UNIVERSIDAD CARLOS III DE MADRID Accounting I 20th May 2009 Type C

Name: NIU Group:

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. There is only one correct answer. Grading system: correct answer = 1 point; incorrect answer = -0,33 points; no answer = 0 points. 1. The entry to close revenue account(s): a. increases total assets b. decreases total assets c. decreases Retained Earnings d. increases Retained Earnings 2. The book value of an asset at the beginning of the year was $13,000. The equipment originally cost $23,000. Depreciation expense for the year was $4,000. The book value of the asset at the end of the year is: a. $19,000 b. $17,000 c. $14,000 d. $9,000 3. A journal entry contains a debit to a liability account and a credit to a revenue account. This is an example of a(n) adjusting entry of: a. accrued revenue b. deferred expense c. unearned revenue d. accrued expense 4. Cash for merchandise to be delivered in 2006 is received in 2005. Using the accrual basis of accounting, the revenue should appear on: a. the 2006 income statement b. both the 2005 and 2006 income statements c. neither the 2005 nor the 2006 income statement d. the 2005 income statement 5. A business makes a payment of $1,800 on a note payable, consisting of a $300 interest payment and $1,500 principal payment. Which of the following journal entries would be recorded? a. Cash is credited for $1,800, Notes Payable is debited for $1,500 and Interest Expense is debited for $300 b. Note payable is credited for $1,800, Cash is debited for $1,500 and Interest Expense is debited for $300 c. Cash is debited for $1,500, Interest Expense is credited for $300 and Note Payable is debited for $1,500 d. Note payable is credited for $1,500, Cash is credited for $300 and Interest Expense is debited for $1,800

6. On December 15, 2005, a company receives an order from a customer for services to be performed on December 28, 2005. Due to a backlog of orders, the company does not perform the services until January 3, 2006. The customer pays for the services on January 6, 2006. The matching principle requires the revenue to be recorded by the company on: a. December 15, 2005 b. January 3, 2006 c. December 28, 2005 d. January 6, 2006 7. How do revenues and expenses for a period relate to retained earnings? a. Revenues will increase retained earnings for the period. b. Revenues will decrease retained earnings for the period. c. Expenses will increase retained earnings for the period d. None of these answers are correct. 8. On December 1, 2006, SURVIVING Company receives $1,800 in advance for an agreement to care, in equal monthly effort, for a clients office plants during the months of December, January, and February. As of December 31, 2006, SURVIVING: a. would have a $1,200 liability to its client under accrual accounting, or have a $1,800 liability to its client under cash-basis accounting b. would have recognized $600 revenue under accrual accounting, or have recognized $1,800 revenue under cash-basis accounting c. would have a $0 liability to its client under accrual accounting, or have a $1,200 liability to its client under cash-basis accounting d. would have recognized $600 cash under accrual accounting, or have recognized $1,800 cash under cashbasis accounting 9. SAINT Enterprises paid $108,000 for office furniture. The furniture has an estimated service life of 5 years and a salvage value of zero. After three years of use, the book value of the furniture will be: a. $21,600 b. $43,200 c. $64,800 d. $108,000 10. Which of the following inventory costing methods yields the highest cost of goods sold when prices increase during the accounting period? a. Specific unit cost b. Average cost c. Last in first out d. First in last out 11. Operating expenses appear on the income statement: a. directly after gross profit b. directly after cost of goods sold c. directly after revenue d. Operating expenses do not appear on the income statement.

Use the information in the following T-accounts to prepare the balance sheet for BOLOGNA Company for the year ended December 31, 2006. Cash (a) 84,000 12,000 (c) 15,000 (e) 57,000 Accounts Receivable (d) 25,500 Supplies (b) 800

Building (c) 70,000

Accounts Payable 800 (b)

Note Payable 58,000 (c)

Common Stock 84,000 (a)

Service Revenue 25,500 (d)

Salary Expense (e) 15,000

12. After preparing the balance sheet for BOLOGNA Company, what is the amount of total assets? a. $127,500 b. $153,300 c. $142,800 d. None of the above 13. After preparing the balance sheet for BOLOGNA Company, what is the amount of Retained Earnings? a. $9,700 b. $94,500 c. $58,800 d. 10,500 SUNDAY Company had the following trial balance on December 31, 2006: Sunday Trial Balance December 31, 2006 Debit Cash Accounts receivable Notes receivable Land Accounts payable Note payable Common stock Service revenue Salary expense Advertising expense $ 56,500 20,000 5,000 80,000 $ 10,200 15,000 105,500 34,000 12,000 5,000 $178,500 Credit

$164,700

The following errors caused the trial balance of SUNDAY Company not to balance: I. Recorded a $2,000 debit to Note Payable as a debit to Note Receivable. II. Posted a $3,000 credit to Accounts Payable as $300. III. Recorded a cash revenue transaction by debiting Cash for $6,000 and crediting Accounts Receivable for $6,000.

IV. The Common Stock account is understated by $11,100. Prepare a corrected trial balance for SUNDAY as of December 31, 2006. All accounts have a normal balance. Answer questions 14 to 17. 14. After correcting the errors and preparing the new balance sheet for SUNDAY Company, what is the balance of Accounts Receivable? a. $20,000 b. $26,000 c. $14,000 d. None of the above 15. After correcting the errors and preparing the new balance sheet for SUNDAY Company, what is the total amount of current liabilities? a. $25,900 b. $25,200 c. $27,900 d. None of the above 16. After correcting the errors and preparing the new balance sheet for SUNDAY Company, what is the amount of net income? a. $122,500 b. $23,000 c. $17,000 d. None of the above 17. After correcting the errors and preparing the new balance sheet for SUNDAY Company, what is the total amount of the credit column of the trial balance? a. $178,500 b. $164,700 c. $182,500 d. $176,500 ***QUESTION 17 IS THE LAST QUESTION RELATED TO SUNDAY COMPANY*** Inventory data for TRIX Company for the month of October are as follows: Merchandise inventory, October 1 October 8 purchase October 15 purchase October 22 purchase October 29 purchase During the month of October, Williams sold 250 units. 18. What is the ending inventory balance for TRIX Company on October 31 using FIFO method? a. $3,500 b. $3,000 c. $3,250 d. None of the above 50 units at $150 each 50 units at $155 each 55 units at $160 each 60 units at $170 each 55 units at $175 each

19. What is the ending inventory balance for TRIX Company on October 31 using LIFO method? a. $3,500 b. $3,000 c. $3,250 d. None of the above 20. What is the ending inventory balance for TRIX Company on October 31 using Average-cost method? a. $3,500 b. $3,000 c. $3,250 d. None of the above The following information is available for CHALLENGE Company : Sales revenue Purchases (cost) Sales commissions Purchase discounts Sales discounts Purchase returns and allowances Sales returns and allowances Freight-in Freight-out Beginning inventory Ending inventory $280,000 200,000 9,000 8,000 7,000 4,300 2,500 800 700 10,000 9,150

21. What is the amount of net sales for CHALLENGE Company? a. $479,500 b. $278,500 c. $269,800 d. $270,500 22. What is the amount of net purchases for CHALLENGE Company? a. $213,100 b. $188,400 c. $188,500 d. $187,700 23. TWINS Company purchased furniture and fixtures on July 1, 2004, for a total cost of $65,000. Management estimated useful life at 15 years and residual value at $5,000. Straight-line depreciation is used and computed to the nearest whole month. TWINS Company year end is December 31. What is the adjusting entry for depreciation recorded by the company on December 31, 2004? a. Depreciation Expense Accumulated DepreciationOffice Equipment b. Depreciation Expense Accumulated DepreciationOffice Equipment c. Depreciation Expense ($65,000 $5,000)/15 x Accumulated DepreciationOffice Equipment a. None of the above 2,000 2,000 4,333 4,333 2,166 2,166

24. A company that uses the perpetual inventory method purchases inventory of $1,000 on account. A discount of 2% will be granted if payment is made in 10 days. Defective inventory of $200 is returned 2 days later. Which of the following entries would be made to record the payment for the inventory if the payment is made 20 days later? a. The accounting entry would be an $800 debit to Accounts payable and an $800 credit to Cash b. The accounting entry would be a $784 debit to Accounts payable, $16 debit to Inventory and a $800 credit to Cash c. The accounting entry would be a $16 debit to Inventory, a $800 debit to Accounts Payable and a &816 credit to Cash d. The accounting entry would be an $800 debit to Accounts Payable, a $16 credit to Inventory and a $784 credit to Cash. 25. Which of the following occurs when a company records accrued interest on a note payable? a. Interest expense is credited b. Note payable is credited c. Cash is debited d. Interest payable is credited 26. Which of the following is the type of account that represents taxes withheld from employees gross pay? a. Liability b. Expense c. Asset d. Contra asset The unadjusted trial balance for NIGHT & DAY Company appears below as of December 31, 2007. NIGHT & DAY Company Unadjusted Trial Balance December 31, 2007 Debit Cash Accounts receivable Prepaid insurance Supplies Equipment Accumulated depreciation-equipment Accounts payable Unearned service revenue Common stock Retained earnings Dividends Service revenue Salary expense Rent expense Advertising expense $35,300 16,000 5,000 1,500 20,000 $ 3,200 11,000 9,800 27,000 17,000 1,000 24,600 9,000 3,600 1,200 $92,600 Credit

$92,600

Additional data are as follows: I Supplies used during the current year amount to $700. II Accrued salaries on December 31, 2007, amount to $500. III Unearned service revenue earned during the year amounts to $3,500. IV Depreciation for the current year amounts to $2,000. V Prepaid insurance on hand on December 31, 2007, amounts to $800.

Based on the unadjusted trial balance and the additional data, prepare a balance sheet for NIGHT & DAY Company dated December 31, 2007. Answer questions 27 to 32. 6

27. At December 31, 2007 after adjustment, Supplies shows a balance of: a. $1,500 b. $700 c. $800 d. None of the above is correct 28. Total assets for NIGHT & DAY Company will be: a. $71,900 b. $67,600 c. $71,100 d. $67,700 29. Adjusting entry II (accrued salaries on December 31, 2007, amount to $500) will include a: a. credit to Salary expense b. debit to Salary payable c. credit to salary payable and debit to salary expense d. Adjustment entry is not needed 30. Which of the following statements is TRUE regarding NIGHT & DAY Company? a. After adjustments, Prepaid insurance will show a debit balance of $4,200 b. After adjustments, Unearned service revenue will have a credit balance of $6,300 c. After adjustments, Supplies will have a debit balance of $700 d. After adjustments, Salary Payable will have a debit balance of $500 31. The entry to record adjusting entry III for NIGHT & DAY Company would be: a. Unearned service revenue 3,500 Service revenue 3,500 b. Unearned service revenue 3,500 Cash 3,500 c. Service revenue 3,500 Cash 3,500 d. Service revenue 3,500 Unearned service revenue 3,500 32. If Prepaid Insurance account was not adjusted (Adjustment entry V): a. The income will be understated b. Expenses would be understated and assets would be overstated c. Expenses would be understated and liabilities overstated d. Expenses would be overstated and liabilities understated ***QUESTION 32 IS THE LAST QUESTION RELATED TO NIGHT AND DAY COMPANY***

33. Which of the following statements is TRUE? a. Freight-in, purchases returns and allowances, and purchases discounts all reduce the cost of goods sold b. Adjusting or closing entries for inventory are not required under the perpetual system c. A purchase allowance is a decrease in the cost of purchases because the purchaser returned goods to the supplier d. The FIFO method assigns the most recent inventory cost to expense 34. If liabilities increase by $120,000 during a given period and stockholders equity decreases $25,000 during the same period, assets must: a. decrease $145,000 b. increase $145,000 c. decrease $95,000 d. increase $95,000 34. Which financial statement must be prepared before the others? a. balance sheet b. statement of cash flows c. retained earnings statement d. income statement 35. Consider the following transactions: I. II. III. IV. a. b. c. d. Borrowed cash on a note payable, $50,000 Provided services on account, $6,000 Received cash from a customer as payment on account, $2,000 Received a utility bill, $1,500 (will be paid later)

Total liabilities would be:

$500 $50,000 $51,500 $58,500

36. The objectivity principle of accounting: a. maintains that each organization or section of an organization stands apart from other organizations and individuals b. ensures that accounting records and statements are based on the most reliable data available c. holds that the entity will remain in operation for the foreseeable future d. enables accountants to ignore the effect of inflation in the accounting records 37. Given the following data, what is the cost of goods sold? Beginning inventory Ending inventory Purchases a. b. c. d. $1,280,000 $1,300,000 $1,290,000 $1,210,000 $380,000 Purchases discounts $10,000 $340,000Freight-in $20,000 $1,250,000

38. For a company using LIFO, large purchases of inventory near the end of the year will: a. decrease gross profit b. increase the value of ending inventory c. increase income taxes paid d. All of these answers are correct. 39. The payment of an amount owed to a creditor would: a. increase assets b. increase liabilities c. decrease net income d. decrease liabilities 40. Which of the following transactions would increase assets? I. II. III. IV. a. b. c. d. Borrowed cash on a note payable, $50,000 Provided services on account, $6,000 Received cash from a customer as payment on account, $2,000 Received a utility bill, $500

I and II I and III I, II, and III All of these answers are correct.