Accounting Cycle
Short Description
ACCOUNTING CYCLE...
Description
Chapter 2—A Review of the Accounting Cycle
MULTIPLE CHICE
1. In an an accru accrual al acco account unting ing syste system m a. all acco account untss have have normal normal debi debitt balan balances ces.. b. a debit entry is recorded recorded on the left-hand side side of an account. c. liabilit liabilities, ies, owner's owner's capital, capital, and and dividends dividends all all have normal normal credit credit balances. balances. d. revenues revenues are record recorded ed only only when when cash is receiv received. ed. ANS !
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%. A common common busine business ss transa transactio ction n that that would would not affect affect the amount of owners' e&uity is a. signi signing ng a note note payabl payablee to purch purchase ase e&ui e&uipme pment. nt. b. payment of property taes. taes. c. billi billing ng of cust custome omers rs for for service servicess rendere rendered. d. d. paym paymen entt of of div divid iden ends ds.. ANS A
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(. )ailure )ailure to record record the epire epired d amount amount of prepaid prepaid rent rent epense epense would would a. unde unders rsta tate te ep epen ense se.. b. overstate net income. income. c. over overst stat atee owner owners' s' e&ui e&uity ty.. d. unde unders rsta tate te liab liabil ilit itie ies. s. ANS *
not
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+. "n #une (, (, a company paid (, (, for insuranc insurancee premiums premiums for the current current year and debited debited the amount to /repaid Insurance. At *ecember (1, the boo00eeper forgot to record the amount epired. he omission has the following effect on the financial statements prepared *ecember (1 a. overst overstate atess owners owners'' e&uity e&uity.. b. overstates assets. assets. c. unde unders rsta tate tess net net inco income me.. d. both oth 2a3 2a3 and and 2b3 2b3.. ANS *
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4. A char chartt of acco accoun unts ts is is a. a subs subsid idia iary ry led ledge gerr. b. a listing of all account account titles. c. a gene genera rall ledg ledger er.. d. a gen gener eral al 5our 5ourna nal. l. ANS !
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. 6hich of the following following criteria must be met met before an event should should be recorded recorded for accounting accounting purposes7 a. he even eventt must must be an arm's arm's-le -lengt ngth h transac transactio tion. n. b. he event must be repeatable repeatable in a future period. c. he even eventt must must be measur measurabl ablee in financ financial ial term terms. s. d. he event event must be disclo disclosed sed in in the reported reported footno footnotes. tes. ANS 8 "!# $" % 9. Ad5us Ad5ustin ting g entrie entriess normal normally ly invol involve ve
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a. b. c. d.
real real acc accou ount ntss onl only y. nominal accounts only only.. real real and and nomi nomina nall acc accou ount nts. s. liabi liabilit lity y accoun accounts ts only only..
ANS 8
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:. 6hich of the following following is an item that that is reportable reportable in the financial records of an enterprise7 a. he value value of goodwi goodwill ll earned earned through through busine business ss operati operations. ons. b. he value of human resources. resources. c. 8han 8hange gess in per perso sonn nnel el.. d. 8hange 8hangess in inven inventor tory y costin costing g method methods. s. ANS *
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;. he balance balance in in a deferred deferred revenue revenue account account represents represents an amount amount that is is ecord >ecord trans transact action ionss in in 5our 5ournal nals. s. b. >ecord closing entries. entries. c. Ad5us Ad5ustt the the gener general al ledg ledger er acco account unts. s. d. /ost /ost entrie entriess to gene general ral ledg ledger er accou accounts nts.. ANS !
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%
1+. A routine collection on a customer's account was recorded and posted as a debit to 8ash and a credit to Sales >evenue. he 5ournal entry to correct this error would be a. a debit to Sales >evenue and a credit to Accounts >eceivable. b. a debit to Sales >evenue and a credit to ?nearned >evenue. c. a debit to 8ash and a credit to Accounts >eceivable. d. a debit to Accounts >eceivable and a credit to Sales >evenue. ANS A
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14. An accrued epense can be described as an amount a. paid and matched with earnings for the current period. b. paid and not matched with earnings for the current period. c. not paid and not matched with earnings for the current period. d. not paid and matched with earnings for the current period. ANS *
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1. 6hich of the following errors will be detected when a trial balance is properly prepared7 a. An amount that was entered in the wrong account b. A transaction that was entered twice c. A transaction that had been omitted d. None of the above ANS *
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19. he premium on a two-year insurance policy epiring on #une (, %, was paid in total on #uly 1, %+. he original payment was debited to the insurance epense account. he appropriate 5ournal entry has been recorded on *ecember (1, %+. he balance in the prepaid asset account on *ecember (1, %+, should be a. the same as the original payment. b. higher than if the original payment had been initially debited to an asset account. c. lower than if the original payment had been initially debited to an asset account. d. the same as it would have been if the original payment had been initially debited to an asset account. ANS *
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1:. If an inventory account is understated at year end, the effect will be to a. overstate the net purchases. b. overstate the gross margin. c. overstate the cost of goods available for sale. d. overstate the cost of goods sold. ANS *
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1;. An ad5usting entry will not ta0e the format of which one of the following entries7 a. A debit to an epense account and a credit to an asset account. b. A debit to an epense account and a credit to a revenue account. c. A debit to an asset account and a credit to a revenue account. d. A debit to a liability account and a credit to a revenue account. ANS !
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%. he last step in the accounting cycle is to a. prepare a post-closing trial balance. b. 5ournali@e and post closing entries
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c. prepare financial statements. d. 5ournali@e and post ad5usting entries. ANS A
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%1. 6hich of the following is a. >evenues. b. ental Income for 1%, on *ecember 1, what necessary ad5ustment would be made on *ecember (17 (,000 a. Unearned Rental nco*e ............. b.
Rental nco*e .................... Rental nco*e ...................... Unearned Rental nco*e ...........
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(,000 (,000 (,000
c. d.
Unearned Rental nco*e ............. Rental nco*e .................... Rental nco*e ...................... Unearned Rental nco*e ...........
ANS A
",000 ",000 ",000 ",000
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+%. Ingle 8ompany paid 1%,; for a four-year insurance policy on September 1 and recorded the 1%,; as a debit to /repaid Insurance and a credit to 8ash. 6hat ad5usting entry should Ingle ma0e on *ecember (1, the end of the accounting period7 )!0 a. Pre+aid nsurance .................. b. c. d.
nsurance x+ense ................ nsurance x+ense .................. Pre+aid nsurance ................ nsurance x+ense .................. Pre+aid nsurance ................ Pre+aid nsurance .................. nsurance x+ense ................
ANS !
)!0 !,0)0 !,0)0 (,2-0 (,2-0 !!,))0 !!,))0
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+(. !annister Inc.'s fiscal year ended on November (, %+. he balance in the prepaid insurance account as of November (, %+, was (4,% 2before ad5ustment3 and consisted of the following policies /olicy Number
*ate of /urchase
*ate of ental Income. hompson reports on a calendar-year basis. he ad5ustment on *ecember (1 of the first year should be Rental nco*e ....................... !2,000 a. b. c. d.
Unearned Rental nco*e ............ Rental nco*e ....................... Unearned Rental nco*e ............ Unearned Rental nco*e .............. Rental nco*e .................... Unearned Rental nco*e .............. Rental nco*e ....................
ANS A
!2,000
2-,000 2-,000 !2,000 !2,000 2-,000 2-,000
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+. S0y 8ompany collected 1%,(4 in interest during %+. S0y showed 1,:4 in interest receivable on its *ecember (1, %+, balance sheet and 4,( on *ecember (1, %(. he interest revenue on the income statement for %+ was a. (,+4. b. :,;. c. 1%,(4. d. 1+,%. ANS !
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+9. "n September 1, %(, Star 8orp. issued a note payable to )ederal !an0 in the amount of +4,. he note had an interest rate of 1% percent and called for three e&ual annual principal payments of 14,. he first payment for interest and principal was made on September 1, %+. At *ecember (1, %+, Star should record accrued interest payable of a. 11,. b. 1%,. c. 1,4. d. 1:,. ANS !
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+:. he following balances have been ecerpted from
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