1) To maintain effective internal control, all incoming mail should be opened by a mail
room employee who does not have access to the accounting records.
2) An unearned revenue arises when a company receives cash from its customers in
advance of earning the revenue.
3) If the debit part of a journal entry is not posted but the credit part is, assets will
always be overstated.
4) Closing the accounts consists of journalizing and posting entries, which will zero out
all temporary accounts.
5) Purchase discounts normally have a credit balance.
6) Goods and services taxes add an extra cost to the value of inventory.
7) Once an inventory method is selected by a business, the consistency characteristic of
accounting would require that this method be used from year to year.
8) Safeguarding the assets the business uses in its operations is the sole purpose of an
effective system of internal control.
9) A trial balance is a list of income statement accounts and their balances.
10) Goodwill can only be recorded at the purchase of a business.
11) Operating lines of credit are popular because they do not carry any interest charges.
12) Internal control is the organizational plan that companies use to protect their assets
and records.
13) Cash is the first asset listed on the balance sheet because it is:
A) the most liquid asset
B) valuable
C) subject to theft
D) subject to errors
14) Performing a service for cash would:
A) affect the accounting equation the same as if the service was performed on account
B) increase assets more than if the service had been performed on account
C) increase net income less than if the service had been performed on account
D) decrease expenses more than if the service had been performed on account
15) A combination of personnel, records, and procedures that a business uses to provide
financial data is known as:
A) an accounting information system
B) input
C) output
D) source documents
16) Which of the following is a requirement of the Sarbanes-Oxley Act?
A) The outside auditor must issue an internal control report for each public company
B) The Public Company Oversight Board must conduct audits of public companies
C) Accounting firms may not both audit a public client and provide certain consulting
services for the same client
D) The Public Company Oversight Board must create new accounting standards
17) The balance in unearned revenue after adjustment represents:
A) an asset on the balance sheet
B) an expense on the income statement
C) a liability on the balance sheet
D) revenue on the income statement
18) The journal entry to remit GST to the Receiver General includes:
A) credit to GST Payable
B) debit to GST Recoverable
C) credit to GST Recoverable and debit to GST Payable
D) debit to GST Recoverable and credit to GST Payable
19) Table 11-7
Camparound Canada has 24 employees who are paid on a monthly basis. For the most
recent month, gross earnings were $68,000. The income tax withholdings are 15% of
gross earnings. Canada Pension Plan deductions are 4.95% of gross earnings and
Employment Insurance deductions are 1.83% of gross earnings. All employees have
$15 per month withheld for charitable contributions. Ignore the basic Canada Pension
Plan exemption.
Referring to Table 11-7, the employer’s total share of CPP and EI payroll costs are:
A) $4,637.60
B) $1,780.24
C) $4,620.40
D) $5,108.16
20) Table 11-10
Benny’s Bagels operates in a province that has HST collected by the federal government
at a rate of 12%. During the month of December 2013 Benny’s Bagels purchased baking
materials for $12,000; bought a new oven for $15,000; paid salaries of $14,000; and,
had cash sales of $35,000.
Refer to Table 11-10. What is the correct journal entry to record the payment of the
HST amount owing at the end of December?
A)
B)
C)
D)
21) If ending inventory for the current accounting period is understated by $4,700:
A) beginning inventory for the next period will be overstated by $4,700
B) net income for the current period will be overstated by $4,700
C) owner’s equity at the end of the next accounting period will be understated by $4,700
D) cost of goods sold for the current period will be overstated by $4,700
22) A $50 collection on account was posted as a debit to cash and a debit to accounts
receivable. This error will cause:
A) the trial balance to be in balance
B) the sum of the credits to exceed the sum of the debits by $100
C) the sum of the debits to exceed the sum of the credits by $50
D) the sum of the debits to exceed the sum of the credits by $100
23) Failure to record an accrued revenue:
A) overstates liabilities
B) overstates revenue
C) overstates assets
D) understates assets
24) A business has the following transactions: The business is started by receiving
$20,000 from the owner. The business purchases $500 of supplies on account. The
business purchases $2,000 of furniture on account. The business renders services to
various clients totaling $9,000 on account. The business pays out $2,000 for Salary
expense and $3,000 for Rent expense. The business pays $500 to a supplier for the
supplies purchased earlier. The business collects $1,500 from one of its clients for
services rendered earlier in the month. At the end of the month, all journal entries are
posted to the ledger. The Cash account will appear as follows:
A)
B)
C)
D)
25) A company borrows $15,000 on November 1, 2013, giving a 6%, 90-day note
payable. The adjusting entry on December 31, 2013, would include a:
A) credit to Interest Payable for $73.97
B) credit to Interest Payable for $147.95
C) debit to Interest Expense for $221.92
D) credit to Cash for $147.95
26) Given the journal entries below, write an explanation of the event that created the
transaction.
General Journal
Date Accounts Debit Credit
a) Cash 25,500
Mira Addington, Capital 25,500
b) Office Equipment 2,000
Cash 1,000
Note payable 1,000
c) Supplies 2,400
Cash 2,400
d) Accounts Receivable 4,500
Cash 1,500
Service Revenue 6,000
e) Note Payable 2,500
Cash 2,500
27) Table 5-4
The following data is for the Atlantis Merchandising, which uses a periodic inventory
system:
Refer to Table 5-4. The net income for Atlantis Merchandising is:
A) $(11,000)
B) $63,000
C) $51,000
D) $60,000
28) Two components that form a computerized accounting system include:
A) hardware and personnel
B) hardware and software
C) hardware and input
D) personnel and input
29) Salary expense has a balance of $65,400 in the trial balance debit column of a
worksheet. The adjustments credit column contains a $500 credit to salary payable. The
adjusted trial balance column will show:
A) salary expense with a debit balance of $64,900
B) salary expense with a debit balance of $6,500
C) salary expense with a debit balance of $65,900
D) salary payable with a credit balance of $65,900
30) Table 1-1
Following is a random list showing the account balances of various assets, liabilities,
revenues, and expenses for Spiffy’s Garage at December 31, 2014, the end of its first
year of operations.
The owner, Spiffy Sloan, invested $22,600 at the beginning of the year and withdrew
$5,000 during the year for personal use.
Refer to Table 1-1. Owner’s equity at December 31, 2014, was:
A) $13,900
B) $22,700
C) $22,600
D) $18,700
31) Borrowing money from a bank would:
A) have no effect on owner’s equity
B) decrease assets
C) decrease liabilities
D) increase revenues
32) A petty cash fund, established with a $200 balance, had the following petty cash
tickets as well as $34 in cash:
The entry to replenish the fund would be:
A)
B)
C)
D)
33) Internal and external auditors are part of which of the following components of
internal control?
A) monitoring controls
B) information systems
C) control procedures
D) control environment
34) Table 4-3
Selected accounting data for the Mariot Services follows:
Current assets$59,000
Current liabilities20,000
Long-term assets70,000
Long-term liabilities37,000
Total revenues25,000
Total expenses22,000
Referring to Table 4-3, the current ratio is:
A) 1.13
B) 2.95
C) 2.26
D) 0.34
35) Which of the following appears in the balance sheet debit column of a worksheet?
A) service revenue
B) income summary
C) owner withdrawals
D) accounts payable
36) Match the following.
A) Operating line of credit
B) interest payable
C) contingent liability
D) liability
1> A potential liability that depends on a future event arising out of past events
2> An obligation to transfer assets or to provide services in the future
3> An account related to notes payable
4> A bank loan that is negotiated once, then drawn down upon when needed
37) When a prepaid expense is initially recorded as an expense, the adjusting entry:
A) transfers the used portion to an asset account
B) transfers the unused portion to an asset account
C) transfers the used portion to an expense account
D) there is no need for an adjusting entry
38) The individual amounts in the accounts payable credit column of the purchases
journal are posted:
A) individually to the accounts payable account in the general ledger
B) individually to the purchases account in the general ledger
C) individually to the accounts payable subsidiary ledger
D) in total to the accounts payable subsidiary ledger
39) Table 7-8 Nordin Avionics
J. Nordin Avionics began business on January 1, 2013 . The business was started with
$10,000 in the cash account and $30,000 of inventory in stock. Nordin uses a sales
journal to record credit sales and a cash receipts journal to record all cash receipts,
including both cash sales and cash collections of credit sales. At the end of January, the
two journals appeared as follows:
Sales Journal
Cash Receipts Journal
Refer to Table 7-8 at the end of January, what was the balance in Inventory? Assume no
new inventory was acquired during January.
A) $ 5,990 debit balance
B) $ 6,340 debit balance
C) $24,010 credit balance
D) $ 5,100 debit balance
40) Accumulated amortization shows a beginning balance of $9,300 and an ending
balance of $10,700. How much amortization expense was reported on the current year’s
income statement?
A) $9,300
B) $1,200
C) $1,400
D) $10,700
41) Table 11-11
On April 1st 2013 Maudlin Sales purchased inventory for $80,000 by signing a
one-year note payable, due March 31, 2014 . The note bears interest at an annual rate of
8%.
Refer to Table 11-11. What is the correct journal entry on March 31, 2014?
A)
B)
C)
D)
42) Table 4-2
The ledger accounts for Alice’s Rentals include the following normal balances as of
December 31, 2014:
Accumulated amortization$ 2,000
Cash 7,300
Equipment15,000
Alice Normanson, Capital 9,300
Alice Normanson, Withdrawals 2,200
Prepaid rent 3,600
Accounts payable7,800
Supplies 1,200
Unearned revenue1,600
Notes payable (due Dec. 31, 2018)7,500
Referring to Table 4-2, what are the total current assets and total assets for Alice’s
Rentals?
A) $12,100 and $25,100
B) $8,500 and $25,100
C) $8,500 and $21,500
D) $12,100 and $27,100
43) Given the following data, what is the gross margin if cost of goods sold is
determined using the weighted-average method?
A) $2,556
B) $1,444
C) $2,500
D) $1,500
44) 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. The book value of the truck at the end of 2014, after recording
amortization for the year using the straight-line method, is:
A) $108,750
B) $105,000
C) $91,875
D) $97,500
45) Given the following transactions in the month of July for Kootenay Outdoor
Adventures, prepare journal entries; and, a trial balance and balance sheet as of July 31,
2013 .
a) Owner, Bill Thompson invested $35,000 cash and equipment with a value of $67,500
into the business.
b) Purchased supplies on account, $250.
c) Rented office space paying one month’s rent, $950.
d) Performed guide service on account, $4,500.
e) Purchased a truck by paying $4,000 cash and signing a promissory note for the
balance of $29,800.
f) Performed guiding service and immediately collected $2,900 cash.
g) Owner, Bill Thompson withdrew $900 for personal use.
46) 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________
47) The number of days it takes to collect the average amount of receivables is referred
to as the:
A) inventory turnover
B) days’ sales in receivables
C) current ratio
D) acid-test ratio
48) Santagos Industries gathered the following information from its accounting records
for the year ended December 31, 2013, prior to adjustment:
Net credit sales for the year$730,000
Accounts receivable balance, Dec. 31, 2013145,000
Allowance for doubtful
accounts balance, Dec. 31, 20131,850Cr.
Santagos uses the allowance method of accounting for uncollectible accounts and
estimates bad-debt expense at 1.5% of net credit sales.
Required:
a) Prepare the adjusting entry to record bad-debt expense on December 31, 2013 .
b) Determine the balance in allowance for doubtful accounts after the adjusting entry is
prepared.
c) Show how the receivables would be reported on the December 31, 2013, balance
sheet for Santagos Industries.
49) Table 11-16
Sandra Singh works as the manager for the Shmenge Brothers music store. She earns
$1,200 a week for a 40-hour week and time and a half for anything over 40 hours per
week. During the first week of the year, Sandra worked 46 hours. The income tax
withholdings are 20% of gross earnings. Canada Pension Plan deductions are 4.95% of
gross earnings and Employment Insurance deductions are 1.83% of gross earnings. The
worker’s compensation premium is 1.6% of gross earnings. Ignore the basic Canada
Pension Plan exemption.
Refer to Table 11-16. What is the correct journal entry to record the employer’s share of
the withholdings?
A)
B)
C)
D)
50) Prepared as the last step in the accounting cycle
51) Your best friend has asked you to review the financial status of her company before
she goes to the bank to request a loan. Answer the following questions:
1> What will you need to review in order to make a sound decision?
2> What will the bank be looking for?
52) The Yummy Candy Company uses the direct write-off method in dealing with
uncollectible accounts. State the effects on net income and current assets of each of the
following transactions. State your answers as: increase, decrease, or no effect.
53) On December 1, 2013, Parsons Sales sold machinery to a Janet’s Vegetables for
$2,000. Janet could not pay at the time of sale, but agreed to pay 9 months later, and
signed a 9-month note at 12% interest. Parsons accrues interest only at year-end. On
September 1, 2014 Parsons collected the whole amount due.
Parsons Sales uses the periodic method for recording inventory transactions. Janet’s
Vegetables will be using the equipment in the business.
Provide all of the required journal entries for Parson Sales for 2013 and 2014; and, for
Janet’s Vegetables the 2013 required journal entries, assuming a one-year useful life and
$200 estimated residual value for the equipment.
General Journal-Parsons Sales
General Journal-Janet’s Vegetables
54) Table 11-9
During 2013, Cougar Manufacturing launched a new product carrying a two-year
warranty against defects. The estimated warranty costs related to dollar sales are 3%
within 12 months following sale and 5% in the second 12 months following sale. Sales
and actual warranty claims for the years ended December 31, 2013 and 2014 were as
follows:
Actual
Warranty
SalesClaims
2013$400,000$19,000
2014500,00032,000
$900,000$51,000
Refer to Table 11-9. Prepare the journal entry at December 31, 2014 for the accrual of
warranty expenses.
55) Table 2-2
The following is a list of the accounts and their balances appearing in the ledger of
Martin Mann Garage as of December 31, 2014, the company’s year end. The accounts
are in alphabetical order and have normal balances.
Accounts payable 1,350
Accounts receivable 3,750
Cash 1,200
Equipment 37,800
Gasoline expense 1,800
Martin Mann, Capital 19,800
Martin Mann, Withdrawals 1,500
Notes payable 33,000
Rent expense 3,600
Repairs expense 1,950
Salary expense 2,100
Salary payable 300
Service revenue 24,750
Supplies 600
Supplies expense 900
Truck 24,000
Refer to Table 2-2. Prepare a trial balance for Martin Mann Garage at December 31,
2014
56) The Snowboarding Company provided the following information for one of its
top-selling snowboards:
DateItemUnitsAmount
Nov.1Beginning inventory26 $197
5Sale(12)300
12Purchase65210
16Sale(50)305
19Purchase38215
22Sale(62)310
26Purchase40216
Required:
1> Calculate the cost of goods sold using moving-weighted-average, assuming a
perpetual inventory system.
2> Calculate the ending inventory using a weighted-average assuming a periodic
inventory system.
57) Table 11-9
During 2013, Cougar Manufacturing launched a new product carrying a two-year
warranty against defects. The estimated warranty costs related to dollar sales are 3%
within 12 months following sale and 5% in the second 12 months following sale. Sales
and actual warranty claims for the years ended December 31, 2013 and 2014 were as
follows:
Actual
Warranty
SalesClaims
2013$400,000$19,000
2014500,00032,000
$900,000$51,000
Refer to Table 11-9. Calculate the balance of the Estimated Warranty Payable account at
December 31, 2013 for Cougar Manufacturing.
58) The following data pertain to Stratus Company for the year ended December 31,
2014:
Beginning inventory balance$245,500
Purchases of inventory on credit during year570,000
Sales (40% on credit) during year780,000
Cost of goods sold during year550,000
Required:
1> Calculate the value of ending inventory on December 31, 2014 .
2> Determine the gross margin