1) Adjusting entries only involve income statement accounts.
2) Compare the effects of the FIFO and moving-weighted-average-cost methods on the
value of ending inventory and cost of goods sold. Then contrast the methods when
purchase prices are rising.
3) Credit terms of 1/15 n/30 means the purchaser can deduct 1% of the invoice price if
paid within 15 days.
4) If the maker of a note does not pay at maturity, the maker is said to dishonour the
note.
5) Using a computerized accounting system eliminates the need to prepare a trial
balance.
6) The business receives cash more quickly with bank credit cards as opposed to
non-bank credit cards.
7) The sole purpose of systems of internal control is to detect fraud.
8) Provincial sales taxes (PST) paid on the purchase of property, plant, and equipment
is included in the cost of the asset.
9) Land improvements are not subject to amortization.
10) The entry to write off an uncollectible account using the direct write-off method
includes a debit to allowance for doubtful accounts.
11) The members of all four professional accounting organizations in Canada are all
governed by rules of professional conduct created by their respective organizations.
Describe two of the rules of professional conduct presented in the text book.
12) Revenue that has been earned but not yet collected is called an accrued revenue.
13) When inventory costs are rising, FIFO results in the highest cost of goods sold and
the lowest gross margin.
14) The FIFO method can result in misleading inventory costs on the balance sheet
because the oldest prices are left in ending inventory.
15) In a large company, the treasurer is responsible for cash management.
16) The controller is responsible for cash management in an organization.
17) FOB shipping point means that the title to the goods passes to the purchaser upon
receipt of the goods and the seller is responsible for the cost of the freight.
18) Table 7-7 Chaney Aircraft Service
Chaney Aircraft Service Co. started business on April 1, 2013 . They began business
with $12,000 in cash and no other assets. During the first month of business, they used
a purchase journal and a cash payment journal, and at the end of the month those
journals appear as follows:
Purchase Journal
Cash Payments Journal
Refer to Table 7-7 at the end of April, what was the total amount of expenses recorded?
A) $ 1,140
B) $ 600
C) $ 540
D) $10,200
19) An important fact related to accrual accounting is that:
A) adjusting entries are not required
B) revenue is recorded when cash is received
C) expenses are recorded when incurred
D) revenue is recorded when cash is received and expenses are recorded when incurred
20) What will be the balance in the unearned revenue account on the Real Losers
balance sheet on December 31?
A) $150,000
B) $0
C) $180,000
D) $120,000
21) Estimating a warranty expense in the same period as the sales revenue is recognized
is an example of:
A) the recognition criteria for revenues
B) the matching objective
C) the full-disclosure principle
D) conservatism
22) Prepare journal entries in good form for the following transactions.
a)Francine Forestell opened a consulting firm by investing $20,700 cash and office
furniture valued at $8,300.
b) Paid monthly rent of $1,000
c)Purchased office supplies for cash, $700.
d)Paid $1,200 employee salary.
e)Billed a client $4,000 for services rendered.
f)Owner, Francine Forestell withdrew $1,500 for personal living expenses.
23) GST Tax Expense would appear:
A) on the balance sheet as a current liability
B) on the income statement as an expense
C) There is no such account
D) on the balance sheet as a long-term liability
24) If the adjusting entry to record the current periods prepaid rent expired is omitted:
A) current assets will be overstated
B) current assets will be understated
C) current liabilities will be overstated
D) current liabilities will be understated
25) Table 6-2
On December 31, a physical count reveals 80 units in ending inventory.
Referring to Table 6-2, assuming all goods are sold throughout the year for $17 per unit,
gross margin calculated under the periodic FIFO method would be:
A) $1,210
B) $1,260
C) $1,150
D) $900
26) The normal balance of wages payable is a ________ because it is a(n) ________
account.
A) credit, liability
B) credit, revenue
C) credit, owner’s equity
D) credit, asset
27) Under a perpetual inventory system, the entries to record a $2,600 sales return of
undamaged goods for a sale originally made on account, when the merchandise had a
cost of $1,200, include a:
A) debit to Inventory of $1,200
B) debit to Sales Returns and Allowances of $1,200
C) credit to Cost of Goods Sold of $2,600
D) credit to Sales Returns and Allowances of $1,200
28) Sales revenue for Booker Company for 2014 amounted to $800,000. The products
sold carry a six-month warranty. Management estimates the cost of the warranty to be
3% of sales revenue. Booker should:
A) debit Warranty Expense in 2014 for $24,000
B) debit Estimated Warranty Payable in 2014 for $24,000
C) debit Warranty Expense when the products are repaired or replaced in either 2014 or
2015
D) credit Estimated Warranty Payable in either 2010 or 2011 when the products are
repaired or replaced
29) Transactions affecting owner’s equity include:
A) owner withdrawals and owner investments
B) purchases of assets for cash
C) purchases of assets on account
D) only owner investments
30) Reporting a current liability as long term:
A) overstates working capital
B) understates the current ratio
C) has no effect on the acid-test ratio
D) understates working capital
31) Credit is a term representing:
A) the right side of an account
B) an increase
C) a decrease
D) the left side of an account
32) Designating a corporate controller is an example of which characteristic of internal
control?
A) separation of duties
B) competent, reliable, and ethical personnel
C) proper authorization
D) assignment of responsibilities
33) The income summary account had an $8,000 credit balance prior to being closed to
the owner’s capital account. The capital account had a $32,000 beginning balance and a
$36,500 ending balance. Determine the amount of the owner’s withdrawals during the
current period.
A) $3,500
B) $8,500
C) $4,500
D) $2,500
34) The employee who processes cash payments should have nothing to do with the
approval process. This is a part of which characteristic of internal control?
A) separation of duties
B) assignment of responsibilities
C) proper authorization
D) competent, reliable, and ethical personnel
35) All of the following are parts of the internal control characteristic referred to as
separation of duties except separation of:
A) external auditors from accounting
B) duties within the accounting function
C) the custody of assets from accounting for those assets
D) operations from accounting
36) Perkins issued a $500 credit memo to a customer, Susan Richardson, for inventory
that Richardson returned because it was not what she had ordered. What entry does
Richardson make assuming her company is using a perpetual inventory system?
A)
B)
C)
D)
37) A petty cash fund, established with a $225 balance, had the following petty cash
tickets and $14 in cash:
The entry to replenish the fund would be:
A)
B)
C)
D)
38) Internal controls are most effective when:
A) collusion is possible
B) the organization is constantly changing
C) the only asset a company has is cash
D) employees at all levels adopt the goals and objectives of the organization
39) To update the inventory records for the sale of merchandise on account under a
periodic inventory system, the entry would include:
A) a credit to Inventory
B) a debit to Accounts Payable
C) no entry as inventory records are not updated at the time of sale
D) a debit to Cost of Goods Sold
40) The worksheet is a:
A) document that helps summarize data for the financial statements.
B) required financial statement according to IFRS
C) document that is part of the general ledger
D) document that lists only the balance sheet accounts
41) When the buyer pays the freight costs, the entry to record the payment under a
perpetual inventory system would include a debit to:
A) Delivery Expense
B) Purchases Discounts
C) Inventory
D) Freight In
42) All of the following are controls over petty cash except:
A) designating one employee to administer the fund
B) supporting all fund payments with a petty cash ticket
C) replenishing the fund through normal cash payment procedures
D) keeping an unlimited amount of cash on hand
43) Lot Company Ltd. acquired equipment on June 30, 2013, for $300,000. The
residual value is $20,000 and the estimated life is five years or 60,000 hours. Compute
the balance in accumulated amortization as of December 31, 2014, if Lot Company Ltd.
uses the double-declining-balance method of amortization.
A) $108,000
B) $144,000
C) $156,000
D) $192,000
44) Table 3-1
The unadjusted trial balance of Danvon Collection Services at December 31, 2014
follows.
DebitCredit
Cash$ 4,800
Accounts receivable10,400
Prepaid insurance2,000
Prepaid rent1,000
Office supplies400
Equipment16,500
Accumulated amortization$2,400
Salaries payable0
Interest payable0
Unearned service revenue600
Note payable8,000
Ted Danvon, capital15,200
Ted Danvon, withdrawals3,000
Service revenue32,700
Salaries expense20,500
Amortization expense0
Rent expense0
Insurance expense0
Office supplies expense0
Interest expense300_______
$58,900$58,900
Refer to Table 3-1. Given the following information, prepare the necessary adjusting
entries at year end, December 31, 2014, for Danvon Collection Services.
a) A count revealed that $100 of office supplies were still on hand at December 31,
2014 .
b) The accountant has determined that the prepaid insurance balance at December 31,
2014, should be in the amount of $450.
c) The equipment is amortized at the rate of $200 per month.
d) The accountant has determined that the unearned service revenue balance at
December 31, 2014, should be in the amount of $350.
e) Interest of $200 on the note payable has accrued to the end of the year.
f) Salaries accrued at December 31, 2014, amounted to $650.
g) The accountant has determined that the prepaid rent balance at December 31, 2014,
should be in the amount of $100.
45) Table 10-6
On January 1, 2013, Grant Transport purchased a $120,000 truck for hauling cattle
across the border. Grant plans on driving the truck for eight years or 400,000
kilometres. Expected residual value for the truck is $30,000.
Refer to Table 10-6. Grant Transport drove the truck 125,000 kilometres in 2015 . The
amortization expense for 2015 using the units-of-production method is:
A) $11,250
B) $22,500
C) $28,125
D) $30,000
46) Under a periodic inventory system, the entry to record the return of inventory sold
on account for $250 with a cost of $185 would be recorded by the seller as a:
A) credit to Accounts Receivable for $250
B) debit to Sales Returns and Allowances for $185
C) credit to Sales Revenue for $250
D) credit to Cost of Goods Sold for $185
47) The cost of goods available for sale is equal to the:
A) cost of goods sold minus the ending inventory
B) Sales revenue minus the cost of goods sold
C) cost of goods sold plus the ending inventory
D) ending inventory plus the sales revenues.
48) A good cost/benefit relationship:
A) offers maximum benefits at a minimum cost
B) is impossible to achieve
C) exists in manual accounting systems only
D) would be ignored in a large organization
49) Matching Source Documents
A) bank reconciliation
B) purchase order
C) bank cheque
D) packing slip
E) deposit slip
F) cash receipt
G) sales invoice
1> a company places an order with a vendor to purchase inventory
2> an order of materials is received from a vendor via a delivery truck
3> the company accountant deposits the cash and cheques received at the bank
4> paid a vendor on account
5> sold merchandise to a customer on account
6> paid employee for one week’s wages
7> customer pays the company immediately for services performed
50) Identify all the journals in which the following accounts would be debited or
credited. Use P for purchases journal, S for sales journal, CP for cash payments journal,
CR for cash receipts journal, and G for general journal. Some accounts may be used in
more than one journal. Assume a perpetual inventory system.
a) Cost of goods sold________
b) Accounts payable________
c) Amortization expense________
d) Cash________
e) Accounts payable________
f) Sales revenue________
g) Sales returns and allowances________
h) Inventory________
51) If the credit amount of an entry to record the purchase of supplies on account was
not posted:
A) liabilities would be unaffected
B) assets would be understated
C) owner’s equity would be understated
D) liabilities would be understated
52) The purchase of a building by signing a note payable would:
A) increase owner’s equity
B) decrease total liabilities
C) have no effect on owner’s equity
D) decrease total assets
53) Table 11-3
Bentley Enterprises purchased $8,000 of inventory by issuing a six-month, 7.5% note
payable on November 1, 2013 . Bentley has a December 31 year end.
Refer to Table 11-3. The entry on May 1, 2014, to pay the note payable and interest
would include a:
A) debit to Interest Expense of $300.00
B) debit to Interest Payable of $100.00
C) credit to Interest Payable of $200.00
D) credit to Cash of $8,000.00
54) When transactions are posted in a computerized accounting system as a group it is
known as:
A) batch processing
B) online processing
C) real-time processing
D) output processing
55) A written promise to pay a specified amount of money at a particular future date is
called a(n):
A) unearned revenue
B) promissory note
C) principal note
D) mature note
56) Provide the accounting equation.
57) Table 3-5
The adjusted trial balance of Sally’s Landscaping as at December 31, 2014 follows:
DebitCredit
Accounts receivable$ 8,000
Cash3,000
Equipment35,000
Gardening supplies2,000
Accounts payable$ 2,000
Bank loan payable (due in 2017)11,000
Accumulated amortization, equipment4,000
Salaries payable1,000
Sally Ng, capital15,000
Sally Ng, withdrawals2,000
Landscaping revenue67,000
Amortization expense4,000
Gardening supplies expense4,000
Interest expense1,000
Salaries expense41,000
______________
$100,000$100,000
Refer to Table 3-5. Prepare a balance sheet for Sally’s Landscaping.
58) List the six steps in the framework for making ethical judgments as discussed in the
chapter.
59) Western Yard Equipment offers warranties on all their lawn mowers. They estimate
warranty expense at 1.4% of sales. At the beginning of 2013, the estimated warranty
payable account had a credit balance of $1,200. During the year, Western Yard
Equipment had $485,000 of sales, and had to pay out $8,730 in warranty payments.
Required:
1>Prepare the required journal entries to record warranty expense and payments. Use
December 31 for the journal entry date.
2>What is the balance of the warrantee liability at the end of 2013? Indicate whether
the balance is a debit or a credit.
60) Table 9-13 Davidson Services
At January 1, Davidson Services has the following balances:
During the year, Davidson has $104,000 of credit sales, collections of $100,000, and
write-offs of $1,400.
Refer to Table 9-13 to answer the following assuming that Davidson records
uncollectible account expense at the end of the year using the percent-of-sales method,
and applies a rate of 1.1% based on past history.
1>Prior to the year-end entry to adjust the bad debts expense, what is the balance in
accounts receivable?
2>After the year-end entry to adjust the bad debts expense, what is the ending balance
in the allowance for uncollectible accounts?
3>After the year-end to adjust the bad debts expense, what is the ending balance of net
accounts receivable?
4>If the business uses the direct-write-off method what will be the amount for
uncollectible accounts expense?
61) Table 4-7
The following is a random list of the account balances of Baird Services for the year
ended December 31, 2014 . All accounts have normal balances.
Accumulated amortization – building$152
Land44
Salaries payable18
Accounts receivable66
Service Revenue280
Amortization expense – building8
Accounts payable38
Office expenses66
Mortgage payable (due 31/12/2019)112
B. Baird, drawings26
Accumulated amortization – furniture & fixtures60
Building248
Cash 20
Salaries expense60
Insurance expense40
Amortization expense – furniture & fixtures8
Prepaid insurance16
B. Baird, capital110
Interest expense30
Maintenance expense24
Furniture and fixtures78
Refer to Table 4-7. Prepare a classified balance sheet for Baird Services as at December
31, 2014 .
62) Harold Munster earned $2,400 in wages and $650 in sales commissions for the
month of November. Harold’s payroll deductions include income tax of 15 percent,
Canada Pension of 4.95 percent on earnings and Employment Insurance of 1.83 percent
on earnings.
Prepare the journal entries to record the payroll and the payroll taxes imposed on
Harold Munster. Explanations are not required and ignore the annual exemption for the
CPP calculation.
63) Table 10-7
On January 1, 2013, Brazeau Transport purchased a $165,000 truck for hauling cattle
across the border. Brazeau plans on driving the truck for four years or 450,000
kilometres. Expected residual value for the truck is $35,000. On June 30, 2016, after
having driven the truck 44,000 kilometres, the truck had an accident on the highway
and was totalled. The insurance proceeds for the truck was $42,000 cash.
Refer to Table 10-7. Calculate and record the amortization expense for the truck for the
year 2016 assuming the the unit-of-production method is used and that the truck was
driven for 44,000 kilometers to June 30, 2012 .
64) Table 2-1
The following is a list of the accounts and their balances appearing in the ledger of
Henry Garage Repairs as of December 31, 2014, the company’s year end. The accounts
are in alphabetical order and have normal balances.
Accounts payable$450
Accounts receivable 1,250
Cash 400
Equipment 12,600
Gasoline expense 600
Ian Henry, Capital 6,600
Ian Henry, Withdrawals 500
Notes payable 11,000
Rent expense 1,200
Repairs expense 650
Salary expense 700
Salary payable 100
Service revenue 8,250
Supplies 200
Supplies expense 300
Truck 8,000
Refer to Table 2-1. Prepare a trial balance for Henry Garage Repairs at December 31,
2014 .