1) The initial entry to establish a petty cash fund involves a debit to cash and a credit to
petty cash.
2) Goodwill has an indefinite life, so it is not amortized, but tested for impairment.
3) A contingent liability is an actual liability that is estimated when things go wrong.
4) The normal balance of a revenue account is a credit.
5) Employee income tax is an optional deduction, which is withheld from the
employee’s pay.
6) Inventory is a current liability on the balance sheet.
7) In a periodic inventory system, the cost of freight-in is part of the cost of goods
available for sale.
8) A $45,000, 10%, 90-day note payable comes to maturity. The amount to be paid at
maturity including interest is $43,890.41.
9) A net loss is represented by a debit balance in the income summary account.
10) Sales tax payable is recorded as a debit when recording a sale of merchandise.
11) Serious breaches of the professional code of conduct can result in criminal
prosecution by the professional accounting organizations.
12) Which of the following statements is TRUE?
A) Accumulated amortization is that portion of a property, plant, and equipment asset’s
cost that has already been recorded as an expense
B) Amortization is a process of valuation
C) Amortization represents the cash a business has set aside to replace assets as they
become fully amortized
D) Accumulated amortization is classified as a liability account on the balance sheet
13) Table 11-14
Tractor World offers warranties on all their tractors. They estimate warranty expense at
2.4% of sales. At the beginning of 2013, the estimated warranty payable account had a
credit balance of $900. During the year, Tractor World had $285,000 of sales, and had
to pay out $5,100 in warranty payments.
Refer to Table 11-14. At the end of the year, what balance in estimated warranty
payable would be included in the balance sheet?
A) $2,640
B) $5,100
C) $4,200
D) $6,840
14) 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:
Referring to Table 9-5, assume Ritchie uses the percent-of-sales method for estimating
uncollectible accounts. Ritchie estimates that uncollectible accounts will be 1.75% of
net credit sales. The adjusting entry to record bad-debt expense for the year is:
A)
B)
C)
D)
15) The major revenue of a merchandiser is ________ while the major expense(s) is
(are) ________.
A) sales revenue, cost of goods sold
B) gross margin, operating expenses
C) income from operations, cost of goods sold
D) sales revenue, operating expenses
16) State whether the following errors would cause the trial balance to be out of balance
by placing a check mark in the appropriate column.
InOut of
BalanceBalance
a)Services rendered for $200 cash were recorded twice
in the journal and posted twice to the ledger.________ ________
b)Services rendered on account for $300 were recorded
as services rendered for cash of $300.________ ________
c)A cash purchase of supplies for $400 was recorded as a ________ ________
debit to supplies and a credit to accounts receivable for $400.________ ________
d)A cash purchase of supplies for $300 was posted as a
debit to supplies for $300 and a debit to cash for $300.________ ________
e)A payment of $200 on account was recorded as a debit
to cash and a credit to accounts payable.________ ________
f)A $200 payment to employees for salaries was posted
as a debit to utilities expense and a credit to cash.________ ________
g)A $600 cash withdrawal by the owner was recorded
as a debit to capital and a credit to cash.________ ________
17) June Company Ltd. recently sold some used furniture for $3,800 cash. The furniture
cost $19,600 and had accumulated amortization through the date of sale totalling
$17,300. The journal entry to record the sale of the furniture is:
A)
B)
C)
D)
18) Lynnwood Services prepaid 24 months of rent in advance on October 1, 2014 .
Lynnwood Services debited rent expense for the entire amount of $12,000. The
adjusting entry on December 31, 2014, would include a:
A) debit to prepaid rent for $1,500
B) debit to prepaid rent for $10,500
C) credit to rent expense for $1,500
D) debit to rent expense for $10,500
19) Under a periodic 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 $2,600
C) credit to Cost of Goods Sold of $2,600
D) credit to Sales Returns and Allowances of $1,200
20) Safeguarding property, plant and equipment includes all of the following except:
A) training the operating personnel in the proper use of the assets
B) setting up security measures to prevent theft
C) separating custody of the assets from the accounting for the assets
D) assigning responsibility for the custody of the assets to the accountant
21) Accumulated amortization is found on the:
A) trial balance credit column and income statement debit column of a worksheet
B) trial balance credit column, adjustments credit column, adjusted trial balance credit
column, and balance sheet debit column of a worksheet
C) trial balance credit column, adjustments credit column, adjusted trial balance credit
column, and balance sheet credit column of a worksheet
D) trial balance debit column, adjustments debit column, adjusted trial balance credit
column, and income statement credit column of a worksheet
22) The cost of paving a parking lot should be charged to:
A) a natural resource
B) land improvements
C) land
D) repairs and maintenance expense
23) Companies following international financial reporting standards (IFRS) must
provide the following financial statements:
A) Income Statement, Statement of Financial Position, Statement of Changes in Equity,
Statement of Cash Flows, Notes
B) Statement of Comprehensive Income, Statement of Final Position, Statement of
Changes in Equity, Statement of Cash Flows, Notes
C) Statement of Comprehensive Income, Statement of Financial Position, Statement of
Changes in Equity, Statement of Cash Flows, Notes
D) Statement of Comprehensive Income, Statement of Financial Position, Statement of
Changes in Cash Flow, Statement of Owner’s Equity, Notes
24) Table 9-3
Turbo Company has an allowance for doubtful accounts account with a $300 credit
balance. Net credit sales for the period were $180,000. An aging process shows that
$4,500 of the accounts receivable probably will be uncollectible. In addition, Turbo
believes that 4.5% of all net credit sales are uncollectible.
Referring to Table 9-3, if the percent-of-sales method is used, what is the amount of the
adjusting entry to record bad-debt expense?
A) $4,500
B) $7,800
C) $8,400
D) $8,100
25) Hardware is the electronic equipment that includes:
A) computers, monitors, printers and the network
B) disk drives, software, and servers
C) servers, databases, and software
D) servers and software only
26) 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 amount of interest expense recognized in 2013 would be:
A) $200.00
B) $50.00
C) $100.00
D) $300.00
27) The accounting guidelines for all countries recommend:
A) the adoption of IFRS
B) the use of cash-basis accounting
C) the adoption of ASPE
D) the use of accrual accounting
28) The following refers to periodic inventory:
Compute cost of goods sold.
A) $116,540
B) $81,460
C) $114,950
D) $53,540
29) Utsman Enterprises Ltd. purchased land, buildings, and equipment for $2,400,000.
The land has been appraised at $865,000, the buildings at $1,175,000, and the
equipment at $510,000. The equipment account will be debited for:
A) $500,000
B) $525,000
C) $410,156
D) $480,000
30) The financial statements should be prepared in what order?
A) Income statement, statement of owner’s equity, balance sheet, statement of cash
flows
B) Statement of owner’s equity, balance sheet, income statement, statement of cash
flows
C) Balance sheet, statement of owner’s equity, income statement, statement of cash
flows
D) Balance sheet, income statement, statement of owner’s equity, statement of cash
flows
31) Table 9-4
On December 31, Asheville Company has a $330,000 debit balance in accounts
receivable. The allowance for doubtful accounts has a $4,500 credit balance. Net credit
sales for the period total $1,500,000. Asheville estimates 2% of its net credit sales may
be uncollectible, and from experience, Asheville determines that the allowance for
doubtful accounts should be 10% of accounts receivable.
Referring to Table 9-4, under the percent-of-sales method, the bad-debt expense for the
period would be:
A) $25,500
B) $30,000
C) $34,500
D) $35,000
32) Which of the following journal entries correctly records paying for a $900 one year
insurance policy in advance?
A)
B)
C)
D)
33) A cheque cashed by the payee for $2,200 was recorded in the makers accounting
records for $220. On a bank reconciliation:
A) $1,980 will be added to the book balance
B) $1,980 will be deducted from the book balance
C) $1,980 will be added to the bank balance
D) $1,980 will be deducted from the bank balance
34) Table 5-5
The following items were taken from the December 31, 2013 records of Speedy Boat
Company, which uses a periodic inventory system:
Refer to Table 5-5. The operating income for Speedy Boat Company is:
A) $156,000
B) $172,000
C) $168,000
D) $160,000
35) Table 6-2
On December 31, a physical count reveals 80 units in ending inventory.
Referring to Table 6-2, cost of goods sold calculated under the periodic FIFO method
would be:
A) $1,800
B) $2,160
C) $1,910
D) $1,850
36) The entry to establish the petty cash fund is:
A)
B)
C)
D)
37) Match the following.
A) market value
B) long-term asset
C) net realizable value
D) lower-of-cost-and-net realizable-value rule
E) current asset
1> A rule that requires an asset be reported in the financial statements at whichever is
lower, its historical cost or its net realizable value
2> The selling price less the cost of disposition
3> The classification of inventory on the balance sheet.
38) Describe owner’s equity in relation to the assets of the business.
39) Following is a random list of accounts with normal balances for the Sisco
Merchandising as of December 31, 2013 . All adjusting entries have been made.
Closing entries have not been made.
C. Sisco, Capital$159,000
Land80,000
Sales discounts18,000
Supplies expense9,000
Interest revenue14,000
Mortgage payable80,000
Cash22,000
Accounts receivable34,000
Unearned service revenue11,000
Salary expense23,000
Accounts payable36,000
Accumulated amort.-building17,000
Equipment46,000
Prepaid insurance8,000
Interest expense6,000
C. Sisco, Withdrawals15,000
Sales revenue285,000
Interest receivable5,000
Inventory28,000
Accumulated amort.-equipment12,000
Insurance expense21,000
Salary payable6,000
Supplies4,000
Cost of goods sold156,000
Sales returns & allowances13,000
Amortization expense-building8,000
Amortization expense-equipment8,000
Interest payable14,000
Utilities expense8,000
Delivery expense7,000
Building115,000
Prepare a single-step income statement for Sisco Merchandising for the year ended
December 31, 2013 .
40) At the end of 2014, Sam Lim had catering supplies on hand in the amount of
$9,000. During 2015, the business paid $89,000 for additional catering supplies. At year
end, the company’s catering supplies on hand totalled $5,000.
Required:
1> The 2015 year-end adjusting journal entry if Sam Lim records cash paid for supplies
as an expense.
2> The 2015 year-end adjusting journal entry if Sam Lim records cash paid for supplies
as an asset.
41) Product guarantee against defects
42) Reduction in the amount receivable from a customer, offered by the seller as an
incentive for the customer to pay promptly.
43) Using the following data, compute the book balance for Marrow Company before
the preparation of a bank reconciliation on January 31, 2014:
– The bank statement reveals a balance of $3,650.59.
-The bank statement indicates service charges of $40.50.
-Outstanding cheques on January 31, 2010, amount to $10,600.49.
– Deposits in transit on January 31, 2010, amount to $15,685.00.
– The bookkeeper mistakenly recorded a $525 cheque payment to a vendor as $52.50.
– The bank mistakenly recorded a deposit of $5,000 as $500.
44) Jennifer Black, CGA, is the controller of Arc Industries, a large manufacturing
company. Company president, Mr. Allen Arc, informed Jennifer that if the company
failed to report a “healthy bottom line” this year, the bank would turn down their
application for a $1,000,000 loan. The company has suffered losses for the past two
years and current economic conditions have caused a downturn in demand for the
company’s product. Mr. Arc suggested that Jennifer use “creative accounting” if
necessary to ensure the company reported a profit. As a reward Jennifer would receive a
substantial year-end bonus. If you were Jennifer, how would you respond to the
president?