1) The cost of land includes fencing, paving, sprinkler systems, and lighting.
2) When a revenue is recorded, the asset account cash is always increased along with
owner’s equity.
3) Days’ sales in receivables is computed as average net accounts receivables divided by
365 days.
4) The time-period assumption ensures that accounting information is reported at
regular intervals.
5) Net purchases caption on the multi-step income statement is calculated by
subtracting purchase discounts and purchase returns and allowances from purchases.
6) A contingent liability is a potential liability that depends on a future event arising out
of a past transaction.
7) Accounts receivable in the general ledger is known as a control account.
8) The allowance for doubtful accounts is a contra account to accounts receivable and
has a normal credit balance.
9) Failure to adjust for an accrued expense will overstate expenses and understate net
income.
10) The only requirement an asset must meet in order for it to be recorded as property,
plant, and equipment is that it have a useful life beyond one year.
11) Allowance for doubtful accounts has a credit balance of $900 at the end of the
current year (prior to adjustment). An analysis of the aged accounts in the customers’
ledger indicates uncollectible accounts of $16,000. The adjusting entry would require a
debit to:
A) bad-debt expense for $15,100
B) bad-debt expense for $16,900
C) allowance for doubtful accounts for $15,100
D) allowance for doubtful accounts for $16,900
12) The payment of an account payable would:
A) increase owner’s equity
B) decrease owner’s equity
C) have no effect on total assets
D) have no effect on owner’s equity
13) Temporary accounts are:
A) a special type of nominal account
B) closed at the end of the accounting period
C) all of the owner equity accounts
D) revenue and expense accounts but not the income summary account
14) Expenses other than cost of goods sold, that are incurred in the entity’s major line of
business are called:
A) merchandising expenses
B) servicing expenses
C) other expenses
D) operating expenses
15) Sports Shop reports net accounts receivables on its December 31, 2014, balance
sheet at $105,460. The allowance for doubtful accounts has a normal balance of $3,200
after adjustment. What is the ending balance in the accounts receivable account?
A) $102,260
B) $105,460
C) $108,660
D) $99,060
16) Under a perpetual inventory system, the entry to record a sale on account would
include a debit to:
A) Accounts Receivable and a credit to Sales Revenue for the retail price of the
inventory
B) Inventory and a credit to Sales Revenue for the retail price of the inventory
C) Cost of Goods Sold and a credit to Inventory for the retail price of the inventory
D) Accounts Receivable and a credit to Sales Revenue for the cost of the inventory
17) When inventory prices are declining, the FIFO method will generally yield a gross
margin that is:
A) less than the weighted-average method
B) equal to the gross margin of the weighted-average method
C) higher than the weighted-average method
D) FIFO does not generally cause a gross margin that is different from that of any other
costing method
18) Research costs incurred by a company should be:
A) capitalized and amortized over 17 years or less
B) capitalized and amortized over its useful life
C) expensed on the current year’s income statement
D) either capitalized and amortized or expensed immediately at the option of the
accountant
19) Marvin Gardens received a bank statement showing a balance of $1,300. What is
the adjusted balance if there was a bookkeeper error of $150 in the depositor’s favour,
two outstanding cheques totalling $40, a service charge of $10, a deposit in transit of
$150, and interest revenue of $26 earned by the depositor?
A) $960
B) $1,586
C) $1,560
D) $1,410
20) An asset was purchased for $12,000. The asset’s estimated useful life was 5 years,
and its residual value was $2,000. Straight-line amortization was used. How much gain
or loss is reported if the asset is sold for $9,000 at the end of the second year?
A) $1,000 gain
B) $2,000 loss
C) No gain or loss
D) $1,000 loss
21) The ratio of an entity’s current assets to its current liabilities is referred to as the:
A) profitability ratio
B) liquidity ratio
C) current ratio
D) debt ratio
22) Table 3-4
The unadjusted trial balance of Holitzner Roof Repairs appears below as at December
31, 2014 . Holitzner records purchases of roof supplies to the expense account, and cash
received in advance from customers as revenue.
DebitCredit
Cash$5,300
Accounts receivable7,300
Roofing supplies
Equipment6,000
Accumulated amortization$1,200
Salaries payable1,100
Interest payable
Unearned service revenue
Note payable10,000
Carmen Holitzner, capital6,400
Carmen Holitzner, withdrawals600
Service revenue3,000
Salaries expense500
Amortization expense
Rent expense2,100
Roofing supplies expense1,100
Interest expense__________
$22,300$22,300
Refer to Table 3-4. Given the following information, prepare the necessary adjusting
entries at year end, December 31, 2014 .
a) A physical count reveals only $520 of roofing supplies are on hand at December 31,
2014 .
b) The equipment is amortized at a rate of $120 per month.
c) Unearned service revenue amounted to $200 at December 31, 2014 .
d) Accrued salary expense at December 31, 2014, amounts to $150.
e) Interest accrued on the note payable at December 31, 2014, amounts to $50.
23) A company with net sales of $850,000, a beginning balance of net receivables of
$230,000, and an ending balance of net receivables of $190,000 has a days’ sales in
accounts receivable of:
A) 99 days
B) 82 days
C) 92 days
D) 90 days
24) Which of the following accounts will have a zero balance after the closing process
is completed?
A) accumulated amortization
B) unearned service revenue
C) the owner’s capital account
D) amortization expense
25) Details of a purchase invoice, credit terms, and a purchase return are shown below.
Assume the credit memo was received and payment made within the discount period.
Cost of merchandise as shown on purchase invoice $9,200
Cost of merchandise returned 3,700
Transportation charges, terms FOB shipping point500
Credit terms2/10 n/30
Compute the following:
a)amount of discount
b)amount paid by purchaser, within the discount period, including freight, if applicable
c)amount paid by purchaser if paid after expiration of discount including freight, if
applicable
26) A 60-day, 12% note for $11,000, dated May 15, is received from a customer. The
principal amount of the note is:
A) $220
B) $11,220
C) $10,780
D) $11,000
27) The entry to record the establishment of a petty cash fund would include a:
A) debit to Cash in Bank
B) credit to Petty Cash
C) debit to Petty Cash
D) credit to various expenses and assets
28) An asset was purchased for $12,000. The asset’s estimated useful life was 5 years,
and its residual value was $2,000. Straight-line amortization was used. How much gain
or loss is reported if the asset is sold for $4,500 at the end of the third year?
A) $1,500 gain
B) $2,000 loss
C) No gain or loss
D) $1,500 loss
29) Table 10-8 Zane Manufacturing
On January 1, 2013, Zane Manufacturing Company purchased a machine for $40,000.
The company expects to use the machine a total of 24,000 hours over the next 6 years.
The estimated sales price of the machine at the end of 6 years is $4,000. The company
used the machine 8,000 hours in 2013 and 12,000 in 2014 .
Refer to Table 10-8. What is the amortization expense for 2014 if the company uses the
units-of-production amortization?
A) $6,000
B) $18,000
C) $10,000
D) $9,000
30) Match the following.
A) network
B) accounting information system
C) software
1> Set of programs or instructions that cause the computer to perform the work desired
2> The combination of personnel, records, and procedures that a business uses to meet
the need for financial data
3> Set of programs that drives the computer
4> The system of electronic linkages that allows different computers to share the same
information
31) Table 4-2
The ledger accounts for Alice’s Rentals include the following normal balances as of
December 31, 2014:
Accumulated amortization$ 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 is the debt ratio for Alice’s Rentals?
A) 1.49
B) 0.61
C) 0.67
D) 0.75
32) Daniels & Company accepted a nine-month, $24,000 note receivable, with 6%
interest, from Renee Company on September 1, 2013 . Daniels & Company’s year end
is December 31 . The amount of interest on this note to be recognized by Daniels &
Company in 2014 is:
A) $600
B) $480
C) $1,440
D) $1,080
33) Classify each of the following reconciling items of the Tic and Tac Company as:
a) an addition to the bank balance
b) a deduction from the bank balance
c) an addition to the book balance
d) a deduction from the book balance
e) not a reconciling item
1>Bank service charges________
2>Bookkeeper recorded cheque #849 as $693
instead of the correct amount of $963________
3>Collection of note receivable plus interest revenue by bank________
4>Deposits in transit________
5>Bank added deposit to Tic and Tac’s account in error________
6>Bank charge for printing cheques________
7> Outstanding cheques________
8>Bookkeeper failed to record a cheque that
was returned with the bank statement________
9>Cheque returned by the bank marked NSF________
10>Bank withdrew from Tic and Tac’s account $1,100
for a cheque written for $110________
34) Computerized accounting systems are organized by:
A) outputs
B) inputs
C) function
D) networks
35) On October 1 of the current year, Wood Services received $15,000 for services to
be performed evenly over the next 12 months. Wood Services initially recorded the
$15,000 as unearned service revenue. The adjusting entry on December 31 of the
current year will include a:
A) debit to service revenue for $11,250
B) debit to service revenue for $3,750
C) debit to unearned service revenue for $3,750
D) debit to unearned service revenue for $11,250
36) Using the information in the following unidentified journals, state how the selected
numbers would be posted using the selections below.
1> Posted to a general ledger account as a debit
2> Posted to a general ledger account as a credit
3> Posted to a subsidiary ledger account as a debit
4> Posted to a subsidiary ledger account as a credit
5> Posted to the general ledger as a debit and a credit
6> Not posted
Date Account Debited Acc. Rec. Dr. Sales Rev. Cr. Cost of Goods Sold Dr.
Inventory Cr.
Feb. 9 Jones Company 3,540 2,300
10 Sails and Boats 10,900 b) 5,550
26 Davis Enterprises c) 7,000 g) 3,250
28 Totals a) 21,440 11,100
|Debits|Credits|
a)21,440________
b) 5,550________
c) 7,000________
d) 18________
e) 6,132________
f) 2,550________
g) 3,250________
h) 1,750________
37) Net income is reported on the income statement at $75,000. Adjusting entries for
accrued revenues of $6,000 and unearned revenue earned during the current period of
$2,500 were accidentally omitted. The correct net income is:
A) $83,500
B) $81,000
C) $77,500
D) $78,500
38) Combining the amounts from the unadjusted trial balance with the adjustments
gives rise to the:
A) unadjusted trial balance
B) adjusted trial balance
C) balance sheet
D) income statement
39) Table 5-1
Referring to Table 5-1, what is the income from operations?
A) $20,000
B) $55,000
C) $60,000
D) $190,000
40) The following information is needed to reconcile the cash balance for Woods Paper
Products.
A deposit of $5,794.62 is in transit.
Outstanding checks total $1,533.25.
The book balance is $5,695.62.
The bookkeeper recorded a $1,524.00 cheque as $15,240 in payment of the current
month’s rent.
The bank balance at February 28, 2008 was $16,500.25.
A deposit of $300 was credited by the bank for $3,000.
A customer’s cheque for $1,280 was returned for non-sufficient funds.
The bank service charge is $70.
Based on this information, complete a bank reconciliation, in the format below, for
Woods Paper Products as of February 28, 2013.
41) Durham Bike Shop Ltd.’s year end is December 31 . Some of the company’s
transactions are as follows:
March 1Paid $190,000 cash to purchase the following assets:
MarketEst. Useful Est. Residual
AssetValueLifeValue
Land$88,000- –
Building 132,00025 years$14,000
Durham Bike Shop Ltd. plans to use the straight-line amortization
method for the building.
April 15Purchased a used pickup truck for $10,500 cash. The truck sells for
$15,900 when new. The truck is expected to be used for eight years and
driven 120,000 km. The estimated salvage value is $3,900. It will be
amortized using the units-of-production method.
April 16Installed heavy-duty racks costing $1,400 that will enable the truck to
carry several bicycles.
June 30Paid John’s garage for an oil change ($35) and the replacement of a
muffler ($425).
Dec. 31Recorded amortization on the assets. The truck was driven
9,000 kilometres since it was purchased.
Record the above transactions of Durham Bike Shop Ltd. Round all amounts to the
nearest dollar. Explanations are not required.
42) 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 using the straight-line method.
43) The account used to offset the adjustment to inventory to the actual amount on hand
44) Alpha Company Ltd. purchased equipment on January 1, 2013, for $250,000. The
estimated residual value is $25,000 and the estimated useful life is 15 years. Alpha
Company Ltd. uses straight-line method to amortize all property, plant and equipment.
On January 1, 2016, Alpha Company Ltd. revised the useful life to be a total of 10 years
from date of acquisition.
Prepare the journal entry to record amortization on December 31, 2016 . Round to the
nearest dollar if necessary.