Circle the correct answer – True of False for each question. Each question is valued at 5 point.
T F 1. The main objective for all businesses is to maximize profits
T F 2. Expenses are assets that no longer have a value to the company
T F 3. The matching concept requires expenses be recorded in the same period that the related revenue is recorded
T F 4. Journalizing and posting the adjustments and closing entries updates the ledger for the new accounting period.
T F 5. -commerce provides business opportunities at a higher cost
T F 6. Revenue is earned only when money is received
T F 7. The normal balance of a capital account is a debit
T F 8. The accrual basis of accounting requires revenue be recorded when cash is received from customers
T F 9. Closing entries are entered directly on to the work sheet
T F 10. Sales of office supplies for cash, at cost, to a neighboring business as an accommodation, are recorded in the revenue journal.
Determine which answer is most correct and circle the corresponding letter. Each multiple-choice question has a value of 15 points.
1. Revenues are reported when
a. a contract is signed
b. cash is received from the customer
c. work is begun on the job
d. work is completed on the job
2. Which of the following entries records the billing of patients for services performed?
a. Accounts Receivable, debit; Fees Earned, credit
b. Accounts Payable, debit; Cash, credit
c. Fees Earned, debit; Accounts Receivable, credit
d. Fees Earned, debit; Cash, credit
3. The account type and normal balance of Prepaid Expense is
a. revenue, credit
b. expense, debit
c. liability, credit
d. asset, debit
4. Based on the preceding trial balance, the entry to close income summary would be:
a. debit Income Summary $15,000; credit Owner’s Equity $4,000
b. debit Income Summary $47,000; credit Owner’s Equity $47,000
c. debit Income Summary $15,000, credit Owner’s Equity $15,000
d. debit Owner’s Equity $4,000; credit Income Summary $4,000
5. The goal of systems analysis is to determine
a. when to implement a system
b. information needs
c. the size of the competitor’s system
d. changes to the present system
6. The assets and liabilities of the company are $155,000 and $60,000 respectfully. Owner’s equity should equal
7. The chart of account for the Frias Company includes some of the following accounts:
Account Name Account Number
Accounts Receivable 13
Prepaid Insurance 15
Accounts Payable 21
Unearned Revenue 24
Frias, Capital 31
Frias, Drawing 32
Fees Earned 41
Salaries Expense 54
Rent Expense 56
On the journal page 3, the following transaction was found:
Fees Earned 750
What is the post reference that will be found on the journal entry?
c. 11, 41
8. Which of the following pairs of accounts could not appear in the same adjusting entry?
a. Service Revenue and Unearned Revenue
b. Interest Income and Interest Expense
c. Rent Expense and Prepaid Rent
d. Salaries Payable and Salaries Expense
9. On which financial statement will Income Summary be shown?
a. Statement of Owner’s Equity
b. Balance Sheet
c. Income Statement
d. No financial statement
10. The total on the “Supplier balance summary report” at January 31 should equal
a. the sum of the accounts payable and notes payable controlling accounts totals at January 31
b. the total of the purchases journal on January 31
c. the amount reported in the post-closing trial balance at January 31 for Accounts Payable
d. the balance in Accounts Receivable at January 31
11. Rivers Computer Makeover Company paid their first installment on their Notes Payable in the amount of $2,000. How will this transaction affect the accounting equation?
a. Increase Liabilities (Notes Payable) and decrease Assets (Cash)
b. Decrease Assets (Cash) and decrease Owner’s equity (Note Payable Expense)
c. Decrease Assets (Cash) and decrease Assets (Notes Receivable)
d. Decrease Assets (Cash) and decrease Liabilities (Notes Payable)
12. Which of the following groups of accounts have a normal debit balance?
a. revenues, liabilities, capital
b. capital, assets
c. liabilities, expenses
d. assets, expenses
13. A company purchases a one-year insurance policy on June 1 for $840. The adjusting entry on December 31 is
a. debit Insurance Expense, $350 and credit Prepaid Insurance, $350
b. debit Insurance Expense, $280 and credit Prepaid Insurance, $280
c. debit Insurance Expense, $490, and credit Prepaid Insurance, $ 490.
d. debit Prepaid Insurance, $720, and credit Cash, $720
14. 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
15. When posting a column total in the purchases journal, a credit should be posted to
a. Merchandise Inventory
b. Accounts Payable
c. Sales Returns and Allowances
Problem 1. (145 points)
Set up T accounts (on next page) for Cash; Accounts Receivable; Supplies; Accounts Payable; Owner’s Capital; Owner’s Drawing; Professional Fess; and Operating Expenses, and record the following beginning balances in the T Accounts (on the next page):
Wells Consulting Services Trial Balance
Accounts Receivable 12,800
Accounts Payable 16,980
Wells, Capital 47,650
a. In the T accounts, record the following transactions of Wells Consultant Services for May 2005, identifying each entry by number.
(1) Wells made an additional capital investment $26,300
(2) Purchased supplies on account 5,800
(3) Paid operating expenses 4,960
(4) Billed clients for fees 7,300
(5) Received cash from cash clients 6,100
(6) Paid creditors on account 1,000
(7) Received from clients on account 2,840
(8) Wells withdrew 900
b. Prepare a trial balance as of May 31, 2005 for Wells Consultant Services (use form on next page).
c. Assuming that supplies expense (which has not been recorded) amounts to $1,000 for May, determine the following:
The balances in the ledger of Landscape Services as of December 31, 2005, before adjustments, are as follows:
Cash $33,750 Tim Welch, Capital $133,310
Accounts Receivable $1,670 Tim Welch, Drawing $7,820
Supplies $4,930 Service Revenue $54,310
Prepaid Insurance $12,800 Salary Expense $28,600
Equipment $87,000 Rent Expense $24,100
Accumulated Depreciation $23,500 Miscellaneous Expense $10,450
Adjustment data are as follows:
Insurance expired for December $1,270 Salaries Accrued on Dec 31 $1,880
Depreciation for Dec $2,630 Supplies on hand Dec 31 $2,480
(a) Prepare a ten-column work sheet for Landscape Services for December (use form on page 10.5).
(b) On the basis of the work sheet in (a), present the following in good order: 1) income statement, 2) statement of owner’s equity, and 3) balance sheet.
(c) On the basis of the work sheet in (a), journalize the closing entries as of December 31, 2005.
The following balance sheet contains errors.
Billy Brown Services Co.
For the Year Ended December 31, 2005
Current assets: Current liabilities:
Cash $7,220 Accounts receivable $11,520
Accounts payable 12,200 Accum. Depr. – Building 14,525
Supplies 3,690 Accum. Depr. – Equipment 6,340
Prepaid insurance 2,445 Net income 16,170
Land 27,100 Total liabilities $48,555
Total current assets $52,655
Building $51,800 Wages payable $600
Equipment 27,250 Brown, Capital 81,190
Total plant assets 79050 Total owner’s equity $81,190
Total assets $130,345 Total liabilities and owner’s equity $130,345
(a) List the errors in the balance sheet above, and (b) on the following page, prepare a corrected balance sheet.
The following are selected transactions related to purchases on account and cash payments completed during June of the current year.
June 1 Issued Check No. 50 in payment of rent for month $2,680
5 Purchased office supplies from Carson Co. 1,245
9 Issued Check No. 51 to Davis Co. for cash purchase of equipment. 10,330
10 Purchased store supplies from Evans Co. 930
15 Issued Check No. 52 to Carson Co. in payment of June 5 invoice. 1,245
17 Purchased store supplies from Parker Co. 8,080
20 Issued Check No. 53 to Evans Co. in payment of June 10 invoice 930
25 Purchased equipment from Stone Co. 8,360
27 Issued Check No. 54 to D. Bowen for invoice of May 17, 4,980
30 Purchased office supplies from Porter Co. 940
(a) Record the transactions, using the accompanying journals.
(b) Total and rule the purchases and cash payments journals as of June 30.
(c) Indicate the method of posting the individual items and the totals of the purchases and cash payments journals in the following manner:
(1) For individual items and totals to be posted to the subsidiary ledger or not to be posted, insert a check mark in the Posting Reference column or below the totals.
(2) For individual items and totals to be posted to the general ledger, insert the letter “G” (as substitute for specific account numbers) in the Posting reference column and/or below the totals.