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4. After an unadjusted trial balance is prepared, the next step in the accounting
processing cycle is the preparation of financial statements.
True False
5. Adjusting journal entries are required to comply with the realization and matching
principles.
True False
6. Accruals occur when the cash flow precedes either revenue or expense recognition.
True False
8. The income statement summarizes the operating activity of a firm at a particular point
in time.
True False
10. The statement of cash flows summarizes transactions that caused cash and cash
equivalents to change during a reporting period.
True False
11. The statement of shareholders' equity discloses the changes in the temporary
shareholders' equity accounts.
True False
13. The closing process brings all temporary accounts to a zero balance and updates
the balance in the retained earnings account.
True False
14. A reversing entry at the beginning of a period for salaries would include a debit to
salaries expense.
True False
Matching Questions
17. Listed below are ten terms followed by a list of phrases that describe or characterize
five of the terms. Match each phrase with the correct term by placing the letter
designating the best term in the space provided by the phrase.
Assets or liabilities created when recognition ____
1. Prepayments precedes cash flows.
18. Listed below are ten terms followed by a list of phrases that describe or
characterize five of the terms. Match each phrase with the correct term by placing the
letter designating the best term in the space provided by the phrase.
Reports operating, investing, and financing ____
1. Balance sheet activities.
19. Listed below are ten terms followed by a list of phrases that describe or characterize
five of the terms. Match each phrase with the correct term by placing the letter
designating the best term in the space provided by the phrase.
20. Listed below are ten terms followed by a list of phrases that describe or characterize
five of the terms. Match each phrase with the correct term by placing the letter
designating the best term in the space provided by the phrase.
1. General ____
ledger Refers to the right side of an account.
____
4. Debit Contains all the accounts of an entity.
21. Listed below are ten terms followed by a list of phrases that describe or characterize
five of the terms. Match each phrase with the correct term by placing the letter
designating the best term in the space provided by the phrase.
____
1. Liabilities Transfer balances from journals to ledgers.
5. Special ____
journals Used to record repetitive types of transactions.
22. Listed below are ten terms followed by a list of phrases that describe or
characterize five of the terms. Match each phrase with the correct term by placing the
letter designating the best term in the space provided by the phrase.
1. Source Refers to inflows of assets from the sale of ____
documents goods and services.
____
2. Revenues Used to identify external transactions.
23. Listed below are ten terms followed by a list of phrases that describe or characterize
the terms. Match each phrase with the correct term by placing the letter designating the
best term in the space provided by the phrase.
____
8. General ledger Revenue earned before cash is received.
A list of the general ledger accounts and ____
9. Revenues their balances.
27. XYZ Corporation receives $100,000 from investors for issuing them shares of its
stock. XYZ's journal entry to record this transaction would include a:
A. Debit to investments.
B. Credit to retained earnings.
C. Credit to capital stock.
D. Credit to revenue.
30. Mary Parker Co. invested $15,000 in ABC Corporation and received capital stock in
exchange. Mary Parker Co.'s journal entry to record this transaction would include a:
A. Debit to investments.
B. Credit to retained earnings.
C. Credit to capital stock.
D. Debit to expense.
31. Hughes Aircraft sold a four-passenger airplane for $380,000, receiving a $50,000
down payment and a 12% note for the balance. The journal entry to record this sale
would include a:
A. Credit to cash.
B. Debit to cash discount.
C. Debit to note receivable.
D. Credit to note receivable.
32. Somerset Leasing received $12,000 for 24 months rent in advance. How should
Somerset record this transaction?
A. Option A
B. Option B
C. Option C
D. Option D
33. Davis Hardware Company uses a perpetual inventory system. How should Davis
record the sale of merchandise, costing $620, and sold for $960 on account?
A. Option A
B. Option B
C. Option C
D. Option D
34. Ace Bonding Company purchased merchandise inventory on account. The inventory
costs $2,000 and is expected to sell for $3,000. How should Ace record the purchase?
A. Option A
B. Option B
C. Option C
D. Option D
38. Recording revenue earned from a customer, but not yet collected, is an example of:
A. A prepaid expense transaction.
B. An unearned revenue transaction.
C. An accrued liability transaction.
D. An accrued receivable transaction.
40. On December 31, 2011, Coolwear, Inc. had balances in its accounts receivable and
allowance for uncollectible accounts of $48,400 and $0, respectively. No receivables
were written off during the year. At the end of 2011, Coolwear estimated that $2,100 in
receivables would not be collected. Bad debt expense for 2011 would be:
A. $0.
B. $46,300.
C. $1,050.
D. $2,100.
44. On December 31, 2011, the end of Larry's Used Cars first year of operations, the
accounts receivable was $53,600. The company estimates that $1,200 of the year-end
receivables will not be collected. Accounts receivable in the 2011 balance sheet will be
valued at:
A. $53,600.
B. $54,800.
C. $52,400.
D. $1,200.
45. Cal Farms reported supplies expense of $2,000,000 this year. The supplies account
decreased by $200,000 during the year to an ending balance of $400,000. What was
the cost of supplies the Cal Farms purchased during the year?
A. $1,600,000.
B. $1,800,000.
C. $2,200,000.
D. $2,400,000.
A. Option A
B. Option B
C. Option C
D. Option D
47. The adjusting entry required when amounts previously recorded as unearned
revenues are earned includes:
A. A debit to a liability.
B. A debit to an asset.
C. A credit to a liability.
D. A credit to an asset.
49. When a tenant makes an end-of-period adjusting entry credit to the "Prepaid rent"
account:
A. (S)he usually debits cash.
B. (S)he usually debits an expense account.
C. (S)he debits a liability account.
D. (S)he does none of the above.
50. When a business makes an end-of-period adjusting entry with a debit to supplies
expense, the usual credit entry is made to:
A. Accounts payable.
B. Supplies.
C. Cash.
D. Retained earnings.
52. Carolina Mills purchased $270,000 in supplies this year. The supplies account
increased by $10,000 during the year to an ending balance of $66,000. What was
supplies expense for Carolina Mills during the year?
A. $300,000.
B. $280,000.
C. $260,000.
D. $240,000.
53. Yummy Foods purchased a two-year fire and extended coverage insurance policy
on August 1, 2011, and charged the $4,200 premium to Insurance expense. At its
December 31, 2011, year-end, Yummy Foods would record which of the following
adjusting entries?
A. Option A
B. Option B
C. Option C
D. Option D
54. The employees of Neat Clothes work Monday through Friday. Every other Friday
the company issues payroll checks totaling $32,000. The current pay period ends on
Friday, July 3. Neat Clothes is now preparing quarterly financial statements for the three
months ended June 30. What is the adjusting entry to record accrued salaries at the
end of June?
A. Option A
B. Option B
C. Option C
D. Option D
55. On September 1, 2011, Fortune Magazine sold 600 one-year subscriptions for $81
each. The total amount received was credited to unearned subscriptions revenue. What
would be the required adjusting entry at December 31, 2011?
A. Option A
B. Option B
C. Option C
D. Option D
CASH AND RECEIVABLES
3. In a good system of internal control, the person who initiates a transaction should be
allowed to effectively control the processing of the transaction through its final inclusion
in the accounting records.
True False
5. Under IFRS, an overdraft in a cash account at one bank can be offset against a
positive balance in the account at another bank for purposes of reporting cash on the
company's balance sheet.
True False
6. The net method of accounting for cash discounts requires adjusting entries for
discounts taken.
True False
8. The income statement approach to estimating bad debts requires an adjusting entry
at the end of the period to reduce receivables to net realizable value.
True False
9. Under IFRS, accounts receivable can be accounted for at fair value whenever
company management wants to do so.
True False
10. Under IFRS, accounts receivable can be accounted for as "available for sale" if that
approach is elected upon initial recognition of the receivable.
True False
11. Using the balance sheet approach, bad debt expense is an indirect result of
estimating the net realizable value of accounts receivable.
True False
12. Discounts on notes receivable are recognized as interest earned over the term of
the related note.
True False
13. Unless specific sales criteria are met, the factoring of accounts receivable with
recourse is accounted for as a loan.
True False
15. Under IFRS, transfer of risks and rewards of ownership, rather than transfer of
control, is the primary factor determining whether a factored receivable can be treated
as sold rather than as part of a secured borrowing.
True False
16. The receivables turnover ratio provides a way for an analyst to assess the
effectiveness of a company in managing its investment in receivables.
True False
17. In a bank reconciliation, adjustments to the bank balance could include adding
deposits in transit and deducting bank service charges.
True False
18. In a bank reconciliation, adjustments to the book balance could include adding or
subtracting company errors.
True False
19. The journal entry to record the replenishment of a petty cash fund includes a credit
to the petty cash fund.
True False
20. When a creditor's receivable becomes impaired due to a troubled debt restructuring,
the receivable is remeasured based on the discounted present value of currently
expected cash flows at the loan's original effective rate.
True False
21. Under IFRS, accounts receivable impairments due to troubled debt restructuring are
not recognized.
True False
Matching Questions
22. Listed below are ten terms followed by a list of phrases that describe or characterize
five of the terms. Match each phrase with the correct term placing the letter designating
the best term in the space provided by the phrase.
____
3. Separation of duties Is a contra revenue account.
____
5. Accounts receivable Are reported at their net realizable value.
23. Listed below are ten terms followed by a list of phrases that describe or
characterize five of the terms. Match each phrase with the correct term placing the letter
designating the best term in the space provided by the phrase.
The risk of uncollectibility is retained by ____
1. Interest-bearing note the seller.
____
4. Internal control Includes separation of duties.
24. Listed below are ten terms followed by a list of phrases that describe or
characterize five of the terms. Match each phrase with the correct term by placing the
letter designating the best term in the space provided by the phrase.
____
1. Cash discounts Receivables used as collateral for debt.
____
4. Allowance method Offered to induce prompt payment.
25. Listed below are ten terms followed by a list of phrases that describe or
characterize five of the terms. Match each phrase with the correct term by placing the
letter designating the best term in the space provided by the phrase.
1. Average collection ____
period Deducted from list price.
4. Compensating ____
balance The sale of a note receivable to a lender.
____
5. Discounting An example of a restriction on cash.
26. Listed below are ten terms followed by a list of phrases that describe or characterize
the terms. Match each phrase with the correct term by placing the letter designating the
best term in the space provided by the phrase.
____
5. Sales returns An example of a restriction on cash.
8. Compensating ____
balance Bad debt expense a % of credit sales.
Using receivables as collateral for a ____
9. Pledging loan.
27. Listed below are ten terms followed by a list of phrases that describe or characterize
five of the terms with respect to accounting under IFRS. Match each phrase with the
correct term by placing the letter designating the best term in the space provided by the
phrase.
28. Important elements of an internal control system for cash disbursements include
each of the following except:
A. Only authorized personnel should sign checks.
B. All expenditures should be authorized before a check is prepared.
C. All disbursements, other than very small disbursements, should be made by check.
D. The same person that prepares the check should also record it the proper journal.
What amount will Cashmere Soap include in its year-end balance sheet as cash and
cash equivalents?
A. $9,450.
B. $12,450.
C. $7,450.
D. $19,650.
34. Cash that is restricted and not available for current operations is reported in the
balance sheet as:
A. Equity.
B. Investments.
C. Liabilities.
D. A separate section between liabilities and equity.
35. Logistics Company had the following items listed in its trial balance at 12/31/11:
Included in the checking account balance is $50,000 of restricted cash that Bank of the
East requires as a compensating balance for the $300,000 note. What amount will
Logistics include in its year-end balance sheet as cash and cash equivalents?
A. $412,000.
B. $462,000.
C. $392,000.
D. $442,000.
36. Which of the following is true about reporting cash under IFRS?
A. Cash accounts include loans made to customers, but not to related parties.
B. Overdrafts typically cannot be offset against positive balance in other cash accounts
on the balance sheet.
C. Cash overdrafts are not allowed.
D. Overdrafts typically are not shown as current liabilities on the balance sheet.
Wilson Company had the following cash balance items listed in its trial balance at
12/31/11:
37. If Wilson reports under IFRS, its 12/31/11 balance sheet would show what cash
balance?
A. ($5,000).
B. $55,000.
C. $60,000.
D. none of the above.
38. If Wilson reports under U.S. GAAP, its 12/31/11 balance sheet would show what
cash balance?
A. ($5,000).
B. $55,000.
C. $60,000.
D. none of the above.
On November 10 of the current year, Flores Mills sold carpet to a customer for $8,000
with credit terms 2/10, n/30. Flores uses the gross method of accounting for cash
discounts.
A. Option a
B. Option b
C. Option c
D. Option d
40. What is the correct entry for Flores on November 17, assuming the correct payment
was received on that date?
A. Option a
B. Option b
C. Option c
D. Option d
41. What is the correct entry for Flores on December 5, assuming the correct payment
was received on that date?
A. Option a
B. Option b
C. Option c
D. Option d
Oswego Clay Pipe Company sold $46,000 of pipe to Southeast Water District #45 on
April 12 of the current year with terms 1/15, n/60. Oswego uses the gross method of
accounting for cash discounts.
42. What entry would Oswego make on April 12?
A. Option a
B. Option b
C. Option c
D. Option d
43. What entry would Oswego make on April 23, assuming the customer made the
correct payment on that date?
A. Option a
B. Option b
C. Option c
D. Option d
44. What entry would Oswego make on June 10, assuming the customer made the
correct payment on that date?
A. Option a
B. Option b
C. Option c
D. Option d
A. Option a
B. Option b
C. Option c
D. Option d
46. What entry would Cherokee make on November 17, assuming the correct payment
was received on that date?
A. Option a
B. Option b
C. Option c
D. Option d
47. What entry would Cherokee make on December 10, assuming the correct payment
was received on that date?
A. Option a
B. Option b
C. Option c
D. Option d
A. Option a
B. Option b
C. Option c
D. Option d
49. What entry would Harvey's make on April 23, assuming the customer made the
correct payment on that date?
A. Option a
B. Option b
C. Option c
D. Option d
50. What entry would Harvey's make on June 10, assuming the customer made the
correct payment on that date?
A. Option a
B. Option b
C. Option c
D. Option d
51. Gershwin Wallcovering Inc. shipped the wrong shade of paint to a customer. The
customer agreed to keep the paint upon being offered a 15% price reduction. Gershwin
would record this reduction by crediting accounts receivable and debiting:
A. Sales.
B. Sales discounts.
C. Sales returns.
D. Sales allowances.
52. Tom's Textiles shipped the wrong material to a customer, who refused to accept the
order. Upon receipt of the material, Tom's would credit accounts receivable and debit:
A. Sales.
B. Sales discount.
C. Sales returns.
D. Sales allowances.
53. Memorex Disks sells computer disk drives with right-of-return privileges. Returns are
material and reasonably predictable. Memorex should:
A. Not record sales until the right to return has expired.
B. Record an allowance for sales returns in the year of the sale.
C. Debit sales returns in the period of the return.
D. Debit sales in the period of the return.
False Value Hardware began 2011 with a credit balance of $32,000 in the allowance for
sales returns account. Sales and cash collections from customers during the year were
$650,000 and $610,000, respectively. False Value estimates that 6% of all sales will be
returned. During 2011, customers returned merchandise for credit of $28,000 to their
accounts.
54. What is the balance in the allowance for sales returns account at the end of 2011?
A. $11,000.
B. $39,000.
C. $43,000.
D. $21,000.
55. False Value's 2011 income statement would report net sales of:
A. $622,000.
B. $607,000.
C. $646,000.
D. $611,000.