Achievement Test 2: Chapters 3 and 4 Name __________________________
Accounting Instructor _______________________
Kimmel, Weygandt, and Kieso Section # _______ Date _________
Part
I
II
III
IV
V
Total
Points
33
24
24
10
9
100
Score
PART I — MULTIPLE CHOICE (33 points)
Instructions: Designate the best answer for each of the following questions.
____ 1. Which one of the following is true as it relates to the Accumulated Depreciation
account?
a. It is a contra account.
b. It is offset against an asset account on the income statement.
c. It represents the portion of the cost of a long-lived asset that has been allocated as
a cost during the current accounting period.
d. It is an operating expense.
____ 2. What type of accounts can be found on a post-closing trial balance?
a. All accounts that have balances after the closing process is complete
b. Permanent and temporary accounts
c. Assets, expenses, revenues, and liabilities
d. Accounts that have been closed during the period
____ 3. Sunny Salon is a tanning salon that caters to college students. The accountant
transferred journal entries to the ledger accounts at the end of the month. What is the
name of this process?
a. Ledgering
b. Closing
c. Recording
d. Posting
____ 4. Lansing Cycles failed to record an adjusting entry for accrued expenses at the end of
June. What effect does this have on the financial statements?
a. Expenses are overstated and revenues are understated.
b. Assets are overstated and expenses are understated.
c. Expenses and liabilities are understated.
d. Revenues and expenses are understated.
____ 5. Which one of the following is incorrect concerning the journal?
a. It provides a chronological record of transactions.
b. It helps prevent or locate errors.
c. It contains a record of each account maintained by the company.
d. It discloses in one place the complete effect of a transaction.
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
AT2-2
____ 6. A credit will increase ________, but decrease ________.
a. accounts receivable; accounts payable
b. accounts receivable; expenses
c. accounts payable; common stock
d. common stock; prepaid insurance
____ 7. Which one of the following contains the selected steps of the accounting cycle in the
correct order?
1. Journalize the transactions.
2. Post transactions to ledger accounts.
3. Analyze transactions.
4. Prepare financial statements.
5. Prepare a trial balance.
a. 1, 2, 3, 5, 4
b. 3, 2, 1, 4, 5
c. 3, 1, 2, 5, 4
d. 3, 1, 2, 4, 5
____ 8. Which of the following describes the timing of when revenue is recognized?
a. In the period in which the related expenses are paid
b. In the period in which the performance obligation is satisfied
c. In the period in which payment is received for goods sold or work performed
d. In the period in which the costs associated with earning the revenue are incurred
and payment is received for goods sold or work performed
____ 9. Which statement is not true concerning the accrual basis of accounting?
a. Transactions are recorded when payment is made for the costs incurred.
b. GAAP requires the accrual basis for financial reporting.
c. Transactions are recorded when events occur.
d. Revenue.is recognized when services are performed.
____ 10. Which of the following sets of transactions contain only operating activities?
a. Issued stock for cash; received cash from customers
b. Issued note payable for cash; paid rent for the month
c. Purchased equipment for cash; collected cash from customers
d. Received cash for services provided; paid cash for employee salaries
____ 11. Randall Automotive signed a $5,000,120–day note payable on October 1 that bears
interest at an annual rate of 9%. How much will appear on Randall’s income statement
for interest expense related to this note at December 31?
a. $450
b. $150
c. $112.50
d. $4,500
Achievement Test 2
AT2-3
PART II — JOURNAL ENTRIES (24 points)
The ledger accounts given below, with an identification number for each, are used by Quality
Clean Depot.
Instructions: Indicate the appropriate entries for the month of July by placing the appropriate
identification number(s) in the debit and credit columns provided. Item 0 is given as an example.
Write “none” if no entry is appropriate.
1.
Equipment
7.
Salaries and Wages Payable
13.
Prepaid Insurance
2.
Advertising Expense
8.
Accounts Payable
14.
Equipment Expense
3.
Service Revenue
9.
Unearned Service Revenue
15.
Dividends
4.
Cash
10.
Cleaning Supplies Expense
16.
Notes Payable
5.
Prepaid Advertising
11.
Salaries and Wages Expense
17.
Rent Expense
6.
Cleaning Supplies
12.
Accounts Receivable
18.
Common Stock
No.
Date
Entry Information
Account(s)
Debited
Account(s)
Credited
0
July
1
Paid $2,800 in cash to Town Rentals for July rent
17
4
1
July
2
Stockholders invested $42,000 in the business
2
July
3
Received a delivery of cleaning supplies to be used
immediately, along with a bill for $230 from DT Supplies
3
July
9
Paid $2,400 for a one-year insurance policy
4
July
12
Equipment was purchased at a cost of $9,000 for which
a three-month, 7% note payable was signed
5
July
15
Paid $500 cash to Val-Pak for advertisements mailed
out during the first week of July
6
July
18
Hired Ron Davis as vice-president to begin work on July
16, to be paid $3,000 monthly on the 30th day of each
month
7
July
21
Received $3,000 from customers for services to be
rendered in August
8
July
24
Cleaning supplies to be used in August were purchased
on account at a cost of $900 from Office Supply
Company
9
July
27
Paid $1,000 on account for supplies previously
purchased and used during June
10
July
30
Paid employees $5,100 for the month of July
11
July
31
Billed customers $9,000 for services rendered but not
collected during July
12
July
31
Paid $1,200 of dividends to stockholders
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
AT2-4
PART III — ADJUSTING ENTRIES (24 points)
The ledger accounts given below, with an identification number for each, are used by Lowe’s
Lawn Care.
Instructions: Prepare appropriate adjusting entries for the year ended December 31, 2014,
by replacing the appropriate identification number(s) in the debit and credit columns provided and
the dollar amount in the adjoining column. Item 0 is given as an example.
1. Notes Receivable 11. Notes Payable
2. Accounts Receivable 12. Lawn Service Revenue
3. Prepaid Advertising 13. Advertising Expense
4. Lawn Care Supplies 14. Depreciation Expense—Equipment
5. Prepaid Insurance 15. Salaries and Wages Expense
6. Equipment 16. Interest Expense
7. Accumulated Depreciation—Equipment 17. Lawn Care Supplies Expense
8. Salaries and Wages Payable 18. Insurance Expense
9. Interest Payable 19. Cash
10. Unearned Service Revenue 20. Insurance payable
Entry Information
Account(s)
Debited
Account(s)
Credited
Amount
0
Auto insurance is accrued for the month of December, $300
18
20
$300
1
Lowe’s has four employees who earn $90 per day per
person. At December 31, two days’ salaries have been
earned by employees but not paid.
$
2
A customer paid Lowe’s $9,000 on December 1, 2014
for services to be rendered from December 1 through
March 31, 2014. The receipt was credited to a liability
account.
$
3
Lowe’s purchased equipment costing $38,400 on
January 1, 2014. Monthly depreciation is $500.
$
4
Lowe’s provided lawn services to a customer in 2014 at
a fee of $1,100. This fee has not yet been received or
billed.
$
5
Lowe’s started the year with $400 of lawn care supplies
on hand. It purchased $5,800 more during the year and
has $700 on hand at December 31. Lowe’s recognizes
supplies as an asset when acquired.
$
6
On July 1, 2014, Lowe’s paid $2,400 for a two-year
insurance policy debiting an asset account at that time.
$
7
Lowe’s borrowed $9,000 by signing a three-month, 6%
interest, note payable on December 1, 2014.
$
8
On November 1, Lowe’s had paid $3,600 for
advertising in the Money Saver Magazine for 3 months.
$
Achievement Test 2
AT2-5
PART IV — NORMAL BALANCES (10 points)
Instructions: Place a “D” (Debit) or “C” (Credit) in the space provided to indicate whether the
account has a normal debit balance (D) or normal credit balance (C).
____ 1. Retained Earnings ____ 6. Common Stock
____ 2. Equipment ____ 7. Painting Service Revenue
____ 3. Depreciation Expense ____ 8. Accumulated Depreciation
____ 4. Dividends ____ 9. Accounts Receivable
____ 5. Unearned Service Revenue ____ 10. Prepaid Insurance
PART V — MATCHING (9 points)
Instructions: Match the items below by entering the appropriate letter in the space provided.
A. General journal H. Permanent accounts
B. Trial balance I. Revenue recognition principle
C. Periodicity assumption J. Prepayments
D. Accrual accounting K. Accrued expenses
E. Cash basis accounting L. Adjusting entries
F. Expense recognition principle M. Closing entries
G. Ledger N. Temporary accounts
1. Accounting basis in which companies record amounts in the periods in
which the events occur rather than in the periods in which the company
receives or pays cash
2. An assumption that the economic life of a business can be divided into
artificial time period
3. Expenses incurred but not yet paid in cash or recorded
4. The principle that companies recognize revenue in the accounting
period in which they perform the services
5. The most basic form of journal
6. The principle that dictates that companies match efforts (expenses) with
accomplishments (revenues)
7. Accounting basis in which a company records revenues only when it
receives cash and an expense only when it pays out cash
8. A list of accounts and their balances at a given time
9. Income statement accounts whose balances are closed at the end of an
accounting period.
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
AT2-6
Solutions — Achievement Test 2: Chapters 3 and 4
PART I — MULTIPLE CHOICE (33 points)
PART II — JOURNAL ENTRIES (24 points)
PART III — ADJUSTING ENTRIES (24 points)
PART IV — NORMAL BALANCES (10 points)
PART V — MATCHING (9 points)