1) Accrual accounting provides several opportunities for unethical accounting.
2) The relative-fair-value method is the most conservative method of amortizing
buildings and equipment.
3) The gross margin percentage is determined by dividing the gross margin by the net
sales revenue.
4) A Trojan hides inside a legitimate program and works like a virus.
5) An account receivable for the selling company is an account payable for the
purchasing company.
6) Different people should perform various accounting duties to minimize errors and the
opportunities for fraud.
7) Under international financial reporting standards (IFRS), a Balance Sheet may also
be called a Statement of Financial Position.
8) In the closing entry process, the sales returns and allowances account is debited.
9) One key aspect to increased relevance of the financial statements under international
financial reporting standards (IFRS) is to have more accounts reported at fair value as
opposed to historical cost.
10) A $15,000, 8%, 9-month note payable requires an interest payment of $900 at
maturity, if no interest was previously paid.
11) The adjusted trial balance includes all accounts contained in the ledger with
updated, adjusted balances.
12) For companies reporting under international financial reporting standards (IFRS), it
is possible to value inventory higher than its original cost.
13) There is no such thing as too high an inventory turnover ratio.
14) Transportation charges and insurance while in transit are part of the cost of
equipment and therefore debited to the equipment account.
15) The entry for amortization has what effect on the financial statements?
A) increases assets and decreases liabilities
B) decreases net income and increases assets
C) increases expenses and decreases assets
D) decreases assets and increases liabilities
16) Journalize the following transactions for Stanley’s Repair Shop and prepare a trial
balance dated May 31, 2014 .
a) Owner, Stanley Knowles invested $5,000 cash into the business.
b) Rented a garage and paid one month’s rent, $1,400.
c) Purchased $50 of supplies for cash.
d) Performed repair services on account, $1,590.
e) Paid $1,500 cash for equipment.
f) Owner, Stanley Knowles withdrew $700 cash for personal use.
17) For ABC Delivery Service, what is the combined effect on cash from the June
transactions?
A) Up $4,000
B) Up $5,300
C) Up $1,800
D) Up $2,800
18) At the end of the fiscal period, Wilf Carter Services omitted the adjusting entry for
accrued salaries. The effect of this error on the financial statements is to:
A) overstate net income
B) understate assets
C) understate net income
D) overstate liabilities
19) Which of the following auditors are employees of the business?
A) income tax auditors
B) internal auditors
C) insurance auditors
D) external auditors
20) For each of the following events, indicate the amount by which owner’s equity
increased or decreased.
a) Owner invested cash of $25,000 and equipment valued at $10,500 into the business.
b) Purchased $600 of supplies on account.
c) Borrowed $10,000 from the bank, issuing a note payable.
d) Performed a service for $1,500 and immediately collected the cash.
e) Paid the employee salaries of $1,200.
f) Purchased equipment for $550 cash.
g) Received monthly rent bill of $1,300, to be paid in the following month.
h) Performed a service on account for $2,300.
21) Prepare journal entries in good form for the following transactions:
a)Owner, Janet Simpson, invested equipment valued at $5,800 and cash of $5,000 into
the business.
b)Purchased office supplies for cash, $250.
c)Paid $800 for current month’s rent of office space.
d)Billed a client $2,000 for services rendered.
e)Owner, Janet Simpson, withdrew $1,000 for personal living expenses.
22) Prepare a trial balance, in good form, based on the following transactions.
a.Edward Wilson invested $8,000 cash in his new landscaping business.
b.The business paid the first month’s rent with $300 cash.
c.The business purchased equipment by paying $2,000 cash and executing a note
payable for$3,000.
d.The business purchased supplies for $200 cash.
e.The business billed clients for a total of $1,000 for design services rendered.
f.The business received $750 cash from clients for services rendered above.
g.The owner took a withdrawal of $2,000.
23) Table 11-1
A $10,000, 90-day, 12% note payable was issued on November 1, 2013 .
Referring to Table 11-1, the entry on the maturity date would include a:
A) credit to Interest Payable for $98.63
B) debit to Interest Expense for $98.63
C) credit to Note Payable for $10,295.89
D) credit to Cash for $10,000
24) The relevant measure of value of the assets of a company that is going out of
business is:
A) their current market value
B) their book value
C) their historical cost
D) the higher of their historical cost or current market value
25) The supplies account shows a beginning balance of $3,000. Assume the supplies
account shows an entry as a debit for $5,500 representing supplies purchased during the
period and the supplies inventory at year end is $1,700. The adjusting entry involves a:
A) debit to supplies expense for $6,800
B) debit to supplies for $6,800
C) debit to supplies expense for $1,700
D) debit to supplies for $1,700
26) Persons who authorize transactions should not handle the related asset. This is an
example of which characteristic of internal control?
A) competent, reliable, and ethical personnel
B) assignment of responsibilities
C) proper authorization
D) separation of duties
27) When an unearned revenue is initially recorded as a revenue, the adjusting entry
would affect net income as follows:
A) decrease
B) no effect
C) increase
D) current income is correct and next periods income is incorrect
28) For Ace Builders, what is the combined effect on owner’s capital from the June
transactions?
A) Up $2,700
B) Up $3,500
C) Up $4,500
D) Down $800
29) Match the following.
A) current liability
B) current asset
1> An asset that is expected to be converted to cash, sold, or consumed during the next
12 months, or within the business’s normal operating cycle, whichever is longer
2> A debt due to be paid within one year or the operating cycle, whichever is longer
30) Prepare a trial balance, in good form, based on the following transactions.
a.Edward Wilson invested $8,000 cash in his new landscaping business.
b.The business paid the first month’s rent with $300 cash.
c.The business purchased equipment by paying $2,000 cash and executing a note
payable for $3,000.
d.The business purchased supplies for $200 cash.
e.The business billed clients for a total of $1,000 for design services rendered.
f.The business received $750 cash from clients for services rendered above.
g.The owner took a withdrawal of $2,000.
31) Borrowing money and signing a note payable would:
A) increase total assets and increase liabilities
B) decrease liabilities and increase total assets
C) increase liabilities and increase owner’s equity
D) increase total assets and increase owner’s equity
32) Table 9-5
The Ritchie Company gathered the following information pertaining to its year ended
December 31, 2014, prior to any adjustments:
Aging of accounts receivable at December 31, 2014:
Refer to Table 9-5. Assume Ritchie uses the aging-of-accounts-receivable method for
estimating uncollectible accounts. Ritchie estimates that uncollectible accounts will be
aged as follows: 2% for 1-30 days; 4% for 31-60 days; 10% for 61-90 days; and 25%
for over 90 days. The balance in allowance for doubtful accounts after the adjusting
entry for uncollectible accounts will be:
A) $12,280
B) $6,000
C) $5,880
D) $9,220
33) A ________ limits access to a local network.
A) computer-virus device
B) marker
C) firewall
D) point-of-sale terminal
34) A company gives a $40,000, six-month note at the bank at 8%. How much will the
company pay the bank at maturity?
A) $40,000
B) $43,200
C) $41,600
D) $38,400
35) The income summary account:
A) is a type of temporary account
B) is a type of revenue account
C) is a current asset
D) is a current liability
36) When the seller accepts a return of goods from the purchaser originally sold on
account, the seller’s journal entry would include a debit to:
A) Sales Discounts and credit to Cash
B) Sales Returns and Allowances and credit to Accounts Receivable
C) Sales Returns and Allowances and credit to Sales Discounts
D) Sales Revenue and credit to Cash
37) Table 4-4
Selected accounting data as at December 31, 2014 for Huma Delivery follows:
Cash$11,000
Accounts payable8,000
Accounts receivable5,500
Salary payable6,300
Supplies1,200
Unearned revenue2,200
Prepaid rent4,600
Mortgage payable (due 2018)5,500
Equipment22,000
J. Huma, Capital19,900
Accum. amort.-equipment6,100
Service revenue29,000
Salary expense8,000
Furniture12,000
Accum. amort.-furniture4,000
Amortization expense6,800
Utilities expense4,300
Rent expense5,600
Referring to Table 4-4, the current ratio is:
A) 1.01
B) 0.84
C) 0.74
D) 1.35
38) An owner investment of cash into the business would include a:
A) debit to capital
B) credit to withdrawals
C) debit to withdrawals
D) credit to capital
39) Table 10-5
On January 1, 2013, Button Manufacturing Company purchased a machine for $39,980,
and expects to use the machine a total of 32,000 hours over the next four years. Button
set the residual value on the machine at $3,500. Button used the machine 6,000 hours in
2013 and 7,200 hours in 2014 .
Referring to Table 10-5, what is the amortization expense for 2013 if Button uses
double-declining balance amortization?
A) $19,990
B) $9,995
C) $18,240
D) $9,120
40) Given the adjusted trial balance for the Stoney Creek Resort, prepare the income
statement for the year ended December 31, 2014 . There were no owner investments
during the year.
Stoney Creek Resort
Adjusted Trial Balance
December 31, 2014
DebitCredit
Cash$15,000
Accounts receivable30,000
Supplies3,200
Prepaid insurance7,500
Land40,000
Building160,000
Accum. amortization-building$12,000
Equipment75,000
Accum. amortization-equipment8,500
Accounts payable12,000
Salary payable2,000
Unearned service revenue25,000
Mortgage payable100,000
Douglas Reycraft, Capital60,000
Douglas Reycraft, Withdraw23,000
Service revenue257,200
Salary expense65,000
Utilities expense24,000
Insurance expense13,000
Amortization expense-building9,000
Amortization expense-equipment3,000
Supplies expense 9,000________
Total$476,700$476,700
41) ) 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. Record the disposal of the truck on June 30, 2016 after recording
the amortization expense for the truck to the date of the disposal using the
units-of-production method when the truck was driven the following kilometres:
for 2013: 115,000 kilometres
for 2014: 122,000 kilometres
for 2015: 115,000 kilometres
for 2016: 44,000 kilometres
42) Table 5-6
The following are transactions for Latest Fashions for the month of June.
June 2Purchased $2,000 of inventory under terms 1/10, n/60 and FOB shipping point
from Trendy Manufacturing. The merchandise had cost Trendy $1,800
June 7Returned defective merchandise to Trendy Manufacturing with invoice price of
$400.
June 8Paid the freight charges on the purchase from Trendy Manufacturing in cash for
$100.
June 9Sold merchandise to New Miss Store on account for $5,000 with terms 2/15, n/60
FOB
shipping point. Cost of the merchandise sold was $4,000.
June 10Paid Trendy Manufacturing the balance on account.
June 12Granted sales allowance of $300 to New Miss Store for defective merchandise.
June 23Collected balance owing from New Miss Store.
Refer to table 5-6. Prepare the journal entries for Trendy Manufacturing for the
transactions listed, assuming that Trendy uses a periodic inventory system.
43) 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 an Income statement for Henry Garage Repairs for the year
ended December 31, 2014 .
44) Large Construction Ltd. bought land, a building, and equipment for a lump-sum of
$1,800,000. Following are the appraised fair market values of the newly acquired
assets:
Land $600,000
Building900,000
Equipment 400,000
Determine the cost of each asset. Round to the nearest dollar if necessary.
Land ________________
Building________________
Equipment________________
45) Table 3-5
The adjusted trial balance of Sally’s Landscaping as at December 31, 2014 follows:
DebitCredit
Accounts receivable$ 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 the statement of owner’s equity for Sally’s Landscaping.
46) A method of accounting for uncollectible receivables that is not appropriate for
most companies