Question 1

On 1^st of June a hotel purchased a new vacuum cleaner for $12,000. It paid $8,000 in cash and the vacuum cleaner supplier extended 30 days credit for the balance. Which of the following is the accounting entry to record the 1^st June transaction?

Accepted Answer

The hotel purchased a vacuum cleaner for $12,000 on credit, but paid $8,000 in cash. Therefore, the entry would be:
Debit cleaning equipment (asset account) $12,000
Credit cash (asset account) $8,000
Credit accounts payable (liability account) $4,000
Option D is the correct entry as it recognizes the full value of the vacuum cleaner, the cash payment, and the outstanding payable to the supplier. Option A only recognizes the value of the vacuum cleaner without accounting for the cash payment and the payable. Option B only accounts for the cash payment made, while Option C only accounts for a portion of the payable.

Question 2

In double entry accounting:

Accepted Answer

All of the statements are true in double entry accounting, according to generally accepted accounting principles.

Question 3

In a hotel, which of the following is not normally treated as a current asset?

Accepted Answer

Inventory of linen is typically considered a long-term asset, as it is not sold but rather used over an extended period of time. The other options listed are all current assets, as they can be quickly converted into cash within a year.

Question 4

The retained earnings account represents:

Accepted Answer

Retained earnings account represents the accumulated profit of a business since it began operations minus any dividends or drawings paid out to owners. It reflects the amount of profit that the business has reinvested in the company rather than distributing it to shareholders or owners. Option A is not entirely correct because retained earnings do not have to be held as cash. Option B is incorrect because the account does not indicate how much cash the organization has accumulated to distribute to owners. Option C is incorrect because retained earnings account represents profit earned over multiple years and not just the current financial year. Option E is incorrect because one of the options is correct.

Question 5

For the current financial year a hotel had $350,000 in its retained earnings account at the beginning of the year. During the year it earned $80,000 in profit and paid $32,000 in dividends to its owners. The balance sheet at the end of the current financial year should reflect a retained earnings balance of:

Accepted Answer

The retained earnings balance for the current financial year can be calculated as follows:

Retained earnings at beginning of year = $350,000
Profit earned during the year = $80,000
Dividends paid during the year = -$32,000 (note the negative sign)
Retained earnings balance at end of year = $398,000 (350,000 + 80,000 - 32,000 = 398,000)

Therefore, the correct answer is option C.

Question 6

In the current year the Budget Hotel earned $60,000 profit. Its assets increased by $120,000 and its liabilities increased by $40,000. What was the value of the owners' capital contribution or dividend received during the year?

Accepted Answer

According to the basic accounting equation, assets = liabilities + owners' equity. Therefore, the change in owners' equity can be calculated as follows:
change in owners' equity = change in assets - change in liabilities
= $120,000 - $40,000
= $80,000
This indicates that owners' equity increased by $80,000 during the year. Since the hotel earned a profit of $60,000, the remaining $20,000 must have been contributed by the owners as capital. Therefore, the answer is choice B) Contribution of $20,000.

Question 7

Which of the following normally have a credit balance?

Accepted Answer

Liabilities and owner's equity accounts normally have a credit balance, as they represent claims against the company's assets.

Question 8

When a hotel pays off a bank loan, in its books it:

Accepted Answer

When a hotel pays off a bank loan, it reduces its liabilities, which in this case is the loan payable. Therefore, the entry in the hotel's books will be to debit loan payable (reducing it) and credit cash (reducing it as well).

Question 9

With respect to double entry accounting systems, which of the following statements is true?

Accepted Answer

Statement A is true because every transaction affects at least two accounts, and one account is debited while the other account is credited. 
Statement B is true because the accounting equation (Assets = Liabilities + Equity) should always balance. 
Statement C is true because of the fundamental accounting equation, where every debit entry must have a corresponding credit entry, ensuring that the debits and credits balance. 
Statement D is false because even gifts have an impact on the financial statements and need to be recorded as such in the accounting system. Therefore, the correct choice is E, as all three statements are true.

Question 10

A hotel's junior accountant was recording advertising expense and made an error. He debited the sales revenue account instead of the advertising expense account. This mistake would signify:

Accepted Answer

The answer of A hotel's junior accountant was recording advertising...

Question 11

Journal entries:

Accepted Answer

Journal entries provide a chronological record of all transactions in the order in which they occurred. They are not presented in account number or alphabetical sequence, nor do they use a "T-account" layout.

Question 12

The Smith Show Events company took up a $100,000 bank loan last month. The entry to record this transaction involves:

Accepted Answer

The company received cash (an asset) so it should be debited, and the loan payable (a liability) should be credited as this is the obligation to repay the bank loan. Option A is incorrect because a bank loan is not an expense. Option B is incorrect because it doesn't reflect the obligation to repay the loan. Option D is incorrect because 'money borrowed' is not an account that is typically used. Option E is not applicable as there is a correct answer.

Question 13

In the current year the Budget Hotel earned $100,000 profit. Its assets increased by $140,000 and its liabilities increased by $50,000. What was the value of the owners' capital contribution or dividend paid during the year?

Accepted Answer

The answer of In the current year the Budget Hotel...

Question 14

With respect to double entry accounting systems, which of the following statements is true?

Accepted Answer

The fundamental principle of double entry accounting is that every transaction has two equal and opposite effects on at least two accounts - a debit and a credit. Thus, in a particular accounting period, the total dollar value of the debit entries should always equal the total dollar value of the credit entries. Statements A, B and D are all incorrect as they do not accurately reflect the requirements of double entry accounting.

Question 15

A credit entry can have the effect of:

Accepted Answer

The answer of A credit entry can have the effect...

Question 16

Which accounts normally have credit balances?

Accepted Answer

Liabilities, owners equity, and retained earnings normally have credit balances.

Question 17

Which of the following statements about journal entries is false?

Accepted Answer

The general journal refers to all types of accounts, including revenue and expense accounts, not just asset, liability, and equity accounts.

Question 18

In its most recent financial year, Gold Coast Events earned $120,000 profit. Its assets increased by $170,000 and its liabilities increased by $70,000. What was the value of the owners' capital contribution or dividend paid during the year?

Accepted Answer

The change in equity is calculated as the profit minus any dividends paid or plus any contributions made. Here, the equity increased by $100,000 ($170,000 increase in assets minus $70,000 increase in liabilities). Since the profit was $120,000, this means $20,000 must have been paid out as dividends to achieve the $100,000 increase in equity.

Question 19

In the current year the Budget Hotel earned $100,000 profit. Its assets increased by $120,000 and its liabilities increased by $40,000. What was the value of the owners' contribution to capital or dividend declared and paid during the year?

Accepted Answer

The increase in assets ($120,000) minus the increase in liabilities ($40,000) equals $80,000, which is the net increase in equity. Subtracting the profit ($100,000) from this net increase in equity gives a negative $20,000, indicating a dividend declared and paid of $20,000.

Question 20

A revenue account:

Accepted Answer

Revenue is earned by a company through its operations, and is therefore considered a gain. Gain accounts, including revenue accounts, are increased by credit entries and decreased by debit entries.

Quiz 3: Double Entry Accounting

On 1st of June a hotel purchased a new vacuum cleaner for $12,000. It paid $8,000 in cash and the vacuum cleaner supplier extended 30 days credit for the balance. Which of the following is the accounting entry to record the 1st June transaction?

In double entry accounting:

In a hotel, which of the following is not normally treated as a current asset?

The retained earnings account represents:

In the current year the Budget Hotel earned $60,000 profit. Its assets increased by $120,000 and its liabilities increased by $40,000. What was the value of the owners' capital contribution or dividend received during the year?

Which of the following normally have a credit balance?

When a hotel pays off a bank loan, in its books it:

With respect to double entry accounting systems, which of the following statements is true?

A hotel's junior accountant was recording advertising expense and made an error. He debited the sales revenue account instead of the advertising expense account. This mistake would signify:

Journal entries:

The Smith Show Events company took up a $100,000 bank loan last month. The entry to record this transaction involves:

In the current year the Budget Hotel earned $100,000 profit. Its assets increased by $140,000 and its liabilities increased by $50,000. What was the value of the owners' capital contribution or dividend paid during the year?

With respect to double entry accounting systems, which of the following statements is true?

A credit entry can have the effect of:

Which accounts normally have credit balances?

Which of the following statements about journal entries is false?

In its most recent financial year, Gold Coast Events earned $120,000 profit. Its assets increased by $170,000 and its liabilities increased by $70,000. What was the value of the owners' capital contribution or dividend paid during the year?

In the current year the Budget Hotel earned $100,000 profit. Its assets increased by $120,000 and its liabilities increased by $40,000. What was the value of the owners' contribution to capital or dividend declared and paid during the year?

A revenue account:

On 1^st of June a hotel purchased a new vacuum cleaner for $12,000. It paid $8,000 in cash and the vacuum cleaner supplier extended 30 days credit for the balance. Which of the following is the accounting entry to record the 1^st June transaction?