Download Test 1 Answers

BUSA 101
Test # 1
Chapters 1 - 5
Mr. Moloney
Multiple Choice (1 point each)
Identify the letter of the choice that best completes the statement or answers the question.
_D_
__B__
__A__
__B__
__B__
__C__
__A__
__A__
__B__
1. The matching concept:
a. addresses the relationship between the journal and the balance sheet
b. determines whether the normal balance of an account is a debit or credit
c. requires that the dollar amount of debits equal the dollar amount of credits on a trial
balance
d. determines that expenses related to revenue be reported at the same time the revenue
is reported
2. Using accrual accounting, revenue is recorded and reported only:
a. when cash is received without regard to when the services are rendered
b. when the services are rendered without regard to when cash is received
c. when cash is received at the time services are rendered
d. if cash is received after the services are rendered
3. One of the accounting concepts upon which deferrals and accruals are based is:
a. matching
b. cost
c. price-level adjustment
d. conservatism
4. Unearned rent, representing rent for the next six months' occupancy, would be reported on the landlord's
balance sheet as a(n):
a. asset
b. liability
c. capital stock account
d. revenue
5. A debit may signify a(n):
a. decrease in asset accounts
b. decrease in liability accounts
c. increase in the capital stock account
d. decrease in dividends account
6. Which of the following applications of the rules of debit and credit is true?
a. decrease Prepaid Insurance with a credit and the normal balance is a credit
b. increase Accounts Payable with a credit and the normal balance is a debit
c. increase Supplies Expense with a debit and the normal balance is a debit
d. decrease Cash with a debit and the normal balance is a credit
7. A current ratio of 6.5 means that:
a. there are $6.50 in current assets available to pay each dollar of current liabilities.
b. the company cannot pay its debts as they come due
c. there are $6.5 in current assets for every $6.5 in current liabilities
d. there are $6 in current assets for every $5 in current liabilities
8. At the end of the fiscal year, the usual adjusting entry for accrued salaries owed to employees was omitted.
Which of the following statements is true?
a. Salary Expense for the year is understated.
b. Liabilities at the end of the year are overstated.
c. Assets at the end of the year are understated.
d. Stockholders'equity at the end of the year is understated.
9. Transactions affecting shareholders equity include:
a. stockholders' investments and dividends.
b. stockholders' investments and dividends, revenues, and expenses
c. stockholders'investments, revenues, and expenses
d. dividends, revenues, and expenses
__C__ 10. The balance of the retained earnings account appears in:
a. both the retained earnings statement and the income statement
b. only the retained earnings statement
c. both the retained earnings statement and the balance sheet
d. both the retained earnings statement the statement of cash flows
Problem
11. 12 Points Merchandise with a list price of $3,800 and costing $2,000 is sold on account, subject to the
following terms: FOB destination, 2/10, n/30. The seller prepays the transportation costs of $50 (debit
Transportation Out for the transportation costs). Prior to payment for the goods, the seller issues a credit
memorandum for $800 to the customer for merchandise costing $500 that is returned. The correct amount is
received within the discount period.
Record the foregoing transactions of the seller in the sequence indicated below.
(a)
(b)
(c)
(d)
11.
Sold the merchandise, recognizing the sale and cost of merchandise sold.
Paid the transportation charges.
Issued the credit memorandum.
Received payment from the customer.
(a)
(b)
(c)
(d)
Accounts Receivable
Sales
Cost of Merchandise Sold
Merchandise Inventory
Transportation Out
Cash
Sales Returns and Allowances
Accounts Receivable
Merchandise Inventory
Cost of Merchandise Sold
Cash
Sales Discounts
Accounts Receivable
3,800
3,800
2,000
2,000
50
50
800
800
500
500
2,940
60
3,000
12.14 Points After all adjustments have been made, but before the accounts have been closed, the following balances were
taken from the ledger:
Accounts payable
Accounts receivable
Accumulated depreciation
Capital Stock
Cash
Depreciation expense
Dividends
Equipment
$ 40,000
54,500
83,325
20,000
7,150
23,500
28,000
155,000
Insurance expense
Prepaid insurance
Rent expense
Retained earnings
Salary expense
Salaries payable
Service revenue
Supplies
Supplies expense
$
8,600
5,275
21,400
80,950
66,000
150
151,000
2,500
3,500
Journalize the entries to close the appropriate accounts.
12.
Service Revenue
Income Summary
151,000
151,000
123,000
Income Summary
Depreciation Expense
Insurance Expense
Rent Expense
Salary Expense
Supplies Expense
23,500
8,600
21,400
66,000
3,500
28,000
Income Summary
Retained Earnings
28,000
28,000
Retained Earnings
Dividends
28,000
13.14 Points For each of the following, journalize the necessary adjusting entry.
(a)
(b)
(c)
(d)
13.
A business pays weekly salaries of $25,000 on Friday for a five-day week ending
on that day. Journalize the necessary adjusting entry at the end of the fiscal period,
assuming that the fiscal period ends (1) on Wednesday, (2) on Thursday.
The balance in the prepaid insurance account before adjustment at the end of the
year is $16,000. Journalize the adjusting entry required under each of the following
alternatives: (1) the amount of insurance expired during the year is $6,500, (2) the
amount of unexpired insurance applicable to a future period is $2,500.
On July 1 of the current year, a business pays $30,000 to the city for license taxes
for the coming fiscal year. The same business is also required to pay an annual
property tax at the end of the year. The estimated amount of the current year's
property tax allocable to July is $3,600. (1) Journalize the two adjusting entries
required to bring the accounts affected by the taxes up to date as of July 31. (2)
What is the amount of tax expense for July?
The estimated depreciation on equipment for the year is $99,000.
(a)
(1)
(2)
(b)
(1)
(2)
(c)
(1)
(2)
(3)
(d)
Salary Expense
Salaries Payable
15,000
Salary Expense
Salaries Payable
20,000
15,000
20,000
Insurance Expense
Prepaid Insurance
6,500
Insurance Expense
Prepaid Insurance
13,500
Taxes Expense
Prepaid License Taxes
($30,000 prepaid divide by 12
months = $2,500)
Taxes Expense
Property Taxes Payable
6,500
13,500
2,500
2,500
3,600
3,600
$6,100 ($2,500 + $3,600)
Depreciation Expense - Equipment
Accumulated Depreciation Equipment
99,000
99,000
14.20 Points Record the following selected transactions for March in a two-column journal, identifying each entry by
letter(each transaction is independent of the others):
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
Received $10,000 from Moloney as his investment in the new business.
Purchased equipment for $35,000, paying $10,000 in cash and giving a note
payable for the remainder.
Paid $1,000 for rent for March.
Purchased $8,500 of supplies on account.
Recorded $2,500 of fees earned on account.
Received $11,000 in cash for fees earned.
Paid $200 to creditors on account.
Paid wages of $1,250.
Received $1,150 from customers on account.
Recorded dividends of $1,850.
14.
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
Cash
Swinging Gates, Capital
10,000
Equipment
Cash
Note Payable
35,000
10,000
10,000
25,000
Rent Expense
Cash
1,000
Supplies
Accounts Payable
8,500
Accounts Receivable
Fees Earned
2,500
Cash
Fees Earned
Accounts Payable
Cash
1,000
8,500
2,500
11,000
11,000
200
200
Wages Expense
Cash
1,250
Cash
Accounts Receivable
1,150
Dividends
Cash
1,850
1,250
1,150
1,850
15.30 Points On May 1, 2002, the amount of retained earnings in Pro-Mo Services Corporation was $33,000, and capital stock was $100,000.
During May, $15,500 of dividends was paid by the corporation. The amounts of the various assets, liabilities, revenues, and
expenses are as follows:
$11,900
Accounts payable
29,950
Accounts receivable
43,390
Cash
80,800
Fees earned
1,475
Insurance expense
80,000
Land
1,510
Miscellaneous expense
2,000
Prepaid insurance
8,000
Rent expense
38,300
Salary expense
950
Supplies
825
Supplies expense
3,800
Utilities expense
Present in good form (a) a multi-step income statement for May, (b) a retained earnings statement for May,
and (c) a balance sheet as of May 31.
Pro-Mo Services Corporation
Income Statement
For the Month Ended May 31, 2002
Fees earned
Cost of Goods Sold
Gross Profit
Operating expenses:
Rent expense
Utilities expense
Supplies expense
Miscellaneous expense
Insurance expense
$80,800
$20,000
$60,800
8,000
3,800
825
1,510
1,475
Sales Expenses:
Salary expense
Sales commissions
$35,000
3,300
Net income
$15,610
38,300
$ 6,890
Pro-Mo Services Corporation
Retained Earnings Statement
For the Month Ended May 31, 2002
$33,000
Retained earnings May 1, 2002
Net income for the month
Less dividends
Decrease in retained earnings
Retained Earnings, May 31, 2002
Assets
Cash
Accounts receivable
Prepaid insurance
Supplies
Land
Total assets
$6,890
15,500
( 8,610)
$24,390
Pro-Mo Services Corporation
Balance Sheet
May 31, 2002
Liabilities
$ 43,390
Accounts payable
29,950
2,000
950
80,000
$156,290
Stockholders' Equity
Capital stock
Retained earnings
Total liabilities and
stockholders' equity
$ 31,900
100,000
24,390
$156,290