MASTERINGCORRECTIONOFACCOUNTINGERRORS

TESTBANK

Section1WHEREERRORSOCCURANDHOWTHEYAREFOUND

1. Howfrequentlyshouldthebankreconciliationbeperformed?
a. Monthly
b. Weekly
c. Eachtimewagesarepaidtoemployees
d. Asfrequentlyasisnecessarytofinderrors

2. Atyearend20X2,youseethatnoinsuranceexpensewasrecordedfor20X1.On
July1,20X1,yourcompanyhadprepaida2yearpolicyfor$4,800,debiting
PrepaidInsuranceandcreditingCash.Correctingthiserrorrequires:
a. apriorperiodadjustment
b. acurrentperiodadjustment
c. bothaandb
d. neitheranorb

3. Companyaccountingdepartmentsperformperiodicreviewstoensurethe
reliabilityofcompanyaccountingproceduresduring:
a. preparationofthetrialbalance
b. areviewofadjustingjournalentries
c. anexternalaudit
d. aninternalaudit

4. Baddebtexpenseof$500recordedas$5,000isanexampleof:
a. atranspositionerror
b. incorrectuseofanestimate
c. aclassificationerror
d. aslideerror

5. GrayCoestimatesdebtusing2%ofnetsales,butyoudiscoverthatthisyear
someoneused4%ofnetsales.Thisis:
a. atranspositionerror
b. anincorrectestimate
c. incorrectuseofanaccountingprinciple
d. aslideerror
MasteringCorrectionofAccountingErrors

Section2THEBANKRECONCILIATION

1. YouareperformingabankreconciliationforAugust20X1.Thebalanceperbank
is$21,863;theledgerCashbalance,$17,250.Outstandingchecksareasfollows:
CheckNumber Amount
2003 $560
2004 910
2008 1,700
2009 2,110
Youhavealsoidentifiedthefollowing:
A$13bankservicechargeforAugust
AnNSFcheckfor$720
Check#1996,madeouttoLocalGas&Electricfor$798,wasbookedas$870
A$6chargeforyourbanksWebBanking,whichthecompanydoesuse
Toreconcilethebalanceperbooktothebalanceperbankwillrequireadjusting
thebookbalanceby:
a. $661
b. $727
c. $733
d. $648

2. Inabankreconciliation,toadjustforacustomersNSFcheckrequires:
a. increasingthebankbalancebytheamount
b. reducingthebankbalancebytheamount
c. increasingthebookbalancebytheamount
d. reducingthebookbalancebytheamount

3. Inabankreconciliation,toadjustforabankchargeforanothercompany'scheck
requires:
a. increasingthebankbalancebytheamountofthecheck
b. reducingthebankbalancebytheamountofthecheck
c. increasingthebookbalancebytheamountofthecheck
d. reducingthebookbalancebytheamountofthecheck

4. Inabankreconciliation,toadjustforinincorrectdepositof$1,000fromanother
companyinyouraccountrequires:
a. increasingthebankbalancebytheamountofthedeposit
b. reducingthebankbalancebytheamountofthedeposit
c. increasingthebookbalancebytheamountofthedeposit
d. reducingthebookbalancebytheamountofthedeposit

5. Inabankreconciliation,toadjustforthebanksdeducting$980foracompany
checkthatyouwroteandbookedfor$890requires:
a. increasingthebookbalanceby$90

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b. reducingthebookbalanceby$90
c. increasingthebankbalanceby$90
d. reducingthebankbalanceby$90

6. Yourcompanywritesacheckfor$123,butrecordsitas$132.Toadjustforthis
inabankreconciliation,youwould:
a. increasethebankbalanceby$9
b. increasethebookbalanceby$9
c. reducethebankbalanceby$9
d. reducethebookbalanceby$9

7. Duringthebankreconciliation,younoticethatthebankdeducted$3,321for
check3201,whichwasmadeoutfor$3,123.Whatadjustmentdoyoumake?
a. Increasethebankbalanceby$198
b. Reducethebankbalanceby$198
c. Increasethebookbalanceby$198
d. Reducethebookbalanceby$198

8. Duringthebankreconciliation,youseethatthefollowingcheckshavenotcleared:
CheckNumber Amount
2003 $2,300
2004 2,400
2005 2,500
2006 3,300
Whatadjustmentshouldyoumake?
a. Increasethebookbalanceby$10,500
b. Reducethebookbalanceby$10,500
c. Increasethebankbalanceby$10,500
d. Reducethebankbalanceby$10,500

9. Thebankstatementbalanceof$7,850doesnotinclude$1,200inchecksoutstanding
and$750depositsintransit.Whenthebankbalanceisadjusted,itwillbe:
a. $7,850
b. $7,415
c. $7,400
d. $7,385

10. Thefollowingcheckswereoutstandingwhenyoudidlastmonthsbank
reconciliationandremainoutstandingthismonth:
Checknumber Amount
3452 $1,000
3454 1,500
3455 2,000

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Whatadjustmentshouldyoumakethismonth?
a. Increasethebankbalanceby$4,500
b. Reducethebankbalanceby$4,500
c. Increasethebookbalanceby$4,500
d. Reducethebookbalanceby$4,500

Section3FINDINGANDCORRECTINGERRORSUSINGTHEUNADJUSTEDTRIAL
BALANCE

1. Theunadjustedtrialbalanceshowstotaldebitsof$66,000andtotalcreditsof
$68,600.Ifthereisonlyonetypeoferror,whichtypewouldyoulookfor?
a. Slide
b. Transposition
c. Doubling
d. Misclassification

2. Onatrialbalance,thereisdifferencebetweentotaldebitsandtotalcredits
divisibleby9.Ifthisistheonlyerror,youcantrackitdownandmakethe
correctionifthisis:
a. anomissionerror
b. aslideerror
c. adoublingerror
d. amisclassificationerror

3. Whichofthefollowingerrorswouldnotberevealedbythetrialbalance?
a. ReceiptofapaymentdebitedtoAccountsReceivablefor$2,000and
creditedtoCashfor$2,000
b. PaymentofautilitybilldebitedtoUtilitiesExpensefor$890andcredited
toCashfor$980
c. AsaledebitedtoAccountsReceivablefor$80andcreditedtoSalesfor$800
d. Receiptofa$1,200checkforsubletofficespacedebitedtoCashfor$2,100
andcreditedtoAccountsReceivablefor$1,200

4. Atrialbalancemayreveal:
a. atranspositionerror
b. anomissionerror
c. aclassificationerror
d. abankreconciliationerror

Section4CORRECTINGCURRENTPERIODACCRUALERRORS

1. Ifyouaccrueexpensesof$130insteadof$150,thefinancialstatementswill:
a. overstateassetsandunderstateexpenses

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b. understateprepaidexpenses
c. understatebothliabilitiesandexpenses
d. overstateliabilities

2. OnNovember1,20X4,ComCodebitsCashandcreditsNotesPayablefor
$20,000foranotematuringMay1,20X5.Atthattime,ComComustrepaythe
entire$20,000plusinterestof6%accruedannually.Ifnoadjustingentryis
madeatyearend20X4,ComCowillrecordacorrectingentrythat:
a. debitsInterestExpensefor$400
b. creditsInterestPayablefor$100
c. debitsInterestExpensefor$200
d. noneoftheabove

3. YouremployerhasaMondayFridayworkweekanddistributesits$20,000
payrolleachFriday.In20X1,December31isaThursday.Oneofyour
assistantsdebitedSalariesExpenseandcreditedSalariesPayablefor$12,000.
Ifnocorrectingentryisrecorded:
a. thebalancesheetwilloverstateassets
b. theincomestatementwilloverstateexpenses
c. thebalancesheetwilloverstateliabilities
d. thebalancesheetwilloverstateretainedearnings

4. YouremployerhasaMondayFridayworkweekanddistributesits$35,000
payrolleachFriday.In20X2,December31isaTuesday.Oneofyourassistants
debitedSalariesExpenseandcreditedSalariesPayablefor$18,000.Your
correctingentrywill:
a. debitSalariesExpensefor$6,000
b. debitSalariesPayablefor$6,000
c. creditSalariesExpensefor$4,000
d. creditSalariesPayablefor$4,000

5. AcalendaryearcompanyplanstopayitsDecembergasbillinJanuary.Asof
December31,noadjustingentryhasbeenrecorded.Asaresult:
a. thebalancesheettotalwilloverstateassets
b. thebalancesheettotalwilloverstateretainedearnings
c. theincomestatementtotaloverstateexpenses
d. thebalancesheettotalwilloverstateliabilities

6. OnMarch1,20X1,yourcalendaryearcompanyborrows$10,000.Termsrequire
repaymentofprincipalandannualinterestof9%after4years.Atyearend
20X1,anadjustingentryaccrues$550interestexpense.Ifyoudiscoverthe
errorbeforethebooksareclosed,whatisthecorrectingentry?
a. InterestPayable 600
InterestExpense 600
b. InterestExpense 600
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InterestPayable 600
c. InterestExpense 200
InterestPayable 200
d. InterestExpense 200
InterestPayable 200

7. OnNovember1,20X4,DumpCodebitsCashandcreditsNotesPayablefor
$20,000foranotematuringonMay1,20X5,whenprincipalandaccrued
interestof6%ayearisdue.If,onDecember31,20X4,youdiscoverthatno
adjustingentrywasmadetoaccrueinterestfor20X4,youwillrecordanentry
thatincludes:
a. adebittoInterestPayablefor$400
b. adebittoInterestExpensefor$200
c. acredittoInterestPayablefor$400
d. noneoftheabove

8. Yourcalendaryearcompanycompletesa$6,000job,ofwhich$1,000hasbeen
receivedbyyearendandcreditedtoRevenue.Ifyoudiscoverbeforethebooks
areclosedthatnoadjustingentrywasmade,yourcorrectingentrywill:
a. debitRevenuefor$5,000
b. debitAccountsReceivablefor$6,000
c. creditAccountsReceivablefor$5,000
d. noneoftheabove

Section5CORRECTINGCURRENTPERIODDEFERRALERRORS

1. Whichofthefollowingisadeferralerror?
a. Failuretocalculateandrecordinterestexpenseowedonanotepayable
b. DebitingAccountsPayableandcreditingRevenuewhenbillingacustomer
c. Failuretobookrevenueearnedbutnotreceivedasofyearend
d. FailuretoadjustUnearnedRevenueatyearend

2. Yourcompanypurchases$2,000ofsuppliesandbookstheamountasprepaid
officesupplies.Atyearend,aphysicalcountshows$700ofsuppliesonhand.If
theadjustingentrydebitsSuppliesExpenseandSuppliesOnHandfor$700:
a. netincomewillbeunderstated
b. assetswillbeoverstated
c. liabilitieswillbeunderstated
d. noneoftheabove

3. OnMarch31,20X8,yourcalendaryearcompanytakesouta3yearinsurance
policywithapremiumof$5,000ayearandpaystheentire$15,000inadvance,
bookingitasprepaidinsurance.OnDecember31,20X8,youdiscoverthatthe
adjustingentrydebitedInsuranceExpenseandcreditedPrepaidInsurancefor
$5,000.Yourcorrectingjournalentrywill:
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a. debitInsuranceExpensefor$3,750
b. debitPrepaidInsurancefor$5,000
c. creditInsuranceExpensefor$1,250
d. creditInsuranceExpensefor$3,750

4. OnMarch31,20X8,yourcalendaryearcompanytakesouta3yearinsurance
policywithapremiumof$4,000ayearandpaystheentire$12,000inadvance,
bookingitasprepaidinsurance.Atyearend20X8,youdiscoverthatthe
adjustingentrydebitsInsuranceExpenseandcreditsPrepaidInsurancefor
$4,000.Ifyoudonotcorrectthis:
a. netincomewillbeunderstated
b. assetswillbeoverstated
c. liabilitieswillbeunderstated
d. noneoftheabove

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5. OnNovember1,20X3,yourcalendaryearcompanyreceives$40,000forspaceit
issublettingfor5monthsat$8,000amonth,fromNovember1,20X3through
March31,20X4,andbookstheamountasRentRevenue.OnDecember31,
20X3,youdiscoverthefollowingadjustingentry:
RentRevenue 32,000
RentReceivedinAdvance 32,000
Tocorrectthiserroryoumust:
a. debitRentRevenueandcreditRentReceivedinAdvancefor$8,000
b. debitRentReceivedinAdvanceandcreditRentRevenuefor$8,000
c. debitRentRevenueandcreditRentReceivedinAdvancefor$16,000
d. debitRentReceivedinAdvanceandcreditRentRevenuefor$16,000

6. Yourcompanypurchases$3,000ofsupplies,recordingthemasassets.Atyear
end,aphysicalcountshows$1,200ofsuppliesonhand.Theyearendadjusting
entrydebitsSuppliesExpenseandcreditsSuppliesOnHandfor$1,200.The
correctingentrywill:
a. debittoSuppliesExpensefor$1,800
b. credittoSuppliesOnHandfor$600
c. credittoSuppliesExpensefor$600
d. nocorrectingentryisnecessary

7. OnJuly1,20X8,yourcalendaryearcompanyprepays$12,000for3yearsrent
andrecordstheamountasanasset.Atyearend,youdiscoverthatthe
adjustingentrydebitsRentExpenseandcreditsPrepaidRentfor$1,000.
Withoutacorrectingentry:
a. assetswillbeoverstated
b. liabilitieswillbeunderstated
c. netincomewillbeunderstated
d. noneoftheabove

8. OnOctober1,20X8,yourcalendaryearcompanyprepays$10,000for2years
rent,recordingtheentire$10,000asanexpense.Atyearend,youdiscoverthat
theadjustingentrydebitsPrepaidRentandcreditsRentExpensefor$5,000.
Thecorrectingentrymust:
a. debitRentExpensefor$2,500
b. debitPrepaidRentfor$1,250
c. creditRentExpensefor$3,750
d. noneoftheabove

9. OnSeptember1,20X8,yourcalendaryearcompanypays$2,400for12months
insurance,recordingtheamountasanasset.Justbeforeclosingthebooks,you
realizethatnoadjustingentrywasrecorded.Withoutit:
a. netincomewillbeoverstated

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b. assetswillbeunderstated
c. liabilitieswillbeoverstated
d. noneoftheabove

10. OnNovember1,20X8,yourcalendaryearcompanypays$1,200for12months
insurance,recordingitasanexpense.Justbeforeclosingthebooks,yourealize
thatnoadjustingentrywasmade.Thecorrectentrymust:
a. creditanassetaccountfor$1,000
b. creditanexpenseaccountfor$1,000
c. debitanexpenseaccountfor$200
d. debitanassetaccountfor$200

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