Practice Test Chapters 1, 2, 3

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1 Practice Test Chapters 1, 2, 3 Multiple Choice 1. Which of the following would not be considered an internal user of accounting data for the ABC Company? A. The President of the company B. Production Manager C. Merchandise inventory clerk D. President of the employee s labour union 2. Generally accepted accounting principles are A. income tax regulations B. guidelines that indicate how to report economic events C. theories that are based on physical laws of the universe D. principles that have been proven correct by academic researchers 3. A small neighbourhood salon that is operated by its owner would likely be organized as a: A. joint venture B. Partnership C. Corporation D. Proprietorship 4. An account has two sides called A. debit and credit B. asset and liability C.revenue and expense D. journal and ledger. 5. Under the revenue principle, revenue is recorded A. at the earliest acceptable time B. at the latest acceptable time. C. after it has been earned D. at the end of the accounting period. 6. A business has assets of $ and liabilities of $ How much is its owner s equity? A. $0 B. $ C. $ D. $ Posting is the process of transferring information from the A. journal to the trial balance B. ledger to the trial balance C. ledger to the financial statements D. journal to the ledger. 8. The purchase of office supplies on account will A. increase an asset, increase a liability B. increase an asset, increase owner s equity C. increase one asset, decrease another asset D. increase an asset, decrease a liability 9. A business has Cash of $3 000, Notes Payable of $2 500, Accounts Payable of $4 300, Service Revenue of $7 000, and Rent Expense of $ Based on this data, how much are total liabilities. A. $5 500 B. $6 800 C. $9 800 D. $ The adjusting entry to accrue salary expense is A. debit salary expense and credit cash B. debit salary payable and credit salary expense

2 C. debit salary payable and credit cash D. debit salary expense and credit salary payable Short Answer Qs BE s Ex s Ch 1 4,10 nil 15 Ch2 6,8 nil nil CH3 3,8,9,21 5,8 4 Short Answer Questions What uses of financial accounting information are made by the following external users: (a) investors and (b) creditors? 1. Investors use the financial accounting information to evaluate a company s performance. They would look for answers to questions such as Is the company earning satisfactory income? (b) Creditors use financial accounting information to evaluate a company s credit risk. They look for answers to question like Can the company pay its debts as they come due? What are the three basic forms of business organization for profit-oriented enterprises? The three basic forms of business organizations are (1) proprietorship, (2) partnership, and (3) corporation What is the normal balance for each of the following accounts? (a) Accounts Receivable (e) Revenue (b) Cash (f) Salaries Expense (c) Drawings (g) Capital (d) Accounts Payable (h) Mortgage 06. (a) Accounts Receivable debit balance. (b) Cash debit balance. (c) Owner's Drawings debit balance. (d) Accounts Payable credit balance. (e) Service Revenue credit balance. (f) Salaries Expense debit balance. (g) Owner's Capital credit balance. (h) Mortgage credit balance For each of the following transactions, indicate the account debited and the account credited: (a) Supplies are purchased on account (b) Cash is received from signing a note payable (c) Employees are paid salaries in cash (a) Debit Supplies and credit Accounts Payable.

3 (b) Debit Cash and credit Notes Payable. (c) Debit Salaries Expense and credit Cash Dewey Cheethem, a lawyer, accepts a legal engagement in March, performs the work in April, and is paid in May. If Cheetham s law firm prepares monthly financial statements, when should it recognize this revenue? Why? The law firm should recognize the revenue in April. The revenue recognition principle states that revenue should be recognized in the accounting period in which it is earned (i.e., when the work is done) Why might a trial balance not contain up-to-date and complete financial information? A trial balance may not contain up-to-date information for financial statements because: 1. Some events are not journalized daily because it is unnecessary and inefficient to do so. 2. The expiration of some costs occurs with the passage of time rather than as a result of recurring daily transactions. 3. Some items may be unrecorded because the transaction data are not known Distinguish among the three categories of adjusting entries, and identify the types of adjustments applicable to each category. Prepayments Prepaid Expenses (DR expense CR asset) Unearned Revenues(DR liability CR revenue) Accruals Accrued Revenues, (DR asset CR revenue) Accrued Expenses(DR expense CR liability) Estimates - Amortization(DR amort exp CR acc amort) notes Ill One half of the adjusting entry is given below. Indicate the account title for the other half of the entry. (a) Salaries Expense debited (b) Amortization Expense debite (c) Interest Payable credited (d) Supplies is credited (e) Accounts Receivable is debited (f) Unearned Revenue is debited (a) Salaries Payable is credited. (b) Accumulated Amortization is credited. (c) Interest Expense is debited. (d) Supplies Expense is debited. (e) Service Revenue is credited.

4 (f) Service Revenue is credited. Application Problems E Prepare in Income Statement for October 201o for Atlantic Cruise Company. The accounts are as follows: Maintenance Expense 80,000; Property tax expense 10,000; Salaries Expense 142,000; Advertising Expense 3,500; Ticket Revenue 325,000; Operating Expenses 20,500. EXERCISE 1-15 ATLANTIC CRUISE COMPANY Income Statement For the Month Ended October 31, 2010 Revenues Ticket revenue... $325,000 Expenses Salaries expense... $142,000 Maintenance expense... 80,000 Food, fuel and other operating expenses... 20,500 Property tax expense... 10,000 Advertising expense... 3,500 Total expenses ,000 Net income... $ 69,000 E Selected accounts for Rust-Eze are shown below: Supplies Expense Salaries Payable Supplies 7/ /31 1,200 7/1 Bal. 1,100 7/ / Unearned Revenue Accounts Receivable Service Revenue 7/ /1 Bal. 1,500 7/1 Bal /14 3,000 7/ / / / Salaries Expense 7/15 1,200 7/31 1,200 After analyzing the accounts, journalize (a) the July transactions, and (b) the adjusting entries that were made on July 31. All July transactions were for cash. EXERCISE 3-4 (a) July 10 Supplies Cash

5 14 Cash... 3,000 Service Revenue... 3, Salaries Expense... 1,200 Cash... 1, Cash Unearned Service Revenue (b) July 31 Supplies Expense Supplies Accounts Receivable Service Revenue Salaries Expense... 1,200 Salaries Payable... 1, Unearned Service Revenue Service Revenue

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