Midterm #1--Page 2
7. If the inventory account at the end of the year is understated, the
effect will be to
a. overstate the gross profit on sales.
b. understate the net purchases.
c. overstate the cost of goods sold.
d. overstate the goods available for sale.
8. Forbes Company paid $7,200 on June 1, 2004 for a two-year insurance
policy and recorded the entire amount as Insurance Expense.
December 31, 2004 adjusting entry is
a. debit Insurance Expense and credit Prepaid Insurance, $2,100.
b. debit Insurance Expense and credit Prepaid Insurance, $5,100.
c. debit Prepaid Insurance and credit Insurance Expense, $2,100
d. debit Prepaid Insurance and credit Insurance Expense, $5,100.
9. Jim Wynn, M.D., keeps his accounting records on the cash basis.
During 2004, Dr. Wynn collected $180,000 from his patients. At
December 31, 2003, Dr. Wynn had accounts receivable of $25,000. At
December 31, 2004, Dr. Wynn had accounts receivable of $35,000 and
unearned revenue of $5,000. On the accrual basis, how much was Dr.
Wynn's patient service revenue for 2004?