Testbank 

to accompany

Accounting
8th Edition

 by
John Hoggett, Lew Edwards,
John Medlin, Matthew Tilling
Tilling
& Evelyn Hogg

Prepared by
Barbara Burns

© John iley & !ons "ustralia, Ltd #$%#

Testbank to accompany Accounting 8e

Chapter 4: Adjusting the accounts and preparing financial

statements

Multiple Choice

% The statem
statement
ent concern
concerning
ing accrua
accruall accountin
accountingg that is true
true is'
a (ro)it is
is the e*cess o) cash in)lows
in)lows )rom
)rom income
income over cash cash out)lows
out)lows )or e*penses
 b +ncome is recognised in the period when the )low )lo w o) economic bene)its can be reliably
measured
c or most
most businesses
businesses the cash approach
approach gives
gives a better
better measure
measure o) economic
economic per)ormance
per)ormance
than does the accrual approach
d +ncome )rom sales is is recognised
recognised in
in the period when thethe che-ue
che-ue is cashed

".!E/ B
!ection 0%

# The cash
cash approach
approach to pro)it
pro)it measurement
measurement will not give a reliabl
reliablee pro)it )igure
)igure )or an entity
entity
that conducts a signi)icant portion o) its business'
a 1verseas
 b ith subsidiaries
c ith
ith bor
borro
rowe
wedd mon
money
ey
d 1n cr
credit

".!E/ 2
 !ection 0%

3 4nder the
the cash approach
approach to
to pro)it measurem
measurement
ent income
income is recorded
recorded in
in the accounting
accounting period
period
when'
a 5ash
5ash is rece
receiv
ived
ed
 b 6oods are sold or services
serv ices per)ormed
c " cont
contra
ract
ct is sign
signed
ed
d "n orde
orderr is
is pla
place
ced
d

".!E/ "
 !ection 0%

0 Harry 5ompany
5ompany uses
uses cleaning
cleaning supplies
supplies on a daily basis 4nder the
the accrual
accrual basis o)
accounting these supplies would be an e*pense o) the period in which they are'
a 1rdered
 b /eceived
c (aid )or  
d 4sed

© John iley & !ons "ustralia, Ltd #$%# 0#

 Chapter 4: Adjusting the accounts and preparing financial statements

".!E/ 2
!ection 0%
7 +t is corre
correct
ct that
that each
each balanc
balancee day ad8us
ad8ustme
tment
nt
a "))ect
"))ect eithe
eitherr the incom
incomee stateme
statement nt or the bala
balance
nce sheet
sheet
 b Has one e))ect on the income statement
sta tement and one e))ect on the balance
balanc e sheet
c 1nly
1nly a))ec
a))ectt the
the incom
incomee state
stateme
mentnt
d "lways
"lways have
have an e))ec
e))ectt on the
the ban9
ban9 accoun
accountt

".!E/ B
 !ection 0#

: 2uring #$%%
#$%% The !tyle
!tyle Hairdressing
Hairdressing !alon paid
paid out ;0% $$$ in wages )rom
)rom its ban9
ban9
account "t year<end #$%% wages owing but unpaid were ;# 0$$ The salon uses accrual
accounting How much would be reported as wages e*pense )or #$%%=
a ;3> :$$
 b ;0% $$$
c ;03 0$$
d ;0# :$$

".!E/ 5
!ection 07

? The (repaid
(repaid +nsurance
+nsurance account
account o) (@/ Traders
Traders shows
shows a balance
balance o) ;A$$ net
net o) 6!TC
6!TC
representing a payment on % July #$%% o) a three<year insurance premium The correct
ad8usting entry on 3% 2ecember #$%%, the close o) the annual accounting period, is'

; ;
a +nsurance E*pense % 7$
(repaid +nsurance % 7$

 b +nsurance E*pense

E*pens e 3$$
(repaid +nsurance 3 $$

c (repaid +nsurance % 7$
+nsurance E*pense % 7$

d (repaid +nsurance ? 7$
+nsurance E*pense ? 7$

".!E/ "
!ection 00

© John iley & !ons "ustralia, Ltd #$%# 03

Testbank to accompany Accounting 8e

> hich statement

statement relating
relating to the "ccumulated
"ccumulated 2epreciat
2epreciation
ion account is correct=
correct=
a +t nor
norma
malllly
y has
has a debi
debitt bala
balance
nce
 b +t re)lects the portion
portio n o) the cost o) the asset that has been assigned as an e*pense since
 purchase
c +t provide
providess in)orma
in)ormation
tion on
on the mar9et
mar9et valu
valuee o) the asset
asset
d +t is clas
classi)i
si)ied
ed as a liabi
liabilit
lity
y in the
the balance
balance sheet
sheet

".!E/ B
!ection 00

A Michael purchased
purchased two
two vehicles
vehicles )or his business
business on % January #$%%
#$%% These vehicles
vehicles cost
;7$,$$$ each and have a use)ul li)e o) 7 years with an e*pected residual o) ;#$,$$$ each
The ad8usting entry )or depreciation on 3% 2ecember #$%%, using the straight<line
method, is'
a 2r "ccum
"ccumulat
ulated
ed 2eprecia
2epreciation
tion ;:$$$D
;:$$$D 5r 2epreciat
2epreciation
ion E*pense
E*pense ;:$$$
;:$$$
 b 2r 2epreciation E*pense ;:$$$D
; :$$$D 5r "ccumulated 2epreciation ;:$$$
c 2r "ccum
"ccumulat
ulated
ed 2eprecia
2epreciation
tion ;%# $$$D
$$$D 5r 2eprecia
2epreciation
tion E*pens
E*pensee ;%# $$$
d 2r 2epreciati
2epreciation
on E*pense
E*pense ;%# $$$ 5r "ccumulated
"ccumulated 2eprecia
2epreciation
tion ;%# $$$

".!E/ 2
!ection 00

%$ Tan Traders

Traders received a ;?7$ advance payment )rom a customer )or wor9 to be carried out in
the ne*t accounting period The accounting entry to initially record the ;?7$ is'
a 2ebit
2ebit unearn
unearned
ed incom
incomee ;?7$D
;?7$D credi
creditt ban9
ban9 ;?7$
;?7$
 b 2ebit ban9 ;?7$D credit
cred it unearned income ;?7$
; ?7$
c 2ebit
2ebit ban9
ban9 ;?7$
;?7$DD credi
creditt credi
creditor
tor ;?7$
;?7$
d 2ebit
2ebit incom
incomee earned
earned ;?7$D
;?7$D credit
credit ban9 ;?7$

".!E/ B
!ection 00

%% The o))ice supplies inventory account o) Tan

Tan Traders
Traders shows a balance o) ;% :$$ on 3%
2ecember #$%% The ad8usting entry to record o))ice supplies o) ;77$ issued to sta))
sta)) in the
%# months up to 3% 2ecember #$%% is'
a 2ebit o))ice
o))ice supplies
supplies inventory
inventory ;77$D
;77$D credit
credit o))ice
o))ice supplies
supplies e*pense
e*pense ;77$
 b 2ebit o))ice supplies inventory
inven tory ;% $7$D credit o))ice supplies
su pplies e*pense ;% $7$
$7 $
c 2ebit o))ice
o))ice supplies
supplies e*pense
e*pense ;77$D
;77$D credit
credit o))ice
o))ice supplies
supplies inventory
inventory ;77$
d 2ebit o))ice
o))ice supplies
supplies e*pense
e*pense ;% :$$D credit
credit o))ice
o))ice supplies
supplies inventory
inventory ;% :$$

".!E/ 5
!ection 00

© John iley & !ons "ustralia, Ltd #$%# 00

 Chapter 4: Adjusting the accounts and preparing financial statements

%# !ampras 5ompany

5ompany purchased a machine )or ;3$ $$$ on % January #$%$ with an estimated
li)e o) 7 years and a residual value o) ero The straight<line method o) depreciation is
used hat is the carrying value o) the machine on the 3% 2ecember #$%% in the balance
sheet o) !ampras 5ompany=
a ;3$ $$$
 b ;#0 $$$
c ;%> $$$
d ;%# $$$

".!E/ 5
!ection 0?

%3 1n July % #$%% the (epper

(epper 2iner rented
rented out part o) its property and collected
collected ;A$$$ in
advance )or a nine<month period The receipt was credited to a liability account "t 3%
2ecember #$%%, (epper 2inerFs year<end, which o) the )ollowing ad8usting 8ournal entries
should be made=
a 2r
2r 5ash,
5ash, ;:$$$D
;:$$$D 5r
5r /ent
/ent +ncom
+ncome,e, ;:$$$
;:$$$
 b 2r /ent
/ent +ncome, ;3$$$D 5r 4nearned
4nearn ed /ent +ncome, ;3$$$
c 2r
2r 4nearne
4nearnedd /ent +ncom
+ncome, e, ;:$$$D
;:$$$D 5r
5r /ent +ncom
+ncome,e, ;:$$$
;:$$$
d 2r
2r /ent /eceiv
/eceivable
able,, ;:$$$D 5r
5r /ent +ncome
+ncome,, ;:$$$

".!E/ 5
!ection 00

%0 +) an ad8ustment )or depreciation

depreciation is omitted )rom the )inancial
)inancial reports the a))ect is'
a "ssets
"ssets are
are underst
understate
atedD
dD pro)it
pro)it is unders
understat
tated
ed
 b "ssets are overstatedD pro)it is understated
c "ssets
"ssets are
are underst
understate
atedD
dD pro)it
pro)it is overst
overstated
ated
d "ssets
"ssets are
are overst
overstated
atedDD pro)it
pro)it is
is oversta
overstated
ted

".!E/ 2
!ection 0%$

%7 1n % July
Ju ly #$%%
#$ %% Tan
Tan Traders
Traders paid ;:$$, representing
representing a two<year insurance premium
premium The
;:$$ was initially recorded in the +nsurance e*pense account ")ter ad8ustment at 3%
2ecember #$%#, the close o) the annual accounting period'
a +nsurance
+nsurance e*pense in the income statement
statement is ;:$$
;:$$ and prepaid
prepaid insurance
insurance in the balance
balance
sheet is ;$
 b +nsurance e*pense in the income statement is ;%7$ and prepaid insurance
insura nce in the balance
sheet is ;07$
c +nsurance e*pense in the income
income statemen
statementt is ;07$ and prepaid
prepaid insurance
insurance in the balance
balance
sheet is ;$
d +nsurance e*pense in the income
income statemen
statementt is ;3$$ and prepaid
prepaid insurance
insurance in the balance
balance
sheet is ;%7$

".!E/ 2

© John iley & !ons "ustralia, Ltd #$%# 07

Testbank to accompany Accounting 8e

!ection 0?
%: Tan Traders
Traders paid salaries o) ;%3$ $$$ during the year and owes ;# %$$ )or three days
wor9 carried out be)ore the 3% 2ecember #$%% which will not be paid until January 3
#$%# ")ter the ad8usting entry )or the year ended 3% 2ecember #$%%'
a !alaries
!alaries in the income stateme
statement
nt are ;%3#
;%3# %$$ and
and accrued
accrued salaries
salaries in the
the balance
balance sheet
are ;# %$$
 b !alaries in the income statement
state ment are ;%3$ $$$ and accrued salaries in the balance
b alance sheet
are ;# %$$
c !alaries
!alaries in the income stateme
statement
nt are ;%#?
;%#? A$$ and
and accrued
accrued salaries
salaries in the
the balance
balance sheet
are ;# %$$
d !alaries
!alaries in the income stateme
statement
nt are ;%3#
;%3# %$$ and
and accrued
accrued salaries
salaries in the
the balance
balance sheet
are ;%3# %$$

".!E/ "
!ection 0?

%? G 5os
5os employees carry
carry out wor9 to the value o) ;? 7$$ They
They are paid ;0 7$$
immediately with the balance to be settled in the ne*t accounting period 4nder the
accrual approach to pro)it measurement the amount o) wages e*pense that will be
recorded in the current period is'
a .il
 b ;0 7$$
c ;3 $$$
d ;? 7$$

".!E/ 2
!ection 0?

%> "t year<end it was )orgotten

)orgotten to accrue an income item This This will result in an'
a 4ndersta
4nderstatem
tement
ent o) assets
assets and
and an overstat
overstateme
ement
nt o) pro)it
pro)it and e-uity
e-uity
 b 1verstatement o) liabilities
liabili ties and an understatement
understate ment o) pro)it and e-uity
e-u ity
c 1verstat
1verstateme
ement
nt o) assets,
assets, pro)it,
pro)it, and e-uity
e-uity
d 4ndersta
4nderstatem
tement
ent o) asset
assets,
s, pro)it
pro)it,, and e-uit
e-uity
y

".!E/ 2
!ection 0%$

© John iley & !ons "ustralia, Ltd #$%# 0:

 Chapter 4: Adjusting the accounts and preparing financial statements

%A 2e)erral type ad8ustments

ad8ustments occur when cash )or e*penses
e*penses is paid in advance or cash )rom
incomes is pre<collected
pre <collected How many o) the )ollowing
)ollowing will re-uire
re-uire a de)erral type
ad8ustment=
 /ent paid )or in advance
 Buildings to be depreciated
 /ent collected in advance )rom tenants
 !tationery used by the o))ice sta)) during the period
a %
 b #
c 3
d 0

".!E/ 2
 !ection 03

#$ 1n the )irst day o) the year Tan Traders

Traders purchased
purchased a )or9li)t
)or9li)t truc9 )or ;%# $$$ wh which
ich is to be
depreciated by #7I a year
year "t the end o) the )irst year'
a 2epreciation
2epreciation in the income
income statement
statement is ;3 $$$ and the carrying
carrying value
value o) the
the )or9li)t
)or9li)t in
the balance sheet is ;%# $$$
 b 2epreciation in the income
in come statement is ;3 $$$ andan d the carrying value o) o ) the )or9li)t in
the balance sheet is ;%7 $$$
c 2epreciation
2epreciation in the income
income statement
statement is ;3 $$$ and the carrying
carrying value
value o) the
the )or9li)t
)or9li)t in
the balance sheet is ;A $$$
d 2epreciation
2epreciation in the income statement
statement is
is ;$ and the
the carrying value o) thethe )or9li)t
)or9li)t in the
 balance sheet is ;%#
;% # $$$

".!E/ 5
!ection 0?

#% The wages e*pense account )or 6erry Mander,

Mander, political consultants,
consultants, showed the
)ollowing entries )or #$%% hat was the portion o) wages that was treated as an e*pense
in #$%$ but was not paid until #$%%=
ages E*pense
2ate (articulars 2 eb i t 5redit Balance
#$%% ; ; ;
Jan % "ccrued e*penses % #$$ % #$$ 5r 
ear  Karious cash
cas h payments 7% $$$ 0A >$$ 2r 
2ec "ccrued e*penses # #$$ 7# $$$ 2r 
3%
a ;0A >$$
 b ;7% $$$
c ;% #$$
d ;# #$$

".!E/ 5
!ection 07

© John iley & !ons "ustralia, Ltd #$%# 0?

Testbank to accompany Accounting 8e

## +) a company has earned income

income which has not been received
received in cash at the end o) the
accounting period an ad8ustment should be made which will'
a 2ebit
2ebit an asset
asset accou
account
nt and
and credit
credit an incom
incomee account
account
 b 2ebit an e*pense account
acco unt and credit cash
c 2ebit
2ebit an incom
incomee account
account and
and credit
credit an asset
asset account
account
d 2ebit
2ebit an asset
asset accoun
accountt and credit
credit an e*pen
e*pense
se account
account

".!E/ "
!ection 07

#3 "B5 collects

collects rents )rom several properties
properties (rior to recording ad8usting entries,
entries, assume
the /ent +ncome account has a credit balance o) ;>$$$ Two ad8ustments are to be made
at the end o) the )inancial year %C an accrual )or accrued rent income o) ;:$$ #C the
4nearned /ent +ncome account is to be decreased by ;#$$ ")ter processing these
ad8usting entries the amount o) /ent +ncome to be shown in the income statement is'
a ;>>$$
 b ;>0$$
c ;?:$$
d ;?#$$

".!E/ "
!ection 0?

#0 The publishers o) 6uide to the !toc9 Mar9et, a magaine published monthly,
monthly, received
;%#% in advance, including ;%% 6!T on % March, )or a % years subscription %% issuesC
 beginning with the March
Mar ch issue 1n receipt o) the subscription
su bscription which entry will the
th e
company ma9e=
a 2ebit
2ebit 5ash
5ash ;%#%D
;%#%D credit
credit !ubscrip
!ubscription
tionss +ncome
+ncome ;%#%
;%#%
 b 2ebit 5ash ;%#%D credit 6!T 5ollections ;%%, credit 4nearned
4nearn ed !ubscriptions liabilityC
liability C
;%%$
c 2ebit 5ash
5ash ;%#%D credit
credit 6!T 5ollections
5ollections ;%%,
;%%, credit !ubscriptions
!ubscriptions /eceived
/eceived in "dvance
assetC ;%%$
d 2ebit
2ebit 5ash ;%%$D
;%%$D credit
credit !ubscr
!ubscript
iptions
ions +ncom
+ncomee ;%%$
;%%$

".!E/ B
!ection 00

© John iley & !ons "ustralia, Ltd #$%# 0>

 Chapter 4: Adjusting the accounts and preparing financial statements

#7 The publishers o) 6uide to the !toc9 Mar9et, a magaine published monthly,
monthly, received
;%#% in advance, including ;%% 6!T on % March, )or a % years subscription %% issuesC
 beginning with the March
Mar ch issue "t the end o) the )inancial year on 3$ June
Ju ne what entry
will the company ma9e=
a 2ebit 4nearned !ubscriptions
!ubscriptions liabilit
liabilityC
yC ;0$D credit !ubscriptions
!ubscriptions +ncome
+ncome ;0$
;0$
 b 2ebit 5ash ;0$D credit !ubscriptions
!ubs criptions +ncome ;0$
c 2ebit 5ash
5ash ;%#%D credit
credit 6!T 5ollections
5ollections ;%%,
;%%, credit 4nearned !ubscriptions
!ubscriptions liabilityC
liabilityC
;%%$
d 2ebit 4nearned
4nearned !ubscriptions
!ubscriptions liability
liabilityCC ;0$D credit
credit !ubscripti
!ubscriptions
ons +ncome
+ncome ;3:D credit
credit
6!T 5ollections ;0

".!E/ "
!ection 00

#: +n preparing its #$%% ad8usting entries,

entries, the (hilippoussis 5ompany
5ompany neglected to ad8ust the
1))ice !upplies assetC account )or the amount o) supplies used up during the year "s a
result o) this error'
a #$%% pro)it is understated,
understated, the
the balance
balance o) e-uity
e-uity is understated,
understated, and assets are
are understated
understated
 b #$%% pro)it is overstated, the balance
ba lance o) e-uity is overstated,
overs tated, and assets are correctly
cor rectly
stated
c #$%% pro)it is overstated,
overstated, the
the balance
balance o) e-uity
e-uity is overstated,
overstated, and assets are
are overstated
overstated
d Liab
Liabili
ilitie
tiess are und
under
ersta
state
ted
d

".!E/ 5
!ection 0?

#? 2etermine
2etermine the cash payments made during the year )or insurance premiums
premiums )rom the
)ollowing in)ormation'
;
 +n
 +nsurance e*pense income statementC 0? 7
 Prepaid Insurance:
Insurance:
Begi
Beginni
nning
ng Balan
Balance
ce ##$
Ending Balance %A 7
"ssume all insurance premiums are paid in cash
a ;0?7
 b ;%A7
c ;:A7
d ;07$

".!E/ 2
!ection 00

© John iley & !ons "ustralia, Ltd #$%# 0A

Testbank to accompany Accounting 8e

#> The primary basis )or the classi)ication

classi)ication o) assets and liabilities
liabilities in the balance sheet is'
a (ro)
(ro)it
itab
abil
ilit
ity
y
 b Tangibility
c Li-uidity
d 2egr
2egree
ee o) ris9 
ris9 

".!E/ 5
!ection 0>

#A The capital account o) a sole trader was credited with

with ;7$$$ hich o) these items would
not give rise to such a credit=
a Th
Thee busine
business
ss earn
earned
ed a pro)i
pro)itt o) ;7$$$
;7$$$
 b The owner brought in a private
p rivate car valued at ;7$$$
;7$ $$ )or business use
c The owner
owner intro
introduce
duced
d ;7$$$
;7$$$ new capital
capital
d The owner
owner paid an outstanding
outstanding private
private gambling
gambling debt
debt o) ;7$$$
;7$$$ )rom the business
business ban9
account

".!E/ 2
!ection 0?

3$ 5urrent assets

assets may be listed in the balance sheet in the order o) their li-uidity
li-uidity Li-uidity
Li-uidity
is'
a "nothe
"notherr name
name )or the
the oper
operat
ating
ing cycl
cyclee
 b " measure
measure o) how many buyers
buy ers there are )or the asset
ass et
c hether
hether the
the asset
asset is
is secured
secured over a liabil
liability
ity
d The averag
averagee length
length o) time
time it ta9es
ta9es to convert
convert an asset
asset into
into cash

".!E/ 2
!ection 0>

3% The current

current liability
liability is'
is'
a "ccru
"ccrueded 2eli
2elive
very
ry E*
E*pen
penses
ses
 b "ccounts /eceivable
c Elec
Electr
tric
icit
ity
y E*p
E*pen
ense
se
d Lo
Long
ng<t
<ter
erm
m Loan
oan

".!E/ "
!ection 0>

© John iley & !ons "ustralia, Ltd #$%# 0%$

 Chapter 4: Adjusting the accounts and preparing financial statements

3# The e*cess o) current

current assets over current liabiliti
liabilities
es is 9nown as'
a E-uity
 b or9ing capital
c +nta
+ntang
ngib
ible
le ass
asset
etss
d .et assets

".!E/ B
 !ection 0>

33 1bligations
1bligations o) the entity that do not re-uire payment within one year o) the balance sheet
date are classi)ied as'
a 5urr
5urren
entt lia
liabi
bili
liti
ties
es
 b .on<current assets
c 5urr
5urren
entt asse
assets
ts
d .on<cu
.on<currerrent
nt liabi
liabili
liti
ties
es

".!E/ 2
 !ection 0>

30 hich o) these is not an advantage

advantage o) using a wor9sheet to assist
assist in preparing the
)inancial statements=
a "ll the
the in)or
in)ormat
mation
ion is assembl
assembleded in one place
place
 b +t aids in the preparation
prepara tion o) interim )inancial statements )or internal use
u se
c /eports
/eports can
can be prepare
preparedd be)ore
be)ore ma9ing
ma9ing closin
closing
g entries
entries
d +t means
means that
that the
the ledger
ledger can be
be dispens
dispensed
ed with
with

".!E/ 2
!ection 0A

37 hich o) the )ollowing is not an advantage o) preparing an ad8usted trial trial balance=
a +t veri)ies
veri)ies that the debits
debits e-ual the credits
credits in the
the ledger
ledger a)ter the preparation
preparation o) the
ad8usting entries
 b +t reduces the possibility
poss ibility o) errors being carried )orward )rom the ledger
ledg er into the
accounting reports
c +t is a shortcut which means
means that
that the ad8usting
ad8usting entries
entries do not have
have to be entered into the
ledger 
d +t assists
assists in the
the preparat
preparation
ion o) the )inan
)inancia
ciall statemen
statementsts

".!E/ 5
!ection 0:

© John iley & !ons "ustralia, Ltd #$%# 0%%

Testbank to accompany Accounting 8e

Fill in the blanks

% 4nder the
the 
 basis
basis o) accounting
accounting,, income
income is recognised
recognised when
when earned
earned and
e*penses when incurred

".!E/ accrual
!ection 0%

# The c
c basis o) accounting
accounting is not a generally
generally accepted
accepted method
method o)
determining pro)it )or businesses that have signi)icant credit transactions

".!E/ cash
!ection 0%

3 The o
o cycle is the average
average time
time it ta9es
ta9es )or a )irm to ac-uire
ac-uire and sell
sell
inventory and collect the cash )rom the sale

".!E/ operating
!ection 0>

0 4nearned income is classi)ied

classi)ied as a l
l in the balance sheet as, i)
i) the
the
income is not earned, it may need to be repaid

".!E/ liability
!ection 00

7 "ccumulated
"ccumulated depreciation
depreciation is
is re)erred
re)erred to as
as a c  asset account
account because
because it
o))sets a related asset account

".!E/ contra
!ection 0?

: The c
c v
v o) an asset is its original
original cost
cost less accumulated
accumulated
depreciation

".!E/ carrying value

!ection 00

? 6oodwil
6oodwilll is classi)i
classi)ied
ed in the balance
balance sheet
sheet as an i
i
 asset
asset

".!E/ intangible
!ection 0>

© John iley & !ons "ustralia, Ltd #$%# 0%#

 Chapter 4: Adjusting the accounts and preparing financial statements

> 5
5  l are obligations o) the )irm that are e*pected, in the
normal course o) business, to be settled in the ne*t twelve months

".!E/ 5urrent liabilities

!ection 0>

A " spreadsheet,
spreadsheet, prepared
prepared either
either manually
manually or electronically
electronically and
and used by accountants
accountants to
organise in)ormation, is 9nown as a w

".!E/ wor9sheet
!ection 0A

%$ Because income

income and e*pense accounts
accounts are reduced to ero at the end o) the year they are
9nown as t  accounts

".!E/ temporary
!ection 0%

© John iley & !ons "ustralia, Ltd #$%# 0%3

Testbank to accompany Accounting 8e

Exam tpe !uestions

"#E$T%&' 4()

The )ollowing trial balance was prepared )rom the ledger accounts o) !ingapore Enterprises,
a service business
Trial *alance
*al ance as
a s at +) ,ecemb
,e cember
er -.))
2ebit 5redit
; ;
Ban9 overdra)t 7,%$$
(repaid rent 0 ,7 $ $
1))ice e-uipment and )ittings % > ? ,$ $ $
"ccumulated depreciation, o))ice e-uipment 3$,$$$
"ccounts payable %A,:$$
6!T collections 3,?$$
6!T outlays # ,> $$
"ccounts receivable 33 , $$ $
+ncome earned #07,$$$
!alaries A7 ,$ $ $
+nternet service provider 7$ $
4tilities e*penses %> ,$$ $
"dministrative e*penses % 7 ,$ $$
+nterest e*pense % # ,$ $ $
5apital N L Tan % January #$%% A0,0$$
2rawings N L Tan 3 $ ,$ $ $
; 3 A ? ,> $$ ;3A?,>$$
"d8ustments'

 /ent e*pired )or the year was ;#,7$$

 2epreciation o) o))ice e-uipment is at %7I per annum using the straight line method
 !alaries owing at 3% 2ecember #$%% were ;3,$$$

/E@4+/E2'

aC (repare general 8ournal entries

entries )or
)or the balance day
day ad8ustments
ad8ustments .arrations
.arrations are not
re-uired
 bC (repare an +ncome !tatement )or the year ended 3$ 2ecember #$%%
cC (repare
(repare a classi)
classi)ied
ied Balan
Balance
ce !heet
!heet as at 3% 2ecemb
2ecemberer #$%%
#$%%

© John iley & !ons "ustralia, Ltd #$%# 0%0

 Chapter 4: Adjusting the accounts and preparing financial statements

"#E$T%&' 4(-
The )ollowing trial balance was prepared )rom the ledger accounts o) Taiwan 5onsultants a
)irm o) management consultants
Taiwan Consultants
4nad8usted Trial Balance as at 3$ June #$%%
2ebit 5redit
; ;
Ban9 0%,7#$
!toc9 o))ice supplies on hand %%,>A$
1))ice e-uipment %7#,$$$
"ccumulated depreciation, o))ice e-uipment #0,0$$
(remises > $ $ ,$ $ $
"ccumulated depreciation, premises :0,$$$
"ccounts payable 33,$$$
6!T collections 7,7$$
6!T outlays 3 ,7 $$
"ccounts receivable 0: , $$ $
ees revenue >>$,:$$
/ent revenue %:,$$$
"dvertising e*pense # 7 ,$ $$
"dministrative e*penses 3 $ ,$ $$
!alaries 3 A$ , $ $$
+nternet service provider # ,$ $ $
+nterest e*pense % A ,$ $ $
Telephone e*pense > ,$ $ $
Loan due % !ept #$%7C #$$,$$$
5apital N L Lee 307,0%$
2rawings N L Lee 0 $ ,$ $$
;%,7:>,A%$ ;%,7:>,A%$
"d8ustments'
 !alaries are ;%7$$ per day They are paid wee9ly in arrears The ne*t pay day is July 3
which is a ednesday
 2epreciation on premises is #I pa, on a straight<line basis
 2epreciation o) o))ice e-uipment is %$I o) the e-uipments cost
 1n % January, #$%% Taiwan 5onsultants rented part o) its premises to T Light )or %#
months and received a che-ue )or ;%:,$$$ representing the whole years rental
 1))ice supplies o) ;:,3A$ had been used during the year 1))ice supplies o) ;7,7$$ were
on hand at the end o) the period
 "dvertising o) ;#,$$$ was prepaid )or an advertising campaign starting in July #$%%
 ;:,$$$ is owing )or consulting wor9 completed but not yet billed to the client
/E@4+/E2'
aC (repare general 8ournal entries )or the balance day ad8ustments
ad8ustments
 bC (repare an +ncome !tatement )or) or the year ended 3$ June
Ju ne #$%%
cC (repa
(repare
re a class
classi)i
i)ied
ed Bala
Balance
nce sheet
sheet asas at 3$ June
June #$%
#$%%
%

© John iley & !ons "ustralia, Ltd #$%# 0%7

Testbank to accompany Accounting 8e

$olution "uestion 4()

aC 6eneral Journal !+.6"(1/E E.TE/(/+!E!

#$%% ; ;
2e c 3 % /ent #,7$$
(repaid rent #,7$$

2epreciation o))ice e-uipment #>,$7$

"ccumulated depreciation o))ice e-uip & )ittings #>,$7$
;%>?,$$$ * %7IC

!alaries 3,$$$
!alaries payable 3,$$$

 bC !ingapore Enterprises

+ncome !tatement )or the year ended 3% 2ecember #$%%
; ;
+ncome earned #07,$$$
Less E*penses
!alaries A> ,$ $ $
/ent # , 7$ $
+nternet service provider 7$ $
4tilities e*penses %> ,$$ $
"dministrative e*penses % 7 ,$ $$
2epreciation o))ice e-uipment # > ,$ 7 $
+nterest e*pense % # ,$ $ $ %?0,$7$
(/1+T ; ?$,A7$

cC !ingapore Enterprises
 Balance sheet as at 3% 2ecember #$%%
; ; ;

© John iley & !ons "ustralia, Ltd #$%# 0%:

 Chapter 4: Adjusting the accounts and preparing financial statements

54//E.T "!!ET!
(repaid rent #,$$$
"ccounts receivable 33,$$$ 37,$$$

 .1.<54//E.T "!!ET!
1))ice e-uipment & )ittings %>?,$$$
Less "ccumulated depreciation 7>,$7$ %#>,A7$
;%:3,A7$

54//E.T L+"B+L+T+E!
Ban9 overdra)t 7,%$$
!alaries payable 3,$$$
"ccounts payable %A,:$$
6!T payable ;3,?$$ < ;#>$$ ) A $$ #>,:$$

E@4+T
5apital, L Tan N % January #$%% A0,0$$
O (ro)it ?$,A7$
%:7,37$
< 2rawings  3
3$
$,$$$ %37,37$
;%:3,A7$

$olution 4(-

aC 6eneral
6ener al Journal
Jour nal T"+".
"+". 51.!4LT".T!
51.!4LT".T!
#$%% ; ;
June 3$ !alaries 3,$$$
!alaries payable 3,$$$
;?,7$$P7 Q ;%,7$$ * # days

2epreciation premises %:,$$$

"ccumulated depreciation premises %:,$$$
;>$$,$$$ * #I 

2epreciation o))ice e-uipment %7,#$$

"ccumulated depreciation o))ice e-uip %7,#$$
;%7#,$$$ * %$I

/ent revenue >,$$$

4nearned rent revenue >,$$$
;%:,$$$P#

1))ice supplies e*pense :,3A$

!toc9 o))ice supplies on hand :,3A$
1))ice supplies used

(repaid advertising #,$$$

"dvertising e*pense #,$$$

"ccounts receivable :,$$$

ees revenue :,$$$

© John iley & !ons "ustralia, Ltd #$%# 0%?

Testbank to accompany Accounting 8e

T"+". 51.!4LT
51.! 4LT".T!".T!
 bC +ncome !tatement )or the year
ye ar ended 3$ June #$%%
; ;
ees revenue >>:,:$$
/ent revenue >,$$$
>A0,:$$
Less EG(E.!E!
"dvertising #3 ,$$ $
"dministrative e*penses 3 $ ,$ $$
!alaries 3 A3 , $ $$
+nternet service provider # ,$ $ $
+nterest e*pense % A ,$ $ $
Telephone e*pense >,$$$
2epreciation o))ice e-uipment % 7 ,# $ $
2epreciation premises % : ,$ $ $
1))ice supplies e*pense : ,3 A$ 7%#,7A$
(/1+T ;3>#,$%$

cC T"+". 51.!4L
51.! 4LT T".T!
Balance sheet as at 3$ June #$%%
; ; ;
CURRENT ASSETS

  Ban9  0%,7#$
1))ice supplies on hand 7,7$$
"ccounts receivable 7#,$$$
(repaid advertising #,$$$ %$%,$#$

NON-CURRENT ASSETS
1))ice e-uipment %7#,$$$
Less "ccumulated depreciation 3A,:$$ %%#,0$$
(remises >$$,$$$
Less accumulated depreciation >$,$$$ ?#$,$$$ >3#,0$$
;A33,0#$

© John iley & !ons "ustralia, Ltd #$%# 0%>

 Chapter 4: Adjusting the accounts and preparing financial statements

CURRENT LIABILITIES
!alaries payable 3,$$$
"ccounts payable 33,$$$
6!T payable ;7,7$$< ;3,7$$C #,$$$
4nearned rent revenue >,$$$ 0:,$$$

NON-CURRENT LIABILITIES
Loan #$$,$$$

  EQUITY
5apital, L Lee N % July #$%$ 307,0%$
O (ro)it 3>#,$%$
?#?,0#$
< 2rawings 0$,$$$ ;:>?,0#$
;A33,0#$

© John iley & !ons "ustralia, Ltd #$%# 0%A