Question 1

Tate Company purchased equipment on November 1, 2008 and gave a 3-month, 9% note with a face value of $20,000. The December 31, 2008 adjusting entry is
A) debit Interest Expense and credit Interest Payable, $1,800.
B) debit Interest Expense and credit Interest Payable, $450.
C) debit Interest Expense and credit Cash, $300.
D) debit Interest Expense and credit Interest Payable, $300.

Accepted Answer

2/12 × 9% × $20,000 = $300

Question 2

During the first year of Wisnewski Co.'s operations, all purchases were recorded as assets. Store supplies in the amount of $6,450 were purchased. Actual year-end store supplies inventory amounted to $2,150. The adjusting entry for store supplies will
A) increase net income by $4,390.
B) increase expenses by $4,390.
C) decrease store supplies by $6,450.
D) debit Accounts Payable for $2,150.

Accepted Answer

$6,450 - $2,150 = $4,390

Question 3

Brown Company's account balances at December 31, 2008 for Accounts Receivable and the related Allowance for Doubtful Accounts are $460,000 debit and $700 credit, respectively. From an aging of accounts receivable, it is estimated that $12,500 of the December 31 receivables will be uncollectible. The necessary adjusting entry would include a credit to the allowance account for
A) $12,500.
B) $13,200.
C) $11,800.
D) $700.

Accepted Answer

$12,500 - $700 = $11,800

Question 4

Starr Corporation loaned $90,000 to another corporation on December 1, 2008 and received a 3-month, 8% interest-bearing note with a face value of $90,000. What adjusting entry should Starr make on December 31, 2008?
A) Debit Interest Receivable and credit Interest Revenue, $1,800
B) Debit Cash and credit Interest Revenue, $600
C) Debit Interest Receivable and credit Interest Revenue, $600
D) Debit Cash and credit Interest Receivable, $1,800

Accepted Answer

1/12 × 8% × $90,000 = $600.

Question 5

A company receives interest on a $30,000, 8%, 5-year note receivable each April 1. At December 31, 2007, the following adjusting entry was made to accrue interest receivable:
 
-Assuming that the company does not use reversing entries, what entry should be made on April 1, 2008 when the annual interest payment is received?
A) 
B) 
C) 
D)

Accepted Answer

$30,000 × 8% = $2,400

Question 6

A company receives interest on a $30,000, 8%, 5-year note receivable each April 1. At December 31, 2007, the following adjusting entry was made to accrue interest receivable:
 
-Assuming that the company does use reversing entries, what entry should be made on April 1, 2008 when the annual interest payment is received?
A) 
B) 
C) 
D)

Accepted Answer

The answer of A company receives interest on a $30,000,...

Question 7

The following account balances (normal balances) were taken from the journal entry used to transfer various merchandise accounts under a periodic inventory system into the Cost of Goods Sold account:
 Based on the above facts, what was ending inventory?
A) $21,000
B) $45,600
C) $38,000
D) $37,900

Accepted Answer

($62,500 + $214,000 - $4,500 - $5,700 + $6,700) - $235,000 = $38,000

Question 8

The gross profit of Fordyce Company for 2008 is $75,000, cost of goods manufactured is $320,000, the beginning inventories of goods in process and finished goods are $22,000 and $25,000, respectively, and the ending inventories of goods in process and finished goods are $30,000 and $32,000, respectively. The sales of Fordyce Company for 2008 must have been
A) $378,000.
B) $385,000.
C) $388,000.
D) $398,000.

Accepted Answer

($25,000 + $320,000 - $32,000) + $75,000 = $388,000

Question 9

Lopez Company received $6,400 on April 1, 2008 for one year's rent in advance and recorded the transaction with a credit to a nominal account. The December 31, 2008 adjusting entry is
A) debit Rent Revenue and credit Unearned Rent, $1,600.
B) debit Rent Revenue and credit Unearned Rent, $4,800.
C) debit Unearned Rent and credit Rent Revenue, $1,600.
D) debit Unearned Rent and credit Rent Revenue, $4,800.

Accepted Answer

3/12 × $6,400 = $1,600

Question 10

Garcia Corporation received cash of $18,000 on August 1, 2008 for one year's rent in advance and recorded the transaction with a credit to Rent Revenue. The December 31, 2008 adjusting entry is
A) debit Rent Revenue and credit Unearned Rent, $7,500.
B) debit Rent Revenue and credit Unearned Rent, $10,500.
C) debit Unearned Rent and credit Rent Revenue, $7,500.
D) debit Cash and credit Unearned Rent, $10,500.

Accepted Answer

7/12 × $18,000 = $10,500

Question 11

Eaton Co. 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 $1,800,000 at December 31, 2008 before year-end adjustment. Service contract costs are charged as incurred to the Service Contract Expense account, which had a balance of $450,000 at December 31, 2008.
Service contracts still outstanding at December 31, 2008 expire as follows:
 What amount should be reported as Unearned Service Revenues in Eaton's December 31, 2008 balance sheet?
A) $1,350,000
B) $1,300,000
C) $850,000
D) $500,000

Accepted Answer

$380,000 + $570,000 + $350,000 = $1,300,000

Question 12

On June 1, 2008, Nott Corp. loaned Horn $400,000 on a 12% note, payable in five annual installments of $80,000 beginning January 2, 2009. In connection with this loan, Horn was required to deposit $5,000 in a noninterest-bearing escrow account. The amount held in escrow is to be returned to Horn after all principal and interest payments have been made. Interest on the note is payable on the first day of each month beginning July 1, 2008. Horn made timely payments through November 1, 2008. On January 2, 2009, Nott received payment of the first principal installment plus all interest due. At December 31, 2008, Nott's interest receivable on the loan to Horn should be
A) $0.
B) $4,000.
C) $8,000.
D) $12,000.

Accepted Answer

$400,000 × 12% × 2/12 = $8,000

Question 13

Colaw Co. pays all salaried employees on a biweekly basis. Overtime pay, however, is paid in the next biweekly period. Colaw accrues salaries expense only at its December 31 year end. Data relating to salaries earned in December 2008 are as follows:
Last payroll was paid on 12/26/08, for the 2-week period ended 12/26/08. Overtime pay earned in the 2-week period ended 12/26/08 was $10,000.
Remaining work days in 2008 were December 29, 30, 31, on which days there was no overtime. The recurring biweekly salaries total $180,000.
Assuming a five-day work week, Colaw should record a liability at December 31, 2008 for accrued salaries of
A) $54,000.
B) $64,000.
C) $108,000.
D) $118,000.

Accepted Answer

$10,000 + ($180,000 ÷ 10 × 3) = $64,000

Question 14

Tolan Corp.'s trademark was licensed to Eddy Co. for royalties of 15% of sales of the trademarked items. Royalties are payable semiannually on March 15 for sales in July through December of the prior year, and on September 15 for sales in January through June of the same year. Tolan received the following royalties from Eddy:
 Eddy estimated that sales of the trademarked items would total $40,000 for July through December 2008. In Tolan's 2008 income statement, the royalty revenue should be
A) $14,500.
B) $16,000.
C) $20,500.
D) $22,000.

Accepted Answer

$8,500 + ($40,000 × 15%) = $14,500

Quiz 3: The Accounting Information System

Tate Company purchased equipment on November 1, 2008 and gave a 3-month, 9% note with a face value of $20,000. The December 31, 2008 adjusting entry is

During the first year of Wisnewski Co.'s operations, all purchases were recorded as assets. Store supplies in the amount of $6,450 were purchased. Actual year-end store supplies inventory amounted to $2,150. The adjusting entry for store supplies will

Starr Corporation loaned $90,000 to another corporation on December 1, 2008 and received a 3-month, 8% interest-bearing note with a face value of $90,000. What adjusting entry should Starr make on December 31, 2008?

The following account balances (normal balances) were taken from the journal entry used to transfer various merchandise accounts under a periodic inventory system into the Cost of Goods Sold account: Based on the above facts, what was ending inventory?

Lopez Company received $6,400 on April 1, 2008 for one year's rent in advance and recorded the transaction with a credit to a nominal account. The December 31, 2008 adjusting entry is

Garcia Corporation received cash of $18,000 on August 1, 2008 for one year's rent in advance and recorded the transaction with a credit to Rent Revenue. The December 31, 2008 adjusting entry is