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MULTIPLE CHOICES
1. The natural business year
a. is a fiscal year that ends when business activities are at its lowest point.
b. is a calendar year that ends when business activities are at its lowest point.
c. is a fiscal year that ends when business activities are at its highest point.
d. is a calendar year that ends when business activities are at its highest point.
2. The worksheet
a. is an integral part of the accounting cycle
b. eliminates the need to rewrite the financial statements
c. is a working paper that is required
d. is used to summarize account balances and adjustments for the financial statements
3. Which one of the steps below is not aided by the preparation of the work sheet?
a. preparing the adjusted trial balance
b. posting to the general ledger
c. preparing the financial statements
d. preparing the closing entries
6. The proper sequence for the steps in the accounting cycle is a follows
a. analyze and record transactions, post transaction to the ledger, prepare a trial balance, prepare
financial statements, journalize closing entries, analyze adjustment data and prepare adjusting
entries
b. prepare a trial balance, analyze adjustment data, prepare adjusting entries, prepare financial
statements, journalize closing entries and post to the ledger, analyze and record transactions, post
transactions to the ledger
c. analyze and record transactions, post transactions to the ledger, prepare a trial balance, analyze
adjustment data, prepare adjusting entries, prepare financial statements, journalize closing entries
and post to the ledger
d. prepare financial statements, journalize closing entries and post to the ledger, analyze and record
transactions, post transactions to the ledger, prepare a trial balance, analyze adjustment data,
prepare adjusting entries
7. The following are steps to the accounting cycle. Of the following, which step should be done first.
a. Closing entries are journalized and posted to the ledger.
b. Transactions are posted to the ledger.
c. Adjusting entries are journalized and posted to the ledger.
d. Financial statements are prepared.
8. The accounting cycle requires three trial balances be done. In what order should they be prepared?
a. Post-closing, unadjusted, adjusted
b. Unadjusted, post-closing, adjusted
c. Unadjusted, adjusted, post-closing
d. Post-closing, adjusted, unadjusted
9. The primary difference between deferred and accrued expenses is that deferred expenses have
a. been incurred and accrued expenses have not
b. not been incurred and accrued expenses have been incurred
c. been recorded and accrued expenses have not been incurred
d. not been recorded and accrued expenses have been incurred
12. What is the major difference between a periodic and perpetual inventory system?
a. Under the periodic inventory system, the purchase of inventory will be debited to the Purchases
account
b. Under the periodic inventory system, no journal entry is recorded at the time of the sale of
inventory.
c. Under the periodic inventory system, all adjustments such as purchases returns and allowances
and discounts are reconciled at the end of the month.
d. All are correct.
13. Robles Co. sells $1,000 of inventory to Salas Co.for cash. Robles paid $650 for the merchandise. Under a
perpetual inventory system, the following journal entry(ies) would be recorded.
a. Cash 1,000 Dr, Merchandise Inventory 650 Cr
b. Cash 1,000 Dr, Sales 1,000 Cr, Cost of Merchandise Sold 650 Dr, Merchandise Inventory 650 Cr.
c. Cash 1,000 Dr, Sales 1,000 Cr
d. Accounts Receivable 1,000 Dr, Sales 1,000 Cr, Cost of Merchandise Sold 650 Dr, Merchandise
Inventory 650 Cr
.
14. Black Company sold Red Company merchandise on account FOB shipping point, 2/10, net 30, for
$10,000. Black prepaid the $200 shipping charge. Which of the following entries does Black make to
record this sale?
15. If the effect of the debit portion of an adjusting entry is to increase the balance of an expense account,
which of the following describes the effect of the credit portion of the entry?
a. decreases the balance of an stockholders’ equity account
b. increases the balance of an liability account
c. increases the balance of an asset account
d. decreases the balance of an expense account
16. If the effect of the credit portion of an adjusting entry is to increase the balance of a liability account, which
of the following describes the effect of the debit portion of the entry?
a. increases the balance of a contra asset account
b. increases the balance of an asset account
c. decreases the balance of an stockholders’ equity account
d. increases the balance of an expense account
18. The cash basis of accounting records revenues and expenses when the cash is exchanged while the
accrual basis of accounting
a. records revenues when they are earned and expenses when they are paid
b. records revenues and expenses when they are incurred.
c. records revenues when cash is received and expenses when they are incurred.
d. records revenues and expenses when the company needs to apply for a loan.
19. The fiscal year selected by companies
a. is the same as the calendar year
b. begins with the first day of the month and ends on the last day of the twelfth month
c. must always begin on January 1.
d. will change each year
20. Which of the accounts below would appear in the Balance Sheet columns of the work sheet?
a. Service Revenue
b. Prepaid Rent
c. Supplies Expense
d. None are correct
21. The difference between the totals of the debit and credit columns of the Adjusted Trial Balance columns
on a work sheet
a. is the amount of net income or loss
b. indicates there is an error on the work sheet
c. is not unusual when preparing the work sheet
d. is the net difference between revenue, expenses, and dividends
23. On October 1, the company pays rent for twelve months in advance and debits an asset account. At year
end, the adjusting entry on the work sheet would
a. increase an expense account
b. decrease a liability account
c. increase an asset account
d. decrease an expense account
24. On August 1, a company collects revenue in advance for the next twelve months and credits a liability
account. The adjusting entry at year end on the work sheet would
a. increase a liability account
b. decrease an asset account
c. decrease a revenue account
d. decrease a liability account
25. At the end of the fiscal year, the usual adjusting entry to Prepaid Insurance to record expired insurance
was omitted. Which of the following statements is true?
a. Total assets at the end of the year will be understated.
b. Owner's equity at the end of the year will be understated.
c. Net income for the year will be overstated.
d. Insurance Expense will be overstated.
26. Which of the accounting steps in the accounting process below would be completed last?
a. preparing the adjusted trial balance
b. posting
c. preparing the financial statements
d. journalizing
27. The adjusting entry to adjust supplies was omitted at the end of the year. This would effect the income
statements by having
a. expenses understated and therefore net income overstated
b. revenues understated and therefore net income understated
c. expenses understated and therefore net income understated
d. expenses overstated and therefore net income understated
28. At the end of the fiscal year, the usual adjusting entry for depreciation on equipment was omitted. Which
of the following statements is true?
a. Total assets will be understated at the end of the current year.
b. The balance sheet and income statement will be misstated but the statement of owner's
equity will be correct for the current year.
c. Net income will be overstated for the current year.
d. Total liabilities and total assets will be understated.
36. What is the major difference between the Unadjusted Trial Balance and the Adjusted Trial Balance?
a. The Adjusted Trial Balance will show the net income (loss) as an additional account.
b. Both will need to be in balance in order to continue with the end-of-period processing
c. The Adjusted Trial Balance includes the postings of the adjustments for the period in the balance of
the accounts.
d. The Unadjusted Trial Balance will be used to record the adjustments for the period.
37. Once the adjusting entries are posted, the Adjusted Trial Balance will prepared to
a. verify that the debits and credits are in balance.
b. verify that all of the adjustments were posted in the correct accounts.
c. verify that the net income (loss) is correct for the period.
d. verify the correct flow of accounts into the financial statements.
38. When preparing the statement of retained earnings, the beginning retained earnings balance can always
be found
a. in the Income Statement columns of the work sheet
b. in the statement of cash flows
c. in the general ledger
d. in the Balance Sheet columns of the work sheet
42. Which one of the fixed asset accounts listed below will not have a related contra asset account?
a. Office Equipment
b. Land
c. Delivery Equipment
d. Building
48. The classified Balance Sheet will subsection the assets section as follows
a. Current Assets and Other Assets
b. Current Assets and Property, Plant, and Equipment
c. Current Assets and Long-Term Assets
d. Other Assets and Property, Plant and Equipment
49. The classified Balance Sheet will divide its Liabilities Section as the following subsections
a. Current Liabilities and Long-Term Liabilities
b. Current Liabilities and Other Liabilities
c. Other Liabilities and Long-Term Liabilities
d. Present Liabilities and Tomorrow’s Liabilities
51. Which is the following that is not true about closing entries?
a. There are four closing entries that update the stockholders’ equity account.
b. After the second closing entry, the income summary account is equal to the net income or (loss) for
the period.
c. All real accounts are closed at the end of the period.
d. By closing nominal accounts at the end of the period to zero, it is possible to isolate next period’s
information correctly.
53. After posting the second closing entry to the income summary account, the balance will be equal to
a. zero.
b. stockholders’ equity.
c. revenues for the period
d. the net income or (loss) for the period.
54. Which of the following account groups are all considered nominal accounts?
a. Cash, Fees Earned, Unearned Revenues
b. Prepaid Expenses, Unearned Revenues, Fees Earned
c. Capital Stock, Dividends, Income Summary
d. Dividends, Fees Earned, Rent Expense
55. There are four closing entries. The first one is to close ____, the second one is to close ____, the third one
is to close ____, and the last one is to close ____.
a. Revenues, expenses, income summary, dividends account
b. Expenses, assets, income summary, capital stock account
c. Capital stock account, dividends account, income summary, assets
d. Dividends account, income summary, expenses, revenues
56. All of the closing entries will adjust ____ to update that account.
a. the dividends account
b. the retained earnings account
c. the cash account
d. the income summary account
59. Which of the accounts below would be closed by posting a debit to the account?
a. Unearned Revenue
b. Fees Earned
c. Dividends
d. Rent Expense
60. Which of the following accounts should be closed to Income Summary at the end of the fiscal year?
a. Supplies Expense
b. Accumulated Depreciation
c. Prepaid Insurance
d. Unearned Rent
61. Which of the following accounts will not be closed to Income Summary at the end of the fiscal year?
a. Salaries Expense
b. Fees Earned
c. Unearned Rent
d. Depreciation Expense
62. Which of the following accounts will be closed to the retained earnings account at the end of the fiscal
year?
a. Rent Expense
b. Fees Earned
c. Income Summary
d. Depreciation Expense
63. The entry to close the appropriate insurance account at the end of the accounting period is
a. debit Income Summary; credit Prepaid Insurance
b. debit Prepaid Insurance; credit Income Summary
c. debit Insurance Expense; credit Income Summary
d. debit Income Summary; credit Insurance Expense
64. Which of the following accounts ordinarily appears in the post-closing trial balance?
a. Dividends
b. Supplies Expense
c. Fees Earned
d. Unearned Rent
65. Which of the following is not true regarding Depreciation?
a. Depreciation allocates the cost of a fixed asset over its estimated life.
b. Depreciation expense reflects the decrease in market value each year.
c. Depreciation is an allocation not a valuation method.
d. Depreciation expense does not measure changes in market value.
68. At the end of the fiscal year, the usual adjusting entry for depreciation on equipment was omitted. Which of
the following statements is true?
a. Total assets will be understated at the end of the current year.
b. The balance sheet and income statement will be misstated but the statement of retained earnings
will be correct for the current year.
c. Net income will be overstated for the current year.
d. Total liabilities and total assets will be understated.
69. 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 was understated.
b. The total of the liabilities at the end of the year was overstated.
c. Net income for the year was understated.
d. Stockholders’ equity at the end of the year was understated.
70. The adjusting entry to adjust supplies was omitted at the end of the year. This would effect the income
statements by having
a. expenses understated and therefore net income overstated
b. revenues understated and therefore net income understated
c. expenses understated and therefore net income understated
d. expenses overstated and therefore net income understated
71. The post-closing trial balance differs from the adjusted trial balance in that it
a. does not take into account closing entries
b. does not take into account adjusting entries
c. does not include balance sheet accounts
d. does not include income statement accounts
75. Which of the items below does not appear on the work sheet?
a. adjusting entries
b. the unadjusted trial balance
c. closing entries
d. dividends
76. An indication that the work sheet columns are in balance and the work sheet is completed is
a. the word "Total" is written at the bottom of each pair of columns
b. each pair of columns is double underlined
c. each pair of columns has the totals circled
d. the final figures are written in ink
77. When comparing a retail business to a service business, the financial statement that changes the most is
the
a. Balance Sheet
b. Income Statement
c. Statement of Retained Earnings
d. Statement of Cash Flow
78. When comparing a retail business to a service business, the financial statement that changes the least is
the
a. Balance Sheet
b. Income Statement
c. Statement of Retained Earnings
d. Statement of Cash Flow
79. A company purchases a one-year insurance policy on June 1 for $1,260. The adjusting entry on
December 31 is
a. debit Insurance Expense, $630 and credit Prepaid Insurance, $630.
b. debit Insurance Expense, $525 and credit Prepaid Insurance, $525.
c. debit Insurance Expense, $735, and credit Prepaid Insurance, $735.
d. debit Prepaid Insurance, $630, and credit Cash, $630.
80. What is the proper adjusting entry at April 30, the end of the fiscal year, based on a prepaid insurance
account balance before adjustment, $16,000, and unexpired amounts per analysis of policies, $6,000?
a. debit Insurance Expense, $6,000; credit Prepaid Insurance, $6,000
b. debit Insurance Expense, $16,000; credit Prepaid Insurance, $16,000
c. debit Prepaid Insurance, $10,000; credit Insurance Expense, $10,000
d. debit Insurance Expense, $10,000; credit Prepaid Insurance, $10,000
81. The balance in the prepaid rent account before adjustment at the end of the year is $24,000, which
represents four months' rent paid on December 1. The adjusting entry required on December 31 is
a. debit Rent Expense, $6,000; credit Prepaid Rent, $6,000
b. debit Prepaid Rent, $18,000; credit Rent Expense, $6,000
c. debit Rent Expense, $18,000; credit Prepaid Rent, $6,000
d. debit Prepaid Rent, $6,000; credit Rent Expense, $6,000
82. During the end-of-period processing which of the following best describes the logical order of this process
a. Preparation of adjustments, adjusted trial balance, financial statements
b. Preparation of Income Statement, adjusted trial balance, Balance Sheet
c. Preparation of adjusted trial balance, cross-referencing, journalizing
d. Preparation of adjustments, adjusted trial balance, posting
83. What is the major difference between the Unadjusted Trial Balance and the Adjusted Trial Balance?
a. The Adjusted Trial Balance will show the net income (loss) as an additional account.
b. Both will need to be in balance in order to continue with the end-of-period processing
c. The Adjusted Trial Balance includes the postings of the adjustments for the period in the
balance of the accounts.
d. The Unadjusted Trial Balance will be used to record the adjustments for the period.
85. The balance in the office supplies account on June 1 was $6,300, supplies purchased during June were
$3,100, and the supplies on hand at June 30 were $2,500. The amount to be used for the appropriate
adjusting entry is
a. $3,700
b. $11,900
c. $5,700
d. $6,900
86. The following accounts were taken from the Adjusted Trial Balance columns of the work sheet:
Accumulated Depreciation $ 2,300
Fees Earned 14,700
Depreciation Expense 1,300
Insurance Expense 200
Prepaid Insurance 4,800
Supplies 900
Supplies Expense 3,800
87. After all of the account balances have been extended to the Balance Sheet columns of the work sheet, the
totals of the debit and credit columns show debits of $36,678 and the credits of $41,101. This indicates
that
a. neither net income or loss can be calculated because it is found on the income statement
b. the company has a net loss of $4,423 for the period
c. the company has a net income of $4,423 for the period
d. The amounts are out of balance and need to be corrected
88. The income statement columns in the worksheet show that debits are equal to $55,800 and credits are
$62,705. What does this information mean to the accountant?
90. A summary of selected ledger accounts appear below for Ted's Auto Services for the 2007 calendar year
end.
Capital Stock
12/31 7,000 1/1 5,000
12/31 17,000
Dividends
6/30 2,000 12/31 7,000
11/30 5,000
Income Summary
12/31 15,000 12/31 32,000
12/31 17,000
91. Red Rock Stone purchased a one-year liability insurance policy on January 1st of this year for $3,600 and
recorded it as a prepaid expense. From the selections of a. through d., select the value that would be
utilized in the closing entry for insurance expense and prepaid insurance during the closing process at the
end of the first fiscal period on January 31st.
a. $3,600.
b. $360.
c. $300.
d. $360.
92. The journal entry to close the Fees Earned, $100, and Rent Revenue, $25, accounts on December 31st
during the closing process would be:
a. Dec 31 Fees Earned 100
Rent Revenue 25
Income Summary 125
b. Dec 31 Income Summary 125
Fees Earned 100
Rent Revenue 25
c. Dec 31 Revenues 125
Income Summary 125
d. Dec 31 Income Summary 125
Revenues 125
Mantle Company
Worksheet
For the Year Ended December 31, 2008
94. Based on the preceding trial balance, the entry to close expenses would be:
a. Wages Expense $21,000
Rent Expense 6,000
Depreciation Expense 5,000
Income Summary 32,000
b. Expenses 32,000
Income Summary 32,000
c. Wages Expense $21,000
Rent Expense 6,000
Depreciation Expense 5,000
Retained Earnings 32,000
d. Income Summary 32,000
Wages Expense $21,000
Rent Expense 6,000
Depreciation Expense 5,000
95. Based on the preceding trial balance, the entry to close income summary would be:
a. debit Income Summary $15,000; credit Retained Earnings $4,000
b. debit Income Summary $47,000; credit Retained Earnings $47,000
c. debit Income Summary $15,000, credit Retained Earnings $15,000
d. debit Retained Earnings $4,000; credit Income Summary $4,000
96. Based on the preceding trial balance, the entry to close the dividends would be:
a. debit Retained Earnings $1,000, credit Dividends $1,000
b. debit Retained Earnings $4,000, credit Dividends $4,000
c. debit Dividends $1,000; credit Retained Earnings $1,000
d. debit Dividends $4,000; credit Retained Earnings $4,000
97. Based on the preceding trial balance, the ending balance in Retained Earnings is:
a. $0
b. $25,000
c. $4,000
d. $1,000
Steely Company
Adjusted Trial Balance
For the Year ended December 31, 2008
Cash 6,130
Accounts Receivable 2,300
Prepaid Expenses 750
Equipment 13,400
Accumulated Depreciation 1,200
Accounts Payable 1,700
Notes Payable 5,000
Capital Stock 12,000
Dividends 870
Fees Earned 6,600
Wages Expense 1,450
Rent Expense 900
Utilities Expense 475
Depreciation Expense 150
Miscellaneous Expense 75
Totals 26,500 26,500
103. The work sheet at the end of September has $4,000 in the Balance Sheet credit column for
Accumulated Depreciation. The work sheet at the end of October has $4,750 in the Balance Sheet credit
column for Accumulated Depreciation. What was the amount of the depreciation expense adjustment for
the month of October?
a. amount can not be determined
b. $4,750
c. $4,000
d. $750
104. After all of the account balances have been extended to the Balance Sheet columns of the work
sheet, the totals of the debit and credit columns are $25,250 and $21,825, respectively. What is the
amount of net income or net loss for the period?
a. $3,425 net income
b. $25,250 net loss
c. $3,425 net loss
d. $21,825 net income
105. After all of the account balances have been extended to the Income Statement columns of the
work sheet, the totals of the debit and credit columns are $87,500 and $98,300, respectively. What is the
amount of the net income or net loss for the period?
a. $10,800 net income
b. $10,800 net loss
c. $98,300 net income
d. $87,500 net loss
106. After totaling all of the columns in the work sheet, the Balance Sheet show debits of $35,678 and
the credits of $39,901. This indicates that
a. neither net income or loss can be calculated because that is found on the income statement
b. the company recorded a net loss of $4,223
c. the company recorded a net income of $4,223
d. The amounts are out of balance and need to be corrected
107. The column of the income statement show the debits are equal to $56,899 and credits are
$60,333. What do this information mean to the accountant?
a. Net income of $3,434
b. Net loss of $3,434
c. the accounts are out of balance
d. None are correct.
108. A company, using the periodic inventory system, has merchandise inventory costing $140 on hand
at the beginning of the period. During the period, merchandise costing $400 is purchased. At year-end,
merchandise inventory costing $180 is on hand. The cost of merchandise sold for the year is
a. $720
b. $550
c. $360
d. $140
109. A company using the periodic inventory system has the following account balances: Merchandise
Inventory at the beginning of the year, $4,000; Transportation-In, $450; Purchases, $12,000; Purchases
Returns and Allowances, $2,300; Purchases Discounts, $220. The cost of merchandise purchased is
equal to
a. $13,930
b. $9,930
c. $9,489
d. $14520
111. Using the following information, what is the amount of cost of merchandise sold?
a. 25,780
b. 23,270
c. 31,220
d. 24,020
112. Using the following information, what is the amount of gross profit?
Purchases $28,000 Purchases discounts $800
Merchandise inventory 6,500 Merchandise inventory 7,800
April 1 April 30
Sales returns and 750 Sales 57,000
allowances
Purchases returns and 1,000 Transportation In 880
allowances
a. 31,970
b. 30,470
c. 25,780
d. 56,250
113. Using the following information, what is the amount of net sales?
a. 25,780
b. 57,000
c. 57,750
d. 56,250
114. Silver Co. sold merchandise to Bronze Co. on account, $23,000, terms 2/15, net 45. The cost of
the merchandise sold is $18,500. Silver Co. issued a credit memorandum for $2,500 for merchandise
returned that originally cost $1,900. The Bronze Co. paid the invoice within the discount period. What is
amount of net sales from the above transactions?
a. $20,090
b. $20,500
c. $3,490
d. $23,000
115. Sales to customers who use bank credit cards such as MasterCard and Visa are usually recorded
by a
a. debit to Bank Credit Card Sales, debit to Credit Card Expense, and a credit to Sales
b. debit to Cash and a credit to Sales
c. debit to Cash, credit to Credit Card Expense, and a credit to Sales
d. debit to Sales, debit to Credit Card Expense, and a credit to Cash
116. Merchandise subject to terms 1/10, n/30, FOB shipping point, is sold on account to a customer for
$15,000. The seller paid transportation costs of $1,000 and issued a credit memorandum for $5,000 prior
to payment. What is the amount of the cash discount allowable?
a. $160
b. $150
c. $140
d. $100
117. Merchandise is sold for cash. The selling price of the merchandise is $2,000 and the sale is subject
to a 5% state sales tax. The journal entry to record the sale would include
a. A debit to Cash for $2,000.
b. A credit to Sales for $2,100.
c. A credit to Sales Tax Payable for $100.
d. None of the above.
118. Apple Co sells merchandise on credit to Zea Co in the amount of $8,000. The invoice is dated on
September 15 with terms of 1/15, net 45. What is the amount of the discount and up to what date must the
invoice be paid in order for the buyer to take advantage of the discount?
a. $160, September 30
b. $160, September 25
c. $80, September 30
d. $80, September 25
119. Based on the following information, what would be recorded as the cash payment if the invoice is
paid within the discount period?
1. $5,000 of merchandise inventory was ordered on April 2, 2007
2. $2,000 of this merchandise was received on April 5, 2007
3. On April 6, 2007, an invoice dated April 4, 2007, with terms of 2/10, net 30 for $2,150
which included a $150 prepaid freight cost, was received.
4. On April 10, 2007, $500 of the merchandise was returned to the seller.
a. $1,470
b. $1,520
c. $2,150
d. $1,620
120. If the merchandise costs $4,000, insurance in transit costs $200, tariff costs $50, processing the
purchase order by the purchasing department costs $35, and the company receiving dock personnel cost
$15, what is the total cost charged to the merchandise?
a. $4,250
b. $4,285
c. $4,300
d. $4,000
EXERCISES:
ADJUSTING ENTRIES
1. Jacki Lopez started JVL Consulting on January 1, 2011. The following are the account balances at the end
of the first month of business, before adjusting entries were recorded:
Adjustment data:
Supplies on hand at the end of the month: $300
Unbilled Consulting Revenue: $850
Rent expense for the month: $2,000
Depreciation on equipment: $150
(a) Prepare the required adjusting entries, adding accounts as needed.
(b) Prepare an Adjusted Trial Balance for JVL Consulting as of January 31, 2011.
ANS:
(a)
(b)
JVL Consulting
Adjusted Trial Balance
January 31, 2011
ANS:
(a) Supplies Expense ($245 + $735 - $343) 637
Supplies 637
(a) A business pays weekly salaries of $22,000 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 Tuesday, (2) on Wednesday.
(b) The balance in the prepaid insurance account before adjustment at the end of the year
is $18,000. Journalize the adjusting entry required under each of the following
alternatives: (1) the amount of insurance expired during the year is $5,300, (2) the
amount of unexpired insurance applicable to a future period is $2,700.
(c) On July 1 of the current year, a business pays $54,000 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 $4,800. (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?
(d) The estimated depreciation on equipment for the year is $32,000.
ANS:
(a) (1) Salary Expense ($22,000/5 x 2) 8,800
Salaries Payable 8,800
4. On November 1st, clients of Great Designs Company prepaid $2,800 for services to be provided in the
future at a rate of $70 per hour.
(b) As of November 30th, Great Designs shows that 16 hours of services have been provided on this
agreement. Prepare the necessary journal entry to record this.
(c) Determine the total unearned fees in hours and dollars at November 30th.
ANS:
(a) Nov 1 Cash 2,800
Unearned Service Fees 2,800
(c) The original prepaid fees - $2,800 / $70 per hour = 40 hours
November service fees earned 1,120 16 hours
Balance of unearned service fees $1,680 24 hours
(a) Austin Company pays daily wages of $645 (Monday - Friday). Paydays are every other
Friday. Prepare the Monday, January 31 adjusting entry assuming that the last payday
was Friday, January 21.
(b) Prepare the journal entry to record the Austin Company payroll on Friday, February 4.
(c) Annual depreciation expense on the company fixed assets is $39,600. Prepare the
adjusting entry to recognize depreciation for the month of January.
(d) The company’s Office Supplies account shows a debit balance of $3,755. A count of
office supplies on hand on January 31 shows $635 worth of supplies on hand. Prepare
the January 31 adjusting entry for Office Supplies.
ANS:
(a) Jan 31 Wages Expense 3,870
Wages Payable 3,870
Adjusting Entry - Payroll - $645 6 days
ANS:
1. Transactions are analyzed and recorded in the journal.
2. Transactions are posted to the ledger.
3. An unadjusted trial balance is prepared.
4. Adjustment data are assembled and analyzed.
5. An optional end-of-period spreadsheet (work sheet) is prepared.
6. Adjusting entries are journalized and posted to the ledger.
7. An adjusted trial balance is prepared.
8. Financial statements are prepared.
9. Closing entries are journalized and posted to the ledger.
10. A post-closing trial balance is prepared.
7. Each of the following transactions for Morrison Company requires an adjusting entry, which if omitted, will
overstate or understate assets, liabilities, owner’s equity, revenues, expenses, or net income. Indicate the
amount and direction of the misstatement that would result if the end of period adjusting entry suggested
by the transaction was omitted. Place your results in the table following the transactions and use (+) for
overstate, (-) for understate, and (NE) for no effect.
1. Morrison purchased supplies on December 1 for $900. On December 31, $700 of supplies were on
hand.
2. Prepaid insurance had a debit balance of $5,400 on December 1, which represented a prepayment for 3
years of insurance.
3. The unearned rent revenue account has a credit balance of $480 on December 1, which represents 3
months rent.
ANS:
Transaction Assets Liabilities Owner’s Revenues Expenses Net Income
Equity
1. +200 NE +200 NE -200 +200
2. +150 NE +150 NE -150 +150
3. NE +160 -160 -160 NE -160
8. Selected ledger accounts appear below for Fulton Surveying Services for 2010.
Income Summary
12/31 19,000 12/31 64,000
12/31 45,000
ANS:
9. After all adjustments have been made, but before the accounts have been closed, the following balances
were taken from the ledger of Ramona’s Designs:
ANS:
Service Revenue 191,000
Income Summary 191,000
10. The following is the adjusted trial balance for Sandeep Company.
Sandeep Company
Adjusted Trial Balance
December 31, 2010
Cash 8,130
Accounts Receivable 3,300
Prepaid Expenses 2,750
Equipment 10,400
Accumulated Depreciation 2,200
Accounts Payable 2,700
Notes Payable 1,000
Rena Sandeep, Capital 11,200
Rena Sandeep, Drawing 4,870
Fees Earned 36,600
Wages Expense 12,450
Rent Expense 4,900
Utilities Expense 3,475
Depreciation Expense 2,150
Miscellaneous Expense 1,275
Totals 53,700 53,700
Prepare closing entries and the post closing trial balance.
ANS:
Fees Earned 36,600
Income Summary 36,600
Sandeep Company
Post Closing Trial Balance
December 31, 2010
Cash 8,130
Accounts Receivable 3,300
Prepaid Expenses 2,750
Equipment 10,400
Accumulated Depreciation 2,200
Accounts Payable 2,700
Notes Payable 1,000
Rena Sandeep, Capital 18,680
Total $24,580 $24,580