost of Goods Sold....................................... Purchases................................................ Freight-In................................................. Doubtful Accounts Expense.......................... Allowance for Doubtful Accounts............ Depreciation Expense, Buildings.................. Accumulated Depreciation, Buildings...... Selling Expense............................................ Selling Expense Payable......................... Supplies on Hand.......................................... Supplies Expense.................................... Prepaid Insurance......................................... Insurance Expense.................................. Interest Receivable....................................... Interest Revenue..................................... Real Estate and Payroll Taxes..................... Real Estate and Payroll Taxes Payable.. Interest Expense........................................... Interest Payable....................................... Income Tax................................................... Income Tax Payable................................ Closing Entries Interest Revenue........................................... Sales............................................................. Retained Earnings................................... 31,065 12,150 488,415 521,130 10,500 3,700 3,700 15,750 15,750 6,075 6,075 1,050 1,050 1,290 1,290 360 360 1,170 1,170 240 240 8,861 8,861 1,695 745,000 746,695 Retained Earnings........................................ Cost of Goods Sold................................. Advertising Expense................................ Insurance Expense.................................. Interest Expense...................................... Office Expense........................................ Sales Discounts....................................... Sales Returns.......................................... Selling Expense....................................... Real Estate and Payroll Taxes................ Supplies Expense.................................... Doubtful Accounts Expense.................... Depreciation Expense, Buildings............ Income Tax Expense............................... Retained Earnings........................................ Dividends................................................. 726,021 488,415 12,000 810 5,535 28,800 24,750 14,400 100,125 20,475 2,400 3,700 15,750 8,861 12,000 12,000 Problem 12 Presented below is the December 31 trial balance of Cassini Studios. Cassini Studios Trial Balance December 31, 2001 Cash................................................................................. Accounts Receivable....................................................... Allowances for Doubtful Accounts................................... Inventory, January 1........................................................ Furniture and Equipment................................................. Accumulated Depreciation--Furniture and Equipment.... Prepaid Insurance............................................................ Notes Payable.................................................................. Cassini, Capital................................................................ Sales................................................................................ Purchases........................................................................ Sales Salaries Expense................................................... Advertising Expense........................................................ Administrative Salaries Expense..................................... Office Expense................................................................. (1) Debit $ 14,800 33,600 $ 62,400 67,200 26,880 4,080 22,400 72,000 480,000 320,000 40,000 5,360 52,000 4,000 $603,440 Credit 2,160 $603,440 Prepare adjusting journal entries for the following items: (a) Adjust the Allowance for Doubtful Accounts to 8 percent of the accounts receivable. (b) Furniture and equipment is depreciated at 20 percent per year. (c) Insurance expired during the year, $2,040. (d) Interest accrued on notes payable, $2,688. (e) Sales salaries earned but not paid, $1,920. (f) Advertising paid in advance, $560. (g) Office supplies on hand, $1,200, charged to Office Expense when purchased. Prepare closing entries for Cassini after the above adjusting entries have been made. Additional information shows the inventory on December 31 was $64,000. (2) Solution 12 LO3 (1) (a) Bad Debts Expense............................................ Allowance for Doubtful Accounts............... (b) Depreciation Expense--Furniture and Equipment....................................................... Accumulated Depreciation--Furniture and Equipment........................................ (c) Insurance Expense............................................. Prepaid Insurance...................................... (d) Interest Expense................................................ Interest Payable......................................... (e) Sales Salaries Expense..................................... Salaries Payable........................................ (f) Prepaid Advertising............................................ Advertising Expense.................................. (g) Office Supplies on Hand..................................... Office Expense........................................... (2) 528 528 13,440 13,440 2,040 2,040 2,688 2,688 1,920 1,920 560 560 1,200 1,200 Dec. 31 Cost of Goods Sold.................................... 318,400 Inventory..................................................... 1,600 Purchases.......................................... Dec. 31 Sales........................................................... 480,000 Retained Earnings............................. Dec. 31 Retained Earnings...................................... 438,616 Cost of Goods Sold............................ Advertising Expense.......................... Administrative Salaries Expense....... Sales Salaries Expense..................... Office Expense................................... Insurance Expense............................ Bad Debts Expense........................... Depreciation Expense--Furniture and Equipment............................... Interest Expense................................ 320,000 480,000 318,400 4,800 52,000 41,920 2,800 2,040 528 13,440 2,688 CHAPTER 2 -- QUIZ A Name _________________________ Section ________________________ T F 1. The records used for the initial classifying and recording of business transactions are ledgers. T F 2. A business transaction is an event that involves the transfer or exchange of goods or services between two or more entities. T F 3. Information recorded in the journals is transferred to appropriate accounts in the ledger by a process referred to as summarizing. T F 4. The accounting process consists of the recording phase and the summarizing phase. T F 5. The original source materials evidencing business transactions are called source documents. T F 6. Double-entry bookkeeping records each transaction in a way that maintains the equality of the accounting equation. T F 7. The general ledger includes all accounts appearing in the financial statements, while separate subsidiary ledgers provide additional detail in support of certain general ledger balances. T F 8. Liabilities, owners equity, and revenues are decreased by debits and increased by credits. T F 9. Assets, expenses, and dividends are decreased by debits and increased by credits. T F 10. The general ledger account that summarizes the detailed information in a subsidiary ledger is known as a summary account. 57 CHAPTER 2 -- QUIZ B Name _________________________ Section ________________________ T F 1. The widespread use of electronic data processing (EDP) equipment has significantly altered the basic concepts underlying accounting systems. T F 2. When a perpetual inventory system is maintained, a separate purchases account is used. T F 3. When a perpetual inventory system is used, physical inventories must be taken at the end of the period to determine the inventory to be reported on the balance sheet and the cost of goods sold to be reported on the income statement. T F 4. In the United States, the federal government uses accrual-based accounting. T F 5. Accrued revenues are payments received from customers prior to the delivery of goods or services. T F 6. Unearned Rental Revenue is a liability account. T F 7. Freight-In and Additional Paid-In Capital are examples of adjunct accounts. T F 8. Nominal accounts include all income statement accounts plus the dividends or drawing accounts. T F 9. A post-closing trial balance is prepared to verify the equality of the debits and credits for all nominal accounts. T F 10. A reduction in the building account for depreciation is usually recorded by a credit to a contra account, Accumulated Depreciation. 58 CHAPTER 2 -- QUIZ C Name _________________________ Section ________________________ A. B. C. D. E. F. G. H. I. J. Post-closing trial balance Closing entries Double-entry accounting Subsidiary ledger Account statements Credit Business documents Real accounts Trial balance Special journal K. L. M. N. O. P. Q. R. S. Adjusting entries Work sheet Posting General purpose financial statements General ledger Control account Accrual accounting Transactions Debit ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ 1. Accounts that are not closed to a zero balance at the end of each period. 2. A system of recording transactions in a way that maintains the equality of the accounting equation. 3. Exchanges of goods or services between entities. 4. A group of accounts providing the detail for a specific general ledger control account. 5. A system of accounting in which revenues and expenses are recorded as they are earned and incurred, not necessarily when cash is received or paid. 6. A book or computer printout of accounts that includes all asset, liability, owners equity, revenue, and expense accounts. 7. The process of classifying and grouping similar transactions in common accounts by transferring amounts from the journal to the ledger. 8. Entries required at the end of each accounting period to update the accounts as necessary and to fully recognize, on an accrual basis, revenues and expenses for the period. 9. A listing of all account balances that provides a means of testing whether total debits equal total credits for all accounts. 10. A columnar schedule used to summarize accounting data; often used to facilitate the preparation of the financial statements. 11. An entry on the right side of an account. 12. A listing of all real account balances after the closing process has been completed. 13. An accounting record used to record a particular type of frequently recurring transaction, such as sales or purchases. 14. An entry on the left side of the account. 15. Entries that reduce all nominal accounts to a zero balance at the end of each accounting period. 59 CHAPTER 2 -- QUIZ D Name _________________________ Section ________________________ A. B. C. D. E. General journal Sales journal Cash receipts journal Cash disbursements journal Voucher register For each transaction listed below, indicate the appropriate journal or register to be used when a company uses special journals and subsidiary ledgers. ____ ____ ____ ____ ____ ____ ____ ____ ____ 1. Cash sales. 2. Collection of account receivable. 3. Borrow $7,000 from the bank. 4. Record depreciation expense. 5. Sale on credit to customer. 6. Purchase a delivery truck on account. 7. Purchase office supplies on account. 8. Recording closing entries. 9. Sell equipment for cash. ____ 10. Payment of vendor on account. Test Bank, Intermediate Accounting , 13th ed. 61 CHAPTER 2 -- QUIZ SOLUTIONS Quiz A 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. F T F F T T T T F F Quiz B 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. F F T F F T T T F T Quiz C 1. H 2. C 3. R 4. D 5. Q 6. O 7. M 8. K 9. I 10. L 11. F 12. A 13. J 14. S 15. B Quiz D 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. C C C A B E E A C D (This page is left blank intentionally.) ... View Full Document

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