Deck 3: The Accounting Information System and Measurement Issues

Question 1

The accounting equation must remain in balance

A)throughout each step in the accounting cycle.
B)only when journal entries are recorded.
C)only at the time the trial balance is prepared.
D)only when formal financial statements are prepared.

Answer 1

A

Question 2

For adjusting entries relating to accrued revenues,

A)a liability-revenue account relationship exists.
B)the adjusting entry involves a credit to an asset account and a debit to a revenue account.
C)if an adjustment is not made, assets will be overstated.
D)before adjustment, both assets and revenues are understated.

Answer 2

D

Question 3

The double-entry accounting system means

A)each transaction is recorded with two journal entries.
B)each item is recorded in a journal entry, then in a general ledger account.
C)the dual effect of each transaction is recorded with debits and credits of equal amount.
D)None of these answer choices is correct.

Answer 3

C

Question 4

The debit and credit analysis of a transaction normally takes place

A)before an entry is recorded in a journal.
B)when the entry is posted to the ledger.
C)when the trial balance is prepared.
D)when the financial statements are prepared.

Question 5

An example of a temporary account is

A)Unearned Revenue.
B)Salary Expense.
C)Inventory.
D)Retained Earnings.

Question 6

Which of the following criteria must be met before an event or item should be recorded for accounting purposes?

A)The event or item can be measured objectively in financial terms.
B)The event or item is relevant and reliable.
C)The event or item is an element.
D)All of these must be met.

Question 7

Which of the following is an internal event?

A)sale of goods or services
B)payment of dividends
C)using raw materials in production
D)purchase of materials

Question 8

Which of the following statements is true regarding accounting information systems?

A)Both large and small firms should use the same type of accounting system.
B)All firms should have the same types of transactions.
C)The volume of data to be handled should not vary between firms.
D)The kind of information that management requires of an accounting system will vary, depending on the type of firm.

Question 9

The main purpose of a trial balance is

A)to serve as a basic internal control.
B)to assist in preparation of the financial statements.
C)to prove the mathematical equity of debits and credits after posting.
D)to uncover errors in journalizing and posting.

Question 10

The book of original entry where transactions and other selected events are first recorded is called the

A)ledger.
B)journal.
C)account.
D)statement of financial position.

Question 11

SEQ CHAPTER \h \r 1Performing a service for a client on account will

A)increase one asset and decrease another asset.
B)decrease an asset and decrease a liability.
C)increase an asset and decrease equity.
D)increase an asset and increase equity.

Question 12

Factors that shape an accounting system include the

A)nature of the business.
B)size of the firm.
C)volume of data to be handled.
D)All of these answer choices are correct.

Question 13

SEQ CHAPTER \h \r 1The account credited for a receipt of cash on account is

A)Cash.
B)Service Revenue.
C)Accounts Receivable.
D)Accounts Payable.

Question 14

If, during an accounting period, an expense item has been incurred and consumed but not yet paid for or recorded, then the end-of-period adjusting entry would involve

A)a liability account and an asset account.
B)an asset or contra-asset and an expense account.
C)a liability account and an expense account.
D)a receivable account and a revenue account.

Question 15

SEQ CHAPTER \h \r 1Which of the following equations is correct?

A)Assets plus Liabilities = Equity.
B)Assets = Liabilities minus Equity.
C)Liabilities = Assets plus Equity.
D)Equity = Assets minus Liabilities.

Question 16

A trial balance

A)is a list of all the accounts in the ledger.
B)is a list of all the accounts and their balances at a specific date.
C)cannot be used in the preparation of financial statements.
D)cannot be used as a basis for preparation of adjusting entries.

Question 17

Some events are NOT recorded in the accounting information system because

A)the service has been provided but the cash has not yet been received.
B)the service has not been provided but the cash has already been received.
C)their measurement is too complex.
D)the amounts are not material.

Question 18

Which of the following criteria does NOT have to be met before an event or transaction should be recorded for accounting purposes?

A)The event or transaction must be an external event.
B)The event or transaction can be measured objectively in financial terms.
C)The event or transaction is relevant and reliable.
D)The event or transaction must meet the definition of an element.

Question 19

An external event involving a transfer or exchange between two or more entities or parties is called a(n)

A)account.
B)transaction.
C)ledger.
D)accounting system.

Question 20

A trial balance will NOT balance if

A)an amount is posted to the wrong account.
B)a transaction has been entered twice.
C)a transaction has been omitted.
D)only the debit side of a journal entry has been posted.

Question 21

The type of account and normal balance of "Accumulated Depreciation, Equipment" is

A)Asset, Credit.
B)Contra-asset, Credit.
C)Contra-asset, Debit.
D)Liability, Credit.

Question 22

A post-closing trial balance

A)includes temporary accounts only.
B)includes permanent accounts only.
C)includes both temporary and permanent accounts.
D)may include expense accounts.

Question 23

An unearned revenue can best be described as an amount

A)collected and currently matched with expenses.
B)collected and not currently matched with expenses.
C)not collected and currently matched with expenses.
D)not collected and not currently matched with expenses.

Question 24

If the inventory account at the end of the year is understated, the effect will be to

A)overstate the cost of goods sold.
B)understate the net purchases.
C)overstate the gross profit on sales.
D)overstate the goods available for sale.

Question 25

A corporation's net income or loss is closed at year end to

A)Accumulated Other Comprehensive Income.
B)Common Shares.
C)Retained Earnings.
D)Other Comprehensive Income.

Question 26

Which of the following would NOT be a correct form for an adjusting entry?

A)a debit to a revenue and a credit to a liability
B)a debit to an expense and a credit to a liability
C)a debit to a liability and a credit to a revenue
D)a debit to an asset and a credit to a liability

Question 27

Which type of account is always debited during the closing process?

A)dividends
B)expense
C)revenue
D)retained earnings

Question 28

In order to measure fair value under IFRS13, an entity must determine

A)the item being measured, and how the item could or would be used.
B)the market the item would be (or is)bought and sold in.
C)which fair value model is being used to value the item.
D)all of the above

Question 29

Which of the following statements is INCORRECT regarding fair value adjustments for investments?

A)Both FV-NI investments and FV-OCI investments could include equity investments or investments in debt securities.
B)FV-OCI investments exclude debt securities.
C)At each period end, an estimate is made of the fair value of both FV-NI and FV-OCI investments.
D)An adjusting entry is required to record a holding gain or loss on FV-NI investments.

Question 30

In the closing process, all the revenue and expense accounts are transferred to a clearing or suspense account called

A)Other Comprehensive Income.
B)Common Shares.
C)Retained Earnings.
D)Income Summary.

Question 31

An adjusting entry for bad debts will generally

A)increase an expense account and decrease an asset account.
B)increase an expense account and increase an asset account.
C)increase an expense account and increase a contra-asset account.
D)increase an expense account and increase a liability account.

Question 32

What account are revenues and expenses transferred to at the end of the accounting cycle?

A)Comprehensive Income
B)Retained Earnings
C)Accumulated Other Comprehensive Income
D)Income Summary

Question 33

Zack Jones operates a sole proprietorship, selling sporting equipment.He has recently prepared financial statements for the fiscal year end of the business.Which equity accounts would you expect to see on the balance sheet?

A)Common Shares, Dividends, and Owner's Equity
B)Common Shares, Capital, and Withdrawals
C)Capital and Withdrawals, grouped or added under Owner's Equity
D)Owner's Equity and Dividends, netted together as Retained Earnings

Question 34

A fair value measure under IFRS 13 is based on which view of fair value?

A)market participant view
B)shareholder view
C)fair value view
D)unbiased view

Question 35

Which of the following statements about the trial balance is correct?

A)The debits and credits must balance.
B)The equality of credits and debits ensures that no errors were made.
C)The post-closing trial balance includes temporary accounts only.
D)The post-closing trial balance is used to prepare the financial statements.

Question 36

Which of the following is NOT an account appearing in the equity section of a corporation's statement of financial position?

A)Contributed Surplus
B)Common Shares
C)Owner's Equity
D)Accumulated Other Comprehensive Income

Question 37

Marvin holds 10% of the common shares of Pink Limited.For the 2017 fiscal year end, all shareholders received a cash payment to represent their share in the net income of Pink Limited.How would this cash payment be reported in the equity section of Pink Limited's financial statements?

A)as a reduction in the Owner's Equity account
B)as an owner withdrawal, reducing Shareholder's Equity of Pink Limited
C)as a dividend, reducing Shareholder's Equity of Pink Limited
D)This payment would not impact the equity section of the financial statements.

Question 38

If the accountant forgets to record an adjustment for Accumulated Depreciation, Building at the end of the accounting period, this will cause

A)an overstatement of assets.
B)an understatement of assets.
C)an overstatement of expenses.
D)an overstatement of liabilities.

Question 39

Which of the following must be considered in estimating depreciation on an asset for an accounting period?

A)only the original cost of the asset
B)only the asset's useful life
C)both the original cost of the asset and its useful life
D)the decline in its fair market value

Question 40

An accrued revenue can best be described as an amount

A)collected and currently matched with expenses.
B)collected and not currently matched with expenses.
C)not collected and currently matched with expenses.

Question 41

On September 1, 2017, Brown Corp.made the annual lease payment of $12,000 for its fleet of delivery trucks.The payment covered the period September 1, 2017 to August 31, 2018.Assuming the entire amount had originally been debited to Lease Expense, the required adjustment at December 31, 2017 is

A)debit Lease Expense and credit Prepaid Lease $4,000.
B)debit Prepaid Lease and credit Lease Expense $4,000.
C)debit Prepaid Lease and credit Lease Expense $8,000.
D)debit Lease Expense and credit Prepaid Lease $8,000.

Question 42

Yellow Corp.'s account balances at December 31, 2017 included Accounts Receivable, $720,000 debit; Allowance for Doubtful Accounts, $800 debit.Sales during 2017 were $1,840,000.It is estimated that 2% of sales will be uncollectible.The required adjusting entry would include a credit to the allowance account for

A)$28,800.
B)$36,800.
C)$14,400.
D)$30,600.

Question 43

Use the following information for questions.

The salary expense on the 2017 statement of comprehensive income was

A)$118,400.
B)$133,100.
C)$131,300.
D)$116,600.

Question 44

Use the following information for questions.

The cash paid for salaries during 2017 was

A)$67,600.
B)$72,000.
C)$77,400.
D)$81,800.

Question 45

Use the following information for questions.

The interest revenue on the 2017 statement of comprehensive income was

A)$22,400.
B)$21,700.
C)$19,600.
D)$21,000.

Question 46

Under ASPE, Other Comprehensive Income (OCI)and Accumulated Other Comprehensive Income (AOCI)accounts

A)appear as separate line items, the same as under IFRS.
B)are part of accounts such as Fair Value-OCI Investments.
C)are not included in financial statements.
D)are measured differently than under IFRS.

Question 47

On November 1, 2017, Green Corp.purchased equipment by signing a 5-month, 7% note for $120,000.The December 31, 2017 adjusting entry required in connection with this note is

A)debit Interest Expense and credit Interest Payable, $8,400.
B)debit Interest Expense and credit Interest Payable, $3,500.
C)debit Interest Expense and credit Interest Payable, $1,400.
D)debit Interest Expense and credit Cash, $1,400.

Question 48

White Resources determines that it has NOT yet recorded the 2017 accrual for Interest Revenue to be received in 2018.Assuming the amount to be recorded for 2017 is $2,000, the required adjustment at December 31, 2017 is

A)debit Interest Receivable and credit Interest Revenue $2,000.
B)debit Interest Revenue and credit Interest Receivable $2,000.
C)debit Interest Payable and credit Interest Revenue $2,000.
D)Silly question: no adjusting entry is required.

Question 49

Use the following information for questions.

The cash received for interest during 2017 was

A)$78,800.
B)$84,200.
C)$82,900.
D)$74,100.

Question 50

On May 15, 2017, Grey Corp.purchased 1,000 common shares of Regal Bank for $32,000, as a Fair Value through Other Comprehensive Income (FV-OCI)equity investment.At December 31, 2017, the fair value of these shares was $35,400.The required adjusting entry to reflect this fact is

A)debit Fair value-OCI Investment, credit Holding Gain on Investment (OCI)$35,400.
B)debit Holding Gain on Investment (OCI), credit Fair value-OCI Investment $35,400.
C)debit Fair value-OCI Investment, credit Holding Gain on Investment (OCI)$3,400.
D)debit Holding Loss on Investment (OCI), credit Fair value-OCI Investment $3,400.

Question 51

Use the following information for questions.

The insurance expense on the 2017 statement of comprehensive income was

A)$12,700.
B)$12,800.
C)$14,100.
D)$14,200.

Question 52

Lime Limited has received its invoice for $75,000 for property taxes for the calendar year 2017.The invoice was received and paid in June 2014 and the entire amount was debited to Property Tax Expense.Assuming Lime does NOT prepare interim financial statements, the required adjustment on December 31, 2017 related to the property taxes is

A)debit Property Tax Expense and credit Prepaid Property Tax $31,250.
B)debit Prepaid Property Tax and credit Property Tax Expense $37,500.
C)debit Property Tax Expense and credit Prepaid Property Tax $37,500.
D)Silly question: no adjusting entry is required.

Question 53

Amazing Company acquires a trade name from Fantastic Ltd.Amazing estimates it will receive $7,200 per year from the name over the next 9 years.Using a discount rate of 4%, what is the value in use to Amazing of this trade name?

A)$45,528
B)$58,398
C)$53,534
D)$55,676

Question 54

Use the following information for questions.

The cash paid for insurance premiums during 2017 was

A)$ 9,100.
B)$ 9,000.
C)$10,700.
D)$10,600.

Question 55

On December 10, 2017 Peach Inc.received a cheque for $54,500 from a customer for services that Peach will be performing in December 2017 and January 2018.By December 31, 2017, Peach had earned 40% of that amount.Assuming the appropriate year-end adjustments were made, the 2017 balance in Peach's Unearned Revenue account will be

A)$21,800.
B)$27,250.
C)$32,700.
D)zero.

Question 56

On October 31, 2017, Pink Inc.lent $42,000 to Zinc Inc.in return for a three-month, 3.5% interest-bearing note.What adjusting entry should Pink Inc.make on December 31, 2017, in connection with this note?

A)Debit Interest Receivable and credit Interest Revenue, $367.50.
B)Debit Cash and credit Interest Revenue, $245.
C)Debit Interest Receivable and credit Interest Revenue, $245.
D)Debit Interest Revenue and credit Interest Receivable, $122.50.

Question 57

On May 15, 2017, Cream Corp.purchased 1,000 common shares of Regal Bank for $32,000, as a Fair Value through Net Income (FV-NI)equity investment.At December 31, 2017, the fair value of these shares was $30,800.The required adjusting entry to reflect this fact is

A)debit Fair value-Net Income Investment, credit Holding Gain on Investment (OCI)$30,800.
B)debit Holding Gain on Investment (OCI), credit Fair value-Net Income Investment $30,800.
C)debit Fair value-Net Income Investment, credit Investment Income $21,200.
D)debit Investment Loss, credit Fair value-Net Income Investment $1,200.

Question 58

Blue Corp.'s account balances at December 31, 2017 included Accounts Receivable, $385,000 debit; Allowance for Doubtful Accounts, $2,500 credit.From a review of the receivables, Blue estimates that $14,000 of the December 31 receivables will be uncollectible.The required adjusting entry would include a credit to the allowance account for

A)$ 2,500.
B)$16,500.
C)$14,000.
D)$11,500.

Question 59

On September 1, 2017, Black Corporation received $36,000 cash from a tenant for one year's rent in advance, and recorded the transaction with a credit to Rent Revenue.The December 31, 2017 required adjusting entry in connection with this would be

A)debit Rent Revenue and credit Unearned Rent, $12,000.
B)debit Rent Revenue and credit Unearned Rent, $24,000.
C)debit Unearned Rent and credit Rent Revenue, $12,000.
D)debit Cash and credit Unearned Rent, $6,000.

Question 60

The main difference in the accounting for measurement issues between IFRS and ASPE is that

A)IFRS has a well-developed framework for measuring fair values (IFRS13), whereas ASPE does not.
B)there is no difference between accounting for measurement issues between these standards.
C)guidance under ASPE is concentrated in a single area of the ASPE body of knowledge.
D)IFRS requires explicit disclosure of fair value amounts, whereas these disclosures under ASPE are optional.

Question 61

Barkley Company will receive $400,000 in a future year.If the future receipt is discounted at an interest rate of 8%, its present value is $252,068.In how many years is the $400,000 received?

A)5 years
B)6 years
C)7 years
D)8 years

Question 62

On September 1, 2017 Culver Corp.issued a 9% note payable to National Bank for $750,000, payable in three equal annual principal payments of $250,000, plus interest.On this date, the bank's prime rate was 8%.The first payment for interest and principal was made on September 1, 2018.At December 31, 2018, Culver should record accrued interest payable of

A)$13,333.
B)$22,500.
C)$15,000.
D)$10,000.

Question 63

Frog Corporation had revenues of $300,000, expenses of $200,000, and dividends of $45,000.When Income Summary is closed to Retained Earnings, the amount of the debit or credit to Retained Earnings is a

A)debit of $55,000.
B)debit of $100,000.
C)credit of $55,000.
D)credit of $100,000.

Question 64

On June 1, 2017, Carr Corp.loaned Farr Corp.$600,000 on a 5% note, payable in five annual instalments of $120,000 (plus interest), beginning January 2, 2018.Interest on the note is payable on the first day of each month beginning July 1, 2017.Farr made timely payments through November 1, 2017.On January 2, 2018, Carr received payment of the first principal instalment plus all interest due.At December 31, 2017, Carr's interest receivable on this loan is

A)$0.
B)$2,500.
C)$5,000.
D)$7,500.

Question 65

On December 1, 2017, Flynn Consulting paid $27,000 for a three-year insurance policy (December 1, 2017 to November 30, 2020)and debited the entire amount to Prepaid Insurance.The December 31, 2017 required adjusting entry in connection with this policy would be

A)debit Prepaid Insurance and credit Insurance Expense $750.
B)debit Insurance Expense and credit Prepaid Insurance $750.
C)debit Insurance Expense and credit Prepaid Insurance $26,250.
D)debit Prepaid Insurance and credit Insurance Expense $26,250.

Question 66

Mark-Wall Corp.'s trademark was licensed to Rodgers Inc.for royalties of 12% of sales of the trademarked items.Royalties are payable semi-annually on March 15 for sales in July through December of the previous year, and on September 15 for sales in January through June of the same year.Mark-Wall received the following royalties from Rodgers: Rodgers estimates that sales of the trademarked items would total $67,000 for July through December 2018.On their statement of comprehensive income for calendar 2018, Mark-Wall's royalty revenue should be

A)$8,040.
B)$14,000.
C)$14,040.
D)$21,000.

Question 67

Rathbone Corp.sells major household appliance service contracts for cash.The service contracts are for a one-year, two-year, or three-year period.Cash receipts from contracts are credited to Unearned Service Revenues.This account had a balance of $1,100,000 at December 31, 2017 before year-end adjustment.Service contract costs are charged as incurred to the Service Contract Expense account, which had a balance of $325,000 at December 31, 2017.
Service contracts still outstanding at December 31, 2017 expire as follows:
What amount should be reported as Unearned Service Revenues on Rathbone's December 31, 2017 statement of financial position?

A)$774,000
B)$325,000
C)$449,000
D)$124,000

Question 68

Grant Limited pays all salaried employees on a biweekly basis.Overtime pay, however, is paid in the next biweekly period.Grant accrues salaries expense only at its December 31 year end.Data relating to salaries earned in December 2017 are as follows:
Last payroll was paid on Dec 27, 2017, for the two-week period ended Dec 27, 2017.
Overtime pay earned in the two-week period ended Dec 27, 2017 was $7,000.
Remaining work days in 2017 were December 28, 29, 30, on which days there was no overtime.
The regular biweekly salaries total $100,000.Assuming a five-day work week, Grant should record a liability at December 31, 2017 for accrued salaries of

A)$24,000.
B)$29,000.
C)$37,000.
D)$53,000.