Deck 15: Fundamentals of Accounting

Question 1

Which of the following statements is true about control accounts?

A)control accounts are used to control amounts spent during the year
B)control account totals must equal the total of the individual subsidiary accounts
C)control accounts are used to limit the amounts of liabilities incurred during the year
D)control accounts avoid the need for making postings to ledgers.

Answer 1

B

Question 2

Veronica Lodge borrowed $15,000 from a bank on January 1,2013 to finance her new business.She agrees to repay the bank on December 31,2013,with $750 interest on the loan.In addition to increasing cash,what else should Veronica record on January 1,2013?

A)an increase in a liability of $15,000
B)an increase in a liability of $15,750
C)an increase in equity of $15,000
D)an increase in a liability of $15,750,and a decrease in equity of $750

Answer 2

A

Question 3

Suzy Queue hires a salesperson for her business.Suzy agrees to pay the salesperson a commission of 10 percent of sales.By the end of the first month,the salesperson has done $50,000 of sales.Suzy wants to prepare accurate financial statements at the end of the month,but has not yet paid the salesperson.What journal entry should she make before preparing her financial statements for the month?

A)debit commissions expense ($5,000);and credit commissions payable ($5,000)
B)debit prepaid commissions ($5,000);and credit commissions payable ($5,000)
C)debit commissions expense ($50,000);and credit cash ($50,000)
D)debit prepaid commissions ($5,000);and credit cash ($5,000)

Answer 3

A

Question 4

Macky McClung uses accrual accounting to keep the records of her toy store.She paid $15,000 on January 1 for rent for the three months January-March.To correctly report her expenses for the month of January,what must her accounting entry accomplish?

A)increase expenses by $5,000 and decrease assets by $10,000
B)increase expenses by $5,000 and decrease assets by $5,000
C)increase expenses by $10,000 and decrease assets by $5,000
D)decrease expenses by $5,000 and increase assets by $5,000

Question 5

Herman Appliance buys and sells refrigerators.Herman starts the year with an inventory of $20,000.During the year,Herman buys refrigerators totaling $182,000.At year-end,Herman takes inventory and finds that he has $28,000 of refrigerators on hand.During the year,Herman's sales revenue was $256,000.What was Herman's gross profit on the sales for the year?

A)$54,000
B)$66,000
C)$74,000
D)$82,000

Question 6

Which of the following formulations of the accounting equation is incorrect?

A)assets - liabilities = equity
B)assets = liabilities + equity
C)assets = liabilities + opening equity + (revenues - expenses)+ (owner additions to - withdrawals from equity)
D)assets = liabilities - equity

Question 7

Alberta's Appliances is a wholesaler that sells to retail stores on credit.Alberta's sales for the year were $250,000.During the year,it received payments of $220,000 from customers.At year-end,it establishes an allowance for uncollectible accounts equal to 5% of the unpaid receivables.How much should Alberta's report as net accounts receivable at December 31?

A)$30,000
B)$28,500
C)$12,500
D)$11,000

Question 8

Robert Plant invests $50,000 of his own money in a business.What journal entry should be made to record Robert's investment in the business?

A)debit cash (business);and credit cash (personal)
B)debit cash;and credit Robert Plant,capital
C)debit cash;and credit loans payable
D)debit Robert Plant,capital;and credit cash

Question 9

Alberta's Appliances is a wholesaler that sells to retail stores on credit.To provide for possible bad debts,Alberta established a $32,000 allowance for uncollectible accounts.One of its customers goes bankrupt and Alberta decided to write off the account as uncollectible.What journal entry should Alberta make to record the bankruptcy?

A)debit bad debts expense;and credit accounts receivable
B)debit bad debts expense;and credit allowance for uncollectible accounts
C)debit sales revenues;and allowance for uncollectible accounts
D)debit allowance for uncollectible accounts;and credit accounts receivable

Question 10

A theater producer's accounting year ends on June 30.Which of the following year-end transactions or events results in an accounting entry referred to as a deferral?

A)actors work on June 29 and 30,but are not paid until July 5
B)electricity for the month of June is not paid because the bill is not received until July
C)"extras" are paid in cash on June 30 for the June 30 performance
D)theater-goers pay cash on June 30 for performances that will occur in July and August

Question 11

After you have closed an entity's books,what happens to the account balances?

A)all asset accounts will have zero balances
B)none of the accounts will have zero balances
C)all liability accounts will have zero balances
D)the revenue and expense accounts will have zero balances

Question 12

What is the accounting effect of using the accrual basis of accounting?

A)revenues and expenses are recognized when cash is received.
B)revenues are recognized when earned,and expenses are recognized when cash is paid
C)revenues are recognized when earned and expenses are recognized when they are incurred
D)revenues are recognized when cash is received,and expenses are recognized when incurred

Question 13

Glen Turner purchases a high-speed copying machine on credit for his printing business.The machine is expected to have a useful life of four years.What journal entry should be made at the time the copying equipment is received?

A)debit equipment;and credit accounts payable
B)debit copying expenses;and credit accounts payable
C)debit cash;and credit equipment
D)debit depreciation expense - equipment;and credit equipment

Question 14

John pays cash to buy auto insurance for a three-year period starting January 1.What is the accounting effect of this transaction on John's records when he makes the payment?

A)An asset increases and an asset decreases
B)An asset increases and a liability increases
C)Equity increases and a liability decreases
D)An asset decreases and equity decreases

Question 15

What adjusting journal entry is made when an entity wants to prepare financial statements,owes interest on a borrowing during the year,but hasn't paid either the loan or the interest?

A)debit prepaid interest;and credit interest expense
B)debit interest payable;and credit interest expense
C)debit interest expense;and credit interest payable
D)debit interest payable;and credit loans payable

Question 16

Assume that an organization's operations result in a net profit for the year.When the books are closed,what is the accounting effect of the journal entry that closes out the net profit?

A)it is added to the cash balance
B)it is subtracted from the cash balance
C)it is added to the opening balance of owner's equity
D)it is subtracted from the liabilities

Question 17

A hospital's accounting year ends on June 30.Which of the following events requires the hospital to record an expense accrual at June 30?

A)it hires nurses on June 28 and tells them to start working on July 5
B)it orders a new piece of equipment on June 20 for installation on July 10
C)its staff works during the week ended June 30,but is not paid until July 5
D)it receives a delivery of medicines on June 20,which are not used until July

Question 18

A business borrows $100,000 from a bank on July 1,2008.Under the agreement with the bank,the loan must be repaid in full on June 30,2009,with interest at 6% a year.The business wants to prepare financial statements for the year ended December 31,2008.How much interest expense should it report for that year?

A)$0
B)$3,000
C)$6,000
D)$12,000

Question 19

An owner of a business withdraws cash from his business.Which of the following accounts would need to be reduced to record this transaction?

A)accounts receivable
B)owner's equity
C)expenses
D)accounts payable

Question 20

Why would the accrual basis of accounting be preferable to the cash basis?

A)it is easier to keep records on the accrual basis than on the cash basis
B)it measures performance by comparing inflows and outflows of cash
C)it ignores the effect of the consumption of assets on the cost of doing business
D)it measures performance by comparing revenues earned with expenses incurred.

Question 21

Tina opens a business to do small printing jobs.Her first few transactions are shown below.For each of them,state which two of the following six possibilities occurred as a result of each transaction - an asset increased,an asset decreased,a liability increased,a liability decreased,equity increased,or equity decreased:
a.Tina invested $25,000 of her personal cash in the business
b.Tina purchased a high-speed copying machine on credit;the machine should last 4 years
c.Tina paid cash to a student she hired to make deliveries for her that day.

Question 23

A business keeps its accounts on a calendar-year basis.On January 1,2013,there is a balance of $2,800 in the Prepaid insurance account.The insurance represented by that amount expires on March 31,2013,but the business makes no entry to record the expiration of the insurance until its year-end.On April 1,2013,the business pays $16,000 for an insurance policy covering the period April 1,2013 - March 31,2014.Prepare the journal entry at December 31,2013,to record the full amount of insurance expense for the year.

Question 25

In August,2013,a publisher receives a check for $120 from a subscriber for a one-year subscription to "Willie," a monthly magazine.The subscriber will receive the first magazine in September.Prepare: (a)the journal entry to record the amount received in August;and (b)the adjusting entry to be made as of December 31,2013.(HINT: The publisher earns revenue only on delivery of magazines to the subscribers.Receipt of cash before delivery results in a liability called "Deferred subscription revenue.")

Question 26

Elsie owns a small business.At the end of the month,Elsie needed to make adjusting entries to prepare statements on the accrual basis.Which two of the following six possibilities occurred as a result of each of the following adjustments - an asset increased,an asset decreased,a liability increased,a liability decreased,equity increased,or equity decreased:
a.An accrual for salaries that were due to an employee,but were not paid
b.An adjustment for depreciation on Elsie's store fixtures
c.An adjustment for the expiration of prepaid insurance
d.An accrual for interest earned on a certificate of deposit that had not matured

Question 27

These transactions relate to Rudy's Garage,an auto repair shop.Which two of the following six possibilities occurred as a result of each transaction - an asset increased,an asset decreased,a liability increased,a liability decreased,equity increased,or equity decreased:
a.Rudy bought 5 batteries on credit.He put the batteries in inventory
b.Rudy did a repair job for a customer,who paid in cash
c.In doing the repair job,Rudy used one of the batteries he had bought in transaction a

Question 28

Which of the following accounts is increased with debits?

A)assets and liabilities
B)liabilities and equity
C)assets and expenses
D)liabilities and expenses

Question 29

Prepare journal entries to record the following transactions for Ted's Garage:
a.Ted does extensive body work on Jim's auto,and sends Jim a bill for $1,700.
b.Ted receives Jim's check for $1,700.
c.Ted's mechanic earns $2,000 for a week's work.Ted pays him $1,800 after deducting $200 withholding taxes.
d.Ted prepares financial statements at the end of the month.He makes an accrual for $400 for unpaid salaries.

Question 30

Angel's Appliances buys four washing machines for its inventory at a price of $400 each.It makes the purchase on credit.It then sells three of the machines for cash at $550 each.Make journal entries to record these transactions.Then state how much gross profit Angel made.

Question 31

Prepare journal entries to record the following transactions regarding a fire insurance policy purchased by Chang Electronics.Chang's business operates on a calendar-year basis.
a.April 1,2013 - Chang arranges to buy fire insurance.He receives a bill for $10,000 for an insurance policy that covers the period April 1,2013 through March 31,2014.
b.April 10 - Chang pays the insurance bill.
c.December 31- Chang prepares financial statements for the year ended.December 31,2013.He prepares an adjusting entry regarding insurance.