1. How does the purchase of supplies on account affect the accounting equation? 

 

       assets increase; owner’s equity decreases

       assets increase; liabilities increase

       assets increase; liabilities decrease

       liabilities increase; owner’s equity decreases

 

2. Which of the following is not a true statement about the accounting equation and its elements? 

 

       The accounting equation is Assets = Liabilities – Owners’ Equity.

       Assets are the resources a business possesses.

       Liabilities represent debts of a business.

       Examples of assets are cash, land, buildings, and equipment.

       Owners’ equity are the rights of the owners.

 

3. For accounting purposes, the business entity should be considered separate from its owners if the entity is 

       

       a corporation

       a proprietorship

       a partnership

       all of the above

 

4. Which of the following are guidelines for behaving ethically? 

 

I. Identify the consequences of a decision and its effect on others. 

II. Consider your obligations and responsibilities to those affected by the decision.

III. Identify your decision based on personal standards of honesty and fairness. 

 

       I and II.

       II and III.

       I and III.

       I, II, and III.

 

5. The payment for the monthly rent will require the following entry 

       

       Debit Cash and Debit Rent Expense

       Credit Cash and Credit Rent Expense

       Debit Rent Expense and Credit Cash

       Credit Rent Expense and Debit Cash

 

6. Randomly listed below are the steps for preparing a trial balance: 

 

(1.) Verify that the total of the Debit column equals the total of the Credit column. 

(2.) List the accounts from the ledger and enter their debit or credit balance in the Debit or Credit column of the trial balance. 

(3.) List the name of the company, the title of the trial balance, and the date the trial balance is prepared. 

(4.) Total the Debit and Credit columns of the trial balance. 

      

       (3), (2), (4), (1)

       (2), (3), (4), (1)

       (3), (2), (1), (4)

       (4), (3), (2), (1)

 

7. Prairie Clinic purchased X-ray equipment for $4,000, paid $1,275 down, with the remainder to be paid later. The correct entry would be       

 

Equipment      1,275

     Cash                   1,275

      

Cash                     1,275

Accounts Payable    2,725

      Equipment                       4,000

    

Equipment Expense    4,000

    Accounts Payable              1,275

    Cash                                   2,725

  

Equipment      4,000

    Accounts Payable        2,725          

    Cash                            1,275

 

8. A credit balance in which of the following accounts would indicate a likely error? 

      

       Fees Earned

       Salary Expense

       Janet James, Capital

       Accounts Payable

 

9. Which of the following is not a characteristic of accrual basis of accounting? 

       

       Revenues and expenses are reported in the period in which cash is received or paid

       Revenues are reported in the income statement in the period in which they are earned

       Supports the matching concept

       All are correct.

 

10. The net income reported on the income statement is $85,000. However, adjusting entries have not been made at the end of the period for supplies expense of $2,200 and accrued salaries of $800. Net income, as corrected, is 

 

       $84,200

       $85,000

       $82,800

       $82,000    

 

11. The matching concept 

 

       addresses the relationship between the journal and the balance sheet

       determines whether the normal balance of an account is a debit or credit

       requires that the dollar amount of debits equal the dollar amount of credits on a trial balance

       determines that expenses related to revenue be reported at the same time the revenue is reported

 

 12. The entry to adjust for the cost of supplies used during the accounting period is 

 

       Supplies Expense, debit; Supplies, credit

       James Smith, Capital, debit; Supplies, credit

       Accounts Payable, debit; Supplies, credit

       Supplies, debit; credit James Smith, Capital

 

13. Which of the accounts below would be closed by posting a debit to the account? 

 

       Unearned Revenue

       Fees Earned

       Josh Morton, Drawing

       Rent Expense

 

14. What is the major difference between the Unadjusted Trial Balance and the Adjusted Trial Balance? 

 

       The Adjusted Trial Balance will show the net income (loss) as an additional account.

       Both will need to be in balance in order to continue with the end-of-period processing

       The Adjusted Trial Balance includes the postings of the adjustments for the period in the balance of the accounts.

       The Unadjusted Trial Balance will be used to record the adjustments for the period.

 

15. The Statement of Owner’s Equity should be prepared 

 

       before the income statement and after the balance sheet

       before the income statement and balance sheet

       after the income statement and balanace sheet

       after the income statement and before the balance sheet

 

16. A summary of selected ledger accounts appear below for Alberto’s Plumbing Services for the 2009 calendar year end. 

 

Alberto, Capital      

31-Dec DEBIT 8,500

1-Jan CREDIT 6,500

31-Dec CREDIT 18,500

 

Alberto, Drawing

30-Jun DEBIT 3,500

31-Dec CREDIT 8,500

30-Nov DEBIT 5,000

 

Income Summary

31-Dec DEBIT 15,000

31-Dec CREDIT 33,500

31-Dec DEBIT 18,500

 

Net income for the period is 

 

       $16,500

       $33,500

       $18,500     

       $15,000

 

17. After all of the account balances have been extended to the Income Statement columns of the work sheet, the totals of the debit and credit columns are $77,500 and $85,300, respectively. What is the amount of the net income or net loss for the period? 

 

       $7,800 net income    

       $7,800 net loss

       $85,300 net income

       $77,500 net loss

 

18. The following are steps to the accounting cycle. Of the following, which step should be done first? 

 

       Closing entries are journalized and posted to the ledger.

       Transactions are posted to the ledger.

       Adjusting entries are journalized and posted to the ledger.

       Financial statements are prepared.

 

19. A work sheet includes columns for 

 

       adjusting entries

       closing entries

       reversing entries

       adjusting and closing entries

 

20. Net income appears on the work sheet in the 

 

       debit column of the Balance Sheet columns

       debit column of the Adjustments columns

       debit column of the Income Statement columns

       credit column of the Income Statement columns 

 

21. A company, using the periodic inventory system, has merchandise inventory costing $175 on hand at the beginning of the period. During the period, merchandise costing $635 is purchased. At year-end, merchandise inventory costing $160 is on hand. The cost of merchandise sold for the year is 

 

       $970

       $650    

       $300

       $620

 

 22. When merchandise is returned under the perpetual inventory system, the buyer would credit 

 

       Merchandise Inventory

       Purchases Returns and Allowances

       Accounts Payable

       depending on the inventory system used.

 

23. Multiple-step income statements show 

 

       gross profit but not income from operations

       neither gross profit nor income from operations

       both gross profit and income from operations

       income from operations but not gross profit

 

24. The primary difference between a periodic and perpetual inventory system is that a 

 

       periodic system determines the inventory on hand only at the end of the accounting period

       periodic system keeps a record showing the inventory on hand at all times

       periodic system provides an easy means to determine inventory shrinkage

       periodic system records the cost of the sale on the date the sale is made

 

25. Beginning inventory, purchases and sales data for tennis rackets are as follows:

 

Apr 3     Inventory      12 units   @  $45

     11     Purchase     13 units   @$47

     14     Sale            18 units

     21     Purchase     9 units   @   $60

     25      Sale          10 units

  

Assuming the business maintains a perpetual inventory system, calculate the cost of merchandise sold and ending inventory under First-in, first-out: 

 

       cost of merchandise sold $1,151; ending inventory $180

       cost of merchandise sold $180; ending inventory $1,151

       cost of merchandise sold $1,331; ending inventory $360

       cost of merchandise sold $360; ending inventory $1,331

 

26. The Boxwood Company sells blankets for $60 each. The following was taken from the inventory records during May.

 

DateProduct ZUnitsCost

May 3Purchase5$30

May 10Sale3

May 17Purchase10$34

May 20Sale6

May 23Sale3

May 30Purchase10$40

 

Assuming that the company uses the perpetual inventory system, determine the ending inventory for the month of May using the FIFO inventory cost method. 

 

       $264

       $502        

       $400

       $790

 

27. The inventory system employing accounting records that continuously disclose the amount of inventory is called 

 

       Retail

       Periodic

       Physical

       Perpetual

 

28. When merchandise sold is assumed to be in the order in which the expenditures were made, the inventory method is called 

 

       first-in, last-out

       last-in, first-out

       first-in, first-out

       average cost

 

29. The following lots of a particular commodity were available for sale during the year:

 

Beginning inventory5 units @ $61

First purchase15 units @ $63

Second purchase10 units @ $74

Third purchase10 units @ $77

 

The firm uses the periodic system and there are 20 units of the commodity on hand at the end of the year. What is the amount of the inventory at the end of the year according to the average cost method? 

 

       $1,380

       $1,375

       $1,510

       $1,220

 

30. On the basis of the following data, what is the estimated cost of the merchandise inventory on May 31 by the retail method?

 

                                          Cost            Retail

May 1Merchandise Inventory$125,000       $166,667

May 1-31Purchases (net)                  235,000       313,333

May 1-31Sales (net)                 230,000

 

       $250,000

       $360,000

       $172,500

       $187,500

 

31. Inventory turnover 

 

       is computed by dividing average inventory by cost of merchandise sold

       measures the relationship between the volume of goods sold and amount of inventory carried

       increases the risk of loss from damaged merchandise

       is computed by dividing the beginning inventory plus the ending inventory by two

 

32. Garrison Company uses the retail method of inventory costing. They started the year with an inventory that had a retail cost of $45,000. During the year they purchased an inventory with a retail cost of $300,000. After performing a physical inventory, they calculated their inventory at $80,000. The mark up is 100% of cost. Determine the ending inventory at its estimated cost. 

 

       $160,000

       $80,000

       $40,000    

 

33. If a company mistakenly counts more items during a physical inventory than actually exist, how will the error affect their bottom line? 

 

       No change to net income.

       Net income will be overstated

       Net income will be understated.

       Only gross profit will be affected.

 

34. Too much inventory on hand 

 

       reduces solvency

       increases the cost to safeguard the assets

       increases the losses due to price declines

       all of the above

 

35. Under a periodic inventory system 

 

       accounting records continuously disclose the amount of inventory

       a separate account for each type of merchandise is maintained in a subsidiary ledger

       a physical inventory is taken at the end of the period

       merchandise inventory is debited when goods are returned to vendors