Question 1

Which of the following doesn't correctly describe a journal entry which debits supplies expense and credits supplies?

Accepted Answer

A) It increases expenses and decreases assets. 
B) It decreases net income and decreases assets. 
C) It increases expenses and increases retained earnings. 
D) It decreases net income and decreases stockholders' equity. 
A) It increases expenses and decreases assets. 
B) It decreases net income and decreases assets. 
C) It increases expenses and increases retained earnings. 
D) It decreases net income and decreases stockholders' equity.

Question 2

Which of the following journal entries was created as the result of an accrual?

Accepted Answer

A)  Accounts receivable
$ \quad $$ \quad $Revenues 
B)  Interest expense
$ \quad $$ \quad $Cash 
C)  Cash
$ \quad $Deferred revenue 
D)  Rent expense
$ \quad $Prepaid rent 
A)  Accounts receivable
$ \quad $$ \quad $Revenues 
B)  Interest expense
$ \quad $$ \quad $Cash 
C)  Cash
$ \quad $Deferred revenue 
D)  Rent expense
$ \quad $Prepaid rent

Question 3

Johnson Corporation is completing the accounting information processing cycle at the end of the fiscal year,June 30,2010.Johnson has provided the following trial balances as of June 30,2010:
 
$\begin{array}{|l|r|r|r|r|}
\hline {\text { June } 30,2010} \
\hline {\text { Account Titles }} & {\text { Unadjusted Trial Balance }} & {\text { Adjusted Trial Balance }} \
& \text { Debit } & \text { Credit } &{\text { Debit }} & \text { Credit } \
\hline \text { Cash } & \$ 13,000 & & \$ 13,000 & \
\hline \text { Accounts receivable } & 1,500 & & 1,800 & \
\hline \text { Prepaid insurance } & 600 & & 200 & \
\hline \text { Equipment } & 60,000 & & 60,000 & \
\hline \text { Accumulated depreciation } & & \$ 16,500 & & \$ 22,000 \
\hline \text { Wages payable } & & & & 100 \
\hline \text { Capital stock } & & 25,000 & & 25,000 \
\hline \text { Retained earnings } & & 11,600 & & 11,600 \
\hline \text { Service revenues } & & 38,000 & & 38,300 \
\hline \text { Wage expense } & 16,000 & & 16,100 & \
\hline \text { Depreciation expense } & & & 5,500 & \
\hline \text { Insurance expense } & & & 400 & \
\hline \text { Totals } & \$ 91,100 & \$ 91,100 & \$ 97,000 & \$ 97,000 \
\hline
\end{array}$ Requirements:
A.Reconstruct the adjusting entries and give a brief explanation of each.
B.What is the amount of net income?
C.Calculate earnings per share (EPS)assuming 1,000 shares of common stock are outstanding.

Accepted Answer

A. The adjusting entries can be reconstr

Question 4

Which of the following journal entries was not created as the result of a deferral?

Accepted Answer

A)  Prepaid rent
$ \quad $Cash 
B)  Cash
$ \quad $Service revenue 
C)  Supplies inventory
$ \quad $Cash 
D)  Cash
$ \quad $Unearned revenues 
A)  Prepaid rent
$ \quad $Cash 
B)  Cash
$ \quad $Service revenue 
C)  Supplies inventory
$ \quad $Cash 
D)  Cash
$ \quad $Unearned revenues

Question 5

Air Cargo Company recorded the following adjusting entries at the end of the accounting year,December 31,2010:
 $$\begin{array} { c c c } 
\text { Wages expense } & 2,000 & \
\text { Wages payable } & & 2,000 \
\text { Interest receivable } & 1,000 & \
\text { Interest revenue } & & 1,000
\end{array}$$ Before these adjusting entries were recorded,a partial unadjusted trial balance reflected the following: $$\begin{array} { l c r } 
& \quad\quad\quad\quad\quad\quad { \text { Balance } } \
\text { Account } & \text { Debits } & \text { Credits } \
\text { Service revenue } & &80,000 \
\text { Operating expenses } & 53,000 & \
\text { Wage expense } & 28,000 & \
\text { Wages payable } & - 0 - & \
\text { Interest receivable } & 8,000 & \
\text { Interest revenue } & & 9,000
\end{array}$$ Prepare the closing entries for Air Cargo Company at December 31,2010.

Accepted Answer

The closing entries for Air Cargo Compan

Question 6

Bridge Company keeps a small inventory of supplies used for cleaning and maintenance purposes.On January 1,2011,the inventory of supplies on hand was $2,000.During the year,supplies purchased were debited to the supplies inventory account in the amount of $6,500.On December 31,2011,the inventory count of supplies in the storeroom was $1,750.Give the adjusting entry required at December 31,2011,assuming that no adjusting entries were made during the year.

Accepted Answer

To record the adjusting entry for the su

Question 7

A list of the accounts of Medford Corporation is given below,followed by some selected transactions.Indicate the accounts that should be debited and credited for each transaction closing entry by placing the appropriate account codes in the debit and credit columns provided. $\begin{array}{|c|l|c|l|}
\hline \text { Code } & {\text { Account }} & \text { Cocount } \
\hline \text { A. } & \text { Cash } & \text { I. } & \text { Contributed capital } \
\hline \text { B. } & \text { Prepaid insurance } & \text { J. } & \text { Retained earnings } \
\hline \text { C. } & \text { Accounts receivable } & \text { K. } & \text { Rent revenues } \
\hline \text { D. } & \text { Service trucks } & \text { L. } & \text { Service revenues } \
\hline \text { E. } & \text { Accumulated depreciation } & \text { M. } & \text { Expenses } \
\hline \text { F. } & \text { Accounts payable } & \text { N. } & \text { Income tax payable } \
\hline \text { G. } & \text { Notes payable } & \text { O. } & \text { Income summary } \
\hline \text { H. } & \text { Unearned service revenue } & \text { P. } & \text { Rent payable } \
\hline
\end{array}$

Accepted Answer

The answer of A list of the accounts of Medford...

Question 8

On November 1,2010,Bruce Company leased some of its office space to Fairlane Company and immediately collected twelve months rent in advance of $600,000.Bruce debited cash and credited unearned rent revenue for $600,000.Prepare the December 31,2010 adjusting entry Bruce should make in respect to the rent,assuming no adjusting entries have been made during the year.

Accepted Answer

On November 1, 2010, Bruce Company lease

Question 9

Toy Shop Inc.has provided the following income statements:
 $\begin{array}{lrrr}
& 2011 &2010& 2009 \
\text { Net revenues } & \$ 3,787.2 & \$ 4,232.2 & \$ 3,304.5 \
\text { Cost of goods sold } & 1,674.0 & \$ 1,698.2 & 1,366.1 \
\text { Gross profit } & 2,113.2 & 2,534.0 & 1,938.4 \
\text { Operating expenses } & 2,217.5 & 2,206.5 & 1,613.5 \
\text { Income (loss) from operations } & (104.3) & 327.5 & 324.9 \
\text { Nonoperating income (loss) } & (121.7) & (53.7) & (21.4) \
\text { Income (loss) before taxes } & (226.0) & 273.8 & 303.5 \
\text { Income tax expense } & 81.4 & (84.9) & (97.1) \
\text { Net income (loss) } & (144.6) & 188.9 & 206.4
\end{array}$ Requirements:
1.Compute net profit margin for each year.
2.Discuss some of the events which could have caused the changes to the net profit margin based on the income statement information above.

Accepted Answer

1. To compute the net profit margin for

Question 10

What is the effect on the financial statements when a company fails to accrue salaries expense at year-end?

Accepted Answer

A) Net income is overstated and liabilities are understated. 
B) Expenses are understated and stockholders' equity is understated. 
C) Expenses and liabilities are both overstated. 
D) Net income is overstated and liabilities are not affected. 
A) Net income is overstated and liabilities are understated. 
B) Expenses are understated and stockholders' equity is understated. 
C) Expenses and liabilities are both overstated. 
D) Net income is overstated and liabilities are not affected.

Question 11

Which of the following account balances would not be closed at year-end by debiting the account?

Accepted Answer

A) Interest revenue 
B) Gain on sale of building 
C) Sales revenues 
D) Unearned revenues 
A) Interest revenue 
B) Gain on sale of building 
C) Sales revenues 
D) Unearned revenues

Question 12

Which of the following statements regarding the net profit margin ratio is false?

Accepted Answer

A) The numerator is net income. 
B) The denominator is net sales or operating revenues. 
C) It measures how much of every sales dollar is gross profit. 
D) Financial analysts expect well-run businesses to maintain or improve their profit margin over time. 
A) The numerator is net income. 
B) The denominator is net sales or operating revenues. 
C) It measures how much of every sales dollar is gross profit. 
D) Financial analysts expect well-run businesses to maintain or improve their profit margin over time.

Question 13

The adjusting entry to adjust the unearned revenue account for revenues earned results in an increase in assets and a decrease in liabilities.

Accepted Answer

A) True 
 B)False

Question 14

Rent of $4,000 collected in advance was recorded as unearned rent revenue.At the end of the accounting period,half the rent was earned.The related adjusting entry should be a credit to rent revenue for $2,000 and a debit to unearned rent revenue for $2,000.

Accepted Answer

A) True 
 B)False

Question 15

On September 1,2011,Fast Track,Inc.was started with $30,000 invested by the owners as contributed capital.On September 30,2011,the accounting records contained the following amounts:
 $\begin{array}{lrlr}
\text { Accounts payable } & \$ 2,200 & \text { Dividends declared and } & \$ 2,300 \
 &  & \text { paid } &  \
\text { Accounts receivable }&2,200 & \text { Office equipment } & 25,000 \
\text { Accumulated depreciation } & 500 & \text { Office supplies inventory  } & 1,750 \
\text { Cash } & 10,000 & \text { Office supplies expense } & 600 \
\text { Consulting fees revenue } & 19,200 & \text { Rent expense } & 2,400 \
\text { Contributed capital } & 30,000 & \text { Salary expense } & 6,900 \
\text { Depreciation expense } & 500 & \text { Telephone expense } & 250
\end{array}$ Prepare an income statement for September for the first month of Fast Track's operation.Ignore income taxes.

Accepted Answer

Fast Track, Inc.
Income Statement
For th

Question 16

On July 1,2011,Goode Company borrowed $100,000.The company signed a note payable with interest at 6 percent per year.The note and interest are due on December 31,2011.On December 31,2011,Goode paid $103,000 to settle the debt in full.Assuming no accruals for interest have been made during the year,transaction analysis of the $103,000 cash payment on December 31,2011 should reflect which of the following?

Accepted Answer

A) A decrease in assets of $103,000 and a decrease in liabilities of $103,000. 
B) A decrease in assets of $100,000, a decrease in stockholders' equity of $3,000, and a decrease in liabilities of $103,000. 
C) A decrease in stockholders' equity of $100,000, a decrease in liabilities of $3,000, and a decrease in assets of $103,000. 
D) A decrease in liabilities of $100,000, a decrease in stockholders' equity of $3,000 and a decrease in assets of $103,000. 
A) A decrease in assets of $103,000 and a decrease in liabilities of $103,000. 
B) A decrease in assets of $100,000, a decrease in stockholders' equity of $3,000, and a decrease in liabilities of $103,000. 
C) A decrease in stockholders' equity of $100,000, a decrease in liabilities of $3,000, and a decrease in assets of $103,000. 
D) A decrease in liabilities of $100,000, a decrease in stockholders' equity of $3,000 and a decrease in assets of $103,000.

Question 17

What is the effect on the financial statements when a company fails to adjust the prepaid insurance account at year-end for insurance coverage which has expired?

Accepted Answer

A) Net income is overstated and stockholders' equity is understated. 
B) Expenses are understated and stockholders' equity is understated. 
C) Expenses are understated and net income is understated. 
D) Net income is overstated and assets are overstated. 
A) Net income is overstated and stockholders' equity is understated. 
B) Expenses are understated and stockholders' equity is understated. 
C) Expenses are understated and net income is understated. 
D) Net income is overstated and assets are overstated.

Question 18

Accrued revenues are revenues that have been earned,but the customer has not yet paid for the goods or services.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following transactions results in an increase in both net income and stockholders' equity?

Accepted Answer

A) Paying cash to acquire a six-month insurance policy. 
B) Collecting cash from a customer for services to be provided in the future. 
C) The accrual of interest expense year-end. 
D) Adjustment of the unearned revenue account for revenue earned during the period. 
A) Paying cash to acquire a six-month insurance policy. 
B) Collecting cash from a customer for services to be provided in the future. 
C) The accrual of interest expense year-end. 
D) Adjustment of the unearned revenue account for revenue earned during the period.

Question 20

At December 31,2010,the following adjusting entries were recorded in the accounts of CPA Company:
 $$\begin{array} { c c c } 
\text { Interest receivable } & 2,000 & \
\text { Interest revenue } & & 2,000 \
\text { Wages expense } & 10,000 & \
\text { Wages payable } & & 10,000
\end{array}$$ There were no other accrued receivables or payables on CPA's books in 2010.
Calculate the balances in the following accounts immediately after the closing entries were posted. $\begin{array}{|l|l|l|l|}
\hline \text { Transactions } & \text { Accounts } \
 & {\text { Debit }} & \text { Credit } \
\hline 1 . \text { Interest receivable }&   \$ & \$ \
\hline 2 .  \text { Interest revenue }& \$ & \$ \
\hline 3 .\text { Wages expense } &   \$ & \$ \
\hline 4 . \text { Wages payable }&   \$ & \$ \
\hline
\end{array}$

Accepted Answer

To calculate the balances in the account

Which of the following doesn't correctly describe a journal entry which debits supplies expense and credits supplies?

Which of the following journal entries was created as the result of an accrual?

Which of the following journal entries was not created as the result of a deferral?

What is the effect on the financial statements when a company fails to accrue salaries expense at year-end?

Which of the following account balances would not be closed at year-end by debiting the account?

Which of the following statements regarding the net profit margin ratio is false?

The adjusting entry to adjust the unearned revenue account for revenues earned results in an increase in assets and a decrease in liabilities.

Rent of $4,000 collected in advance was recorded as unearned rent revenue.At the end of the accounting period,half the rent was earned.The related adjusting entry should be a credit to rent revenue for $2,000 and a debit to unearned rent revenue for $2,000.

What is the effect on the financial statements when a company fails to adjust the prepaid insurance account at year-end for insurance coverage which has expired?

Accrued revenues are revenues that have been earned,but the customer has not yet paid for the goods or services.

Which of the following transactions results in an increase in both net income and stockholders' equity?

Financial Statements and Business Decisions

Investing and Financing Decisions and the Balance Sheet

Operating Decisions and the Income Statement

Communicating and Interpreting Accounting Information

Reporting and Interpreting Sales Revenue, Receivables, and Cash

Reporting and Interpreting Cost of Goods Sold and Inventory

Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles

Reporting and Interpreting Liabilities

Reporting and Interpreting Bonds

Reporting and Interpreting Owners Equity

Reporting and Interpreting Investments in Other Corporations

Statement of Cash Flows

Analyzing Financial Statements

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Exam 4: Adjustments,Financial Statements,and the Quality of Earnings

Which of the following doesn't correctly describe a journal entry which debits supplies expense and credits supplies?

Which of the following journal entries was created as the result of an accrual?

Which of the following journal entries was not created as the result of a deferral?

What is the effect on the financial statements when a company fails to accrue salaries expense at year-end?

Which of the following account balances would not be closed at year-end by debiting the account?

Which of the following statements regarding the net profit margin ratio is false?

The adjusting entry to adjust the unearned revenue account for revenues earned results in an increase in assets and a decrease in liabilities.

Rent of $4,000 collected in advance was recorded as unearned rent revenue.At the end of the accounting period,half the rent was earned.The related adjusting entry should be a credit to rent revenue for $2,000 and a debit to unearned rent revenue for $2,000.

What is the effect on the financial statements when a company fails to adjust the prepaid insurance account at year-end for insurance coverage which has expired?

Accrued revenues are revenues that have been earned,but the customer has not yet paid for the goods or services.

Which of the following transactions results in an increase in both net income and stockholders' equity?

Financial Statements and Business Decisions

Investing and Financing Decisions and the Balance Sheet

Operating Decisions and the Income Statement

Communicating and Interpreting Accounting Information

Reporting and Interpreting Sales Revenue, Receivables, and Cash

Reporting and Interpreting Cost of Goods Sold and Inventory

Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles

Reporting and Interpreting Liabilities

Reporting and Interpreting Bonds

Reporting and Interpreting Owners Equity

Reporting and Interpreting Investments in Other Corporations

Statement of Cash Flows

Analyzing Financial Statements

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